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TMI Blog2016 (5) TMI 1555X X X X Extracts X X X X X X X X Extracts X X X X ..... Project Completion Method is the right method for determining the profits. The Project Completion Method being followed should not have been disturbed by the Assessing Officer as it was being regularly followed by the assessee in earlier years also and there is no cogent reason to change the method. We, accordingly, uphold the findings of the Ld. CIT(A) on this issue. Deduction u/s 80IB (10) - Proportionate deduction - As per the Department, the claim u/s 80IB(10) was not allowable as no separate approval for the four projects viz. Vista A, B, D E was taken and only a consolidated approval for the entire Vista Project was taken from the GDA containing seven projects (Vista A to F and one Commercial) - HELD THAT:- We concur with the finding of the Ld. CIT(A) that the assessee was eligible to get proportionate deduction u/s 80IB(10) of the Act in respect of flats sold during the year on fulfilling the prescribed conditions. Requirement of a separate approval for each housing project - A Housing Project may comprise of both eligible as well as ineligible units. The deduction will be available and limited to the claim on eligible units irrespective of the fact that the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f flats at Sl. no. 1 4 of the chart - It is the assessee s contention that the correct measurement is 988.79 sq ft whereas the DVO has calculated the build up area at 1029.28 sq. ft. It is also the assessee s plea that it had not been afforded a proper opportunity to explain the discrepancy before the Ld. CIT (A). Hence in the interest of justice, we deem it proper to restore this limited issue of discrepancy in measurement, as claimed by the assessee, to the file of the Assessing Officer for fresh examination and adjudication thereon after giving due opportunity to the assessee to present its case. In the result, the appeal of the assessee is partly allowed. - ITA No. 5614/Del/2012 & ITA No. 1950/Del/2012, ITA No. 5849/Del/2012 And C.O. No. 20/Del/2015 (In ITA No. 1950/Del/2012) - - - Dated:- 30-5-2016 - Shri G.D. Agrawal, Vice President And Shri Sudhanshu Srivastava, Judicial Member For the Department : Shri Pankaj Vidharthi, CIT DR. For the Assessee : Shri Ajay Wadhwa, Adv. ORDER Per Sudhanshu Srivastava, Judicial Member ITA 1950/12 has been preferred by the Department against the order dated 20.01.2012 passed by the ld. CIT(Appeals)-XXVII, New ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt of 91.21% showed that the flats were in advanced stage of completion and that the Vista project had been substantially completed. It was the AO s observation that the income had not only accrued but had in effect been received by the assessee. The AO further opined that the method of accounting being followed by the assessee was so arranged with a view to distort the profits. The AO also observed that in a letter to the bank, the assessee had stated the completion date of Vista Project as 2007 itself. Thus, based on all these observations, the AO rejected the method of accounting i.e. Project Completion Method followed by the assessee. 3. On appeal, the ld. First Appellate Authority allowed the assessee s appeal by holding that Project Completion Method was a recognized method of accounting prescribed by the Institute of Chartered Accountants of India (ICAI) and had been regularly followed by the assessee. The ld. CIT (A) observed that since the assessee was a real estate developer and not a construction contractor, Project Completion Method was the right method for determining the profits of the assessee. The addition of ₹ 25,91,00,000/- made by the AO was deleted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be completed in 2007 itself. The Ld DR drew our attention to the Balance Sheet and submitted that that the assessee has shown huge amounts as work-in-progress. The consolidated estimated cost of Vista plus Srishti was ₹ 536.08 crores. The inventory shown in the balance sheet together with the expenses that have been shown in the Profit Loss a/c work out to more than ₹ 220 crores, which is a substantial proportion of the estimated cost. It must be kept in mind that this is the consolidated cost of both the projects and the Proportion of cost incurred with respect to Vista is much higher. Thus it emerges that a very high proportion of estimated cost of Vista has already been incurred by the assessee. Therefore even from the cost incurred point of view there is no doubt that a major portion of the project has been completed. 6. The Ld. DR submitted that in light of the observations of the AO, the correct method of accounting is Percentage Completion Method and, therefore, impugned order should be set aside. 7. The ld. AR submitted that the assessee is a Real Estate Developer and not a contractor or an investor. It was submitted that real estate development, or prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and exit. (vi) The assessee accounts for income / sale only when it registers the flats in the name of the customers and till then the amount received is treated as advance and shown as a liability in the Balance Sheet and the expenditure incurred is treated as work in progress. 8. The Ld. AR further submitted that the ICAI has clarified that Revised Accounting Standard 7 Construction Contract is applicable to only contractors and not to builders and real estate developers. AS-9 Revenue Recognition is applicable to Real Estate Developers. AS 9 recognizes both proportionate completion method and the completed service contract method for revenue recognition. A real estate developer can choose the project completion method for revenue recognition. He pointed out that there is no dispute on the correctness and accuracy of the accounts maintained by the assessee and that the aforesaid method has been consistently applied and followed by the assessee. The ld. Assessing Officer has changed the method for the first time in Assessment Year 2008-09. He submitted that any change in the method will result in the income from Assessment Year 2006-07 to Assessment Year 2012-13 to be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Ghaziabad Development Authority who continued to be owner of the Project and the assessee was granted only development rights. The primary reason why the A.O. rejected the Project Completion Method and has applied the Percentage Completion Method is that the assessee had received substantial portion of the total sale consideration of the residential units in the Vita Project i.e. 91.21%. This amount was being shown by in the balance sheet under the head liabilities and was not reflected in the Profit Loss account. The fact that 91% of the total sale price had been received led to the inference that the Vista Project was substantially complete as on 31.3.2008. AO, therefore, treated the advances of ₹ 228.25 Crores as sale consideration in respect of the various residential units in Vista Project. The A.O. then worked out the proportionate cost of development and construction of the Project by multiplying the total cost of the Project with 91.21%. The difference of the two was treated as profits of the assessee. 12. In this regard it is seen that Project Completion Method followed by the assessee is a recognized method of accounting prescribed by the Institute of Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egularly followed by the assessee in earlier years also and there is no cogent reason to change the method. We, accordingly, uphold the findings of the Ld. CIT(A) on this issue. 14. Hence, ground no. 1 of Department s appeal is rejected. Accordingly, the appeal of the Department is rejected. 15. As far as the CO of the assessee is concerned, we are in agreement with the submission of the ld. AR that the assessee s claim u/s 80-IB (10) of the Act was not an alternate claim to the assessee s method of accounting having been rejected. It was an additional claim which somehow has been misconstrued by the ld. CIT (A) and we deem it fit to restore this limited issue of claim u/s 80-IB (10) of the Act to the file of the ld. CIT (A) to examine it afresh in light of the existing legal requirements and fulfillment thereof by the assessee after providing due opportunity to the assessee for presenting its case. 16. In the result, the CO of the assessee is allowed for statistical purposes. ITA 5614/2012 ITA 5849/2012 17. Return showing income of ₹ 24,14,37,960/- was filed on 25.03.2010. In the assessment order passed u/s 143(3) of the Act, the income was determined a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition of ₹ 36.77 crores on this count. The ld. CIT (A) deleted this addition is entirety following his earlier year s order in AY 2008-09. 18. Apart from this, out of the profits of ₹ 53.82 crores shown by the assessee on sales finalized during the year under consideration, an amount of ₹ 29.68 crores was claimed as deduction u/s 80IB(10) of the Act in respect of the Vista Project. The Vista Project was divided into five sub projects as under: (i) Vista A B Blocks having 2 Towers and 320 flats. (ii) Vista D E Blocks having 2 Towers and 320 flats. (iii) Vista B1, B2 B3 Blocks having 3 Towers and 120 flats also called C Block. (iv) Vista B4, B5, B6 B7 Blocks having 4 Towers and 144 flats also called F Block. (v) Vista Commercial Block having 80 shops. 19. The assessee had claimed deduction u/s 80IB (10) in respect of two bed room flats in Block A,B, D and E in respect of 346 flats sold during the year (out of 640 total flats sold). The project was approved on 02.06.2005 and the completion certificate was dated 14.01.2010. The total plot area of the project was 5.33 hectares or 13 acres approximately. The AO disallowed deduction u/s 80IB(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nil 988.79 20.1 Thus, the DVO held that only 432 flats i.e. the middle flats on 2nd 10th floor of Blocks A, B, D E were having built up area of less than 1000 sq. feet and hence qualifying for deduction u/s 80IB(10) of the Act. The remaining flats were held to have built up area of more 1000 sq. feet and not eligible for deduction. 21. Aggrieved, the assessee filed an appeal before the First Appellate Authority and objected to certain observations of the DVO with regard to the working of the built up area of the various flats. It was submitted that with respect to 16 porch size Middle Flats and 32 Middle Flats on 1st Floor, the DVO had included the area of a balcony which was open to the sky in the built-up area which should not have been included in calculation of the built up area in terms of definition of the built up area provided in the Act. The assessee s plea before the ld. CIT (A) was that this inclusion had resulted in the built up area of these flats crossing 1000 sq. feet. The assessee also objected to the working of the DVO in respect of the built up area of 144 corner flats on floor nos. 2 and 10 on all the four bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of the sub-projects but the auditors had provided their opinion on the consolidated accounts. Since the Report in Form 10CCB confirmed to the guidelines issued by the ICAI, the same should not have been ignored. 23. The ld. CIT (A) after considering the assessee s submissions decided the issues as under: (i) The assessee s contention that deduction u/s 80IB (10) in respect of flats having built-up area of less than 1000 sq. feet should be allowed on a proportionate basis was accepted. 232 flats were held eligible for deduction out of 346 flats sold as per the DVO s report and the extent of allowable deduction was worked out at 19.28 crores. The issue was restored to the file of AO for verifying the calculation and allowing the claim in respect of 232 flats. (ii) The assessee s contention that the flats having balcony open to sky and included in the built up area of the flats by the DVO should also qualify for deduction was however rejected. (iii) The assessee s contention that the Vista Project comprised of five separate sub-projects with the shopping area having its own separate entry and exit was also accepted and it was held that the built up area of the shopping ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 80IB (10) of the Act but erred on facts and in law to restrict the deduction to ₹ 19.28 crores calculated for 232 flat out of the total deduction of ₹ 29.68 crores claimed on 346 flats. The observation made and bases adopted are unjustified and bad in law. The deduction under section 80IB (10) to have been allowed at ₹ 29.68 crore as claimed. The order passed by the Hon ble CIT (Appeal), may kindly be modified accordingly. That the DVO on reference from the AO submitted report to the AO wherein the area of 114 flat has been held to be more than 1000 sq.ft by including the area of the balcony which is open to sky. The CIT(Appeal)-XXVII, New Delhi thus erred on facts and in law in adopting the report of the DVO and restricting the deduction under section 80IB(10) of the Act and in doing so he ignored the facts and circumstances of the case and thus the deduction restricted is illegal and unjustified and bad in law. 27. On ground no. 1 of the Department s appeal, the ld. AR submitted that the ground is the same as in earlier year i.e. AY 2008- 09 which has already been argued before us. We concur with the submissions of the ld. AR and in view of our fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erned, the ld. AR submitted a chart depicting the built-up area of the various flats as per the DVO report. The same is being reproduced herein under for a ready reference: S. No. Floor Type of flat No. of flats in A.B.D.E projects Built up area of flat i/c walls covered balcony (in sq. ft.) Area of Balcony (Open to Sky) (in sq.ft.) Total area (in sq. ft.) Remarks 1 1st Corner 16 1029.28 231.28 1260.56 Details as per Annexure A 2 1st Middle (Porch side) 16 988.79 118.05 1106.84 Details as per Annexure B 3 1st Middle 32 988.79 255.96 1244.75 Details as per Annexure C 4 2nd to 10th Corner 144 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the DVO. In light of these anomalies, it was submitted, the full claim of deduction is to be allowed to the assessee. 32. The Ld. DR relied on the DVO s report and the impugned order and submitted that no interference was called for at this stage and that the deduction claim was prima facie incorrect in view of the detailed findings of the Assessing Officer and that even the relief allowed by the Ld. CIT(A) deserves to be reversed. 33. We have heard the rival submissions and carefully perused the relevant material placed on record. As far as ground no. 2 of the Department s appeal is concerned, it is seen that the issue of pro rata deduction is covered in favour of the assessee by the following cases:- (i) ITO vs Air Developers (2009) 122 ITD 125 (Nagpur) (ii) SJR Builders vs ACIT 3 ITR (Trib) 569 (Bangalore) (iii) Sreevatsa Real Estate (P) Ltd. 9 ITR (Trib) 808 (Chennai) In ITO vs Air Developers (supra), the Nagpur Bench held that:- In view of the decision of the Kolkata Bench of the Tribunal in the case of (Bengal Ambuja Housing Development Ltd. v. Dy. CIT [IT Appeal No. 1595 (Kol.) of 2005, dated 24-3-2006], which was squarely applicable to the instant c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed above, we concur with the finding of the Ld. CIT(A) that the assessee was eligible to get proportionate deduction u/s 80IB(10) of the Act in respect of flats sold during the year on fulfilling the prescribed conditions. Hence ground no. 2 of the Department s appeal is dismissed and the findings of the Ld. CIT (A) are upheld. 34. As far as the issue of requirement of a separate approval for each housing project is concerned (corresponding to ground no 3 of the Department s appeal), we are of the considered opinion that section 80IB (10) prescribes approval of a housing project. A Housing Project may comprise of both eligible as well as ineligible units. The deduction will be available and limited to the claim on eligible units irrespective of the fact that the entire project comprising of eligible and ineligible units has been approved by the authority by way of a single approval/composite approval. Section 80IB(10) refers to the approval of a housing project but does not prescribe a pre-condition that the deduction will be available in respect of only that unit or part of the project which has been separately approved by the local authority. Hence, it is our considered view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e us and thus, the said enactment cannot be resorted to for the purpose of understanding the meaning of expression housing project contained in s. 80-IB(10) of the Act. Therefore, so long as the claim of deduction is in relation to a housing project , which has been approved by the local authority , it would satisfy the requirement of s. 80- IB(10) of the Act. Pertinently, if the proposition of the Revenue is to be upheld, the same would be quite contrary to the manner in which the expression housing project contained in s. 80-IB (10) of the Act has been understood by the Hon ble Bombay High Court in the case of Vandana Properties (supra) and also by the Hon ble Madras High Court in Viswas Promoters (P.) Ltd. (supra) and Arun Excello Foundations (P.) Ltd. (supra). It may also be pertinent to observe that the Hon ble Bombay High Court in Vandana Properties (supra) not only noted that the expression housing project is not defined under s. 80-IB(10) of the Act but also noted that the same was not defined even under the relevant local regulations before it, viz. the Mumbai Municipal Corporation Act, 1988 and the Development Control Regulations for Greater Mumbai, 1991. Thus, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndition prescribed in clause (e) of section 80I B(10) of the Act and the assessee is entitled to the benefit of section 80IB(10) of the Act. 37. In the proceedings before us, the Department could not point out any judgment/judicial precedent to the contrary. We accordingly hold that the balconies open to the sky are to be excluded from the calculation of the built-up area of a particular residential unit. We, therefore, direct that the assessee be allowed the claim of deduction u/s 80IB (10) in respect of flats (at S. Nos. 2 3 as in the chart reproduced in on Para 28 of this order) which have been excluded from the benefit of deduction by including the balconies open to sky for the purpose of calculating the built-up area of the individual units. 38. The only issue remaining for adjudication after this is the claim of the assessee challenging the measurements of the DVO in respect of flats at Sl. no. 1 4 of the chart (Para 28 of this order). It is the assessee s contention that the correct measurement is 988.79 sq ft whereas the DVO has calculated the build up area at 1029.28 sq. ft. It is also the assessee s plea that it had not been afforded a proper opportunity to exp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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