Provisions of s. 80IB(10) of the Act not subscribed that assessee was required to begin the construction work after obtaining approval from local authorities
DCIT Vs. Akshay Eminence Developers Pvt. Ltd. (ITAT Bangalore) - The provisions of s. 80IB(10) of the Act have not subscribed that the assessee was required to begin the construction work after obtaining the approval from the local authorities and that before getting such approval if the assessee begins the construction work, such construction was not recognized. What really matter here is the date of approval of the plan, but, not the date on which it was communicated?
IN THE INCOME TAX APPELLATE TRIBUNAL
“A” BENCH : BANGALORE
ITA Nos. 387, 388 & 822/Bang/2010
Assessment years : 2005-06 to 2007-08
The Deputy Commissioner of Income Tax, Vs. M/s. Akshay Eminence Developers Pvt. Ltd.
O R D E R
Per A. Mohan Alankamony, Accountant Member
These three appeals of the Revenue are directed against the impugned orders of the Ld. CIT (A)-I, Bangalore in ITA No.256/AC¬11 (1)/CIT(A)-I/07-08, No.194/DC-1 1 (1)/CIT(A)-I/08-09 & No. 21 1/DC-11(1)/CIT(A)-I/09-10 dated 14.12.2009, 15.12.2009 and 6.4.2010 for the assessment years 2005-06, 2006-07 and 2007-08 respectively in the case of M/s. Askshay Eminence Developers Pvt. Limited.
I. ITA No.387/10 – A.Y 2005-06:
2. Though the Revenue has raised five grounds in its grounds of appeal, the crux of the matter is confined to a lone issue that –
(i) the Ld. CIT (A) had erred in holding that deduction u/s 80-IB (10) was allowable without appreciating that the conditions laid down in s.80IB (10) were not fulfilled by the assessee.
II. ITA No.388 & 822/10 – A.Y 2006-07 & 2007-08:
2.1. For these A.Ys too, the Revenue has raised almost identical grounds, however, the essence of the issue is that –
(i) the Ld. CIT (A) had erred in holding that deduction u/s 80-IB (10) was allowable without appreciating that the assessee had failed to furnish the relevant details and evidence in support of such claim;.
3. As the issues raised in these appeals are identical in nature pertaining to the same assessee company, for the sake of convenience and clarity, these appeals were heard, considered and disposed off in this common order.
4. Briefly stated, the assessee company [‘the assessee’ henceforth] being builders and developers had furnished its return of income for the AY 2005-06 by claiming Rs.38.75 lakhs as deduction u/s 80IB of the Act. After due consideration of the assessee’s explanation as recorded in the impugned order, the Ld. AO had turned down the assessee’s claim for deduction u/s 80IB on the grounds that –
(i) the project was approved for construction w.e.f. 4.4.2005 by the local authorities; that the assessee was required to being the construction only after obtaining the approval from the local authorities and that if the assessee begun the construction work which was not recognized u/s 80IB (10) of the Act;
(ii) the assessee ’s claim that the work was commenced in anticipation of the approval of the plan cannot be taken as a reason as deduction u/s 80IB cannot be claimed on the basis of anticipation of approval.
4.1. For the AY 2006-07, the Ld. AO did deny the claim of deduction u/s 80IB(10) of the Act, according to the Ld. AO, due to non-production of proof of claiming deduction and for the AY 2007-08, the claim of deduction u/s 80IB (10) of the Act was denied on the ground that –
The project for construction was approved by the local authorities only w.e.f. 4.4.2005 and the assessee was required to being the construction work after obtaining the approval from the local authorities and if project construction work was commenced, such project is not recognized u/s 80IB (10) of the Act; and if such work was carried out on or before the approval is not recognized u/s 80IB (10) of the Act and the profit earned on the whole project does not entitle for exemption;
5. Aggrieved, the assessee took up the issues for all the AYs under challenge with the Ld. CIT (A) for solace. The Ld. CIT (A) had, after due consideration of the assessee’s version as well as the remand report of the Ld. A.O and the rejoinder of the assessee, in a concurrent view for all the AYs under challenge, observed thus –
“6. The basic issue involved is what is the date of approval, i.e., 4.4.2005 (AY 2006-07) or 28.3.2005 (AY 2005-06)? Or alternatively, will the date of approval be reckoned from the date of application for approval i.e., 8.10.2004 i.e., AY 2005-06?
7. it has nowhere been doubted by the AO that the approval was not genuine or it was not there. He only emphasizes that the communication letter showing the approval dated 4.4.2005 be considered as the date of approval and, therefore, the claim u/s 80IB is not allowable. However, A.R’s argument is two pronged. He points out that the communication letter dated 4.4.2005 only a communication while the approval of the Commissioner had already been given on 28.3.2005 in No.9934 for construction of ground floor plus 12 upper floors of residence Vianapura village, K.R.PURAM Hobli 1st Stage, Bangalore, in survey No.85(P) and 86(P). in view of this factual position, I have no other go but to allow the claim of apparent (sic) appellant u/s 80IB of I. T. Act. However, I also agree with the legal exposition of AR that section 80IB only speaks of approval and prescribes time limit for completion of the project and is specifically silent about treating the date of approval as the date of commencement of the project. Interpreting the specific absence of such a clause, the Bombay High Court in the case of CIT v. Radomir Dzelatovie (1994) 206 ITR 320 has held that the appellant could not be denied the benefit of the exemption for the delay on the part of the Central Government and once the approval was accorded, it relates back to the date of application and, accordingly, the appellant was entitled to the exemption admissible under the Act. Thus, legally also the appeal deserves to be allowed.
7.1. From the angle of practicality also, a prudent businessman will not keep his own or borrowed funds idle without using the same in commencement of construction of housing project/building waiting for the approval of the apposite authority for a long period when there is no specific provision that after a lapse of such period from the date of application, the approval is deemed to have been given.”
6. Disillusioned with the findings of the Ld. CIT (A) referred supra, the Revenue has come up with the present appeals. It was the case of the Revenue that (i) deduction u/s 80IB (10) of the Act was not allowable when the conditions laid down in s.80IB (10) were not fulfilled; (ii) as the approval for the project itself was given only on 4.4.2005, deduction was not allowable for the AY 2005-06 (iii) the deduction was not allowable as the assessee had failed to furnish the relevant details and evidence in support of the claim during the course of assessment proceedings for the AY 2006-07; and (iv) the deduction was not allowable for the AY 2007-08 as the approval for the project was given on 4.4.2005 while the project itself had already commenced on 3.8.2004 which was much earlier to the approval for construction given by the local authorities. The Ld. D R had, therefore, pleaded that the Ld. AOs have come to a conclusion judiciously that the assessee was not entitled to claim deduction u/s 80IB (10) of the Act, however, the Ld. CIT (A), on the other hand, without appreciating the well deserved reasons recorded in the respective assessment orders, had decided the issues in favour of the assessee. It was, therefore, fervently submitted that the impugned orders of the first appellate authority require to be annulled.
6.1. On the other hand, the Ld. A R was passionate in his urge that since the Ld. CIT (A) took a stand with judicial backing which requires no intervention by this Bench at this juncture.
7. We have carefully examined the rival submissions, diligently perused the relevant case records and also the case laws on which either party had placed unstinted faith.
7.1. It was an undisputed fact that the assessee had furnished an application with supporting necessary documents to the local authorities, namely, Bangalore Development Authority (BDA) on 8.10.2004 seeking approval of the housing project. The Commissioner, BDA, being the competent authority vide his order No.9934 dated 28.3.2005 had granted the approval of the housing project as evidenced by the communication of the BDA dated: 4.4.2005. However, the Revenue took a divergent view that once the work carried out on or before the approval is not recognized u/s 80IB (10) of the Act and, thus, the profit earned on this contract work does not entitle for exemption u/s 80IB (10) of the Act. However, the provisions of s.80IB (1 0)(a)(ii) of the Act subscribe that –
“(ii) in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004, within four years from the end of the financial year in which the housing project is approved by the local authority,”
the amount of deduction shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project.
7.2. The provisions of s. 80IB (10) of the Act have not subscribed that the assessee was required to begin the construction work after obtaining the approval from the local authorities and that before getting such approval if the assessee begins the construction work, such construction was not recognized under the said section as fortified by the Ld. AO. It was an undeniable fact that the assessee had, in fact, sought approval of the competent authority, namely, BDA, vide its application dated 8.10.2004 which was duly acknowledged by the BDA in its communication dated 4.4.2005 and also it was a fact that the Commissioner, BDA had approved the plan on 28.3.2005 vide No.9934. This fact has not been contradicted by the Revenue either. The Revenue has been clinging only on the point that the project was approved for construction w.e.f. 4.4.2005. Nonetheless, the approval was accorded by the competent authority -Commissioner, BDA – on 28.3.2005 itself vide No.9934 which was, of course, communicated on 4.4.2005. What really matter here is the date of approval of the plan, but, not the date on which it was communicated? In this connection, it is worthwhile to recall the judicial pronouncements on similar issues.
(i) The Hon’ble Bombay High Court in the case of CIT v. Bhaichand Amoluk Consultancy Pvt. Ltd. (1994) 208 ITR 01 (Bom) had ruled thus -
“It is also clear from the fact that the application for approval could be made to the Board any time before the first day of October of the assessment year in relation to which the approval is first sought. Thus the application can be filed much after the end of the previous year during which the services were rendered. Once the agreement is approved by the Board, the assessee is entitled to get the benefit of deduction under section 80-O of the Act. It is not open to the income-tax or any other authority under the Act to go into the correctness of the order of approval because none of them acts as an appellate authority over the Board in the matter of grant of approval. The Income-tax Officer is bound to accept the approval accorded to the agreement by the Board on its face value and to act accordingly. In the instant case, the Income-tax Officer and the Commissioner of Income-tax (Appeals) did just the contrary. The Tribunal was, therefore, justified in reversing their orders and accepting the claim of the assessee for relief under section 80-O of the Act. We do not find any infirmity in the above action of the Tribunal.”
(ii) Yet another ruling the Hon’ble Bombay High Court in the case of CIT v. Radomir Dzelatovic reported in (1994) 206 ITR 320 (Bom) on a similar issue, ruled that -
“The Tribunal was of the opinion that everything was done by the employer of the assessee well within time. The delay in granting approval was for no fault of theirs. The approval, once accorded, should relate back to the date of application. The Tribunal, therefore, held that the assessee was entitled to the benefit. The assessee cannot be denied the benefit on account of delay on the part of the Central Government in according approval when the employer had done everything necessary.
We have heard counsel for the parties. We have carefully considered the facts of the case. We are of the clear opinion that the assessee being eligible to get the benefit of exemption under section 10(6)(viia)(I)(B) of the Act and the employer of the assessee having complied with all the requirements laid down in the Act for that purpose, the benefit cannot be denied to him because of delay on the part of the Central Government in according approval. In such cases the approval, once accorded, has to relate back to the date of the application. It is the only just and reasonable interpretation that can be given to such a provision.
We are, therefore, of the clear opinion that the Tribunal was justified in holding that the assessee was entitled to relief under section 10(6)(viia)(I)(B) of the Act for the assessment year 1975-76. We, therefore, answer the question in the affirmative, i.e., in favour of the assessee and against the Revenue.”
7.2.1. With due respects, we have perused the ruling of the Hon’ble Bombay High Court cited supra and of the unanimous view that ratios laid down by the Hon’ble Court are directly applicable to the facts of the issue on hand.
7.2.2. In view of the facts and circumstances of the issue as deliberated upon in the fore-going paragraphs and also in conformity with the rulings of the Hon’ble Court referred above, we find that the Ld. CIT(A) was fully justified in his endevaour that the assessee was entitled to deduction u/s 80IB (10) of the Act for the assessment years under challenge. It is ordered accordingly.
7.3. Before parting with, we would like to point out that we have duly perused the case law on which the Ld. D R had placed her faith i.e., in the case of CIT v. Brahma Associates reported in (2011) 239 CTR (Bom) 30 and record our view that the case law relied on by the Revenue cannot come to its rescue as the issue dealt by the Hon’ble Court is clearly distinguishable to the issue on hand.
8. In the result, the Revenue’s appeal for all the assessment years under challenge are dismissed.
Pronounced in the open court on this 22nd day of June, 2011.