THE issues before the Bench are - Whether when only a part of
the housing project does not comply with the approved size of the flats, Sec
80IB(10) benefits should be allowed on proportionate basis because it is a
benevolent legislation and Whether for the purpose of admeasuring the size of
the flat, the approved valuer is warranted to follow the definition of built up
area. And the verdict goes against the Revenue.
Facts of the
case
Assessee, an AOP, is engaged in
the business of builders and developers. The assessee filed its return of income
declaring total income at Rs. Nil. AO finalised the assessment determining the
total income of the assessee at Rs. 5.57 Crores. During the assessment
proceedings, AO found that assessee had developed a housing project called
Cosmos Hills in Thane, that the project was a complex of 4 buildings viz.
Devgiri (stilt +7 floors), Himgiri (stilt+12 floors), Nilgiri (stilt+12 floors)
and Saptgiri (stilt+7 floors), that it had declared net profit of Rs. 5, 57,
28386/-, that entire income had been claimed as deduction u/s. 80IB(10) of the
Act. AO further found that first order of sanction/approval for development to
the housing project was issued by Thane Municipal Corporation(TMC) on
26.12.2003, that project was first approved before 31.03.2004. Referring to the
provisions of section 80IB(10)(a)(i) of the Act, he held that assessee was
required to complete the construction of the said housing project on or before
31.03.2008, that it was also required to obtain Occupation
Certificate(OC)/Completion Certificate(CC) of all the buildings from the local
authority on or before 31.03.2008, that in the case under consideration OC in
respect of building no.3 namely Nilgiri for three floors had been issued by TMC
on 09.04.2009. For confirming the dates of issue of first approval and date of
issue of all the completion certificates issued by TMC, AO sent a letter to
Municipal Corporation. Vide its letter dated 10.11.2009, TMC confirmed that
project was first approved for development on 26.12.2003 and last OC was issued
on 09.04.2009. Considering the above facts AO held that assessee had violated
the provisions of sub-section (i) of clause (a) of Section 80IB(1) r.w.
explanation (i) and (ii) by not obtaining the OC/CC of the local authorities
before 31.03.2008. He issued a notice to the assessee asking to show cause as to
why its claim u/s.80IB(10) should not be disallowed. After considering the
submission of the assessee, AO held that date of first approval was 26.12.2003
and the date of commencement certificate was 03.3.2004, that both the dates fell
before 31.3.2004, that the last date for obtaining OC was 31.03.2008, that
assessee had applied for OC on 27. 01.2009, that assessee had neither completed
the construction of the project till 31.03.2008 nor has obtained OC before
31.03.2008.
For verifying the area of
residential units, constructed in the housing project, AO appointed a Government
approved architect. In his report, the approved valuer submitted that four
duplex flats in Nilgiri, 2 flats in Saptgiri and 4 flats in Himgiri were
constructed by combining last two top floors of the building or by combining two
flats with only one entry and one kitchen, that construction of duplex flat was
not as per the approved plan, that the built up area of such flats was more than
1000 sq ft. On the basis of the said report, AO held that by constructing the
flats of more than 1000 sq ft. assessee had violated the provisions of clause
(c) of section 80IB(10) of the Act, that assessee was not eligible to claim
deduction u/s 80IB(10). Finally, he disallowed the claim amounting to Rs. 5.57
Crores, made by the assessee.
On
appeal, the CIT(A) held that Devgiri, Himgiri, Nilgiri and Saptgiri building of
the project Cosmos Hills were situated on plot of land measuring more than 1
acre, that the CO in respect of all the buildings (except Nilgiri) was obtained
by the assessee prior to 31.03.2008, that AO had not disputed the fact. Relying
upon the orders of the Mumbai Tribunal delivered in the case of Vandana
Properties and Saroj Sales Organisation (2008-TIOL-189-ITAT-MUM) he
held that ratio laid down by the above decisions was equally applicable in the
case under consideration, that concept of housing project did not mean that
there should be a group of building and only then it could be called a housing
project, that even one building could constitute an independent housing project
and would be eligible for deduction u/s. 80IB(10) of the Act, that all the four
buildings had been completed prior to 31.3.2008, that assessee had fulfilled all
the conditions and parameters laid down by the provisions of section 80IB(10),
that claim made by it could not be rejected entirely on the plea that some part
of the housing project CC had not been granted by the local authorities, that
claim on deduction u/s.80IB(10) should be allowed in respect of those units
which had been completed and CC had been granted to those buildings by TMC prior
to 31.03.2008. Accordingly, he held that claim of the assessee for grant of
deduction in respect of profits derived by it from sale of units in building
Devgiri, Himgiri, Saptgiri and Nilgiri (except 10th, 11th and 12th floor) on
proportionate basis. He upheld the order of the AO in respect of profit from
sale of units on 10th-12th floor of Nilgiri building.
On
appeal before the Tribunal, the counsel for the assessee submitted that residential flats
were constructed as independent residential units and were completed in all
respect by the assessee, that possession of such flats was granted to the
purchasers concerned, that each of the constructed flat was as per the sanction
plan with independent entry door, kitchen and all other amenities as mentioned
in the sale agreements of the flats concerned, that the modification in the
flats had been made by the purchasers, that assessee had no control over the
changes made by the purchasers, that at the time of grant of OC local
authorities had examined this aspect and only then OC was issued, that Approved
Valuer had erroneously considered built up area of premises to be “Carpet area +
20%”, that as per the provisions of the Act there was specific definition of
built up area, that as per the provisions of section 80IB(14)(a) of the Act
built up area of flats had to be determined on the basis of the said definition,
that built up area determined by the valuer was on ad-hoc basis and was
erroneous.
Having heard the
parties, the Tribunal held that,
++
we have heard the rival submissions and perused the material before us.
Effective ground of appeal filed by the AO is about allowing the claim, made by
the assessee, u/s.80IB(10) of the Act. AO had disallowed the entire claim mainly
on two grounds - first, assessee had not obtained the OC /CC before a particular
date. Second objection of the AO was about the size of flats. As per the AO,
area of 10 flats was more than the area prescribed by the Act;
++
we find that except for the three floors (floor no.10, 11 and 12 of Nilgiri)
assessee had obtained the required certificates from the local authorities well
in time. While deciding the appeal of the assessee, FAA has clearly held that
TMC had issued certificates for all the four buildings (except three floors of
Nilgiri) before 31.03.2008. DR could not controvert the fact. Therefore, we are
of the opinion that FAA was justified in directing the AO to allow the deduction
for all the four buildings other than three floors of Nilgiri building. Section
80IB(10) was introduced in the Act for a specific purpose and it has been held
to be a benevolent legislation. The section is about development and
construction of a housing project of residential units of specified areas and it
has to be commenced and completed during specified period and on a plot of
particular size. If these basic conditions are fulfilled, AO cannot deny the
benefits of the said section to an assessee. AO has mentioned that three
buildings were completed before 31.03.2008 and OC was also obtained before due
date. Considering these facts, in our opinion, he was not justified in
disallowing the claim made by the assessee-AOP for the said buildings. Similar
is the position for the nine floors of Nilgiri builidng;
++
now, we would like to discuss the second reason for disallowing the deduction
and that is the size of 10 flats. AO had held that the built up area more of 10
flats was more than 1000 sq ft. His opinion was based on the basis of the report
of Government approved valuer. After going through the report of valuer, we find
that for calculating the area of the residential unit, valuer has added 20% to
the carpet area of the unit. We find that words ‘built up area’ has been
specifically defined in the section itself in sub-section 14. We would like to
reproduce the section that reads as under :
"…built-up area” means the inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but does not include the common areas shared with other residential units."
In
our opinion once a word has been defined in a section, then it has to be
construed strictly. No one should add or subtract anything to or from that word.
Valuer or AO are not authorised to alter the mandate given by the Parliament. It
is not known as what was the basis for adding 20% to the carpet are of the
residential unit while deciding the built of area of the flats;
++
we find that in the case under consideration first sanction to construct the
project was received on 26.12.2003 i.e. before 1.4.2004. Therefore, amendment
brought in the section was not applicable to the facts of the present case.
Secondly, sub-section, nowhere stipulates that 20% area should to increased for
computing the built up area of a residential unit. Lastly, AO had not decided
the issue as whether the flats were outside the City of Mumbai? We find that in
the CO, assessee has raised the said issue. We will deal with it at appropriate
place, but for the present it is sufficient to hold that AO was not justified in
denying the claim of the assessee on the basis of the report of the
valuer;
++
it is decided law that an assessee is entitled to proportionate deduction
u/s.80IB of the Act, even if certain conditions, stipulated by the section, are
not fulfilled;
++
we are of the opinion that even if claim was to be disallowed it should have
been restricted to ten flats only. We also hold that AO was not justified in
denying the entire claim made by the assessee. We find that the FAA had directed
the AO to calculate disallowance on proportionate basis. In short, in our
opinion, AO was not justified in disallowing the entire claim made u/s.80IB of
the Act on both counts - delay in obtaining CC and size of flats. FAA has
rightly held that assessee was eligible for proportionate deduction.
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