Case Law Details

Case Name : Kura Homes (P.) Ltd. Vs Income-tax Officer, Ward-2(1) (ITAT Hyderabad)
Appeal Number : IT Appeal No. 216 (Hyd.) of 2010
Date of Judgement/Order : 21/09/2012
Related Assessment Year : 2006-07
Courts : All ITAT (4788) ITAT Hyderabad (278)

IN THE ITAT HYDERABAD BENCH ‘A’

Kura Homes (P.) Ltd.

Versus

Income-tax Officer, Ward-2(1)

IT Appeal No. 216 (Hyd.) of 2010

[Assessment year 2006-07]

SEPTEMBER 21, 2012

ORDER

Chandra Poojari, Accountant Member  

This appeal by the assessee is directed against the order of the CIT(A)-III, Hyderabad dated 30.11.2009 for assessment year 2006-07.

2. The first ground in this appeal is with regard to disallowance of deduction u/s. 80IB(10) of the Income-tax Act, 1961 on the reason that there is no completion certificate in respect of housing project carried on by the assessee.

3. Brief facts of the issue are that the assessee company is a builder and engaged in construction of flats. For the A.Y. 2006-07, it has filed the return of income on 30/11/2006 showing an income of Rs. 7,47,150. During scrutiny of the return/ the Assessing Officer noticed that the assessee has received an amount of Rs. 7.3 crores from development and sale of flats, in addition to other income of Rs 4.38 lakhs, on which it has shown profit of Rs. 98,13,125 and the same was claimed as deduction u/s. 80IB(10) of the Act. Explaining such claim of the deduction, the assessee has submitted that it has taken up a venture at M.G. Road/ Secunderabad on development basis and constructed a residential complex on land of 5,500 sq. yards. The sanctioned plan for the project was obtained in September, 1999 and each flat was less than 1500 sq. ft. It was submitted that the construction was completed during FY 2005-06. It was further submitted that total 95 flats were constructed and as per development agreement 60% thereof i.e. 58 flats have come to the share of the builder. Stating that the flats were completed and handed over during 2004-05 and 2005-06, the assessee submitted that the exemption u/s. 80IB(10) was claimed in both the years.

4. The assessee further submitted that in respect of said venture, land owners are Sri Karan Singh and five other persons have sold the land to M/s. Labham Estates Pvt. Ltd. for a consideration and have given GPA without receiving entire sale consideration. Later, they have entered into development agreement with M/s. Labham Estates Pvt. Ltd., for construction of the complex. Since M/s. Labham Estates Pvt. Ltd. could not pay the agreed sale consideration to the land owners, they were forced to pay an amount of Rs. 1,88,47,438 to them on behalf of the said concern and recovered the same by selling the share of flats of M/s. Labham Estates Pvt. Ltd.

5. During the course of assessment proceedings, from verification of the development agreement-cum-deed of appointment of attorney, which was executed on 07/07/2000 between Sri Karan Singh and the five others as ‘land owners’, M/s, Labham Estates Pvt. Ltd., shown as ‘consenting party’ and M/s. Kura Homes Pvt. Ltd., shown as builder, the Assessing Officer noticed that as per clause IV of the said deed the proposed residential complex has to be constructed in accordance with the plan sanctioned by the Municipal Corporation, Hyderabad (MCH in short). From the said deed, the Assessing Officer noticed that the plan was approved by Municipal Corporation of Hyderabad vide permit bearing number 16/4/235/TP7/SDE/97 dated 07/09/1999 for construction of 80 flats. The said approval which was given in the names of Sri Karan Singh and Sri Bhanwarilal, GPA holder, is subject to conditions, viz., (a) that a fit for occupancy certificate should be obtained from MCH before the building is put to actual use; (b) that the construction should be made strictly in accordance with the sanctioned plan; if any modifications are necessary, then prior approval should be obtained; (c) that the builder and architect should construct the building in accordance with the approved building plan, failing which liable for legal action as per undertaking 21/07/1999. From the copy of the approved plan furnished by the assessee, the AO further noticed that such plan approval was accorded as per directions of the Hon’ble High Court in WP No. 26505/98 dated 17/06/1999. From the notings on the reverse side of the plan approval, the Assessing Officer further observed that there was another plan prior to this plan and as per town planning file no. 235/TP7/SD/97 the application was made in the year 1997 itself. Since the assessee has constructed 95 flats, when sanction was given by MCH for construction of only 80 flats, the Assessing Officer observed that the assessee has violated such approved plan.

6. She noted that the condition that the project has to be approved by a local authority, is laid down to ensure that such project is carried on in accordance with the terms and conditions laid down by the Government / concerned local authority. She further noted that, in case any alteration / deviations are to be made as per demand of the customers or for business necessity, then assessee can approach the authority concerned with a revised plan. But, in this case, the assessee has not opted to go for a revised plan. According to her, as the assessee is claiming the entire profit from such complex, deduction u/s. 80-IB, the assessee has to ensure that the project is carried on as per the conditions laid down by MCH. Further, referring to the provisions of Explanation (ii) to clause (a) of Section 80IB(10), she noted that the assessee is required to furnish the completion certificate from the local authority for the purpose of claiming deduction u/s. 80IB(10) of the Act. However, in response to query raised by her in this regard, the assessee has submitted that it will not be possible to obtain a completion certificate from the local authority and the same is a very long drawn process. In view of certain differences generally existing in the actual construction of the project when compared to the approved plan. It was submitted that the above project was completed before 31/03/2006. Furnishing some copies of notices issued for property tax assessment, the assessee , has stated that, from the same it shows that the project was completed before 31/03/2006. It was further submitted that the default on part of the assessee in not obtaining the completion certificate is only of technical nature.

7. During the assessment proceedings, the Assessing Officer further noticed that the assessee has constructed 22 flats, having built-up area exceeding 1,500 sq. ft. each. She noted that the built-up area in respect of such flats goes up to 1,950 sq. ft. In response to query raised by the Assessing Officer for exceeding the limit of built-up area in respect of each flat, as per provisions of clause(c) of Sec. 80IB(10), the assessee has submitted that the said area as shown in sale deed, includes common areas. However, the Assessing Officer did not accept such submissions of the assessee and noted that the sale deed does not give bifurcation of built-up area or common area. After considering the facts of the case and observing that the assessee has not taken the approval of the housing project, it has violated the sanctioned plan approved by the local authority and has not obtained completion certificate in respect of such housing project from the local authority and further constructed 22 residential units having built-up area each exceeding 1500 sq. ft., the Assessing Officer noted that the assessee is not eligible for deduction u/s. 80IB(10) of the Act. Accordingly, she disallowed the claim of the assessee for such deduction made at Rs. 98,13,125. On appeal the CIT(A) confirmed the order of the Assessing Officer. Against this, the assessee is in appeal before us.

8. Before us, the learned AR submitted that the assessee has developed a housing project and as such it is entitled for deduction u/s. 80IB(10) of the Act. The object of provisions of section 80IB is to provide tax benefit to the person undertaking investment risk in developing residential projects. Development agreement entered by the assessee clearly establishes that the assessee company is the developer and builder and not a mere contractor. Further he submitted that the CIT(A) on one hand giving a finding that the assessee is not a developer and only a contractor and on the other, gave a finding that the assessee developed and built housing project vide permit dated 7.9.1999, after that he has given a finding that the assessee is not entitled for deduction u/s. 80IB on the reason that the assessee has not produced completion certificate and constructed 95 flats as against 80 flats sanctioned by the Municipal Corporation of Hyderabad (MCH). He submitted that the findings of the CIT(A) are self contrary. According to the AR, the CIT(A) wrongly referred to Explanation (ii) below section 80IB(10) which stipulates that date of completion shall be taken to be the date on which completion certificate is issued by the local authority.

9. The AR submitted that the CIT(A) referred to Explanation (ii) below Sec. 80IB(10) which stipulates that date of completion shall be taken to be the date on which completion certificate is issued by the local authority. He held that obtaining such completion certificate is mandatory. The CIT(A) referred to the notices issued by the Municipal authority to the various flat owners in the residential complex and held that notices cannot be equated with completion certificate. The CIT(A) also held that the assessee has not even taken proper and appropriate steps for obtaining occupancy certificate including intimation to concerned authority under rule 13.1.2 of building bye-laws, 1981.

10. The AR submitted that the assessee has produced before the CIT(A) copies of the letter dated 4-1-2006 filed by the assessee before the Municipal authorities intimating about completion of the building accompanied by form of completion certificate and requesting for issue of completion certificate. A copy of the same is placed at pages 1 and 2 of the paper book filed by the assessee. The AR submitted that the CIT(A) has brushed aside the same by observing that the completion certificate was not signed by the licensed architect and that the assessee has not informed the concerned authority.

11. The AR also submitted that the CIT(A) has not appreciated that the requirement of completion certificate and the date of completion was not stipulated in the law as it existed when the assessee obtained approval for the housing project. The AR relied on the decision of the Hon’ble Income tax Appellate Tribunal in the case of Hiranandani Akruti JV v. Dy. CIT [2010] 39 SOT 498 (Mum). 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 Asst. Year 2006-07. Assessee, following project completion method of accounting, claimed deduction under section 80IB(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 2000 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. A copy of the order of the Tribunal in the case of Hiranandani Akruti (supra) is placed on record.

12. Apart from the above, the AR also submitted notwithstanding the absence of requirement under Sec. 80IB(10), it has filed its application for completion certificate on 4-1-2006. In this connection the AR invited attention of the Bench to Section 455 of the Hyderabad Municipal Corporation Act which stipulates that every person, after completion of erection of a building, should send to the Commissioner a notice in writing of such completion and accompanied by a certificate specified in the bye-laws and afford facilities for inspection of the building and apply for permission to occupy the building. The said rule stipulates that the building can be occupied either after the relevant permission is received or if within 21 days after receipt of the notice the Commissioner fails to intimate refusal of his permission. The assessee cannot be faulted for inaction on the part of the municipal authorities.

13. As regards the deviation from the municipal approval plan, the AR submitted that the parameters for issuance of occupancy certificate taken into account are (i) number of floors, (ii) extent of setbacks, (iii) parking space provision and (iv) abutting road width. Also the municipal admission and Urban development department has issued clarifications as per which, within the building, it is for the builder/architect who has the freedom to design the inside areas as per their choice. Copies of the letter No. R-230/TPS/GHMC/ HO/2011/1118 dated 30-5-2011 issued by the Greater Hyderabad Municipal Corporation, Hyderabad and copy of memo No. 6349/M/2006- 6 dated 5-9-2006 issued by the MA&UD Dept., of Govt. of AP are placed on record as additional evidence.

14. The AR submitted that the plan approved by the Municipal authorities remains intact. The municipal Corporation has inspected and assessed all the flats in the housing complex. The assessee has filed before the Assessing Officer as well as the CIT(A), copies of several notices of house tax assessment pertaining to each of the three blocks of the residential complex issued in the month of February, 2006 by the municipal authorities. In these circumstances, the AR submitted that the assessee has fulfilled all the conditions for being eligible for deduction under Sec. 80IB(10) viz., the housing project was approved by local authority, the construction was commenced after 1-10-1998, the size of the plot is more than one acre and the assessee completed construction was completed well before 31-3-2006. Clauses (i) and (ii) of the Explanation below sec. 80IB(10) have been introduced w.e.f. 1-4-2005. As per the ratio laid down in the above mentioned case, the learned CIT(A)’s order is liable to be set aside because the assessee has complied with the provisions of Sec. 80IB(10) as it existed before the insertion of the explanation. The AR also relied on the orders of the Tribunal in the case of Namaha Estates, Hyderabad in ITA No. 797/H/2006 dated 29-2-2008 wherein the Tribunal allowed deduction u/s. 80IB(10) in a case where the assessee deviated from the approved plan by converting two adjacent flats into one and the area exceeded 1500 Sq. Ft. A copy of the said order is placed on record. The AR submitted that the Assessing Officer stated that as per the details furnished by the assessee along with its letter dated 23.12.2008 (vide pages 13 and 14 of the paper book), the area of 22 flats exceeds 1500 sq. ft. The assessee clarified before the Assessing Officer that the said area includes common areas. The Assessing Officer did not accept the contention of the assessee stating that the area is not verifiable from the approved plan or the sale deeds.

15. In appeal, the assessee submitted before the CIT(A) that the Assessing Officer has not appreciated that areas of flats are quoted by including common areas occupied like stair cases, corridors, lifts, gymnasium, swimming pool, tot-lot, water tanks, etc. The assessee submitted that the Assessing Officer should have obtained necessary information if she had any doubt about the veracity of the information submitted by the assessee. The rejection without any verification is arbitrary and unjustified. In this connection the assessee submitted that consequent upon a dispute raised by one of the purchasers, the State Consumer Redressal Forum , A.P, Hyderabad appointed an Advocate Commissioner who made actual measurement and furnished his report stating that in respect of Flat C-206, the actual plinth area is 1228.115 Sq. Ft and the common area relatable to the said flat was 655.67 sq. ft. This is evidence of the fact that the built up area has not been exceeded in respect of the flats built by the assessee. The assessee submitted before the CIT (Appeals) that Assessing Officer erred in holding that the assessee violated the norm of built-up area. The CIT (Appeals) noticed the submissions made by the assessee but did not give any specific finding thereon. The AR submitted that on the strength of the evidence submitted by the assessee, it can be seen that the built up area of the flats as submitted by the assessee ought not to have been doubted. However, the AR submitted that the assessee is prepared to demonstrate by physical measurement that the built-up area of the flats is within the limits laid down by Sec. 80IB(10).

16. On the other hand, the learned DR submitted that u/s. 80IB(10) the assessee is entitled for deduction only when a project executed by it has been approved as a housing project by local authority concerned. According to the DR though the permission was granted by the MCH in September, 1999 vide permission dated 7.9.1999 the same was not for any housing project but for construction of three blocks viz., A, B and C consisting of stilt parking + 5 upper floors which consists of 80 flats. According to the DR the sanction is not for housing project. He submitted that the assessee is not engaged in developing and building housing projects and only constructing residential complex as a contractor. A developer is a person who designs and creates new projects and who conceives the project. He submitted that in this case the project was designed by the owner of the land Sri Karan Singh and others and Sri H. Bhanwarilal Jain, GPA holder.

17. The DR further submitted that the assessee came into picture vide the development agreement-cum-deed appointment of attorney, executed on 07/07/2000, much after the date of 07/09/1999, when the project was sanctioned/ approved by the MCH Authorities, based on the plans/drawings submitted by Sri Karan Singh and Others and Sri H. Bhanwarlal Jain, GPA holder. As seen from the said development agreement cum deed of appointment of attorney, M/s. Kura Homes Pvt. Ltd., i.e. the assessee, has been roped in by Sri Karan Singh and Others and M/s. Labham Estates Pvt. Ltd., for the purpose of the construction of the said residential complex, in accordance with the permission and sanctions obtained from MCH vide permit bearing number 1164/4/235/TP7/SDE/97 dated 07/09/1999. Further, in terms of provisions of Clause VII(1) at page 10 of the said agreement dated 07/07/2000, owners of the land along with the ‘consenting party’ i.e. M/s. Labham Estates Pvt. Ltd., shall be entitled for 40% of the built-up area on each floor and the assessee would be entitled to 60% of the built-up area. Thus, it clearly shows that the assessee was roped in by the owners of the land and M/s. Labham Estates Pvt. Ltd., for constructing the said residential complex. Since, it was not the developer of the said project, it is not entitled for deduction u/s. 80IB(10) of the Act.

18. The DR submitted that, without prejudice to the above, even if it is accepted, though not admitted, that the assessee has developed and built a housing project as per the sanctions obtained from MCH vide permit bearing number 1164/4/235/TP7/SDE/97 dated 07/09/1999, then also it cannot be allowed deduction u/s. 80IB(10) of the Act, since it has failed to furnish any completion certificate in respect of such project from the concerned local authority and further it has made construction of 95 flats, in utter violation of the said sanction obtained from the MCH for construction of only 80 number of flats.

19. The DR submitted that for the purpose of allowance of deduction u/s. 80IB(10), not only the project has to be approved by the local authority, but also the construction thereof has to be completed within 4 years from the end of the financial year, in which the project is approved by the local authority. In Clause (ii) below the Explanation to Sec. 80IB(10)(a), it is stipulated that the date of completion of construction of the housing project shall be taken to be the date on which completion certificate in respect of such housing project is issued by the local authority. Thus, for allowance of deduction u/s, 80IB(10) of the Act, obtaining a completion certificate from the local authority concerned is mandatory. In this context, reference may also be made to the contents of the paras 25.1 & 25.2 of Departmental Circular No. 5 of 2005, dated 15th July, 2005, giving clarification in the context of extension of time limit for approval of housing projects for the purpose of tax holiday u/s. 80IB and allowing deduction for redevelopment or reconstruction of existing buildings in slum areas (The Finance [No.2] Act, 2004), appearing at page 1739-40 of Chaturvedi & Pithisaria’s Income tax Law, Fifth Edition, Volume 10, which are as under:

“25.1. This tax incentive as provided to increase the stock of houses for lower and middle income groups. Keeping in view the fact that there is still a huge shortage of houses, the time limit for obtaining approval from the local authority has been extended from 31st March, 2005 to 31st March, 2007. However, a time limit has been introduced for completion of the housing project, where development and construction has commenced or commences on or after 1st October, 1998. Such housing project approved by the local authority before 1st April, 2004, has to be completed on or before 31st March, 2008, and the housing project approved on or after 1st April, 2004, should be completed within four years from the end of the financial year in which the project is approved by the local authority. For this purpose the date of approval shall be the date on, which the building plan is first approved by the local authority and the date of completion of the housing project, shall be the date on which the completion certificate is issued by such authority. It has also been provided that the built up area of the shops and other commercial establishments included in the housing project should not exceed five percent of the aggregate “built up area” of the housing project or 2000 sq. ft., whichever is less. The expression built up area has also been defined for this purpose.

25.2. This section does not specifically provide area limit for the garden, the development plan roads, internal means of access etc., in the housing project. Therefore, the same should conform to the project plan approved by the local authority in accordance with the regulations in force. Also the area limit of the plot has to be construed with reference to the area of the site on which the housing project is constructed and not with reference to the demarcation of land done by the land development authority.”

20. The DR submitted that from the above provisions, it may be seen that for allowance of deduction u/s. 80IB(10), the assessee has to obtain completion certificate in respect of such housing project from the concerned local authority. Further, drawing support from the provisions of para 25.2 of the above circular, the DR submitted that for allowance of deduction u/s. 80IB, construction of the project should conform to the project plan as approved by the local authority. Having regard to the provisions contained in Sec. 80IB( 10) and since in the instant case, the assessee has violated the project plan approved by MCH by constructing 95 flats and further has failed to obtain any completion certificate in respect of the said residential complex, it cannot be allowed deduction u/s. 80IB(10).

21. The DR submitted that in support of its claim for allowance of deduction u/s. 80IB(10), the assessee has referred to the decisions of the Tribunal in the case of Dy. CIT v. Ansal Properties & Industries Ltd., [2009] 22 SOT 45 (Delhi). As seen from the said decision, the deduction u/s. 80IB(10) was allowed in that case on the basis of the occupation, certificate, issued by Director, Country & Town Planning and NOC granted by the fire Station Officer which were produced before the Appellate Authority. However, in the instant case, the assessee has not been able to furnish any occupation certificate from the concerned authorities. Thus, the said decision would be of little help to the case of the assessee.

22. The DR submitted that in support of its claim for allowance of deduction u/s. 80IB(10), the assessee has referred to the notices issued by concerned Municipal Authority in respect of some flats for property tax assessment. In this contest, the DR submitted that such notice issued cannot be equated with completion certificate in respect of such residential complex. Further, the assessee has not even taken proper and appropriate steps for obtaining occupancy certificate from the MCH. Apart from the fact that the alleged completion certificate prepared by it and submitted to MCH, is not signed by a licensed architect, the assessee has also not informed the concerned authority before occupying the said residential complex, as required u/s. 13.1.2, of the Municipal Corporation Building Bye-Laws, 1981.

23. The DR submitted that, in view of the foregoing arguments, the assessee is not entitled for deduction u/s. 80IB(10) of the Act. Therefore, the CIT(A) was justified in disallowing the claim of deduction for an amount of Rs. 98,13,125/ made u/s. 80IB(10), in the assessment order.

24. We have heard both the parties and perused material on record including written submission by the AR. 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.

25. The main contention of the DR is that the assessee is not a developer and only carried on the work of contractor and build the residential complex. But the question is that who is developing the project. Certain it is not the landlord. Admittedly, in this case, the landlord approached the assessee and jointly evolved a scheme for development and the assessee executed the work of development. There is an approved plan sanctioned vide permission dated 7.9.1999 for construction of 80 flats. Against the construction of 80 flats, the assessee had developed 95 flats. Having jointly decided upon the scheme of development of the project, even if the building plan is in the name of the landlord, it does not dispute the fact that the assessee has been engaged as a builder by controlling and directing the work of building construction. If a person when his job would be merely constructing the building as per the design provided by the landlord and handover the constructed building to the landlord, it is only a contractor. His job will not include designing the project and incurring expenditure on its own. In the present case, the assessee as a developer constructed the proposed complex at its sole cost and expenses towards which amount it shall not claim any set off from the owner and the developer /assessee is entitled for 60% of the built up area in each floor and it is entitled to enter into agreement of sale with third parties as it may deem it fit and proper, the area of proposed complex allotted to the share of the developer including the developer’s proportionate share in the scheduled premises comprising of the proportionate built up area in each floor of the proposed project along with the commensurate undivided share in the entire scheduled premises in the manner enumerated in the development agreement as schedule – II Plan. This fact shows that the assessee has been engaged as a builder and not as a contractor. The assessee as a builder has controlled and constructed the work of building construction. If the assessee only a contractor, its job would be merely constructing the building as per the design and plans provided by the owner and handover the constructed building to the owner and it has nothing to do with designing and selling of the project and it will not get any share in the constructed area. In the present case, the assessee having right to 60% in the constructed area and also a share in the undivided property, cannot be called a mere contractor. Being so, the argument that the assessee is a contractor and not a developer, cannot be valid. The only thing we have to see is that the claim of deduction u/s. 80IB(10) is to be granted to the assessee to the extent of its share and there cannot be double deduction. In our opinion, on this count the assessee is entitled for deduction u/s. 80IB(10) of the Act as the assessee invested its own money and carried on the project.

26. Now the other 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 absolute 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”.

27. Further, in the present case the assessee’s project is approved by local authority prior to 1.4.2004 and there is no dispute regarding this. However, one of the 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 v. CIT [1992] 196 ITR 188  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 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 need not insist on the completion certificate in this assessment year, this is the right meaning of the statute. 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.”

28. 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 the case of Namaha Estates [ITA Nos. 797 & 813/Hyd/06] dated 29.2.2008, wherein the Tribunal held as follows:

“8. We heard the rival contentions. First let us address the main contention of the assessee that two residential units were combined into one single unit as per the requirement of the prospective buyer. We find from the assessment order that the assessee has combined all the possible two units into one residential unit and each of such flat has been sold to a single buyer only. So the claim of the assessee stated above does not appear to be correct. From the beginning, it appears that the intention of the assessee is to sell them as a single residential unit only. This intention is reinforced further with the numbering system adopted. As noticed by the Assessing Officer, the assessee instead of numbering the flats in a floor chronologically, he has numbered the two adjacent flats which are proposed to be combined, as for examine 1A and 1B, instead of being numbered as 1 and 2. Though the project plan was prepared to suit the requirement of conditions prescribed under section 80IB, one of the condition prescribing maximum area of each flat has been violated at the time of construction of certain group of the flats.

9. The next question then arises is regarding the calculation of built up area. The assessing officer also including the proportionate share of common area in the size of each flat. When the words are not defined in the Act, it should be understood in the same way it is understood in the common parlance. As the common area is not earmarked for the exclusive use of any particular flat owner and it is commonly enjoyed by all the flat owners, the built up area is normally meant as plinth area of each flat only by excluding the common area from it. The Finance Act (No. 2) of 2004 inserted the definition of “built up area” to clarify this position. Though the Learned DR argues that this definition is applicable from 1.4.2005 only, yet by adopting the common parlance and test of exclusive right as stated above and clarification or the term “built up area” by the Finance Act referred supra, We find merit in the contention of the assessee that the proportionate common area should be excluded from the calculation or flat size. Accordingly we confirm the order of Learned CIT(A)..

10. The next question that arise is whether the assessee is entitled to NIL deduction or full deduction or proportionate deduction u/s 80IB of the Act. as the size of some of the flats has exceeded the prescribed size limit. This matter has been examined in detail by the “A” Bench of this ITAT in the case or DCIT v. Saket Engineers (P) Ltd. (supra), and it has been held that the assessee is eligible for deduction u/s. 80IB in respect of those flats whose size is within the prescribed limits. We also concur with the above said decision and accordingly uphold the order of Learned CIT(A).”

Therefore, this ground of the assessee is allowed.

29. The next ground in this appeal is with regard to non adjudication of specific ground taken by the assessee with regard to work-in-progress related to Maredpally Project credited to the Profit and Loss A/c. did not result in enhancement of profit derived from eligible undertaking (ground No. 8). The Assessing Officer noticed that work-in-progress relating to West Maredpally site amounting to Rs. 31.45 lakhs was credited to P&L account. She held that the profit derived from this project was not eligible for deduction u/s. 80IB. The AR submitted that the assessee has not claimed deduction u/s 80IB in respect of the Maredpally project for the assessment year 2006-07. The amount of Rs. 31.45 lakhs, even as admitted by the Assessing Officer, relates to the work-in-progress in respect of which corresponding amount of expenditure has been booked by the assessee in the P&L account. He submitted that the Assessing Officer may be directed not to reduce the eligible deduction u/s. 80IB by taking into account the work-in-progress relating to Maredpally site since the quantification of the work-in-progress has not affected the deduction claimed by the assessee u/s. 80IB(10). We have heard the parties. As the CIT(A) not adjudicated this ground, we remit this issue to the file of the CIT(A) for fresh adjudication. This ground is allowed for statistical purposes.

30. The next ground is that the CIT(A) erred in holding that “other income” credited to Profit and Loss A/c. which constitutes largely of dividend on chit and rent of vacant flat did not constitute income derived from the housing project.

31. The learned AR submitted that an amount of Rs. 4,38,085 was credited to the Profit and Loss A/c. towards rent of vacant flat, dividend on chits, scrap sales, discount on material, interest on deposits. In our opinion, chit dividend, scrap sales and discount on materials are to be considered as income from business eligible for deduction u/s. 80IB(10) of the Act in view of the judgement of jurisdictional High Court in the case of CIT v. Kovur Textiles & Co. [1982] 136 ITR 61 (AP) and the decision of Cuttack Bench of this Tribunal in the case of Asstt. CIT v. Maxcare Laboratories Ltd. [2005] 273 ITR (AT) 1. However, the other income i.e., rent on vacant flat, interest on deposit cannot be considered as income from business and the same has to be considered as income from house property/income from other sources, respectively. This ground is partly allowed.

32. In the result, assessee’s appeal is partly allowed.

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