Deduction U/S 80-IB cannot be denied merely for variance of actual construction with approved Plan

CIT  Vs. M/s. C. N. Builders & Developers (Bombay High Court)

Mr. Tejveer Singh, learned Advocate appearing for the Revenue in support of these Appeals would submit that the Commissioner of   Income Tax (Appeals) has assumed that if construction is as per the Development Control Rules (DCR), but not as per the approved plan, then it is not a violation of Section 80­IB (10) and the assessee is entitled to deduction. Thus, the construction may not be in accordance with the approved plan, but so long as it does not contravene the DCR, the benefit cannot be denied. However, the Commissioner failed to appreciate that DCR and approved construction plan are two separate requirements to be fulfilled and just because construction is in accordance with the DCR does not mean that the construction is as per the approved plan.

Income Tax Appeal No. 1688 of 2014 raises a question of law which is treated by this Court as substantial, but pertaining to a deduction under Section 80­IC of the Income Tax Act. There, the Tribunal had held that the dis allowance was not  justified

FULL TEXT OF THE HIGH COURT JUDGMENT / ORDER IS AS FOLLOWS:-

1. In view of the earlier order and the submissions before the Hon’ble Chief Justice, the Appeals have been placed before us.

2. In Income Tax Appeal No. 1779 of 2014, the   Revenue challenges the order of the Income Tax Appellate Tribunal (‘ITAT’ for short), Mumbai, dated 31st January, 2014 in Income Tax Appeal No. 3131/Ahd/2010. The assessment year is 2007­-2008. The following two questions are proposed as substantial questions of law:

“(i) Whether on law and on facts and in the circumstances of the case, the Ld. ITAT was justified in concurring with the CIT(A) that all the conditions for claiming deduction u/s. 80IB (10) of the Act have been met without appreciating the fact that the CIT(A) has accepted that the size of the plot on which the project has been constructed to be of more than one acre without there being a proper sub­division?

(ii) Whether on law and on facts and in the circumstances of the case, the Hon’ble ITAT was justified in holding that the assessee firm is eligible for deduction u/s. 80IB(10) of the I.T. Act amounting to Rs. 81,54,803/­ without appreciating the fact that the entire arrangement is clearly a subterfuge to derive undue benefit under section 80IB of the I.T. Act?”

3. In Income Tax Appeal No. 7 of 2015, the ITAT order of the same date for the assessment year 2005­-2006 has been challenged and three questions are proposed as substantial questions of law. These three questions read as under:

“1) Whether on law and on facts and in the circumstances of the case, the Ld. ITAT was justified in concurring with the CIT(A) that all the conditions for claiming deduction u/s. 80IB (10)of the Act have  been met without appreciating the fact that the CIT(A) has accepted that the size of the plot on which the project has been constructed to be of more than one acre without there being a proper sub­division?

2) Whether on law and on facts and in the circumstances of the case, the Hon’ble ITAT was justified in holding that the assessee firm is eligible for deduction u/s. 80IB (10) of the I.T. Act   amounting to Rs. 42,57,600/­ without appreciating the fact that the entire arrangement is clearly a subterfuge to derive undue benefit under section 80IB of the I.T. Act?

3) Whether on facts and circumstances of the case and in Law, the Hon’ble ITAT was justified in holding that the provisions of section 40(a)(ia) is not applicable in the case of the assessee firm as the income of the firm would be deductible u/s.80IB(10) of the Act and that the same is in the nature of reimbursement of expenses Without appreciating the fact that the firm  is not eligible for deduction u/s.80IB(10) and that the payment is covered by provisions of section 194C of the Act?”

4. In Income Tax Appeal No. 44 of 2015 for the assessment year 2006-­2007, same questions are proposed as substantial questions of law arising out of the ITAT order of the same date,but for the assessment year 2006­-2007.

5. We  would  take  the  facts  from  the  memo of Income Tax Appeal No. 1779 of 2014. The respondent builder is a partnership firm engaged in the business of building construction and development. It undertook construction of buildings B, C and D of a project called “Gurudev Complex­ Phase III” which has approval for nine buildings and claimed the benefit of Section 80­IB of the Income Tax Act. The Assessing Officer however held that the assessee was not eligible for that deduction as the construction is not as per the approved plan, the approved plan has commercial area more than 2000 sq. ft. and the project was not completed by 31^st March, 2008, in the sense, the final completion certificate was not received. The land was not in the name of the assessee and the approval was also not in the assessee’s name. The area will be less than one acre if only the construction of buildings B, C and D is considered. It is in these circumstances that deduction was denied. The dis allowance was made and a sum of Rs. 81,54,800/­ was added to the total  income of the assessee. An order was passed by the Assessing Officer, copy of which is annexure “A”, and aggrieved by that, an Appeal was preferred before the Commissioner of Income Tax (Appeals), Valsad. On 21^st July, 2010, the said Commissioner allowed this deduction against which the Revenue preferred an Appeal to the Tribunal, but the Tribunal dismissed the Revenue’s Appeal holding that the Commissioner took into consideration the records. He relied upon a consolidated order dated 29th May, 2009 passed by his predecessor and found that on facts, the same view deserves to be taken. He, therefore, followed his predecessor’s view on facts. Then, before the Tribunal, the assessee supported this conclusion by contending that the Commissioner has examined the issue thoroughly and after  seeking a remand report from the Assessing  Officer on various occasions. The Tribunal had already held in the case of Saroj Sales Organization vs. Income Tax Officer that such a claim for deduction is admissible. That decision applies with full force. The Tribunal then held that the Assessing Officer’s reasons for dis allowance cannot be sustained and in holding that it did not agree with the Revenue that the decision in the case of Saroj Sales Organization was wrongly   followed and applied by the Commissioner. The Tribunal followed and applied the decision of the Hon’ble Madras High Court in the case of Viswas Promoters Pvt. Ltd. vs. Assistant Commissioner of Income Tax, reported in (2013) 255 CTR (Mad) 149. The Tribunal also held that the facts being identical, the assessee should not be denied the benefit.

6. It is aggrieved by this order of the Tribunal that the Revenue has brought these Appeals.

7. During pendency of these Appeals, we had an occasion to deal with several Appeals of the Revenue on the point. The common questions in Income Tax Appeal Nos. 441, 444, 452, 479, 489 and 500 of 2015 were somewhat identical to the questions proposed in the present Appeals by the Revenue. In the detailed judgment and order delivered on 25^th September, 2017, we had dismissed the Revenue’s Appeals.

8. Ordinarily, we would have expected the Revenue to concede the point as the detailed judgment of this Court in the batch of the Appeals referred above squarely applies to the facts of this case.

9. However, Mr. Tejveer Singh, learned Advocate appearing for the Revenue in support of these Appeals would submit that the Commissioner of   Income Tax (Appeals) has assumed that if construction is as per the Development Control Rules (DCR), but not as per the approved plan, then it is not a violation of Section 80­IB (10) and the assessee is entitled to deduction. Thus, the construction may not be in accordance with the approved plan, but so long as it does not contravene the DCR, the benefit cannot be denied. However, the Commissioner failed to appreciate that DCR and approved construction plan are two separate requirements to be fulfilled and just because construction is in accordance with the DCR does not mean that the construction is as per the approved plan.

10. Mr. Tejveer Singh submits that as far as the provisions of Section 40(a)(ia) are concerned, they are not applicable to the case of the respondent assessee as the income of the firm would be deductible under Section 80­IB (10) of the Act and that the same is in the nature of reimbursement of expenses. If the firm is not eligible for deduction under Section 80­IB (10) of the Act, then that payment is covered by the provisions of Section 194C of the Act. In that regard, he places reliance upon an order dated 12th July, 2017 passed in Income Tax Appeal No.1688 of 2014 (The Commissioner of Income Tax­ II, Pune vs. M/s. Lipid Technologies, Pune) in which such a question has been admitted.

11. On both counts, we are not in agreement with Mr. Tejveer Singh. Income Tax Appeal No. 1688 of 2014 raises a question of law which is treated by this Court as substantial, but pertaining to a deduction under Section 80­IC of the Income Tax Act. There, the Tribunal had held that the dis allowance was not  justified. The Revenue complained that the Tribunal was not justified and failed to appreciate that this dis allowance under Section   40(a)(ia) cannot be regarded as increase in profit of the assessee’s business on which deduction under Section 80­IC would be allowable. In the opinion of the Revenue, that amount has already been expended. We do not see how such a question arises in these Appeals. We have already held above that the  substantial questions of law in these Appeals revolve around interpretation of Section 80­IB(10) of the Income Tax Act. We see no justification, therefore, for the Revenue seeking assistance of an order of admission in a distinct case (M/s. Lipid Technologies) (supra). Therefore, Mr. Tejveer Singh’s contentions with regard to this order being applicable to the facts of the present case deserve to be rejected. The contentions are therefore rejected.

12. As far as the questions proposed by the Revenue in all these Appeals are concerned, on a perusal of the orders under challenge, we are of the firm view that all of them have by now been dealt with and repeatedly by this Court. The judgments in The cases prior to our judgment take care of all  these issues. Before us, in those matters, an attempt was made by the Revenue to distinguish those judgments, but we have not accepted these arguments. Hence, following our judgment in Income Tax Appeal No. 441 of 2015 and other connected Appeals dated 25th September, 2017, we dismiss each of these Appeals. They are dismissed without any order as to costs.