ITAT PUNE BENCH 'A'

IT Appeal No.1218 (Pune) of 2010
[ASSESSMENT YEAR 2007-08]

G.S. PANNU, ACCOUNTANT MEMBER
AND R.S. PADVEKAR, JUDICIAL MEMBER

Sunil Pathak and Suhas Bora for the Appellant.
Ms. Ann Kapthuama for the Respondent.

G.S. Pannu, Accountant Member -This appeal by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-II, Pune ( in short 'the CIT(A)') dated 16-6-2010, which in-turn, has arisen from an order passed by the Assessing Officer on 21.12.2009 u/s 143(3) of the Income Tax Act, 1961 (in short 'the Act') pertaining to the assessment year 2007-08.

2. Although, the Revenue has raised multiple Grounds of appeal in the Memo of appeal, however, the solitary dispute is with regard to assessee's claim for deduction u/s 80IB(10) of the Act with respect to the profits arising from development and construction of a housing project undertaken by the assessee.

3. The respondent assessee is a partnership firm which is engaged in the business of builders and developers. For the assessment year under consideration, assessee had claimed deduction u/s 80IB(10) of the Act of Rs.1,46,24,573/- in respect of a housing project viz. 'Oakwoods' at Viman Nagar, Pune. In the course of assessment proceedings, the Assessing Officer held that assessee was not eligible for the claim of deduction u/s 80IB(10) of Act and accordingly the deduction claimed at Rs. 1,46,24,573 was denied. The CIT(A) has upheld the claim of the assessee and therefore the Revenue is in appeal challenging the action of the CIT(A).

4. Section 80IB(10)of the Act permits an assessee to claim deduction in respect of profits derived from development and construction of a housing project, which has been approved by the 'local authority' before 31.3.2007, subject to fulfilment of the conditions prescribed therein. In the case before us the dispute revolves around the condition prescribed in Clause (a) to Section 80IB(10) of the Act and the Explanation thereof, which read as under :—

"(10) The amount of deduction in the case of an undertaking developing and building house projects approved before the 31st day of March 2007 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project if,—

Explanation — For the purposes of this clause—

5. In terms of Clause (a), deduction is available in respect of housing project which commences development and construction on or after 1.10.1998 and completes such construction within the period prescribed in Sub-clause (i) or (ii) thereof, as the case may be. In the case before us, as per assessee the building plan of the housing project was first approved by the local authority i.e. Pune Municipal Corporation (in short 'PMC') on 19.01.2005 and therefore the period available for completion of construction shall be governed by sub-clause (ii) of clause (a) of section 80IB(10) of the Act. Accordingly, as per the assessee it is entitled to complete the construction of the project within four years from the end of the financial year in which the housing project is approved by the local authority i.e. upto 31-3-2009. The assessee furnished the necessary completion certificates issued by PMC, as detailed by the Assessing Officer in para 2.1 of the assessment order, as per which the final completion certificate was issued by the PMC on 20.12.2008. On this basis, the assessee asserted that it had complied with the condition prescribed in clause (a) of section 80IB(10) of the Act. On the contrary, the claim of the Assessing Officer is to the effect that the date of first approval granted by the PMC is to be considered, which is 02.11.2003 and not 19.01.2005, which is the date on which a Revised plan has been approved by PMC. Therefore, as per the Assessing Officer, period available for completion of construction shall be governed by sub-clause (i) of clause (a) of section 80IB(10) of the Act, and accordingly the construction of the project was to be completed by 31.3.2008. Since the final completion certificate in respect of assessee's housing project has been issued by the PMC on 20.12.2008, and thus as per the Assessing Officer, project of the assessee does not comply with the requirements of clause (a) of section 80IB(10) of the Act. Explanation (i) to clause (a) of section 80IB(10) prescribes that in a case where the approval in respect of housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of the housing project was first approved by the 'local authority'. The Assessing Officer has noted that the completion certificate issued by the PMC referred to first commencement certificate dated 02.11.2003 and therefore according to him, having regard to the prescription of Explanation (i) below clause (a) of sec. 80IB(10) of the Act, which has been reproduced above, the date of approval of the housing project for the purposes of Clause (a) has to be reckoned as 02.11.2003 i.e. when the project was first approved by the local authority. According to Assessing Officer in the instant case, the approval granted by PMC on 19.01.2005 is a Revised sanction, whereas the original sanction was dated 02.11.2003 and therefore the period allowed for completion of construction in this case has to be in terms of sub-clause (i) of clause (a) of section 80IB(10) of the Act meaning thereby that the construction of the project is to be completed on or before 31.03.2008. As the assessee had obtained the final completion certificate from the PMC after 31.03.2008, it was held by the Assessing Officer that the assessee did not fulfil the condition prescribed in clause (a) to section 80IB(10) of the Act. Accordingly, the claim of the assessee for deduction under section 80IB(10) of the Act amounting to Rs. 1,46,24,573 was rejected by the Assessing Officer.

6. From the aforesaid, it is clear that the crux of the controversy is to determine the date on which the housing project of the assessee has been "approved by the local authority" as contained in Clause (a) to section 80IB(10) of the Act so as to decide whether the date of completion of construction is to be governed by sub-clause (i) or by sub-clause (ii) of clause (a) to section 80IB(10) of the Act. Notably, the CIT(A) has upheld the stand of the assessee by appreciating the factual position and in particular the following discussion in his order is relevant:

"It is a matter of record that the appellant firm itself came into existence on 20.07.2004 as per the partnership deed. It was a separate legal entity than the earlier owners of the property being the Mahavir Park Co-operative Society, of which the power of attorney holders were Shri. Dilip Pardesi, Secretary of the Society and others. After this, the partnership firm obtained the development rights of the plot of 7826.89 sq. mtrs. of land on 01.10.2004. It has also been clarified that originally there were three different plots and it was in respect of one of these plots admeasuring 1983 sq. mtrs. that building plan approval was obtained vide commencement certificate dated 01.11.2003, which has been referred to in the assessment order. However, it has been clarified by the PMC that no development was carried out on any of the three difference plots sanctioned in 2003. Subsequently, on 20.07.2004, the PMC vide commencement certificate no. DPO2822 dated 20.07.2004 sanctioned the plot admeasuring the area 7826.89 sq. mtrs. after amalgamation. It was for development of this particular piece of land that the appellant firm had obtained the development rights and the building plan approval taken in January, 2005 was for this land; containing 4 buildings and 112 flats. It was also clarified that account of approval of layout plan after amalgamation vide the commencement certificate No. DPO 2822 dated 20.07.2004 all previous approvals were cancelled. However, since the original three plots were part of the amalgamated piece of land, the building plan sanctioned on 19.1.2005 was termed and approved as a 'revised plan'. Accordingly, it is contended that the 'Oakwoods' project of the appellant firm can be treated to have commenced w.e.f January 2005 only, and therefore, time was a available upto 31.3.2009 for the completion of the project. On a careful perusal of this Explanation alongwith the letter dated 31.12.2009 obtained from PMC, it is held that since the appellant firm itself had come into existence w.e.f. 20.7.2004, the approved plan dated 02.11.2003 cannot be belonging to the appellant firm. Further, the development rights of the amalgamated plot of land 7826.89 sq. mtrs. was itself obtained on 01.10.2004. Therefore, the Building plan approved vide commencement certificate 19.01.2005 is held to be the first Building Plan approval in respect of the appellant, and the date 19.01.2005 the date of commencement of the appellant's project. Since it is not disputed that the project was completed by 20.12.2008, and the final completion certificate was also obtained on this date, it is held that the appellant's project was completed within stipulated time 80IB(10)(a)(ii) of the I.T. Act, 1961. The deduction 80IB(10) is therefore, held to be allowable. Grounds of appeal Nos. 2 & 3 are, therefore, allowed."

7. Before us the learned CIT(DR) appearing for the Revenue has primarily re-iterated the objection raised by the Assessing Officer which is to the effect that the completion certificate issued by the PMC itself contains reference to the first sanction of 02.11.2003 and therefore the case of the assessee was to be governed by sub-clause (i) of clause (a) of Section 80IB(10) of the Act.

8. On the other hand, the learned counsel appearing for the respondent assessee has vehemently submitted that the commencement certificate dated 02.11.2003 was on a plot of 1983 sq. mtrs., which was obtained by the previous owners. The previous owners amalgamated the adjoining plot subsequently and such amalgamated revised layout was sanctioned by the PMC vide commencement certificate dated 02.07.2004 to create a plot of 7826.89 sq. mtrs. The assessee firm was incorporated on 20.07.2004 and in terms of a development agreement dated 01.10.2004, it acquired the development rights of this plot of 7826.89 sq. mtrs. Thereafter the building plan approval was first time obtained by the assessee on 19.01.2005 on such plot area. The learned counsel pointed out that before acquisition of the plot by the assessee there was no development taken up and that the sanction of 2.11.2003 referred by the Assessing Officer was on a plot of 1983 sq. mtrs. only which was obtained by the previous owner but no development ever took place even as per that sanction. Therefore, it was pointed out that merely because the building plan approval dated 19.01.2005 issued the PMC mentions it as a revised approval, it cannot be treated as the first building plan approval for the project undertaken by the assessee. In this connection the learned counsel has referred to the detailed submission made before the CIT (Appeals) which have been reproduced in the impugned order and in particular reference has been made to a letter dated 31.12.2009 issued by PMC which clarified that prior to assessee acquiring the plot of 7826.89 sq. mtrs. on 01.10.2004, the previous owners had three different plots and it was in respect of one such plot admeasuring 1983 sq. mtrs. the building plan approval was obtained on 2.11.2003 as referred by Assessing Officer. The PMC had clarified that no development was carried out on any of the three different plots and it was only on 20.07.2004 that the PMC amalgamated the plots into a single plot of 7826.89 sq. mtrs. , whose development rights were obtained by the assessee on 1.10.2004 and the assessee obtained approval for development of said plot in January 2005. In particular, the learned counsel has referred to the copy of communication of PMC dated 31-12-2009, placed at pages 163-165 of the Paper Book to submit that as per the PMC on account of approval of layout plan after amalgamation of plots on 20-07-2004 all previous approval were cancelled. Even with regard to the presence of the expression Revised plan on the certificate issued by PMC on 19.1.2005, the learned counsel referred to the clarification of the PMC to point out since the original three plots were part of the amalgamated plot, the building plan sanctioned on 19.1.2005 contained the expression Revised plan.

9. On the basis of the aforesaid, it is sought to be made out that the project of the assessee i.e., 'Oakwoods' is to be treated to have commenced w.e.f. 19.1.2005 and therefore the time available for completion of construction was upto 31.3.2009. The learned Counsel further pointed out that the letter from PMC dated 31.12.2009 could not be obtained at the time of assessment due paucity of time and therefore it was produced before the CIT (Appeals) as additional evidence in terms of rule 46A of the Income Tax Rules 1962 and has been rightly admitted by the CIT (Appeals) to adjudicate the controversy.

10. We have carefully considered the rival submissions. Factually speaking, it would be pertinent to observe that the assessee firm was incorporated on 20-07-2004 in terms of partnership deed, a copy of which has been placed in the Paper Book at pages 7-12. Further, assessee acquired development rights in respect of a plot of land admeasuring 7826.89 sq. mtrs. situated at S.No. 209, Hissa No. 2 of Village Lohgaon, Tal. Haweli, Dist. Pune by way of a development agreement dated 1.10.2004 and also obtained possession of the same on such date, copies of the development agreement, etc. are placed at pages 13-81 of the Paper Book. Now, the case of the assessee is that it has undertaken development and building of a housing project on the aforesaid piece of land, a fact situation which is not in dispute. The assessee obtained a commencement certificate dated 12.1.2005 which was a layout plan approval from the PMC for development of the said plot of land of 7826.89 sq. mtrs., a copy of which has been placed in the Paper Book at pages 90-91. The approval of the corresponding Building Plans by the PMC is dated 19-01-2005, which is placed at pages 93-94 of the Paper Book. The aforesaid facts are not in dispute. As per the assessee the project eligible for 10IB(10) benefit is the project undertaken on the plot of 7826.89 sq. mtrs. whose layout plan was approved by the PMC on 12.1.2005 and building plans were approved on 19.1.2005.

11. As noted earlier, the date of approval of the project is relevant to ascertain the permissible period of completion of construction. In terms of sub-clauses (i) and (ii) of clause (a) to sec. 80IB(10) of the Act, the determination of date of completion of construction is to be reckoned with reference to the date of approval by the local authority. The Explanation (i) below Clause (a) to sec. 80IB(10) of the Act prescribes that in a case where the approval in respect of a housing project is obtained more than once such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority. Notably, Explanation (i) is to be applied in a situation where in respect of a housing project, approvals have been obtained more than once. Pertinently the said Explanation is not relevant to a case where approvals are granted to different housing projects. The aforesaid understanding of Explanation (i) to clause (a) of section 80IB(10) of the Act is in line with the judgment of the Hon'ble Bombay High Court in case of CIT v. Vandana Properties [2012] 19 taxmann.com 316/206 Taxman 584 (Bom.) whose relevant portion is reproduced as under :

"Reliance placed by the Revenue on the Explanation to Section 80IB(10)(a) which was introduced with effect from 1st April 2005 is also misplaced. What the said Explanation contemplates is that where the approval in respect of a housing project is granted more than once, then, that housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority. For example, in respect of a housing project, the assessee may seek amendment of the building plan at several stages of the construction and the same may be approved. In such a case, the Explanation provides that for the purposes of section 80IB(10) the housing project shall be deemed to have been approved on the date on which the first approval was granted by the local authority. Thus, the Explanation to section 80IB(10)(a) refers to the approval granted to the same housing project more than once and the said Explanation would not apply where the approval is granted to different housing projects. In the present case, as noted earlier, construction of 'E; building constitutes an independent housing project and, therefore, the date on which the earlier housing project had commenced construction could not be applied to the housing project consisting of 'E' building merely because the conditions set out while granting approval to the earlier housing project have also been made applicable to the housing project in question". [Emphasis supplied]

12. We are only trying to emphasis the aforesaid for the reason that Explanation (i) to clause of section80IB(10) of the Act has been wrongly applied by the authorities below. The said Explanation is to be applied with reference to the project of the assessee and not to a project owned by previous owners and that too on a different plot size. In fact, factually speaking the assessee brought to the notice of the lower authorities that the Building Plan approval dated 2.11.2003 referred by the Assessing Officer is for a project distinct than the project of the assessee, whose Building Plan approval was first made on 19.1.2005. It cannot be denied that the approval on 2.11.2003 was by the previous owners in as much as the assessee was incorporated on 20.7.2004 only. Assessee acquired development rights of the plot of 7826.89sq. mtrs. of land only on 1-10-2004. Originally there were three different plots and it was in respect of one of these plots admeasuring 1983 sq. mtrs. that the previous owner obtained a building plan approval dated 01-11-2003, which has been referred to in the assessment order. It has been brought out by the CIT(Appeals) that no development work was carried out on any of the three plots sanctioned in 2003. Before acquisition by the assessee, the three plots were amalgamated and assessee acquired the amalgamated plot and made new layout and building plans which were later approved by PMC in 2005. Therefore, the Building Plan approval dated 19-01-2005 is the first Building plan approval in respect of the aseessee's project. Moreover, at page 92 of Paper Book, assessee has made a statement showing the difference in the layout and building plan submitted by the previous owner with respect to 2003 approval and the impugned project of the assessee. The aforesaid difference was very much before the lower authorities and reads as under:—

13. Further in our considered opinion the factual findings of the CIT(Appeals) based on the communication of PMC dtd. 31.12.2009 which have been extracted in the earlier part of this order, clearly brings out the distinction that the building plan approval of 2003 cannot be construed as the first approval for assessee's project which was on a amalgamated plot of land of 7826.89 sq. mtrs. The PMC has further clarified that once the previous owners amalgamated the three plots into a plot of land of 7826.89 sq. mtrs. on 20.7.2004, all previous approvals were cancelled. The assessee came into picture only on 1.10.2004 and acquired the rights of such 7826.89 sq. mtrs. of plot and therefore 19.1.2005 building plan approval is to be considered first approval by the local authority of the assessee's housing project in question.

14. As a consequence, the date of completion of construction of such project is to be governed by sub-clause (ii) of clause(a) to Sec.80IB(10) and accordingly the assessee was entitled to complete the construction by 31.3.2009. The assessee obtained the final completion certificate on 20-12-2008, as noted by the Assessing Officer in the assessment order and therefore in our view the CIT(Appeals) made no mistake in holding that the assessee complies with the condition prescribed in clause (a) of section 80IB(10) of the Act. As a result, we hereby affirm the order of the CIT(Appeals) allowing assessee's claim for deduction under Section 80IB(10)of the Act.