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TMI Blog2012 (11) TMI 466X X X X Extracts X X X X X X X X Extracts X X X X ..... nate share of common area in the size of each flat - Held that:- The Finance Act (No. 2) of 2004 inserted the definition of "built up area" to clarify this position, thus finding merit in the contention of the assessee that the proportionate common area should be excluded from the calculation or flat size - in favour of assessee. NIL deduction v/s full deduction v/s proportionate deduction u/s 80IB - Held that:- The assessee is eligible for deduction u/s. 80IB in respect of those flats whose size is within the prescribed limits - in favour of assessee. Work-in-progress related to Maredpally Project credited to the Profit and Loss A/c - Held that:- he 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). As the CIT(A) not adjudicated this ground, this issue is remitted back to the file of the CIT(A) for fresh adjudication - in favour of assessee for statistical purposes. Chit dividend, scrap sales and discount on materials are to be considered as income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... states 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/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer 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 proj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all 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 projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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