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TMI Blog2014 (12) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to section 80IB(10) of the Act. The project was approved in the A.Y.2005-06 and completed before March 2009 relevant to the A.Y.2009-10. There was a survey action u/s 133A of the Act on 11/03/2008 and the project is incomplete by that date. During the survey, the officers noted that there are 24 1BHK flats under construction and 10 of the them were already sold. They are constructed in such a way that the said flats could be conveniently combined with the lower 1-BHK flats vertically in order to generate spacious duplex flats. This is possible as there is a square shaped hole left in between the two flats for providing a stair case if flat owners so desire to reach the lower flat. There is a provision for one kitchen in the lower flat if a duplex flat is generated. However, there is no stair case seen already built at the time of survey action. Revenue Officers interpreted these findings by stating that the assessee intends to sell 1BHK flats as duplex flats. Further, the AO relied on a colour brochure of "Duplex Floor Plan" showing the drawing how two 1-BHK flats (located one above other) could be joined. It was found at the site and the same was impounded too. There is no di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the assessee violated the condition relating to the area of the flat provided clause (c) of the Explanation to section 80IB(10) of the Act. 4. In the assessment, the AO rejected the 'affidavit' of Sri Vaid, the deponent of the statement who requested the AO to consider the post survey events in the matter too before concluding the assessment (para 14(b) of the AO's order). It is the case of the assessee that the statement taken during the survey action is not binding and relied on the judgments of various courts on this issue. AO also rejected the finding of the CIT(A) in connection with the assessment of the earlier years. In those orders relevant for earlier years, the CIT(A) decided the issue of claim of deduction in favour of the assesse and the assessee's claim of deduction u/s 80IB(10) of the Act is found allowable (para 10 on page 11 of the AO's order). Further, the AO also rejected letters giving by four flat buyers of 1-BHK, filed before him. These letters confirms the assessee's claim that the 'hole' and single kitchen are provided at the instance of the flat buyers. (para 15 of the Assessment order). In para 16, it is described that the AO under took the exercise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ats cannot be ruled out. It appears that the assessee even at the time of designing the plans had the same intention to sell with the idea to join them as duplex flats. In this situation, it does not matter whether the assessee himself made the provision or joined the flats or the same was made at the request of the purchaser. The assessee in its statement admitted to the fact that changes were done at the instance of the buyers who had purchased two One BHK flats. Accordingly, I hold that the assessee had violated the condition u/s 80IB(10) and therefore not eligible for the deduction claimed. The profits attributable to the 18 One BHK flats cannot be allowed, even if u/s 80IB(10), proportionate deduction of profits from the project is allowable under law. Various Tribunals have held that the provisions being incentive provisions, 80IB(10) should be applied in favour of the tax payer and where a small part of the project does not fulfill the condition, the assessee will not lose benefit in respect of the part which fulfills the conditions u/s 80IB(10). But the Bombay High Court's decision in the case of Brahma Associates (333 ITR 289) is against the assessee. For the sake of recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HK flats qua the Duplex flats. In connection with first one regarding joined of two flats, assessee produced a letter from the purchaser (Mr. Pannalal Poddar) dated July 2007 which contains written request to the developers and it contains the following request ie "please remove the wall between the two flats". The assessee relied on the decision of coordinate bench of this Tribunal Mumbai Bench in the case of G. V. Corporation (38 SOT 174) in his support which is relevant for the proposition that the assessee cannot be denied of the benefits of the deduction u/s 80IB of the Act, when such conversion of flats in to bigger ones is made by the developer 'at the request' of the flat purchasers/buyers. Regarding the second objection relating to measurement of built up area of 3BHK flats in the presence of the DVO's, assessee explained that the 'dry balcony', 'dry area', 'window projections' etc could not be included within the definition of the 'built up area' for the purpose of u/s 80IB(10) of the Act. The assessee submitted that the AO accepted above contention of the assessee in view of the DVO findings in the matter and thus, the built up area for 3BHK flats are concluded as below ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... joined into one and if so, at whose instance they were joined. The discussions by the AO can be found in Para 16 of the order. He confirms that he was taken to 4 one BHK flats in B wing of the project and he found that they were not joined and there was no provision for such joining through staircase and each of the four flats had independent kitchens. He further record that " All other flat owners have filed their replies. In case of two more flats, the owner has said that they have not combined the two flats. In all other cases, they are said to be joined but they have replied that either the provisions to join were made by the Developer at their request or that they joined the same after taking possession of the flats." 9. In support of claim, the assessee relied on various decisions which are reproduced as under:- 6 (a) Firstly, we pray that for joining of two flats whether horizontally or vertically, so joined by or at the request of the purchaser, the appellant cannot be faulted under the provisions of section 80 IB(10) of the Act. The following decisions of the Mumbai Tribunal support the view point of the appellant: i. Smt. Manju Gupta vs. ACIT (134 ITR 503) - Mumbai, ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an 1,000 sq. ft. Therefore, the appellant cannot be allowed deduction in respect of such duplex flats because prima facie it appears that total area of such flats has exceeded the limits with the knowledge and connivance of the appellant." 11. Thus, the CIT(A) granted part relief to the assessee and confirmed the without prejudice disallowance made by the AO, in respect of the claim of the deduction on the profits relatable to the 18 flats converted into the duplex flats. In the process, he rejected the evidences gathered after survey action vide the proceedings u/s 133(6) of the Act and the confirmation letters garnered by the assessee. Conclusion of the ITAT on the ground raised in appeals are given in the following paragraphs. We shall first take up the assessee's ground ITA NO 2443/M/2012 12. Aggrieved with the said conclusions of the CIT(A), in the assessee filed the present appeal raising the following ground,- "On the facts and in the circumstances of the case, the Ld CIT(A) erred in holding that 1BHK flats where-ever converted into duplex had build up areas of more than 1000 sq ft and such flats exceeded the limits under section 80IB(10) with the knowledge and connivanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter the flats are purchased by them using the said the provision for constructing the stair case using the design and services of the developer. Thus, the developer joined the flats at their request after taking the possession of the flats. Para 16 extracted above is relevant here and AO when visited the flats, found that four of the flats are without any provision for staircase and they have independent kitchen. Individual families are found residing in them. It is categorical assertion of the assessee that a flat buyers combined flats in some cases after taking possession of the flats and in six other flats, there is no such conversion or merger of flats. Assessee has merely made a provision for such merger or combining and in such case, it can not be said that assessee violated the names under the provision u/s 80IB(10) of the Act. The counsel argued that in a case where the joining of the flats is done by the purchaser, it cannot be stated that the assessee who merely provided for such merger, has constructed flats in violation of the area prescribed for each flats. Referring to the provision of clause (c) of Explanation to section 80IB(10) of the Act, ld. counsel mentioned th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the local authorities to construct 1-BHK, 2-BHK and 3-BHK flats and accordingly,the built up area of each of these flats so approved does not exceed 1000sq ft. No duplex flats are to be envisaged in this project. There is no dispute with regard to the 2-BHK and 3-BHK flats before us and the dispute now is restricted to 1- BHK flats allegedly merged into the duplex flats only. 18. On this dispute, the facts are that there are 24 such 1-BHK flats in the project. Out of them, there is no dispute with regard to 6 of such 1-BHK flats. Dispute is restricted to 18 of such 24 one-BHK flats. The dispute revolves around (a) developer making a provision (a square shaped hole in the ceiling /floor) for construction of the staircase connecting the lower 1-BHK flat to generate a 'duplex flat' with single kitchen and (b) the impounding from the assessee's premises of a 'brochure with the design' on how to merge two 1-BHK flats into a duplex flat. AO made use of the same to interpret that the assessee always intended to constructed duplex flats, each of which has the built up area exceeding the specified areas in said clause (c) of the Explanation to section 80IB(10) of the Act. In the survey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he developer has dutifully constructed the said flats in accordance with Diagram showing the relevant dates the plan approved by the local authorities in the AY 2009-10, where the profits needs to be recognized for tax purpose based on the 'project completion method', the said discrepancies ie making a provision of square shapped hole as discovered during survey action in AY 2008-09, becomes irrelevant. Impounding of the brochure with details of method of merger of 1-BHK flats into a duplex, cannot be used against the assessee as it only provides the design of merger. It is not case of the revenue that the developer constructed the duplex flats by merger of two 1- BHK flats with it own money and then sold as such to the buyers. It is on the records that the owners of duplex have merged the flats after taking possession of their flats using the design provisions supplied by the assessee in the brochure. There is evidence contrary to the same. B. Relevance of the Intention of the assessee: 20. Both AO and he CIT(A) interpreted the discrepancies noted during the survey action to read into the intention of the developer and denied the deduction in respect of the profits of the proj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot even a single flat own stated that duplex flat being a residential unit exceeding the specified limit of built up areas was constructed by the developer and sold to the assessee. In our opinion, the revenue authorities have decided the issue against the assessee prejudicially and ignored the evidences that are given against the revenue. In such case, the orders of the revenue cannot be held judicious ones. D. Absence of any direct evidence to suggest that the assessee constructed the duplex flats: 22. We have examined the orders of the revenue and the papers filed before us in search of the material that establishes conclusively to the effect that the assessee constructed duplex flats whose built up area exceeded the specified limits in clause (c) of the said Explanation. There is such material or direct evidence to demonstrate the AO's allegation. In our opinion, when 1-BHK flats are otherwise built and sold as such, mere making a provision to help the flat buyers to merge them to suit their convenience during the post-sale, should not disentitle to the assessee to make claim of deduction u/s 80IB(10) of the Act. It is undisputed fact that few 1-BHK flats remain so without an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f two flats whether horizontally or vertically, so joined by or at the request of the purchaser, the appellant cannot be faulted under the provisions of section 80 IB(10) of the Act. The following decisions of the Mumbai Tribunal support the view point of the appellant: i. Smt. Manju Gupta vs. ACIT (134 ITR 503) - Mumbai, ii. Emgeen Holding Pvt. Ltd., Mumbai vs. DCIT (47 SOT 98) Mumbai, iii. G V Corporation Vs. ITa (38 SOT 174) - Mumbai. ...... the appellant will be entitled to 100% deduction claimed u/s 80 IB(10) of Act. We have also perused the order of the Tribunal in the case of Baba promoters and developers (supra) and perused the contents of para 13 and relevant portions read as follows,- 'So far as merger of flats and thereby exceeding the prescribed limit .......... denial of the deduction ........., is concerned there is no substance since it is undisputed fact that each of prescribed limit..... area and if after purchasing of two flats owners of flats merges it into a larger flat, the claim of deduction to the assessee cannot denied on this basis.' Further also, we perused the decision of coordinate Bench ITAT, Mumbai in the case of G.V. Corporation 38 SOT 174 and find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trate that it is the assessee who merged the two 1-BHK flats in to duplex one with one kitchen. On the contrary there is evidence to suggest that the flat buyers have done it so to their better living in the residential units. In our opinion, mere making a provisions of hole and providing methods/design vide the brochure to the advantage of the flat buyers does not amount to construction of duplex flats by the developer, who is aware of the consequences in matters of claims of deduction one side as well as the obtaining the completion /occupancy certificates from the Authorities, who approved the project with 1 to 3 BHK flats only and not to the duplex flats. 25. Thus, the discrepancy of mere providing a hole for intended stair case for flat buyers and supplying of the design to merge the flats into a duplex flat in our opinion constitutes a marketing strategy to boost the sale of the 1-BHK. Otherwise, the assessee constructed the flats in accordance with the plan approved by the authorities and sold them as such to the buyers. So long as the permanent structure like pillars of flat are constructed as per the approved plan of a residential unit with built up are of less than looks ..... 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