2015-VIL-1054-ITAT-HYD
Equivalent Citation: [2015] 43 ITR (Trib) 340 (ITAT [Hyd])
Income Tax Appellate Tribunal HYDERABAD
ITA Nos. 01 and 02/Hyd/2015
Date: 26.08.2015
VERTEX HOMES PVT. LTD.
Vs
DY. COMMISSIONER OF INCOMETAX, CIRCLE â 3 (3) , HYDERABAD
For The Assessee Shri V. Raghavendra Rao
For The Revenue Shri Prabhat Kumar Gupta
BENCH
SHRI P.M. JAGTAP AND SHRI SAKTIJIT DEY, JJ.
JUDGMENT
PER SAKTIJIT DEY, J.M.:
These appeals by assessee are directed against separate orders, both, dated 07/11/2014 of ld. Commissioner of Income-tax (A) –IV, Hyderabad for AYs 2010-11 and 2011-12.
2. The solitary issue arising for consideration in both the appeals is related to denial of assessee’s claim of deduction u/s 80IB(10) of the Act.
3. As facts are common in both the appeals, for the sake of convenience we will refer to the facts as involved in AY 2010-11 being ITA No. 01/Hyd/2015.
4. Briefly the facts are, assessee a company is engaged in the business of construction of residential apartments/housing projects. For the AY under consideration, assessee filed its return of income on 28/09/2010, declaring total income of Rs. 42,99,135 after claiming deduction u/s 80IB(10) for an amount of Rs. 38,74,435 in respect of its housing project named Vertex Sadguru Krupa situated at Survey Nos. Part 76/B and 77/B, Hydernagar Village, Nizampet Road, Hyderabad. During the assessment proceeding, AO while examining assessee’s claim of deduction u/s 80IB(10), found from the information available on record that though assessee claimed to have acquired land in Survey No. Part 76/B and 77/B, Hydernagar Village, Nizampet Road, Hyderabad, from some persons, but, lands were never acquired by assessee company, but, they were taken for execution of works contract on lease basis through an agreement of sale-cum-GPA only. Thus, it was inferred by AO that as per the amended provisions of section 80IB(10), deduction cannot be allowed wherein assessee executes housing project as a works contract awarded by any person including the state or central govt. He also noted that though assessee had also executed some other housing projects, but, except housing project named Vertex Sadugur Krupa, assessee has not claimed 80IB(10) deduction in respect of other housing projects. He observed that assessee has shown relatively high profit percentage of 8.81 in respect of Sadguru Krupa compared to other projects. On the basis of the aforesaid reasoning, AO disallowed assessee’s claim of deduction u/s 80IB(10). Being aggrieved of disallowance of claim of deduction u/s 80IB(10), assessee challenged the same in appeal preferred before ld. CIT(A).
5. Assessee contesting the ground on which AO disallowed assessee’s claim of deduction u/s 80IB(10) advanced detailed argument. Ld. CIT(A) after considering the submissions of assessee, found merit in the same while observing that reasonings on which AO denied assessee’s claim of deduction u/s 80IB(10) are not valid. However, she found that housing project Sadguru Krupa was approved by municipal Commissioner, Kukatpally on 30/03/07, therefore, assessee was required to complete the project by 31/03/2011 i.e. within a period of four years for claiming deduction u/s 80IB(10). As observed by ld. CIT(A), in course of appeal proceeding when assessee was asked to furnish the completion certificate for the Sadguru Krupa project, assessee filed a partial completion certificate dated 31/12/2011 issued by GHMC wherein it was mentioned that out of six blocks in the project i.e. Block A to F, assessee has completed three blocks i.e. A, B & F with all amenities which are fit for occupation. From completion certificate issued by GHMC, ld. CIT(A) found that though the approval for the project was for construction of six residential blocks, which formed part of one single housing project, assessee has completed only three of the blocks. Referring to the provision contained u/s 80IB(10), ld. CIT(A) opined that the provision refers to approval of a housing project and it does not envisage for part of the housing project either in terms of plots or blocks thereof. She further opined that section 80IB(10)(a) refers to construction of the housing project and requires that assessee completes such construction within the specified period, hence, no benefit can be allowed on partial completion of the project. In this context, she referred to the CBDT Instruction No. 4/09 dated 30/06/09. She also placed reliance upon a decision of the ITAT, Hyderabad Bench in case of Sainath Estates Pvt. Ltd., in ITA No. 299-300/Hyd/12, dated 08/02/13 wherein it was held that furnishing of completion certificate in terms of section 80IB(10) is mandatory. Thus, ld. CIT(A) concluded that as assessee has not completed the entire housing project and the completion certificate is only for three blocks, assessee is not eligible for deduction u/s 80IB(10)/ She observed that even partial completion certificates was issued on 30/12/2011 whereas as per the provisions of section 80IB(10), the project should have been completed by 31/03/2011. Thus, on the aforesaid consideration, she disallowed assessee’s claim of deduction u/s 80IB(10).
6. Ld. AR submitted before us, none of the reasons on which AO disallowed assessee’s claim of deduction u/s 80IB(10) were found to be valid by ld. CIT(A). However, ld. CIT(A) found out a new reason in disallowing assessee’s claim of deduction u/s 80IB(10) by holding that as assessee has failed to furnish completion certificate for the entire project and only submitted a partial completion certificate it is not eligible for deduction u/s 80IB(10). Ld. AR submitted, approval granted by competent authority is for residential apartments and not any particular project. Ld. AR submitted, assessee has obtained permission to build six different blocks and the claim of deduction u/s 80IB(10) is restricted to three blocks which were fully complete and assessee has also submitted completion certificate from the municipal authorities. Therefore, assessee having complied to the conditions u/s 80IB(10) of the Act, it is eligible to claim deduction. Ld. AR further submitted, for a housing project approved after first april, 2005, it has to be completed within five years from the end of the FY in which housing project is approved. He submitted, ld. CIT(A) has therefore completely erred while observing that assessee should have completed the project by 31/03/2011. Ld. AR submitted, assessee having completed three blocks with all amenities which covers an area of more than one acre and as the built up area of each residential unit is not exceeding 1500 sq.ft., it is eligible for claiming deduction u/s 80IB(10). He submitted, only because some other blocks in the housing project have not been completed, it will not disentitle assessee from availing deduction u/s 80IB(10) for the residential buildings which were completed within the stipulated period. In support of such contention, ld. AR relied upon the following decisions:
1. Rahul Construction Co Vs. ITO, [2012] 21 Taxman.com 435
2. CIT Vs. B.M. & Brothers, [2014] 42 taxman.com 24 (Guj)
3. CIT Vs. Vandana properties, 35 ITR 36 (Bom.)
7. Ld. DR, on the other hand, submitted, housing project of assessee approved by the local authority consists of six blocks, whereas, assessee has submitted completion certificate in respect of three blocks. Therefore, since construction of the entire housing project i.e. six blocks have not been completed, assessee is not eligible to avail deduction u/s 80IB(10). Ld. DR referring to the provision contained u/s 80IB(10) submitted, assessee has to complete entire housing project within the stipulated time of five years. As assessee has not completed the entire housing project and has completed only part of it, assessee is not eligible for deduction u/s 80IB(10).
8. We have considered the submissions of the parties and perused the orders of revenue authorities as well as other material on record. There is no dispute to the fact that housing project of assessee consisting of six blocks ( block A to F) was approved by local authority on 30/03/2007. Therefore, as per section 80IB(10)(a)(iii), the project has to be completed within five years from the end of FY in which housing project was approved for claiming deduction u/s 80IB(10). In the present case, there is no dispute to the fact that within the stipulated period of five years, assessee has completed only three blocks i.e. Block A, B & F whereas the other three blocks C, D & E have not been completed. Assessee also admits this factual position. It is also a fact on record that in respect of block A, B & F, assessee has submitted a completion certificate from the municipal authorities certifying that these three blocks are complete in all respects with all amenities. In view of the aforesaid factual position, the issue which arises for consideration is whether assessee can claim deduction u/s 80IB(10) in respect of three blocks, which are fully complete. As could be seen, ld. CIT(A) has disallowed assessee’s claim of deduction solely on the basis that entire housing project has not been completed within the stipulated period. On a reference to provision as contained u/s 80IB(10), it is evident that assessee shall be eligible for 100% deduction of the profits derived in respect of a housing project subject to fulfillment of the conditions mentioned therein. In the present case, there is no dispute that block A, B & F comprises of area of more than 1 acre. There is also no dispute to the fact that none of the residential unit in the aforesaid three blocks is having a built up area in excess of 1500 sq.ft. It is also a fact on record that in respect of the aforesaid three blocks, assessee has submitted completion certificate from the municipal authorities. Thus, as far as blocks A, B & F are concerned, assessee fully satisfies the conditions for claiming deduction u/s 80IB(10). That being the case, we do not see any reason why assessee should be deprived of such benefit conferred by statute. Though, it may be a fact that assessee has not completed all the six blocks, but, in our view that will not deprive assessee from availing deduction u/s 80IB(10) in respect of each of the completed block on stand alone basis. The Hon’ble Bombay High Court in case of CIT Vs. Vandana Properties (supra) while referring to the term ‘housing project’ has observed that it has not been defined either u/s 2 of the Act or u/s 80IB(10), hence, it has to be understood as per common parlance. The Hon’ble Court observed that ‘housing project’ in common parlance would mean constructing a building or group of buildings consisting of several residential units. Therefore, deduction u/s 80IB(10) will be allowable even in respect of one building with several residential units, if it otherwise fulfills conditions of section 80IB(10). The ITAT, Pune Bench in case of Rahul Construction Co. Vs. ITO (supra), while deciding the dispute of identical nature, held as under:
“In the case of Saroj Sales Organisation (supra), before Mumbai Bench, almost similar facts as before us were there-. 'The commencement certificate in respect of six wings in Block 'N' was separately received by the assessee and all the flats in Block were less than 1000 sq.ft. It was held by the Tribunal that it is not upon to the revenue to include block 'BC' as part of block 'N' just to deny relief to the assessee u/s. 80 IB(10). The Tribunal observed that Block "BC" was meant for higher strata of the Society had been kept separately by assessee in all the respect, assessee had not claimed relief u/s. 80IB in respect of Block "BC". In the case of Mudhit Madanlal Gupta (supra) before the Mumbai Bench, it has been held that the housing project does not necessarily have to be various group of buildings constructed on that particular land, but it can also be a particular building or any building which is part of large project. It has been further held that whatever portion of the housing project is otherwise found to be eligible has to be considered as a housing project for the purpose of deduction u/s, 80 IB (10) of the Act. Similar view has been expressed by Mumbai Bench of the Tribunal in the case of Vandana Properties(supra).”
8.1 Thus, the principle which emerges from the aforesaid judicial precedents is, even a single building consisting of a number of residential units can be considered to be a housing project by itself, hence, will be eligible for deduction u/s 80IB(10), if it otherwise fulfills the conditions of section 80IB(10). Applying the aforesaid principles to the facts of the present case, it is very much evident that blocks A, B & F in respect of which assessee has claimed deduction u/s 80IB(10) are fulfilling all the conditions of the said provision. It is also a fact that municipal authorities have also issued completion certificate certifying that the buildings are complete in all respects. In the aforesaid view of the matter, assessee, since has fulfilled all conditions of section 80IB(10) in respect of blocks A, B & F, it is eligible for deduction u/s 80IB(10). Provisions of section 80IB(10) being beneficial in nature, too technical a approach, would defeat the purpose for which provision has been brought into the statute. Moreover, as far as ld. CIT(A)’s observation that the housing project should have been completed by 31/03/2011, we do not find the same to be acceptable. As assessee’s housing project has been approved after 1st April, 2005, the stipulated period within which assessee has to complete the project is five years. Assessee having completed blocks A, B & F within five years from the date of approval, in our view, it is eligible to claim deduction u/s 80IB(10) in respect of blocks A, B & F.
8.2 Though, in principle, we agree that assessee is eligible to claim deduction u/s 80IB(10) in respect of blocks A, B & F, however, the quantum of deduction has to be verified. As could be seen, assessee has been recognizing revenue from Sadguru Krupa project by following percentage completion method and project of the assessee has started in FY 2007-08. As it appears, assessee in the years under consideration i.e. AYs 2010-11 and 2011-12 has recognized revenue on percentage completion method and has also claimed deduction u/s 80IB(10) on that basis. Therefore, it is very much necessary and essential to verify whether deduction claimed in these two AYs is for the entire project (all six blocks) or only blocks A, B & F. Neither the AO has examined this aspect nor the assessee has brought any material on record to indicate that deduction claimed u/s 80IB(10) for these two years is only in respect of blocks A, B & F. When the assessee started the project in FY 2007-08, he could not have visualized that within the stipulated period of five years it can complete only three blocks. As the assessee is following percentage project completion method, it is quite possible that assessee might have recognized revenue and claimed deduction u/s 80IB(10) also in respect of blocks other than blocks A, B & F. In case, assessee has claimed deduction u/s 80IB(10) in respect of any block other than blocks A, B & F, such deduction has to be restricted only to the extent of profit attributable to blocks A, B & F.. While computing assessee’s claim of deduction u/s 80IB(10), AO has to examine this aspect. With the aforesaid observations, we set aside the impugned orders of ld. CIT(A) and remit the matter back to AO for deciding afresh keeping in view our direction hereinabove after due opportunity of being heard to assessee.
9. In the result, both the appeals of assessee are allowed for statistical purposes.
Pronounced in the open on 26th August, 2015.
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