Tuesday, 30 October 2012

Whether when assessee has built units having area below 1000 sq. ft. but it has also offered option to combine two flats exceeding 1000 sq feet, it loses claim to Sec 80IB(10) benefits -

THE issues before the Bench are - Whether when the assessee has built units having area below 1000 sq. ft. but it has also offered the option to combine two flats exceeding 1000 sq feet, it loses claim to Sec 80IB(10) benefits; Whether the assessee can be given Sec 80IB(10) benefits on pro rata basis for flats having an area of less than 1000 sq ft and Whether when the projections/elevations area implies that there are extended area and can be utilized as carpet area, the said extended area of projections/elevations/balconies are to be included while admeasuring all the flats for the purpose of section 80IB(10). Tribunal
dismisses Assessee's as well as Revenue's appeals.
Facts of the case

Assessee is a builder and engaged in construction activity. Assessee completed one project having four buildings. In respect of profit earned assessee claimed deduction u/s 80IB(10). A survey was conducted u/s 133A. Duringhte survey action, it was found that the assessee had combined 30 Nos. 1-BHK flats into one unit and after combining the units the flat area exceeded 1000 sq. ft. The assessee submitted that even if one were to consider the Chajjas/projection, only projections at floor Level are to be considered. Further that the project can be considered as part of built up area only if they are habitable and usable as residential areas.

AO held that the expression of the built up area has been defined to mean the inner measurements of the residential unit at he floor level, including the projections and balconies as increased by the thickness of wall but not including the common areas shared with the other residential units. In the instance case, above interpretation clearly shows that all the projections/elevations or Chajjas are nothing but are extended construction that are attached to the walls and are used exclusively by the buyer and not meant for general public use which is commonly termed as ‘Common Area’. AO stated that tried to rely on the definition of built up area given under section 8OIB(14)(a), stating that if the projections and chajjas were made above the floor levels then the same could not be included in built up area. The assessee failed to realize that the floor level mentioned in section 80IB(14)(a) indicated that any lofts, or cooking platforms made in the flats should not be considered while calculating the built up area, the assessee stops relying on definition of built up area as per section 80 IB(14)(a) and states that the definition provides by the local authority should be applied. AO also noted that the C.C (Completion certificate) is issued by the Muncipal Corporation only when the plan is approved prior to the commencement of project. Though there is a violation/change in the approved plans, the assessee firm has not informed the Municipal Corporation nor there is any evidence that shows that any intimation or application has been made to the Municipal Corporation regarding changes in the original plan. The two agreements had been made to avoid the provisions of section 80IB(10)(c). This is a huge violation of the provision and it could not be said that it was a mistake, but it was a deliberate attempt to have the benefits of section 80IB(10).

Assessee made further claim that if the claim of 100% deduction u/s 80IB(10) is not permissible then proportionate deduction with respect to the profit relating to the flat which are not adjoined for common use and shops may be allowed. The Assessing Officer held there is no provision for the proportionate deduction u/s 80IB (10) and disallowed the deduction claimed.

Before CIT (A), it was contended that assessee constructed all the residential units separately as per the approved plan and in some cases, two separate units were either sold to the same person or to the family member. There was no restriction in selling two individual residential units to the same person or to other family member. Assessee sold the residential units separately and independently by entering into two separate agreements, which are registered separately and both the residential units have been given separate electric meters, separate kitchens, separate municipal bills, etc. The local authority had issued occupation certificate on completion of the housing project in accordance with the approved plan. As on date of granting of the occupation certificate, the residential units were separate and independent of each other as per approved plan and the possession of the constructed flat was also given separately and independently. It was beyond the control of builder to restrict modifications after sales. It was irrelevant as to whether the modifications were carried out by the assessee upon their request or any third party because even if the assessee would have denied to remove the wall in between the two flats purchased, the purchasers could have done the same on their own without the knowledge of the assessee. Survey was conducted after 5 months of receipt of the occupation certificate. Thus, the assessee had not violated any conditions stipulated in Section 80IB(10). Further even the built up area of the combined residential flats did not exceed the prescribed limit of 1,000 sq.ft. that the projections and balconies needs to be at the floor level only. The definition does not say that inner measure of residential unit at floor level is to be increased by projections and balconies. The same have to be excluded while computing the built up area of the residential unit. The definition of built-up area as provided in Section 80IB(14)(a) inserted by Finance (No 2) Act 2004 w.e.f. 01-04-2005 for the purpose of section 80IB(10) of the Act does not apply to the project of the assessee because the housing project of he assessee was approved on 19-07-2003, i.e. much before the amendment was carried out and, therefore, at the time of approval of the housing project as also the construction commenced, there was no definition of the built-up area of the residential units. That one has to consider the definition of built-up area as per local authority. It was contended that as per certificate of the Architect even if the adjoining flats are considered as one unit, the built up limit of 1000 sq.ft. is not exceeded. Without prejudice, it was also submitted that the deduction u/s. 80IB (10) should be allowed on residential portion having built up area of less than 1000 sq. ft proportionately and entire claim cannot be denied.

CIT (A) dismissed the claim of the assessee stating that there is violation of Section 80IB(10) of the Act and it cannot be said that it is a mistake. CIT(A) referred the brochure(s) of the assessee issued which itself has given the option to buyers, of three bedrooms after combining two flats into one and stated that it clearly shows the intention of the assessee. The Completion Certificate is issued by the Municipal Corporation only when the plan is approved prior to the commencement of project. Though there is a violation/change in the approved plans, the assessee firm has not informed the Municipal Corporation nor there is any evidence that shows that any intimation or application has been made to the Municipal Corporation regarding changes in the original plan. It is not enough if there are documents evidencing an apparent situation, if such documents are made to cover up what could be inferred reasonably as unreal. The booking confirmation / particulars sheets that that are made at the time of booking the flats give the exact area that is sold to the buyers which clearly give the picture to the actual area sold, and this includes all projections and other common areas. The expression of the built up area has been defined to mean the inner measurements of the residential unit at the floor level, including the projections and balconies as increased by the thickness of wall but not including the common areas shared with the other residential units. All the projections/elevations or Chajjas are nothing but are extended construction that are attached to the walls and are used exclusively by the buyer and not meant for general public use which is commonly termed as Common Area. Sub-section (14)(a) of section 80IB which lays down the meaning of “built up area” was introduced by the Finance (No.2) Act, 2004 w.e.f. 01-04-2005 is merely an explanatory provision to describe the meaning of built up area. The benefit of section 80IB(10) could be given to a project even where some of the units exceeded 1000 sq. ft of built up area. The, CIT(A) held that assessee is eligible for pro-rata basis in respect the flats exceeding 1000 sq.ft and directed the AO to recompute the allowance of relief accordingly.

After hearing both the parties, the ITAT held that,

++ it is not in dispute that assessee has allotted two adjoining flats either to same person or to the same family members to enable them to join together and have a bigger unit. Merely because the said flats had been shown in municipal plan to be separate but on physical examination and considering the surrounding circumstances, when it was found that adjoining flats were meant to be a single unit, which was more than the prescribed limit i.e. 1000 sq. ft, it is considered that CIT(A) has rightly held them to a single unit irrespective of the fact that there are separate sale agreements entered into by the assessee. The assessee itself gave the option to the buyers to have 3 bed rooms after combining the flats into one clearly shows the intention of the assessee that assessee intended to construct the flat of more than 1000 sq ft i.e. exceeding the prescribed limit. There is violation/change in the approved plan, assessee firm did not inform the Municipal Corporation nor there is evidence to show or intimation/application was made to Municipal Corporation regarding charges in the original plan;

++ CIT (A) has rightly stated that when the projections/elevations are just 4”, 3”, 5” and 7” of the floor level, they imply that there are extended area and can be utilized as carpet area. Thus, the said extended area of projections/elevations/balconies are to be included while admeasuring all the flats and accordingly CIT(A) has rightly held that area of some of the flats exceeded the prescribed limit of 1000 sq. ft. Sub-section (14)(a) as inserted by Finance (No.2) Act, 2004 w.e.f. 1.4.2005 is only clarificatory in nature particularly the said definition will be applicable to the assessment year under consideration as the projects are admittedly completed in F.Y. 2006-07;

++ the question arises as to whether deduction u/s 80IB can be given on pro rata basis or not. The Kolkata bench in the case of Bengal Ambuja Housing Development held that provisions of section 80IB(10) do not provide for denial of deduction if housing complex contains both smaller and larger residential units. It was concluded that the profits attributable to eligible residential units are entitled for deduction in spite of the fact that other residential units are bigger in size than the prescribed limit. Thus, the order of CIT (A) stating that assessee is eligible for deduction on pro-rata basis in respect of the flats not exceeding 1000 sq. ft. is upheld.

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