THE issues before the Bench are - Whether the deduction u/s.
80IB(10) is to be granted only to a tax payer who follows "Project Completion
Method"; Whether for giving benefit of deduction u/s. 80IB(10), it is necessary
to obtain completion certificate for each year of assessee’s claim or it is
sufficient that certificate is obtained on the completion of the housing project
as a whole and Whether when the Revenue decides to tax the profit on the ground
that the assessee was following percentage completion method, the deduction is
also to be allowed in the same year. And the verdict goes in favour of the
assessee.
Facts of the
case
The assessee is a firm engaged in construction of apartments. The assessee claimed Rs 1,50,74,474 as deduction u/s. 80IB(10) of the Act. The AO did not allow the deduction on the ground that the assessee had not submitted a completion certificate the prescribed form from the municipal authorities. The AO made the addition on the reason that the AR of the assessee could not furnish the completion certificate of the apartment which was completed during the relevant financial year. When it was pointed out to the AR that deductions u/s 80IB(10) would be disallowed on the basis of non production of completion certificate by the municipal authority, the AR furnished a copy of Instruction No. 4/2009 dated 30.06.2009 issued by the Board wherein it was clarified that "The deduction can be claimed on a year to year basis where the assessee is showing profit from partial completion of the project in every year."
The AO observed that Form No. 10CCB, enclosed to return of income, the firm commenced its operation by 10.03.2006. In order to claim deduction u/s 80IB(10) of the Act, the firm should have completed the housing project within 5 years from the end of the financial fear in which the housing project is approved by the local authority. As per the above provision, the assessee should have completed the project before 31.03.2011. The assessee has not furnished the completion certificate by the local authority till date. The project, as per the enquiries done by this office, is not completed within stipulated time. Under these circumstances, the assessee firm is not entitled to partial exemption u/s 80IB(10), when the assessee firm is not sure of completion of the project before 31.03.2011. Hence, the partial deduction of Rs. 1,50,74,474 which is to be allowed now as per Instructions No. 4/2009 dated 30.06.2009 is to be disallowed in subsequent years, if the assessee failed to complete the project by 31.03.2011.
The AO further observed that the Department had written a letter dated 03.11.2011 to the Zonal Commissioner, GHMC, Serilingampally, Hyderabad to furnish completion certificate of the apartment complex of Hemdurga Towers at Miyapur, Hyderabad and the Department had not yet received any information from the municipal authorities so far. Hence, the AO presumed that this is a clear indication of the fact that the said apartment complex has not been completed so far. As per explanation (ii) of clause (a)(ii) of section 80IB(10) of the Act, the date of completion of construction under housing project shall be taken as the date, on which the completion certificate in respect of such housing project issued by the local municipal authority. The AO observed that the assessee firm is also requested to furnish the completion certificate by the local municipal authority, if any. As it was not submitted by the assessee firm till date the AO of the opinion that the assessee is not in possession of the completion certificate which is issued by GHMC, Serilingampally, Hyderabad. Thus, the claim made by the assessee firm for deduction u/s 80IB(10) was not accepted. Accordingly, the AO added back Rs. 1,50,74,474 to the total income of the assessee. The CIT(A) dismissed the appeal of the assessee.
On further appeal by the assessee, it was held that,
++ the assessee recognised the income by estimating the percentage of income on advance received during the construction period of the block and after construction of each block, the sale of flats and construction expenditure thereof was transferred to Profit and Loss Account. This method is recognised by the Income-tax Act for disclosing the profit in the case of a builder. The purpose of granting deduction u/s. 80IB(10) is to promote housing projects. If we accept the proposition of the Department that the deduction u/s. 80IB(10) has to be granted only to a tax payer who follows only "Project Completion Method" it leads to an absolute situation as the developer who is following this Method of accounting as followed by this assessee is not entitled for deduction u/s. 80IB(10) of the Act though all other requirements of the section being fulfilled. It would tantamount to denial of valid exemption for which an assessee is entitled. No one can pass such a anomalous dictum while dealing with a legal problem. The Tribunal being the final fact-finding authority shall keep in mind an overall 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 accepting the assessee’s method of accounting 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 project yearly but tax the entire profit on completion of the project by applying "Project Completion Method";
++ Further, in the present case the assessee’s project is commenced by 10.3.2006 and there is no dispute regarding this. However, one of the dispute for denying deduction u/s. 80IB(10) is that there is no completion certificate furnished by the assessee for which its claim was denied. The meaning of “date of completion” has been given in Explanation (ii) to clause (a) to section 80IB(10). Date of completion of construction would mean date on which completion certificate in respect of housing project was issued by the local authority. To grant deduction u/s. 80IB(10) it is mandatory to furnish the completion certificate of the housing project but the pertinent question here is whether for giving benefit of deduction u/s. 80IB(10), it is necessary to obtain such completion certificate for each year of assessee’s claim or it is sufficient that certificate is obtained on the completion of the housing project as a whole. Stipulation for obtaining completion certificate should not be so interpreted to mean that an assessee can claim exemption u/s. 80IB(10) only in the year of completion of whole of the housing project, even where the project stretches over a number of years and assessee returns its income based on percentage completion method. It would only mean that the assessee has to obtain such certificate on completion of the housing project, least it would lose the deduction already granted u/s. 80IB(10) for the earlier years if it is not so produced. As held by the Hon’ble Supreme Court in the case of Bajaj Tempo vs. CIT (2002-TIOL-763-SC-IT) a provision in the taxing statutes granting incentives for promoting growth and development of the nation should be construed liberally. When such liberal interpretation is to be given, the restriction placed in such provision granting the incentives also has to be considered so as to advance the objectives of the provisions and not to frustrate. Further, clause (a) of section 80IB(10) specifies that if the development and construction of the project has been approved by the local authority on or after the 1st day of April, 2005, the project shall be completed within 5 years from the end of the financial year in which the housing project is approved by the local authority. Thus, a project can have a span of 5 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 the Act. Thus, the AO need not insist on the completion certificate in this assessment year, this is the right meaning of the statute. This view has also been taken by CBDT in its Instruction No. 4 of 2009 dt. 30.6.2009.
The assessee is a firm engaged in construction of apartments. The assessee claimed Rs 1,50,74,474 as deduction u/s. 80IB(10) of the Act. The AO did not allow the deduction on the ground that the assessee had not submitted a completion certificate the prescribed form from the municipal authorities. The AO made the addition on the reason that the AR of the assessee could not furnish the completion certificate of the apartment which was completed during the relevant financial year. When it was pointed out to the AR that deductions u/s 80IB(10) would be disallowed on the basis of non production of completion certificate by the municipal authority, the AR furnished a copy of Instruction No. 4/2009 dated 30.06.2009 issued by the Board wherein it was clarified that "The deduction can be claimed on a year to year basis where the assessee is showing profit from partial completion of the project in every year."
The AO observed that Form No. 10CCB, enclosed to return of income, the firm commenced its operation by 10.03.2006. In order to claim deduction u/s 80IB(10) of the Act, the firm should have completed the housing project within 5 years from the end of the financial fear in which the housing project is approved by the local authority. As per the above provision, the assessee should have completed the project before 31.03.2011. The assessee has not furnished the completion certificate by the local authority till date. The project, as per the enquiries done by this office, is not completed within stipulated time. Under these circumstances, the assessee firm is not entitled to partial exemption u/s 80IB(10), when the assessee firm is not sure of completion of the project before 31.03.2011. Hence, the partial deduction of Rs. 1,50,74,474 which is to be allowed now as per Instructions No. 4/2009 dated 30.06.2009 is to be disallowed in subsequent years, if the assessee failed to complete the project by 31.03.2011.
The AO further observed that the Department had written a letter dated 03.11.2011 to the Zonal Commissioner, GHMC, Serilingampally, Hyderabad to furnish completion certificate of the apartment complex of Hemdurga Towers at Miyapur, Hyderabad and the Department had not yet received any information from the municipal authorities so far. Hence, the AO presumed that this is a clear indication of the fact that the said apartment complex has not been completed so far. As per explanation (ii) of clause (a)(ii) of section 80IB(10) of the Act, the date of completion of construction under housing project shall be taken as the date, on which the completion certificate in respect of such housing project issued by the local municipal authority. The AO observed that the assessee firm is also requested to furnish the completion certificate by the local municipal authority, if any. As it was not submitted by the assessee firm till date the AO of the opinion that the assessee is not in possession of the completion certificate which is issued by GHMC, Serilingampally, Hyderabad. Thus, the claim made by the assessee firm for deduction u/s 80IB(10) was not accepted. Accordingly, the AO added back Rs. 1,50,74,474 to the total income of the assessee. The CIT(A) dismissed the appeal of the assessee.
On further appeal by the assessee, it was held that,
++ the assessee recognised the income by estimating the percentage of income on advance received during the construction period of the block and after construction of each block, the sale of flats and construction expenditure thereof was transferred to Profit and Loss Account. This method is recognised by the Income-tax Act for disclosing the profit in the case of a builder. The purpose of granting deduction u/s. 80IB(10) is to promote housing projects. If we accept the proposition of the Department that the deduction u/s. 80IB(10) has to be granted only to a tax payer who follows only "Project Completion Method" it leads to an absolute situation as the developer who is following this Method of accounting as followed by this assessee is not entitled for deduction u/s. 80IB(10) of the Act though all other requirements of the section being fulfilled. It would tantamount to denial of valid exemption for which an assessee is entitled. No one can pass such a anomalous dictum while dealing with a legal problem. The Tribunal being the final fact-finding authority shall keep in mind an overall 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 accepting the assessee’s method of accounting 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 project yearly but tax the entire profit on completion of the project by applying "Project Completion Method";
++ Further, in the present case the assessee’s project is commenced by 10.3.2006 and there is no dispute regarding this. However, one of the dispute for denying deduction u/s. 80IB(10) is that there is no completion certificate furnished by the assessee for which its claim was denied. The meaning of “date of completion” has been given in Explanation (ii) to clause (a) to section 80IB(10). Date of completion of construction would mean date on which completion certificate in respect of housing project was issued by the local authority. To grant deduction u/s. 80IB(10) it is mandatory to furnish the completion certificate of the housing project but the pertinent question here is whether for giving benefit of deduction u/s. 80IB(10), it is necessary to obtain such completion certificate for each year of assessee’s claim or it is sufficient that certificate is obtained on the completion of the housing project as a whole. Stipulation for obtaining completion certificate should not be so interpreted to mean that an assessee can claim exemption u/s. 80IB(10) only in the year of completion of whole of the housing project, even where the project stretches over a number of years and assessee returns its income based on percentage completion method. It would only mean that the assessee has to obtain such certificate on completion of the housing project, least it would lose the deduction already granted u/s. 80IB(10) for the earlier years if it is not so produced. As held by the Hon’ble Supreme Court in the case of Bajaj Tempo vs. CIT (2002-TIOL-763-SC-IT) a provision in the taxing statutes granting incentives for promoting growth and development of the nation should be construed liberally. When such liberal interpretation is to be given, the restriction placed in such provision granting the incentives also has to be considered so as to advance the objectives of the provisions and not to frustrate. Further, clause (a) of section 80IB(10) specifies that if the development and construction of the project has been approved by the local authority on or after the 1st day of April, 2005, the project shall be completed within 5 years from the end of the financial year in which the housing project is approved by the local authority. Thus, a project can have a span of 5 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 the Act. Thus, the AO need not insist on the completion certificate in this assessment year, this is the right meaning of the statute. This view has also been taken by CBDT in its Instruction No. 4 of 2009 dt. 30.6.2009.
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