Case Law Details

Case Name : ITO Vs. Khyati Financial Services (ITAT Mumbai)
Appeal Number : Appeal No: ITA No. 3740/Mum/2008
Date of Judgement/Order : 25/06/2010
Related Assessment Year : 2005- 2006
Courts : All ITAT (4337) ITAT Mumbai (1439)

DECIDED BY: ITAT MUMBAI BENCH `H’ MUMBAI, IN THE CASE OF: ITO Vs. Khyati Financial Services, APPEAL NO: ITA No. 3740/Mum/2008, DECIDED ON June 25, 2010

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The assessee is a partnership firm consisting of two partners viz M/s Khyati Financial Services P.Ltd & Shri. Paresh Mohanlal Parekh. The appellant firm entered into a development agreement on 25.4.2003 with Hickson & Dadajee P.Ltd a company duly incorporated under the Companies Act, 1956 to develop property situated at Village Pahadi, Goregaon (E) owed by M/s Hickson & Dadajee P.Ltd In pursuance of said development agreement, the assessee firm undertook to construct residential building viz., “Acmee Armay” to be residential area constructed at 60,000 sq.ft. approx. comprising 200 flats in 7 wings in ground plus upper floors to be approved. The said residential building has to be constructed on a shopping complex comprising of approx.10,566 sq/ft/ built up area wherein the limited development right to construct shopping complex was assigned to a different concern viz Lakshadeep Investment & Finance P.Ltd hereinafter called as LIFPL, being a sister concern of the appellant through a separate development agreement dt 25.4.2003 entered between LIFPL & M/s Hickson & Dadajee Pvt .Ltd (owner of the property) In other words the development right of the property was divided between the assessee for constructing residential flats and shopping complex at ground floor to LIFPL. The considerations to be paid by the appellant and LIFPL were fixed at Rs.11.56 crore & 2 crore respectively in lieu of development rights received by them. The appellant claimed that the intimation of disapproval (IOD) and Commencement Certificate (CC) were issued in the name LIFPL on 6.11.2003 and 13.11.2003 respectively in respect of construction of shopping complex on ground floor and there were evidences to support it. The AO wrote letter to B.M.C. to verify the above facts. B.M.C. initially stated that the sanction of shop in position accepting the IOD dated 6.4.03 and C.C. on 6.11.03 issued in the name of LIFPL. In the said letter dated 7.12.07 addressed to AO it was also made clear that the revised IOD dated 29.1.04 was issued in the name of the appellant due to change of ownership. It was remarked that the said building is approved under file No.CHE/8637/BP(WS)/AP as Housing Project with shop on Ground Floor. On the strength of above facts, the AO drew adverse conclusion that the entire project inclusive of shopping complex at ground floor essentially belonged to the appellant and it deemed to have been constructed by them only.AO also concluded that BMC also recognised only one project belonging to the appellant. Thus the necessary approval for the project was given by Municipal Corporation of Greater Mumbai on 29.1.2004 in the name of appellant. The Commencement Certificate was issued on 6.2.2004 in the name of the appellant which in fact was a combined one in respect of shopping complex as well as residential premises with reference to the separate applications filed by the LIFPL as well as the appellant. The appellant firm constructed the residential building as per plan approved by BMC and claimed 100% deduction u/s 80IB(10) in respect of profit derived in the previous year relevant to assessment year. Further, it may also be mentioned that LIFPL constructed its shopping complex at ground floor as per their plan and did not claim any deduction in respect of the profit as claimed by the appellant.

3. The AO after scrutinizing the facts of the case found certain lacuna which stood in the way of fulfilling the conditions given in sec 80IB(10). The first flaw pointed out by the AO was that the appellant has not received the completion certificate of the project till date. According to the AO since the entire project is not yet completed and the final date of obtaining the completion certificate is 31st March 2008 as per sec.80IB(10) the claim of deduction u/s 80IB is quite premature and is depended upon happening of an event on or before 31.3.2008 for completion of project and obtaining the completion certificate from the local authority. The AO found this as a disqualification for claiming deduction u/s 80IB(10). The second point mentioned by AO was that 8 flats were joined together and as a result 4 flats in this project are having built up area more than 1000 sq.ft. which is more than the stipulated limit. This was the second disqualification found by the AO coming in the way of claiming deduction u/s 80IB (10). Further the AO went on to find that the shopping complex was comprising of more than 10,000 sq.ft. in built up area which is beyond the upper limit of 2000 sq.ft. or in excess of 5% of aggregate built up area of housing project. Whichever is less if the shopping complex and housing building are combined together as if the entire complex were constructed by the appellant himself. The AO gave his categorical finding that the construction of shopping complex and residential housing was deliberately separated by bifurcation of development right assigned to two sister concerns in order to circumvent the amended provision of sec. 80IB(10)(d) substituted by Finance Act (No.2) 2004, In this way the AO denied the claim of sec 80IB(10) broadly on all these three grounds.

4. Aggrieved the Assessee preferred an appeal before the CIT(A). As regards date of completion of the building the Ld.CIT(A) held as under:

” The AO found that the entire housing project has not been completed and the final date of obtaining the certificate is 31.3.2008 as per sec.80IB(10) (a). According to the AO in order to qualify deduction u/s 80IB(10) the completion certificate is required .The AO also observed that as per the provision of sec 80IB(10) the claim of deduction u/s 80IB(10) is quite premature and dependent upon happening of any event on or before 31.3.2008 for completion of project and obtaining completion certificate from local authority by 31.3.2008. Accordingly the AO gave a finding that deduction u/s 80IB(10) is not eligible for the AY 2005-06.

. The appellant on the other hand stated that permission to occupy party completed building has been given. It was also submitted that construction work is now completed and application for completion certificate has been made by the Architect vide his letter dated 18.1.2008 which is on record. In this way the appellant claimed that the condition is fulfilled. The appellant has given the details regarding the occupancy certificate (OC) issued by BMC in respect of different wings as well as the application for completion certificate filed before BMC.

From perusal of the details filed by the appellant. I find that the appellant has already received the occupancy certificate in respect of Wing A,B & C. on 13.9.2005 & Wing F G & H on 26.9,2006. As regard to the E Wing still 1 to 12 floors the appellant has applied for occupancy certificate on 18.1.2008 after having completed the building which is the last & final wing of the building. The appellant argued that receipt of occupancy certificate and applying for the occupancy certificate is equivalent to the completion will be issued by the BMC accordingly. In this connection reference was made of the decision of Saroj Sales Organisation v ITO Ward 25(2)(3) Mumbai in ITA No.4008/M/07 order dated 24th January 2008, wherein it was held that the occupation certificate issued fulfilled the condition relating to completion of construction as prescribed in sec.80IB(10)(a).

I find that the claim of the appellant is in accordance with the finding given by the Hon’ble ITAT in the aforesaid decision. The AO in the assessment order appears to have given a finding that deduction u/s 80IB (10) cannot be given unless & until the completion certificate is issued before 31.3.2008. The AO has pointed out that since the completion of the building is subject to happening of future event of completion of building the deduction u/s 80IB(10) cannot be given until happening of such event. In my opinion the view of the AO is misconceived particularly in the cases where the profit has already been derived long before the completion of project for certain assessment years as it has happened in the present appeal for AY 2005-06. The AO has tried to bring a proposition that the deduction u/s 80IB(10) should be kept in abeyance till the completion certificate is finally issued does not fit in the scheme of provision of sec 80IB(10). The view of the AO is legally untenable as the profit derived cannot await for getting the entire project completed. The completion of housing project is an ongoing process and wherever profit has been derived. The assessee is entitled for deduction u/s 80IB(10) for partially completed portion of project. Looking to the totality of the facts of the case and also placing reliance on the decision of Saroj Sales Organisation v ITO Ward 25(2)(3) Mumbai in ITA No.4008/M/07 order dated 24th January 2008 decided by ITAT I hold that this condition has been satisfied.”

The next objection of the AO was that 8 of the flats were joined together.The AO found that 8 flats are joined together and as a result 4 flats in this project are having area about 1000 sq.ft. which is more than the stipulated limit. The AO further noted that 6 flats viz A/601 &A /602,B/602 &H/601 & 602 were purchased by husband and wife separately. The AO noted that though the pair of flats were separately purchased by husband and wife which are adjacently located but the flats were combined together as one flat making the built up area of combined unit of residence more than 1000 sq.ft. Similar was the case found in respect of flat no F/502,503 ,501 & 504 purchased by two other persons which ultimately got combined into one flat of two adjacently locating flats. Here also, the AO found that the combined built up area of single residential unit exceeded 1000 sq.ft. which is in a violation of provision of sec 80IB(10).(c). The AO was also guided from the report of inspector, wherein it was reported that flats were combined. The AO was of the view that the combining of two adjacently located flats by single purchaser as well as husband and wife of the same family was in violation of provision of sec 80IB(10) which disqualified the appellant to claim deduction u/s 80IB(10).

5. Before the CIT(A) the assessee submitted that the two adjacently located flats were sold separately by separate agreements entered into giving the possession separately to two separate buyers. It was also argued that each flat was a separate and self contained residential unit in all respect having separate electric meter for each flat along with separate kitchen and living room. It was also brought on record that as far as appellant is concerned each flat was constructed as per the approved plan and none of the two adjacently located flats were combined together. It was also claimed that prior to giving possession no alteration in the said flats had been made by the appellant developer. It was submitted that Mr & Mrs Picardo owners of flat No B/601 & 602 confirmed that two flats were independent in all respect at the time of giving possession. The owners of flat No. A/501 & 504 replied to AO that they removed the common wall for their convenience without taking any permission. Similarly as per the claim of the assessee the owner of flat No A/601 & 602 have also confirmed the independence of two adjacent flats. The crux of the argument of the appellant was that as far as developer is concerned they handed over independent flats to the purchasers and any subsequent alteration in the two adjacent flats should not make any material difference on the claim made by them as they have no authority to stop such alteration. The CIT(A) accepted the contention of the assessee observing as under:

“I have perused facts available on record. I find that there is no dispute on the act that the appellant has constructed the residential flats as per approved plan only. There is nothing on record to say that the appellant has tinkered the construction plan in any way deviating from the approved plan. Further there is no quarrel on the fact that the separate agreement was entered into for each and every flat sold to the purchaser. Possession has been given for each flat separately. I also find that each flat is self contained having its own electrical meter, kitchen, drawing room, dining room front door and passage etc. AO has not brought any material on record to hold that any alteration in alleged adjacent flats to combine them in a single residential unit was attributed to the appellant. On the other hand there are sufficient material evidences available on record that it is the purchaser who has combined two flats at his own instance doe his convenience. Therefore no fault can be found out to the appellant that they gave combined possession of the two adjacent flats making a single residential unit to the buyer. Further it may also be seen that the appellant has constructed 200 flats and such minor discrepancies were found only in respect of 8 flats which cannot be said any significant aberration to circumvent the provision of sec 80IB(10)(c) If we look at all the facts in tandem it is not possible to find out any deliberate and engineered attempt on the part of the appellant to cross the threshold condition of 1000 sq. ft built up area for each flat where such residential unit is situated within the city of Delhi or Mumbai. Moreover any alteration made by the flat occupants after the possession has been given to combine two adjacently located flats is not going to adversely affect the rights of the developer and no stigma can be fastened on the developer. Hence looking to the totality of the facts and circumstances of the case I hold that the appellant cannot be disqualified for deduction u/s 80IB(10) on this account.”

6. The other objection of the AO was that the Commencement Certificate dt 6.2.2004 issued by local authority for both shops and building was showing the name of the appellant only. The AO concluded that appellant was sole authorised developer permitted by BMC to build shops and residential building. The AO did not accept the contention of the appellant that the shops and residential houses were built separately by two concerns i.e. LIFPL and the appellant in reality. According to the AO it was deliberately planned by the assessee and the sister concern of the appellant i.e. LIFPL to separate the construction of shopping complex and housing project to circumvent the provision of sec. 80IB(10)(d). The AO observed that entire arrangement was made only to hoodwink the department. According to the AO the entire construction was under only one project for both shop and residence in the name of Khyati Financial Services. The AO placed reliance on the commencement certificate issued by BMC dt 6.2.2004 showing the shopping complex as part and parcel of the same project. The AO stressed on the point that the BMC has rejected the artificial bifurcation of the same project by separating residential that from shopping complex. According to the AO the BMC has approved only one project consisting of both shops and residence in the hand of assessee only for a single project. In this way the AO has made a point that the shopping complex shown to have constructed by LIFPL and the residential flat constructed by the appellant should be together taken as a Single project for the purpose of applying provision of sec. 80IB(10). The AO also placed reliance on the decision of Mcdowell & Co v CTO 154 ITR 148 to say that it was colourable design to reduce the tax liability.

7. The AO also applied the amended provision of sec 80IB (10(d) inserted by Finance Act 2004 w.e.f. 1.4.2005 which requires that the built up area of shops included in housing project should not exceed 5% of the aggregate built up area of the housing project or 2000 sq.ft. whichever is less. Since, the AO found that the shopping complex measures 10,566 sq.ft. area out of total built up area measuring at 70,566 sq.ft., the AO gave a finding that it is a clear cut violation of amended sec 80IB(10(d) inserted by Finance Act 2004 w.e.f. 1.4.2005. In this way the AO disqualified the appellant for allowing the deduction u/s 80IB (10). The AO cited the decision of Laukik Developers v DCIT ITAT C Bench in ITA 532/.Mum/2006 dated 10.7.2006 for AY 2002-03 107 TTJ(Mum) 364, wherein it was held that building project approved by local authority as residential as well as commercial project could not be said to be housing project eligible for relief u/s 80IB(10).

8. Before the Ld. CIT(A) the assessee strongly assailed the finding of the AO on the ground that there are enough material evidence on record to support that housing complex and shopping complex, though these are a part of the same building, were constructed by two concerns viz the assessee company and LIFPL. The assessee argued that developments rights for residential and shops were separately assigned to two different concerns by virtue of having separate developing agreements entered with the owner of the land viz Hickson & Dadajee Pvt.Ltd it was also pointed out that the construction was carried out separately by the two respective concerns from their own resources without intermingling or interlacing of the funds. The shops and residential fats as pointed out were sold by two concerns separately receiving the consideration separately. The appellant further argued that the payment for purchase of development rights and construction work were made separately from the resources of their respective concern. The appellant further buttressed the point by saying that the appellant and the LIFPL though they are sister concerns are separate entities under income tax and otherwise out of which LIFPL is a legal entity incorporated under Company Act. The appellant further stressed on the point that it is not possible to brush aside all these hard documentary evidences to dissolve the legal identity of two concerns viz assessee and LIFPL to hold the only one for the purpose of this particular project which is in question. The appellant also pointed out that the assessment of LIFPL has been passed u/s 143(3) accepting the sale on income of shop which supports the appellant’s contention. The crux of the argument of the appellant is that the finding of the AO to consider a single project constituting the shopping complex and residential complex is misconceived and not supported by the facts. The appellant also tried to send an important point home that when the development plan was put up and got approved they have no inkling or any guess regarding the additional condition which was inserted by Finance Act. 2004 w.e.f. 1.4.2005 in form of sec 80IB(10)(d) which was heavily relied and applied by AO to disclaim the deduction u/s 80IB(10) to level allegation against them for colourable and dubious design to defraud the revenue. The appellant further has drawn the attention to the clarification issued by the CBDT vide letter dt 4.5.2001 (F./No.205/3/2001/ITA II) wherein it was mentioned that additional housing project on existing housing project can also qualify deduction u/s 80IB(10). The CIT(A) accepted the contention of the assessee observing as under:

“I have circumspected the material evidence available on record. I find that there are enough documentary evidence on record to say that housing complex and shopping complex though they are part of same building were constructed by two concerns viz the appellant firm and LIFPL. I find that development rights for residential and shopping complex were separately acquired by the appellant firm and LIFPL in pursuance of separate developing agreements entered with the owner of the land. The entire funds for development of shopping complex and residential houses were brought by the two concerns separately from their respective sources. There was no interlacing or intermingling of the funds between the appellant and LIFPL. I find that even though the two concerns are a sister concerns but nevertheless they are different entities out of which one is legal entity in form of LIFPL Both the concerns sold their respective constructed shops and residential houses to different buyers and received the consideration accordingly. One can also not lose sight of the fact highlighted by the appellant that the provision of sec 80IB(10)(d)inserted by Finance Act 2004, w.e.f 1.4.2005 putting some threshold cap on the construction or shop and commercial establishment included in the housing project has still to take its birth on the statute book when the entire project was bifurcated into the shopping complex and housing complex to be constructed by two different concerns as result of development agreements entered into. It may also be mentioned that invoking provisions of sec 80IB(10)(d) was one of the main ground in which the deduction u/s 80IB(10) was denied. Therefore I don’t see any reason as to how the appellant involved into devising colorable or dubious means in advance to circumvent the provision of sec 80IB(10)(d) Hence, the deliberation of the AO on this account appears to be far- fetched and unfounded on the ground that the conceptualization of project itself advanced before the provision u/s 80IB(10)(d) took its birth on the statute book.

The AO has also placed lot of reliance on the letter written by BMC in response to query raised by the AO which was addressed to the AO himself. The AO has stated that BMC has disapproved the artificial bifurcation of shopping complex and residential complex. Holding the project under the single composite project. I have perused content of such letter. I find that this letter mentions about the application filed by the appellant firm and LIFPL for obtaining necessary approval for the project. This letter also gives reference about the copy of IOD dt 6.11.2003 with set of approved plan for ground floor shopping only dated 6.11.2003 and commencement certificate dt 13.11.2003 issued in the name of LIFPL. Further, it also mentions about the copy of IOD dt 29.1.2004 with set of approved plan dated 29.1.2004 and commencement certificate dt 6.2.2004 issued in the name of appellant’s firm. At last, the letter gives the following remark.

“In the instant case, the shops were approved and constructed by Lakshadeep Investment & Finance P.Ltd. Subsequently, he amended plan and revised IOD was issued in name of Khyati Financial Services on 29.1.2004 due to change of ownership. The said building is approved under the file No.CHE/8637/BP(WS) AP as housing project its shops on the ground floor.”

From the perusal of the content of the above letter, I find that the BMC has accepted the construction of shopping complex and residential flats in principle by two different concerns and it was been combined together only for their record being the shopping complex and residential flats got constructed on the same land. The letter written by BMC in my opinion no way establishes that both the shopping complex and residential flats were constructed by the same person i.e. the appellant firm. In fact, it was none of the concern of BMC to look into as to who constructs which part of the project except to place into their record regarding the plan of project as whole situated on a particular piece of land,. The BMC, after taking recognisition of all these facts gave a combined IOD and CC which is common for both But that itself does not dissolve or dilute the hard fact that shopping complex and residential complex were constructed by two separate concerns and the appellant’s project was essentially a housing project .

Here, my attention has also been drawn to the clarification issued by CBDT vide letter dated 4th May 2001 (F.No. 205/3/2001/ITA 11) which reads as under:

“The undersigned is directed to refer to your letter No.MCIII.RSA m.388/19799/3 dated 1st January 2001 and to state that the additional housing project on existing housing project site can qualify as infrastructure facility under section 10(23G) and 80IB(10) provided it is taken up by a separate undertaking having separate books of accounts so as to ensure that correct profits can be ascertained for the purpose of section 80IB and also to identify receipts and repayments of long term finances under the provisions of sec 10(23G). Separately financing arrangements and also if it separately fulfils all other statutory conditions listed in sections 10(23G) and 80IB(10). With regard to your query regarding the definition of housing Project it is clarified that any project which has been approved by a local authority as a housing project should be considered adequate for the purpose of sec 10(23G) and 80IB(10).”

The above clarification issued by CBDT is suffice enough to say that additional housing project on existing housing project site can also qualify under section 80IB(10). Thus, the CBDT itself approves of two projects on common land and existence of two separate undertakings. The present case is no way different than situation contemplated in the CBDT’s clarification. Therefore, there is no taboo to have two projects on the same piece of land undertaken by two separate concerns. The view expressed by the CBDT also binds the AO and the AO cannot afford to have different view.

In view of forgoing I hold that the housing project completed by the appellant firm has to be delinked from shopping complex constructed by LIFPL for the purpose of computing deduction u/s 80IB (10). As a logical corollary of this finding needless to say that the appellant’s case cannot be hit by 80IB(10)(d) which is applicable from A.Y. 2005-06 as there is no shopping or commercial establishment indeed in the project undertaken by the appellant firm.”

9. The next issue to be considered is whether the sub-clause (d) of sec 80IB(10) inserted by Finance Act, 2004 w.e.f. 1.4.2005 would be applicable to the present case. The AO, in the assessment order has given a finding that the provisions of sec 80IB(10)(d) are squarely applicable on the facts of the case being the A.Y. 2005-06. The AO, since, held that the entire building constituting shopping complex on ground floor and residential flats above are falling under the single project in view of approval given by the BMC and the built up area of shopping complex, exceeded 5% of total building up area of the project or 2000 sq.ft. whichever is less, the case is squarely hit by the provision of sec 80IB(10)(d). Accordingly, the AO disqualified the assessee from the claim of deduction u/s 80IB(10) on this ground.

10. The CIT(A) has accepted the contention of the Assessee observing as under:

” From the plain reading of provisions of sec 80IB(10) applicable before 1.4.2005 and after 1.4.2005, I find that the amended provisions inserted by Finance Act 2004 w.e.f. 1.4.2005 have some additional conditions which were not available in the pre amended provision applicable before 1.4.2005. the first point which is to be noted that the post amended provision of sec 80IB(10) applies in respect of housing project approved before 31.3.2007 whereas pre amended provisions of sec 80IB(10) is applicable for housing project approved before 31.3.2005. In this way the pre amended provisions of sec 80IB(10) and post amended provisions of sec 80IB(10) have got overlapping domain. The post amended provisions of sec 80iB(10) has been loaded with some additional conditions in sec 80IB(10)(a) in respect of completion of housing project and sec 80IB(10)(d) capping the extent shopping and commercial establishment to be included in Housing Projects. The additional conditions given in respect of completion of housing project have stipulated some reasonable time interval granted to complete the project. This condition as such does not adversely affect the claim of deduction available in respect of the housing projects which have been approved before 1.4.2005. As such, it does not bring any hindrance in operation of pre amended provisions of sec 80IB(10> The post amended provisions of sec 80IB(10) has enshrined another additional condition in clause (d) of sec 80IB(10) which brings some threshold limits for shopping and commercial establishment to be included in a housing project. This particular additional condition brings some anomaly if it is applied strictly for AY 2005-06 and onwards in cases where the housing project got approved before 1.4.2005. For example, if the housing project gets approval before 31.3.2003 and it derives some profit for the AY 2004-05, it is entitled for deduction u/s 80IB(10) for the AY 2004-05 even though the housing project has included some shopping and commercial establishment. But the same housing project may not get deduction u/s 80IB(10) on deriving certain profit for AY 2005-06 after prima facie applicability the post amended provisions of sec 80IB(10)(d) in case the built up area of shopping complex and commercial establishment exceeds 5% of aggregate area of built up area of project or 2000 sq.ft which ever is less. In this way it may be seen that a housing project which has been approved before 1.4.2005 may get disqualification of sec 80IB(10)(d), if his particular provision is applied w.e.f. AY 2005-06. Here, it is important to note that primary condition of application of sec 70IB(10) is with reference to the date of approval of housing project. Therefore, the question may arise as to whether the post amended provisions of sec 80IB(10)(d) are to be applicable with reference to assessment year or with reference to date of the approval of housing project. It is well accepted principles of jurisprudence that every legislation is to be regarded as prospective if it amends substantive law. The legislature should clearly specify its intention to apply the law retrospectively. If it is likely to affect the vested rights to the citizens created by earlier. The conditions u/s 80IB(10)(d) require to be tested at the time of the project was conceptualised. A vested right created by earlier legislation cannot be snatched away or divested unless there is clear cut retrospective amendment to do so. A harmonious doctrine of interpretation is to be adopted to harmonize the operation of the provisions of sec 80IB(10). The expression used in a statute ordinarily be understood in the sense in which it is best harmonious to the object of a statute and which effectuates the object of legislature Sarkar (BB) v CIT (1981) 132 ITR 150(Cal) CIT v Superintending Engineer, Upper Sileru (1985) 152 ITR 753 (AP) CIT v Associated Finance Co. Ltd (1992) 195 ITR 742 (Cal) This is the harmonious construction of interpretation of a fiscal statute. An assessee who got his housing project approved before 1.4.2005 had no inkling regarding the additional condition which has been imposed by post amended provisions of sec 80IB(10)(d) Looking to the fact that once the plan gets approved cannot be altered in order to satisfy such additional condition and if the post amended provision of sec 80IB(10)(d) is made applicable for the AY 2005-06 in such cases, the assessee will loose the deduction u/s 80IB(10) for no fault on their part. A tax payer is not be supposed to foresight or anticipate about any condition to be imposed in future and accordingly readjust his affair to suit the claim of deduction. Further, it is also not possible to alter or modify the approved plan substantially after construction has started. In fact, if the provisions of sec 80IB(10)(d) is interpreted in such a manner to be applicable strictly w.e.f. AY 2005-06 it may be a case of promissory estoppels which may not be the intention of legislature. The concept of promissory estoppels has been accepted by Hon Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd v State of U.P. 118 ITR 326 (SC) to mitigate the rigors of strict law in the interest of justice to an individual. Here a limited point is to emphasized that the provision is to be interpreted to avoid the case of promissory estoppels. Therefore I am of the opinion that the post amended provisions of sec 80IB(10)(d) should be made applicable with reference to the date of the approval of housing project. i.e. if the approval of housing project has been made on or after 1.4.2005,this particular condition should be applied in respect of any profit derived from such projects without having any reference to the assessment year. Such view also gets support from the decision of Saroj Sales Organization. The finding given by ITAT in para 13 of the order which reads as under.

“As regards the objection of the AO that the permissible shopping area of Housing Project exceed 5% the assessee is not entitled to relief under sec 80IB(10). We are of the view that the Housing Project were approved before 31.3.2005 and for such project which were so approved. There was no stipulation as to the shopping complex area is permissible in the project / As already stated earlier that the amendments were subsequently made while extending the deduction in our view is clearly not in accordance of law “

It may be seen that Hon. ITAT has given a finding that if the housing projects were approved before 31.3.2005 there was no stipulation as to the shopping complex area is permissible in the project in other words in respect of Housing Projects approved before 31.3.2005, the convenient shopping has been accepted u/s 80IB(10) if the housing project is so approved. In the present case, the BMC approved the plan of the appellant as Housing Project with shops at ground floor. Hence I hold that post amended provisions of sec 80IB(10)(d) is not applicable in cases where the housing project got approved before 31.3.2005. Since, in the present case housing project got approved before 31.3.2005 the mischief of provisions sec 80IB(10)(d) is not applicable.

The facts of circumstances of instant case is very much symmetrical and compatible to M/s Saroj Sales Organization v ITO in ITA No.4008/M/.07 decided by Mumbai E Bench ITAT dated 24.1.2008 wherein it was related to AY 2005-06 in respect of claim of deductions u/.s 80IB (10). In both cases the built up area of shopping complex exceeded 5% aggregate built up area of housing project or 2000 sq.ft. whichever less. In both cases the housing project got approved before 31.3.2005 as common denominator. In the cases decided by Hon. ITAT as referred supra, the deduction u/s 80IB(10) was allowed to the case. Since, the above case decided by Hon. ITAT has binding force in the present case being similar factual substratum. I a respectfully follow the above case.

Further the approved housing project inclusive of shopping complex has been granted deduction under pre amended provisions u/s 80IB(10) in the following cases.

· Harshad P. Doshi v ACIT ITAT Mumbai `A’ Bench 109 TTJ(Mum) 335

(ii) ITO Ward 4(1) v M/s Ideal Realtors ITA No. 4292/Mum/2007 order dated 8.11.07 for AY 2004-05 wherein Laukik Developers v DCIT 108 TTJ (Mum) 364 was distinguished.

· Arun Excello Foundation (P) Ltd v ACIT 108 TTJ (Chen) 71.

The AO has placed reliance on the decision of Laukik Developers v DCIT ITAT Mumbai `C’ Bench 108 TTJ 364, wherein building project approved by local Authority as residential as well as commercial projects was held not qualified deduction u/s 80IB(10). Since, in the present case, the shopping complex has not been constructed by the appellant the ratio decidendi cannot be made applicable.

At last, I would say that if more than one opinions of law is possible under interpretation of taxing statute the construction favourable to the assessee should be followed In CIT v Podar Cement P Ltd 226 ITR 625, 648 (SC) it was held that where there are two possible interpretations it will settle that the one which is favourable to the assessee has to be preferred. On this account also the benefit offered u/s 80IB(10) should go to the appellant in either way..

To summarise my finding, I hold that in first place, the deduction u/s 80IB(10) is well qualified on the ground that the appellant has constructed only housing complex being the shopping complex constructed and developed by LIFPL. Secondly, even if the housing complex and shopping complex are combined together to be part and parcel of same project belonging to the appellant, still, the deduction cannot be denied after applying ratio of decision in the case of M/s Saroj Sales Organization v ITO. In ITA No. 4007/M/07 decided by Mumbai ITAT `E’ bench dated 24.1.08 for AY 2005-06 being the housing project approved before 31.3.05. In any case, if there are two opinions of law or inferences the view favourable to the assessee should be followed as held by Hon. Supreme Court in the case of CIT v Podar Cement P. Ltd 226 ITR 625 (SC). The appellant gets relief on this ground also. Further, I also hold that the combining two adjacently located flats in case of 4 pair of flats by the purchasers on the facts of the case, does not affect the claim of deduction made u/s 80IB(10). At last, I do not find any legal infirmity in the claim made u/s 80IB(10) in respect of completion of housing project.

In the result, the appeal is allowed”.

11. Aggrieved the Revenue is in appeal. The facts are that the assessee had executed a housing project for which the approval of the Local Authority was obtained. The necessary approval for the project was given by Municipal Corporation of Greater Mumbai on 29.1.2004 in the name of appellant. The Commencement Certificate was issued on 6.2.2004 in the name of the assessee. The Assessee has already received the occupancy certificate in respect of Wing A,B & C. on 13.9.2005 & Wing F G & H on 26.9,2006. As regard to the E Wing still 1 to 12 floors the appellant has applied for occupancy certificate on 18.1.2008 after having completed the building which is the last & final wing of the building. The Architect has certified the completion of the building and has applied for the completion certificate on 18.1.08. In the circumstances the Assessee claimed relief u/s 80IB(1) in respect of profits accruing from the Housing Project for the year. The AO has rejected the claim putting forward various objections. All the objections of the AO has been met and answered by the CIT(A).

12. The first objection is that the Local Authority had given a single commencement certificate for Housing and commercial project in the name of the assessee. As the commercial area is more than the permitted percentage of the total built up area under sub clause (d), assessee is not entitled to claim relief u/s 80 IB (10). We find from the records that the owners of the Plot of land, had granted development rights for housing to the Assessee and the development rights for the commercial area to M/s. Lakshadeep Investment & Finance P.Ltd. The considerations to be paid by the appellant and LIFPL were fixed at Rs.11.56 crore & 2 crore respectively in lieu of development rights received by them. Thus the assessee’s undertaking is only for building the housing project and the assessee is in no way connected in building of the commercial area. As found as a fact by the CIT(A), the Housing Project was being carried out by the asessee and the construction of the commercial areas are being carried out by another entity. The CIT(A) found it as a fact that commencement certificate was issued separately for the Housing Project and for the construction of commercial area. Further the BMC in their letter has clarified as under:

“In the instant case, the shops were approved and constructed by Lakshadeep Investment & Finance P.Ltd. Subsequently, he amended plan and revised IOD was issued in name of Khyati Financial Services on 29.1.2004 due to change of ownership. The said building is approved under the file No.CHE/8637/BP(WS) AP as housing project its shops on the ground floor.”

Thus the BMC had also recognised that the ownership of the two projects are different. In the circumstances the claim of relief u/s 80 IB (10) by the Assessee should be considered only for the Housing project and the construction of commercial project is a separate undertaking. Profits from the construction of commercial areas was offered and assessed in the hands of the company. CBDT has also issued a clarification vide letter dated 4th May 2001 (F.No. 205/3/2001/ITA 11) which reads as under:

“The undersigned is directed to refer to your letter No.MCIII.RSA m.388/19799/3 dated 1st January 2001 and to state that the additional housing project on existing housing project site can qualify as infrastructure facility under section 10(23G) and 80IB(10) provided it is taken up by a separate undertaking having separate books of accounts so as to ensure that correct profits can be ascertained for the purpose of section 80IB and also to identify receipts and repayments of long term finances under the provisions of sec 10(23G). Separately financing arrangements and also if it separately fulfils all other statutory conditions listed in sections 10(23G) and 80IB(10). With regard to your query regarding the definition of housing Project it is clarified that any project which has been approved by a local authority as a housing project should be considered adequate for the purpose of sec 10(23G) and 80IB(10).”

14. The ITAT, Mumbai Bench in the case of Saroj sales Organisation v ITO (115 TTJ 485 Mum) has held that when two projects were separate and distinct, the fact that one project was ineligible for deduction u/s 80IB(10) would not bar the assessee from claiming relief under that section in respect of the other distinct project. They have also held that the requirement that built up area of shops and commercial establishment included in the project should not exceed 5% of the aggregate built up area of the Housing project was applicable to projects approved after 1.4.2004 and hence would not be applicable to projects approved earlier. In that case the tribunal has also held that occupation certificate issued should be considered as compliance with the requirement that construction has been completed.

15. Hence we hold that the housing project of the assessee is different and distinct from the project for building commercial area by another entity. Housing project does not include construction of the commercial establishment carried out by another entity in that area. Therefore claim of the assessee for deduction u/s 80 IB (10) for the housing project cannot be denied because the commercial project was carried out by a sister concern in the same area.

16. The next issue to be considered is whether the sub-clause (d) of sec 80IB(10) inserted by Finance Act, 2004 w.e.f. 1.4.2005 would be applicable to the present case. Sub clause (d) introduced with effect from 1.4.2005 required the area of commercial establishment included in the Housing project should not exceed 5% of the total built up area of the housing project. By the amendment introduced by Finance Act (No 2), 2004 with effect from 1.4.2005, provisions of sec 80 IB were amended. Further restrictions on completion of project as well as maximum built up area of commercial establishments were imposed. In this view of the matter, the amendments are not clarificatory in nature and hence would apply only to projects approved after 1.4.2004 and not to the Housing project of the assessee, which was approved prior to 1.4.2004. However as we have found that construction of commercial establishments was done by another entity and is not part of the Housing project of the Assessee, this question becomes academic.

17. The next issue is regarding completion of the project before 31.3.2008 as required u/s 80IB (a)(i). Sub sec (a) of sec 80 IB (10), requires that an undertaking which undertakes a housing project which has been approved by the local authority before 1.4.2004 should complete construction before 31st day March 2008. The section does not require the completion certificate to be obtained before that date. It is well known that even after completion of a building it will take some time to obtain the completion certificate from the local authority who may inspect the building before giving the certificate. It does not mean that construction is not over. In the present case the Assessee has already received the occupancy certificate in respect of Wing A,B & C. on 13.9.2005 & Wing F G & H on 26.9,2006. As regard to the E Wing still 1 to 12 floors the appellant has applied for occupancy certificate on 18.1.2008 after having completed the building which is the last & final wing of the building. It was also submitted that construction work is now completed and application for completion certificate has been made by the Architect vide his letter dated 18.1.2008 which is on record. Thus the assessee has completed the construction prior to 31.3 2008 (Architect has also certified it) and has applied for completion certificate before 31.3.2008 and the proof for the same has been produced before us at page 118 of the Paper book. In the circumstances, we remit the issue to the file of the AO to ascertain as to whether the assessee has completed construction prior to 31.3.2008 after perusing the letter from Municipal Corpn. of Greater Mumbai at page 118 of the Paper Book. The AO on the basis of the facts on records shall decide whether the condition regarding completion of the project as per the requirements of clause (a) of sub sec 80 IB(10) are satisfied and give relief to the assessee.

18. The next issue is whether the profits offered by the Assessee from the housing project is entitled to relief u/s 80 IB (10), when the completion of the project is at a later date. When an Assessee follows percentage completion method of offering profits in respect of a housing project, the profits offered in respect partially completed project on percentage completion method is also an accepted method of ascertain the profits of the project. It is also profit derived from project to which sec 80 IB (10) applies. If project is to be completed before the relief u/s 80IB(10) is to be granted, then most of the profits of the projects which would have been offered in the earlier years would not be entitled to relief u/s 80IB(10). This will make the section unworkable. Having accepted the percentage completion method of determining the profits, it will not be correct to hold that such profits before the completion of the housing project, which otherwise satisfies all the conditions of sec 80 IB(10), though assessed as profits from the housing project will not be entitled to deduction u/s 80 IB (10). Therefore profits from the Housing project assessed on a year to year project will be entitled to deduction u/s 80 IB (10), if it otherwise does not contravene the provisions/ requirements of that section. We find that the CBDT has also clarified vide their Instruction No 4 of 2009 dated 30.6.2009 that relief u/s 80IB (10) can be allowed on a year to year basis where the assessee is showing profits on partial completion of the project. If at the end of the period the Assessee is found not to have complied with the provisions of the section- such as failure to complete the project within the permitted time, then the relief granted for earlier years can be withdrawn. In the circumstances we agree with the CIT(A) that relief u/s 80 IB(10) cannot be denied in the case of the assessee merely because completion of the project is a contingent happening in the future. In the circumstances the profits offered by the assessee for the year from the Housing projects, under percentage completion method of accounting, is the profits derived from an eligible project and is entitled to deduction u/s 80 IB.

19. In the result the appeal filed by the Revenue is allowed for statistical purposes.

Order pronounced on this 25th day of June, 2010.

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