Case Law Details

Case Name : Keerthi Estates (P.) Ltd. Vs Deputy Commissioner of Income-tax (ITAT Hyderabad)
Appeal Number : IT Appeal No. 478 (Hyd.) of 2011
Date of Judgement/Order : 21/09/2012
Related Assessment Year : 2007-08
Courts : All ITAT (4772) ITAT Hyderabad (278)

IN THE ITAT HYDERABAD BENCH ‘A’

Keerthi Estates (P.) Ltd.

Versus

Deputy Commissioner of Income-tax 

IT Appeal No. 478 (Hyd.) of 2011

[Assessment year 2007-08]

SEPTEMBER 21, 2012

ORDER

Chandra Poojari, Accountant Member 

This appeal by the assessee is directed against the order of the CIT(A), Vijayawada dated 31.1.2011 for assessment year 2007-08.

2. The grievance of the assessee in this appeal is with regard to denial to deduction u/s. 80IB(10) of the Act for want of completion certificate.

3. Brief facts of the issue are that the assessee claimed deduction u/s. 80IB(10) of Income-tax Act, 1961 at Rs. 1,99,35,869 and it was denied by the lower authorities for non-production of completion certificate of the project.

4. The learned AR submitted that there is no dispute regarding the fact that the assessee is engaged in construction of residential buildings and sale of flats. The housing project under the name of Keerthi Riviera situated at Bangalore at an area of more than one acre of land. The project was approved by the local authority on 1.4.2004 and due date for completion of the project was 31.3.2008. According to the Assessing Officer, the project is said to be completed on the date on which certificate of completion is issued by local authority. He submitted that the project was completed which is evident from the property assessment tax, water connection document, pollution control permission issued by the competent authority. He submitted that the Municipal Corporation of Bangalore has given distinctive number for each flat and all the flats were assessed to municipal tax. This is evidenced by the information furnished by 141 individual flat owners in assessee’s housing project. According to the AR non-production of completion certificate, which is technical in nature, cannot be a reason for denying deduction u/s. 80IB(10) of the Act. He submitted that section 80IB(10) is a beneficial provision and while granting deduction u/s. 80IB(10) a liberal view has to be taken.

5. He relied on the judgement of Supreme Court in the case of Guru Charan Singh v. Kamla Singh [1976] 2 SCC 152 wherein the apex court held that “it is well settled canon of construction that in construing the provisions of beneficial legislation, the court adopt constriction which advances, fulfils and furthers the object of the legislation rather than the one which would defeat the same and render the benefit illusory.

6. Further he relied on the judgement of Supreme Court in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188wherein it was held that a provision in a taxing statute granting incentives for promoting growth and development should be construed liberally. Since the provisions intended for promoting economic growth has to be interpreted liberally the restriction on it too has to be construed so as to advance the objective of the section and not to frustrate it.

7. Further he relied on the decision of Tribunal Mumbai Bench in the case of Hiranandani Akruti JV v. Dy. CIT [2010] 39 SOT 498. In this case the assessee submitted a proposal for slum rehabilitation and permission for carrying out development was accorded on 17-11-2003 and the project was completed in the A.Y. 2006-07. Assessee, following project completion method of accounting, claimed deduction under section 80-IB(10) from gross total income accrued from project. The Assessing Officer denied the deduction because as per provisions of section 80IB(10)(d) as applicable with effect from 1-4-2005, limit for having commercial space in housing projects was 5 per cent of total built-up area or 2,000 sq. ft., whichever was less and in the case of the assessee, total built-up area of commercial space in housing project exceeded 2.000 sq. ft. The Tribunal held that in view of decision in Saroj Sales Organisation v. ITO [2008] 115 TTJ 485 (Mum) law as it existed in assessment year 2004-05, when assessee submitted its proposal for slum rehabilitation and permission for carrying out development was accorded was to be applied.

8. On the other hand, the learned DR submitted that the only issue for adjudication is whether the assessee had completed the construction within the stipulated time and had filed the completion certificate as required under the relevant section. It is evident from the record that the Addl. CIT had concluded that the assessee had completed the housing project after examining the documentation placed before him. The same documentation has been produced during the appeal proceedings. The evidences include property assessment document, water connection documents, pollution control permission etc. On an examination of the notices issued by the Bangalore Mahanagar Palike (Municipal Corporation) in respect of 141 flat owners in the assessee’s housing project, it is seen that in the notices dated 17.1.2007 in response to the flat owners applications dated 1.12.2006 requesting for assessment and allotment of municipal numbers, the Municipal Corporation had issued notices for payment of the required taxes for the initial assessment. The relevant notice reads as under:

“with reference to the above Sri (applicant / flat owner) hereby informed that the Zonal Commissioner (east), Bangalore Mahanagara Palike, Bangalore, has approved the allotment of Municipal Numbers and Assessment in respect of newly constructed, Residential Apartment at Property No. 184 as detailed below …”

9. The DR submitted that proof of payment of taxes in certain cases has also been produced. From the above, it would appear that the applicants, being flat owners, had individually filed application before the Municipal Corporation for allotment of municipal numbers and assessment. The notice, as above, clearly indicates that the municipal numbers were being allotted in respect of newly constructed residential apartments.

10. The DR submitted that it is the claim of the learned Authorised Representative that the failure to file the completion certificate being purely technical in nature, should not be held against the assessee as the evidence produced clearly indicates that the project was completed within the stipulated time as per Sec. 80IB. While such an argument may be persuasive in nature, it may be stated that there is no dispute over the fact that the condition prescribed u/s. 80IB(10) has not been fulfilled by the assessee. Even though the argument that the assessee cannot be penalized for either the delay or non-issue of the completion certificate by the local authority appears to be reasonable, the assessee has not been able to produce any evidence that steps have been initiated by it to obtain the completion certificate from the competent authority. The assessee cannot abdicate its statutory obligation to produce a completion certificate for obtaining the benefit provided in Sec. 80IB by placing indirect circumstantial evidence. In such circumstances the specific provisions of Sec. 80IB(10) have not been complied with on account of non-furnishing of the completion certificate, the DR is of the view that rejection of assessee’s claim u/s. 80IB(10) by the Assessing Officer was not only but justified.

11. We have heard the rival submissions. As per provisions of section 80IB(10) Income-tax Act, 1961 an undertaking which develops and builds housing projects approved before 31.3.2007 by a local authority is eligible for deduction u/s. 80IB(10) subject to the following conditions:

(i)  In a case where the housing project has been approved by the Local Authority before 01-04-2004, the construction should be completed on or before 31-03-2008. In a case where the approval from Local Authority is obtained on or after 01-04-2004, the construction should be completed within 4 years from the end of the financial year in which the housing project is approved by the Local Authority.

(ii)  The housing project is constructed on a plot of land which has a minimum area of 1 acre.

(iii)  The residential units constructed in the housing project have a maximum built up area of 1500 sq. ft. where such units are situated in places other than Delhi or Mumbai.

(iv)  The built-up area of shops and other commercial establishments included in the housing projects does not exceed 5% of the aggregate built-up area of the housing project or 2000 sq. ft., whichever is less.

12. In the present case the assessee’s project is approved by local authority on 1.4.2004 and there is no dispute regarding this. However, the only dispute for denying deduction u/s. 80IB(10) is that there is no completion certificate furnished by the assessee for which its claim was denied. The meaning of “date of completion” has been given in Explanation (ii) to clause (a) to section 80IB(10). Date of completion of construction would mean date on which completion certificate in respect of housing project was issued by the local authority. To grant deduction u/s. 80IB(10) it is mandatory to furnish the completion certificate of the housing project but the persistent question here is whether for giving benefit of deduction u/s. 80IB(10), where an assessee is following the percentage completion method is it necessary to obtain such completion certificate for each year of assessee’s claim or it is sufficient that certificate is obtained on the completion of the housing project as a whole. Stipulation for obtaining completion certificate should not be so interpreted to mean that an assessee can claim exemption u/s. 80IB(10) only in the year of completion of whole of the housing project, even where the project stretches over a number of years and assessee returns its income based on percentage completion method. It would only mean that the assessee has to obtain such certificate on completion of the housing project, least it would lose the deduction already granted u/s. 80IB(10) for the earlier years if it is not so produced. As held by the Hon’ble Supreme Court in the case of Bajaj Tempo Ltd. (supra) a provision in the taxing statutes granting incentives for promoting growth and development of the nation should be construed liberally. When such liberal interpretation is to be given, the restriction placed in such provision granting the incentives also has to be considered so as to advance the objectives of the provisions and not to frustrate. Clause (a) of section 80IB(10) specifies that the development and construction of the project has to start on or before 1.4.2004 and the project has to be completed within four years from the end of the financial year in which approval for project was received from the local authority. Thus, a project can have a span of not more than 4 years from the end of the financial year it has received approval. Explanation under clause (a) only specified how to reckon the day of approval and date of completion. It would not mean that the assessee can have the benefit of section 80IB(10) only in the year of completion of the project, especially so, for an assessee not following project completion method for accounting its income. If otherwise interpreted, it would be equivalent to forcing an assessee to follow a particular method of accounting, which would never have been the intention of legislation. Intention would only have been that for the project as a whole, there should be certification from the relevant authority proving the commencement and completion, and not that a completion certificate should be there in every year of the project span. The certifications are for ensuring that the project span does not exceed the prescribed period and nothing more. Of course if such period exceeded the prescribed limit, Revenue would be well within its rights to withdraw the claims already allowed, following the procedure prescribed under the Act. Thus, the Assessing Officer cannot insist on the completion certificate in the impugned year. This view has also been taken by CBDT in its Instruction No. 4 of 2009 dt. 30.6.2009, paras 2 to 4 of which are reproduced hereunder:

“2. Clarifications have been sought by various Chief CITs on the issue whether the deduction under s. 80IB(10) would be available on a year-to-year basis where an assessee is showing profit on partial completion or if it would be available only in the year of completion of the project under s. 80-IB(10).

3. The above issue has been considered by the Board and it is clarified as under :

(a)  The deduction can be claimed on a year-to-year basis where the assessee is showing profit from partial completion of the project in every year.

(b)  In case it is late and it is found that the condition of completing the project within the specified time-limit of 4 years as stated in s. 80-IB(10) has not been satisfied, the deduction granted to the assessee in the earlier years should be withdrawn.

4. The above instruction will override earlier clarification on this issue contained in Member (R.)’s D.O. Letter No. 58/Misc/2008/CIT (IT & CT), dt. 29th April, 2008 and Member (IT)’s D.O. Letter No. 279/Misc/46/ 2008-ITJ dt. 2nd May, 2008.”

13. In the instant case, there is no dispute that the assessee has been following percentage completion method and also the assessee furnished the evidence in the form of property assessment document, water connection documents, pollution control permission etc. On an examination of the notices issued by the Bangalore Mahanagar Palike (Municipal Corporation) in respect of 141 flat owners in the assessee’s housing project, it is seen that in the notices dated 17.1.2007 in response to the flat owners applications dated 1.12.2006 requesting for assessment and allotment of municipal numbers, the Municipal Corporation had issued notices for payment of the required taxes for the initial assessment. The relevant notice reads as under:

“with reference to the above Sri (applicant / flat owner) hereby informed that the Zonal Commissioner (east), Bangalore Mahanagara Palike, Bangalore, has approved the allotment of Municipal Numbers and Assessment in respect of newly constructed, Residential Apartment at Property No. 184 as detailed below …”

The proof of payment of taxes in certain cases has also been produced. From the above, it would appear that the applicants, being flat owners, had individually filed application before the Municipal Corporation for allotment of municipal numbers and assessment. The notice, as above, clearly indicates that the municipal numbers were being allotted in respect of newly constructed residential apartments.

14. Now the objection of the Department is that the assessee has not produced the completion certificate. The assessee is following Percentage Completion Method. This method is recognised by the Income-tax Act for disclosing the profit in the case of a builder. The purpose of granting deduction u/s. 80IB(10) is to promote housing projects. If we accept the proposition of the Department that the deduction u/s. 80IB(10) has to be granted only a tax payer who follows only “Project Completion Method” it leads to an absurd situation as the developer who is following Percentage Completion Method is not entitled for deduction u/s. 80IB(10) of the Act though all other requirements of the section being fulfilled. It would tantamount to denial of valid exemption for which an assessee is entitled. No one can pass such a anomalous dictum while dealing with a legal problem. The Tribunal being final fact finding authority shall keep in mind an overall situation, factual as well as legal, so thereupon brings a dictum ought to be legally sustainable in the eyes of law. In the present situation, the Revenue is taxing the profit on Percentage Completion Method but suggesting to grant deduction only on completion of the project. If the stand of the Revenue is accepted then only on completion of project an assessee would be entitled for deduction u/s. 80IB(10), then undisputedly an anomaly shall arise as to how and when the tax should be charged. This is not the scheme of the Act, to first tax an income in a particular year and grant deduction on that very income in a different later year i.e., on completion of the project as was canvassed by the Department. The accepted principle is that the year of the assessment of income and connected deduction shall fall in the same assessment year. If the Revenue is taxing the profit in the year under consideration on the ground that the assessee is adopting “Percentage Completion Method” then the natural corollary should be that the connected deduction ought to be granted simultaneously in this year or the other method of computation is that the Revenue must not tax the profit of the project yearly on the basis of “Percentage Completion Method” but tax the entire profit on completion of the project by applying “Project Completion Method”.

15. In view of the foregoing discussion, we direct the Assessing Officer to allow deduction u/s. 80IB(10) of the Act in the light of the order of the Tribunal in Hiranandani Akruti JV (supra).

16. In the result, assessee’s appeal is allowed.

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