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TMI Blog2009 (12) TMI 662X X X X Extracts X X X X X X X X Extracts X X X X ..... in this order, the Assessing Officer observed that after verification of the submissions and the details furnished the income declared is accepted and the assessed income was taken at Rs. Nil . In the assessment order, the Assessing Officer also observed that the assessee had claimed deduction of Rs. 1,89,18,106 under section 80-IB. 3. After completion of the assessment as above, the Assessing Officer himself sent a proposal to the CIT on 23-4-2007 requesting the latter to take action under section 263 of the Act on two grounds. The first ground was that the return was filed indicating the status of the assessee as "firm" and in the audit report filed with the return also the status was mentioned as "firm". However, in the course of the assessment proceedings, the assessee claimed the status of an association of persons which was accepted. According to the Assessing Officer, the acceptance of the status as AOP was erroneous. The second ground was that the deduction under section 80-IB was wrongly given, overlooking the provisions of sub-section (2) of the section. According to the Assessing Officer, the assessee-AOP consisted of M/s. Gautam Enterprises and M/s. V.M. Corporati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee s business. The CIT also noticed that at no stage of the assessment proceedings did the assessee offer to produce evidence in support of the fact that each residential unit in the buildings constructed by the assessee was less than 1,000 sq.ft. of built-up area as required by clause ( c ) of sub-section (10) of the section. The Assessing Officer did not get the measurements checked through the departmental valuers and only such an enquiry would have enabled him to come to the right conclusion about the eligibility of the assessee to the deduction, according to the CIT. 5. On the above basis, the CIT issued notice under section 263 of the Act in response to which the assessee made detailed submissions which were considered by the CIT but rejected by him. It is necessary to summarise his findings and we do so in the following manner : ( a )The assessee failed to produce any evidence to show that all the three conditions mentioned in section 80-IB(10) have been fulfilled. ( b )Some of the residential units, when coupled with the adjoining unit, resulted in the built-up area exceeding the maximum permissible limit of 1,000 sq.ft. ( c )There was a reconstruction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion officers and particularly those flats which have been joined by two purchasers whether they happened to be husband and wife or otherwise. It is against the aforesaid order of the CIT that the assessee has come in appeal before the Tribunal. 7. It is first contended on behalf of the assessee that the view taken by the CIT that section 80-IB(2) also applies to assessee s claiming deduction under sub-section (10) of the section in respect of housing projects is erroneous and untenable as has been held by the Mumbai Bench of the Tribunal in ( a ) Parth Corpn. v. ITO [2008] 23 SOT 368 and ( b ) Shreejee Ratna Corpn. v. ITO [IT Appeal No. 3106 (Mum.) of 2007, dated 10-2-2009]. It is, therefore, contended that the CIT was not right in law in holding the assessment to be erroneous and prejudicial to the interests of the revenue on the ground that the Assessing Officer overlooked the provisions of sub-section (2) of section 80-IB. Copies of the orders of the Tribunal in the above cases were filed. We find force in the contention. A perusal of the orders of the Tribunal shows that the Tribunal has taken the view, on identical matters while hearing an appeal from the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shreejee Ratna Corpn. ( supra ). In the light of the aforesaid orders of the co-ordinate Benches, it is not possible to accept the view taken by the CIT that an assessee claiming deduction under sub-section (10) of section 80-IB is governed also by sub-section (2) of the section and it is necessary for him to fulfil the conditions mentioned in that sub-section and prove that he is an industrial undertaking. In addition to the above reasoning of the Tribunal, which has been pressed into service before us on behalf of the assessee, it was further submitted that there is inherent evidence in section 80-IB itself to show that the conditions mentioned in sub-section (2) are not required to be fulfilled by an assessee engaged in the development of housing projects and claiming deduction under sub-section (10). It is pointed out that there are several sub-sections, which specifically require the assessee claiming deduction thereunder that it should not be formed by reconstruction or splitting up of existing businesses and if, as claimed by the CIT, sub-section (2) and the conditions mentioned therein are to govern an assessee claiming deduction under the other sub-sections including sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther before him nor before the Assessing Officer had argued that their case is not a case of reconstruction of the businesses already in existence. In other words, the submission is that the assessee even factually had established that its business of developing housing projects in Mulund, Mumbai was not the result of reconstruction or splitting up of already existing businesses. In this connection, our attention was drawn to the assessee s reply dated 9-5-2007 to the show-cause notice issued by the CIT, a copy of which has been placed at pages 35 to 44 of the paper book. In sub-para ( iii ) of paragraph 2 of the reply (at page 40 of the paper book) the assessee has denied that it was found by way of reconstruction or splitting up of business already in existence. A perusal of the paragraph shows that the assessee has supported its contention by reference to the following facts. Initially the land in Hari Om Nagar belonged to M/s. Gautam Enterprises who were not in a position to construct the housing project independently. M/s. V.M. Corporation, who apparently had the technical expertise, were approached for a joint venture proposal and, thus, both the entities came together in 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , inter alia , the total lay out plan of Hari Om Nagar and other details relating to the project and has stated therein that the residential units were of built-up area of less than 1,000 sq.ft. each. In support of the claim, the assessee had furnished annexure V to the aforesaid letter containing the details of the sales in building Nos. 1 to 4 in Millennium Park. This annexure contained the building No., flat No., carpet area of each flat, its built-up area, the name of the purchaser, address and the sale value of the flat. No fault has been found in these details which show that each flat was of built-up area less than 1,000 sq.ft. Paragraph 9 of the order of the CIT also shows that before the completion of the assessment, the Assessing Officer had made enquiries under section 131 of the Act with regard to the built-up area of the residential units. It is better to reproduce the observations of the CIT himself in this connection: "No reference was made by the Assessing Officer at all to have an authentic measurement. The assessee s contention that the Assessing Officer deputed an independent architect is also not borne out from the records/order sheet. The details were fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he drew our attention to flat Nos. 704 to 706 in annexure V filed by the assessee under cover of letter dated 15-12-2006 addressed to the Assessing Officer which showed that all the three purchasers of the three residential units were Sonawanes and belong to the same family and apparently they insisted that the three adjacent flats, each of less than 1,000 sq.ft. built-up area, purchased by them should be joined so that they will have a single flat of 1,602 sq.ft. of built-up area. It is common knowledge that members of the same family who purchase separate residential units adjacent or contiguous to each other often join them by breaking down a wall or by opening a door way or in many other ways so that the entire family lives together and gets more space to live. In many cases, a request is made by the purchasers to the builder or developer of the housing project to join the flats/residential units and the request is carried out by the builder. In such cases, it is not possible to hold that the builder built the residential flat of more than 1,000 sq.ft. of built-up area. There is no evidence on record to suggest that the assessee itself advertised that the flats were of more tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requirements of sub-section (10) on stand alone basis and the income from the construction of the residential units can be ascertained on a stand alone basis, the deduction would be available in respect of the residential segment of the project. Applying, with respect, the ratio laid down in the Special Bench case, we find that in the present case the violation, if any, of condition ( c ) of sub-section (10) is much less than 10 per cent, say around 6.5 per cent to 7 per cent only, and, therefore, the deduction for the profits arising from the housing project cannot be denied. The extent of violation, if at all there is a violation, is so less that it would be inappropriate to deny the deduction totally. The Special Bench has further held that even if the commercial user of the built-up area of the building exceeds 10 per cent, the assessee would still get the proportionate deduction, i.e., the deduction would be confined only to the profits of the residential segment of the overall profit. Therefore, even if the assessee cannot be given the entire deduction under section 80-IB, it should be eligible for the proportionate deduction as envisaged by the Special Bench. It has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (10), is not eligible for the deduction thereunder. 15. That takes us to the third contention of the assessee taken before us, namely, that the assessment having been completed after due enquiry, the same cannot be said to be erroneous and prejudicial to the interest of the revenue. Our attention was drawn to the letter dated 14-8-2006 issued by the Assessing Officer calling for several details one of which was to ask the assessee to justify the claim under section 80-IB with respect to the statutory requirements. The assessee submitted two separate replies, one dated 13-9-2006 which contained an annexure (Annexure 5) furnishing full details of the customers to whom the flats were sold. We have already referred to this annexure and to the details it contained. The assessee also filed another letter dated 27-12-2006 to the Assessing Officer explaining how it was formed and giving all other details regarding the housing project, the approval of the lay out plan, etc., and also justifying the claim for deduction under section 80-IB. A copy of this letter is at pages 29 to 32 of the paper book. This letter is actually in response to the Assessing Officer s query by letter dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot conduct any enquiry into the conditions of sub-section (10). This, with respect, appears to us to be incorrect. 16. The last aspect which remains to be considered is whether the assessment could be termed as erroneous and prejudicial to the interest of the revenue because of the fact that the status of the assessee was wrongly taken as AOP, whereas it should have been taken as a firm. It is no doubt true that the assessee claimed the status of firm in the return and even the audit report mentioned the status as that of a firm . However, the assessee itself claimed in the course of the assessment proceedings that the status was not that of a firm but it was an AOP and in support of the same filed an agreement dated 25-11-1999 between M/s. Gautam Enterprises and M/s. V.M. Corporation as constituting the basis for the claim of the changed status. There was also a supplementary agreement dated 19-4-2000 effecting some further terms and conditions between the aforesaid parties and both these agreements were undisputedly part of the record of the Assessing Officer. It is open to the assessee to claim, in the course of the assessment proceedings that its correct status is so ..... X X X X Extracts X X X X X X X X Extracts X X X X
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