2017 (4) TMI 913 - AT - Income Tax

Validity of assessment u/s 143(3) r.w.s.153A passed on the non-existing entity - Held that - The assessment made u/s 143(3) r.w.s.153A are bad in law being nullity in the eyes of law as the search warrant was issued in the name of non-existing entity. - Decided in favour of assessee Appointment of DVO - Held that - We find that the valuation office was engaged by the Department from Central Public Works Department, Government of India, who was technical expert. After perusing the provisions of section 132 (2) of the Act, we find in the search cases it is usually to take opinion of technical experts from the qualified engineers working in CPDW. In the case before us, the services of DVO was taken for the measurements of flats which in our opinion, no other person could have done better way as the matter being highly technical. We also find that due opportunity was given to the assessee by the department to controvert the finding of the AO by giving copy of the valuation report, so, in view of these facts we are of the considered view that the ground raised by the assessee has no substance and therefore, the ground raised by the assessee is dismissed. Denying the claim for deduction u/s 80IB(10) for including the flower bed area which is open to sky and not on floor level and 50% of common wall area as part of built up area prescribed under section 80IB(14) - Held that - We find considerable force in the submissions of the assessee that the flower bed area and common wall area are not includible in the definition of built up area while calculating the eligible limit of 1000 sq. ft for the purpose of allowing deduction u/s 80IB(10) of the Act. The flower bed area is open to sky and not covered by any sides whereas balcony is covered with three sides. The flower bed area is few inches below floor level. It is the submission of the assessee that the flower bed area is outside the balcony area and the starting point for the flower bed area is a point where the balcony area ends.After considering the rival submissions and materials placed before us including the decisions of the rival parties we find that the flower beds which are below the floor level can not form part of constructed area of flat for the purpose of determining the eligibility of the assessee to deduction u/s 80(IB)(10) of the Act. CIT(A) directing the AO to exclude the service area, window area, window projection, cupboard projection from the definition of built up area for calculating the deduction u/s 80IB(10) of the Act and the eligible area of 1000 sq. ft. - Held that - On going through the findings of the ld. CIT(A), we do not find any valid reason to include service area, window area, window projections and cupboard projection in the built up area for calculating eligible built up area of 1000 sq.ft for the purpose of computation of deduction u/s 80IB(10) of the Act. Entitlement to deduction of profits u/s 80(IB)(10) in respect of 10 floor completed - Held that - BMC has issued completion certificate qua the 10 floors on which the assessee calculated the profits of ₹ 61,56,52,158/-. In our opinion the provisions of Act provides for the deduction of profits accruing from housing projects fulfilling the conditions as envisaged in section 80(IB)(10) irrespective of the fact whether the project is completed partly or wholly. In the instant case before us the BMC issued part completion certificate for 10 floors which testified that the 10 floors were complete. So far as the statement recorded during the search is concerned that has no significance in view of the part completion issued by the BMC. We hold that the assessee was entitled to deduction of profits u/s 80(IB)(10) in respect of 10 floor completed.

Issues Involved:
1. Validity of Assessment on a Non-Existing Entity
2. Legality of DVO Appointment and Valuation Report
3. Inclusion of Flower Bed and Common Wall Area in Built-Up Area
4. Completion of Housing Projects for Deduction u/s 80IB(10)

Detailed Analysis:

1. Validity of Assessment on a Non-Existing Entity:
The assessee argued that the assessment order passed under section 143(3) r.w.s 153A was void as it was issued to a non-existing entity, M/s Nahar Enterprises, which had dissolved and transferred its business to M/s Nahar Builders Limited. The Tribunal agreed, noting that the search warrant was issued in the name of the dissolved firm despite the department being informed of the dissolution. The Tribunal held that assessments made on a non-existing entity are null and void, referencing several judicial precedents, including the Delhi High Court’s decision in Spice Infotainment Ltd. v. CIT, which stated that assessments on dissolved entities are impermissible and cannot be cured by procedural provisions like Section 292B.

2. Legality of DVO Appointment and Valuation Report:
The assessee contended that the DVO's appointment was invalid as he was not part of the search party, and thus, his valuation report should not be relied upon. The Tribunal dismissed this argument, stating that the DVO, being a technical expert from the Central Public Works Department, was appropriately appointed to measure the flats. The Tribunal found no fault in relying on the DVO’s report, as the assessee was given an opportunity to contest the findings.

3. Inclusion of Flower Bed and Common Wall Area in Built-Up Area:
The assessee challenged the inclusion of flower bed areas and 50% of common wall areas in the built-up area for calculating the eligible limit under section 80IB(10). The Tribunal agreed with the assessee, stating that flower bed areas, being open to the sky and below floor level, should not be included in the built-up area. The Tribunal referenced the ITAT Mumbai decision in ITO v/s Poddar Ashish Developers, which held that areas below floor level like flower beds should not be included in the built-up area. Similarly, common wall areas shared with other units should also be excluded, as per the Karnataka High Court’s decision in CIT v/s Raghavendra Constructions.

4. Completion of Housing Projects for Deduction u/s 80IB(10):
The assessee claimed a deduction for profits derived from partially completed housing projects, arguing that part completion certificates issued by the local authority (BMC) should suffice for the deduction. The Tribunal agreed, citing the Bombay High Court’s decision in CIT v/s Vandana Properties, which held that a housing project can consist of one or more buildings, and part completion should be considered valid for deductions. The Tribunal noted that the BMC had issued part completion certificates for 10 floors, thus validating the claim for deduction u/s 80IB(10).

Conclusion:
The Tribunal quashed the assessment orders for being issued to a non-existing entity and allowed the assessee’s claims regarding the exclusion of flower bed and common wall areas from the built-up area. It also upheld the validity of part completion certificates for claiming deductions u/s 80IB(10). Consequently, the assessee's appeals were partly allowed, and the revenue's appeals were dismissed.

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