IN INCOME TAX APPELLATE TRIBUNAL BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA.No.2249/Ahd/2012 Asstt. Year: 2008-2009 ITO, Ward-9(1) M/s.Pramukh Corporation Ahmedabad. Vs Parmeshwar Park Nr. Hari Dharshan Park Nani Canal Road Vastral, Ahmedabad. PAN : AAHFP 63412 G (Appellant) (Respondent) Revenue by : Shri K. Madhusudan, Sr.DR Assessee by : Shri Parimalsingh Parmar, AR Date of Hearing : 07/07/2016 Date of Pronouncement: 28/09/2016 O RDER PER RAJPAL YADAV, JUDICIAL MEMBER: Revenue is in appeal before us against order of ld.CIT(A)- XV, Ahmedabad dated 4.7.2012 passed for Asstt.Year 2008-09. 2. Solitary substantial grievance of Revenue is that ld.CIT(A) has erred in allowing deduction of Rs.1,24,13,739/- under section 80IB(10) of Income Tax Act, 1961. ITA No.2249/Ahd/2012 2 3. Brief facts of case are that assessee is firm engaged in business of developing housing project. It has filed its return of income electronically on 28.9.2008 declaring total income at NIL after claiming deduction under section 80IB(10) of Act of Rs.1,24,13,739/-. It emerges out from record that two cooperative societies viz. Parmeshwar Park (Vastral) Co-op. Hsg. Society Ltd., and Ashutosh (Vastral) Co-op. Housing Society Ltd had purchased two plots bearing survey nos.914 and 915 comprising area of 9031 sq.meters and 9481 sq.meters on 17.12.2004 and 14.9.2005 respectively. Shri R.B.Patel original land owner had applied to local authority for construction of project on land, and local authority has accorded permission on 27.10.2005 to Shri R.B. Patel. Assessee had entered into development agreement with Parmeshwar Park (Vastral) Co-op. Hsg. Society Ltd., and Ashutosh (Vastral) Co-op. Housing Society Ltd on 20.1.2005 and 20.12.2005 respectively. assessee has accordingly developed these projects and claimed deduction under section 80IB(10) for first time for Asstt.Year 2006-07. deduction of Rs.60,88,880/- was claimed in Asstt.Year 2006-07 and Rs.26,90,852/- was claimed in Asstt.Year 2007-08. These deductions were allowed to assessee, because no scrutiny assessment order was passed. Returns of assessee were accepted under section 143(1) of Income Tax Act. It is also pertinent to take note of basic conditions which were required to be satisfied by builder or undertaking to claim deduction under section 80IB(10) of Acts are, (i) area of land on which housing project is to be developed must be more than one acre, (ii) built up area of which unit must be below 150 sq.feets, (iii) commercial area must be less than prescribed limit, (iv) project must be approved within ITA No.2249/Ahd/2012 3 prescribed time limit, and (v) project must be completed within prescribed time limit. As far as fulfillment of these conditions is concerned, ld.AO has not disputed. His area of dispute is that assessee was not developer. It was only contractor because he did not own land. reasons given by assessee are being summarized by ld.CIT(A) on page no.5 of assessment order. They read as under: 1. Assessee is not both developer and builder as required by provisions of section 80IB(10). Assessee is not developer because assessee did not conceptualize and own project in as much as assessee is not owner of land and approval was not issued to it by Local authority. 2. Assessee entered into project by Development Agreement with land owner and construction was done as per agreement and hence assessee is merely contractor for purposes of construction of project. 3. assessee has not sold any unit to purchaser but Societies had executed sale deeds as seller. This also proves that assessee was merely contractor/ agent of society. 4. As per Amendment to section 80IB by Finance Act 2009, works contractor who executes work awarded by any person is not eligible for deduction u/s 80IB. Any person includes Societies, which is legal entity. In this way, ld.AO has disallowed claim of assessee for grant of deduction under section 80IB of Act. 4. On appeal, theld.CIT(A) has made detailed analysis of facts and circumstances and arrived at conclusion that assessee s case is fully covered by decision of Hon ble Gujarat High Court ITA No.2249/Ahd/2012 4 rendered in case of CIT Vs. Radhe Developers, 345 ITR 403. ld.CIT(A) has made analysis of development agreement and demonstrated as to how facts of assessee s case are identical to those before Hon ble High Court. finding recorded by ld.CIT(A) reads as under: 6. I have perused facts of case as enumerated by A.O. in asstt. order. I have also perused submission and contention of appellant including case laws relied on. After careful consideration of facts, submission and contentions of both A.O. as well as appellant, I am inclined to accept contention of appellant that all eligibility conditions as required u/s 80IB(10) of Act are No. 10 CCB for its claim u/s 80 IB(10) of Act. A. fulfilled. appellant was in possession of eligible and valid certificate from Chartered Accountant in Form O.'s main contentions for disallowance as mentioned in para 2.23 does not hold good now after recent judgment of Hon'ble Gujarat high court in case of Radhe developers (supra). Important observation and finding of Hon'ble Gujarat High Court can be summarized as follows: (A) Hon'ble Gujarat High Court in its landmark judgement dated 13.12.2011 in case of Radhe Developers, Shakti Corporation and Others vs. CIT at Para 4 and Para 5 illustrate basic facts of case of M/s. Radhe Developers. At para 7, Hon'ble ITAT's order dated 29.6.2007 was summarized wherein it was held that firstly for deduction u/s.80lB(10) of Act it is not necessary that assessee must be owner of land and secondly looking to provisions contained in Section 2(4) of Act read with Section 53A of Transfer of Property Act, by virtue of development aqreement and aqreement to sell, assessee had, for purpose of Income tax, become owner of land. (B) At Para 8.3 & 8.4., it considered Hon'ble ITAT Order dated 7.11.2008 in case of M/s.Shakti Corporation wherein Hon'ble ITAT differently (different than M/s.Radhe Developers case) held that considering terms and conditions of development ITA No.2249/Ahd/2012 5 agreement and other documents on record, assessee had acquired dominion over land, which he had developed by constructing housing project incurring expenses and also taking risks. It was held further by Hon'ble ITAT that deduction u/s.80IB(10) of Act are not to be granted following ratio of order of M/s.Radhe Developers where assessee had entered into agreement for fixed remuneration and worked merely as contractor to construct housing project on behalf of land owner. C) On basis of facts of above two cases and other similar cases, Hon'ble Gujarat High Court framed following substantial question of law: "Whether, on facts and in circumstances of case, Appellate Tribunal was right in law in allowing deduction. u/s.80IB(10) r.w.s. 801B(1) to assessee when approval by local authority as well as completion certificate was not granted to assessee taut to landowner and rights and obligations under said approval were not transferable, and when transfer of dwelling units in favour of end-users was made by landowner and not by assessee?" (D) At para 25, Hon'ble High Court considered various provisions of tripartite agreement dated 18.5.2000 in' case of M/s.Radhe Developers. Out of such provisions, following clauses of agreement are important: Clause-4. With consent of Party of First (i.e. land owner) and Second Part (i.e. Society) Party of Third Part (i.e. assessee) as developer and builder wants to do project/scheme of constructing residential houses having area less than 1500 sq.ft. For middle class society. Clause-5. Party of First and Party of Third Part have executed one Agreement of Sale on 18-05-2000 accordingly on that basis rights of agreement of Sale dated 7-9-91 at rate of Rs.100/- per Sq.ft. Subject to other conditions written therein are decided to be purchased by Party of Third Part. ITA No.2249/Ahd/2012 6 Clause-6. In fact in Party of First and Second Part confirming' party have no necessary technical knowledge and. skill pass through said scheme to arrange for constructing residential houses having area less than 1500 sq.ft. for middle class society and also have no finance to invest as per size of scheme and to register members for that required alertness and skill being absent they themselves are not in position to place project or scheme on land mentioned in schedule in such circumstances to Party of Third part over and above right to purchase rights of Agreement of Sale on dt. 18-05-2000 they have also decided to give all rights along with constructing and developing on said land mentioned in schedule by this Agreement dt. 18-05-2000. Clause 11(3): said Developer cum Building Contractor is authorized to admit persons who are willing to join in scheme to get houses of fixed area and in this manner to admit respective member in scheme or at time of admission of such member as per scheme fixed amount of contribution of construction and other amounts and incidental expenses that admitting members shall have to pay as admission fees receipt of deposit or clear receipt of amount contribution shall have to be given, moreover Developer cum Building Contractor has given full right and authority also to decide price of houses of this scheme and to execute necessary agreements with purchasers of houses. Clause 11(11): That said Developer cum Building Contractor as per this scheme, whatever construction he shall do on land described in Schedule shall be authorized to allot to respective member and also out of this land deducting constructed land and deducting land of margin and passage whatever excess land that shall remain then Developer cum ITA No.2249/Ahd/2012 7 Building Contractor shall have right to allot that land. Clause 11(13): As per this scheme Developer cum Building Contractor has given incidental lump sum estimate of price for residential houses to be constructed but as per step-stage wise development of scheme and as per changes Developer cum Building Contractor is authorized to revise estimate and that shall always be agreeable and binding to members. Clause 11(16): Party of First and Second Part have handed over all responsibilities of scheme to Developer cum Building Contractor so at present to party of first part as per rules and regulations he is getting F.S.I, but in future if changes take place in rules and regulation of F.S.I in such circumstances other than present scheme on land if Special construction is allowed then for such additional work other than total construction made, as per rules and regulations by getting passed Plans from VMC. Vadodara to do construction all rights and Authorities shall be with Developer cum Building Contractor and thereafter also whatever F.S.I. Rights shall remain that also as per this agreement shall be with party of third part. (E) At para 27 Hon'ble High Court considered various provisions of development agreement in case of M/s.Shakti Corporation. Out of such provisions, following clauses of agreement are important: "Clause -1: That party of Second Part ( Assessee) shall upon obtaining all necessary permissions over said land such as NA, NOC, Development Permission, Rajachiththi, permission ITA No.2249/Ahd/2012 8 for passing plans, Title Clearance, etc. for making construction and erect apartment in same, can organize shops, offices, flats and tenement society and can engage architect if required, can prepare plans and obtain occupation Certificate, Completion Certificate, can get revised maps prepared and for which complete powers are given to party of Second Part. Clause-4: party of Second Part Developers can register members for new construction that may be made over said land/property, can issue receipt to members, can issue allotment letter to members, can execute Agreement to sale, can hand over possession, can execute Tripartite Agreement, but entire responsibility for same shall be that of party of Second Part. Clause-7: That for houses, shops flats, etc. that are to be constructed over said land for which party of Second Part is to register them as members and can upon executing Agreement to Sale etc. accept money and issue receipts to members. Same way, you can remove all obstructions that may come during period of making develop it. Clause -10: From date of this Agreement, you, Party of Part is bound to pay tax, land revenue, special cess etc. in of Vadodara Municipal Corporation, Government, Semi imminent and whatever tax, land revenue, education cess, special cess etc. are outstanding prior to be date of this Agreement, same are and shall be paid by us, party of First part as land owner. (F) After considering provisions of section 80IB(1) and 80IB(10) in respect of question of ownership of land being essential condition for deduction u/s.80IB(10) of Act, Hon'ble Gujarat High Court at para 30 held that - "30. essence of sub-Section (10) of Section 80IB, therefore, requires involvement of undertaking in developing and building housing projects approved by local authority. Apparently, such provision would be aimed at giving encouragement to providing ITA No.2249/Ahd/2012 9 housing units in urban and semiurban areas, where there is perennial and acute shortage of housing, particularly, for middle income group citizens. To ensure that benefit reaches people, certain conditions were provided in sub-Section(10) such as specifying date by which undertaking must commence developing and construction work as also providing for minimum area of plot of land on which such project would be put up as well as maximum built up area of each of residential units to be located thereon. provisions nowhere required that only those developers who themselves own land would receive deduction under Section 80IB(10) of Act." (G) Further considering various clauses, terms and conditions of development agreement in both leading cases viz. M/s.Radhe Developers and M/s.Shakti Corporation, Hon'ble Gujarat High Court at para 34heldthat- "34. We have reproduced relevant terms of development agreements in both sets of cases. It can be seen from terms and conditions that assessee had taken full responsibilities for execution of development projects. Under agreements, assessee had full authority to develop land as per his discretion. assessee could engage professional help for designing and architectural work. Assessee would enroll members and collect charges. Profit or loss which may result from execution of project belonged entirely to assessee. It can thus be seen that assessee had developed housing project, fact that assessee may not have owned land would be of no consequence." (H) At para 36, Hon'ble High Court examined effect of Explanation of Section 80IB(10) introduced with retrospective effect from 1.4.2001 and held that - "36. We have noted at some length, relevant terms and conditions of development agreements between assessees and land owners in case of Radhe Developers. We also noted terms of agreement of sale entered into between parties. Such conditions would immediately reveal that owner of land had received part of sale consideration. In lieu thereof he had granted development permission to assessee. He had also ITA No.2249/Ahd/2012 10 parted with possession of land. development of land was to be done entirely by assessee by constructing residential units thereon as per plans approved by local authority. It was specified that assessee would bring in technical knowledge and skill required for execution of such project. assessee had to pay fees to Architects and Engineers. Additionally, assessee was also authorized to appoint any other Architect or Engineer, legal adviser and other professionals. He would appoint Sub-contractor or labour contractor for execution of work. assessee was authorized to admit persons willing to join scheme. assessee was authorised to receive contributions and other deposits and also raise demands from members for dues and execute such demands through legal procedure. In case, for some reason, member already admitted is deleted, assessee would have full right to include new member in place of outgoing member. He had to make necessary financial arrangements for which purpose he could raise funds from financial institutions, banks etc. land owners agreed to give necessary signatures, agreements, and even power of attorney to facilitate work of developer. In short, assessee had undertaken entire task of development, construction and sale of housing units to be located on land belonging to original land owners. It was also agreed between parties that assessee would be entitled to use full FSI as per Jhe existing rules and regulations. However, future, rules be amended and additional FSI be available, assessee would have full right to use same also. sale of units allotted by assessee in favour of members would be appropriated towards land price. Eventually after paying off land owner and erstwhile proposed purchasers, surplus amount would remain with assessee. Such terms and conditions under which assessee undertook development project and took over possession of land from original owner, leaves little doubt in our mind that assessee had total and complete control over land in question. assessee could put land to use as agreed between parties. assessee had full authority and also responsibility to develop housing project by not only putting up construction but by carrying out various other activities including enrolling members, accepting members, carrying out modifications engaging ITA No.2249/Ahd/2012 11 professional agencies and so on. Most significantly, risk element was entirely that of assessee. land owner agreed to accept only fixed price for land in question. assessee agreed to pay off land owner first before appropriating any part of sale consideration of housing units for his benefit. In short, assessee took full risk of executing housing project and thereby making profit or loss as case may be. assessee invested its own funds in cost of construction and engagement of several agencies. Land owner would receive fix predetermined amount towards price of land and was thus insulated against any risk." (I) After considering Hon'ble Bombay High Court judgement in case of CIT vs. Glenmark Pharmaceuticals Ltd. (2010) 324 ITR 199 under head "Contract of work or contract of sale" and Hon'ble Supreme Court judgment in case of State of Andhra Pradesh vs. M/s. Kone Elevators (l)Ltd. AIR 2005 SC 1581, Hon'ble Gujarat High Court at para 38 held that - "38. In present case, as already held assessee had undertaken development of housing project at its own risk and cost. land owner had accepted only full price of land and nothing further. entire risk of investment and expenditure was that of assessee. Resultantly, profit and loss also would accrue to assessee alone. In That view of matter, addition of Explanation to Section 80IB h retrospective effect of 1.4.2001 would have no material bearing in e cases on hand. We may recall that said Explanation introduced by Finance (No.2)Act, 2009 provided as under:- [Explanation- For removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes housing project as works contract awarded by any person (including Central or State Government)]." (J) Finally after considering ratio of various case laws relied on by Revenue, at para 45 and 46 Hon'ble Gujarat High Court concluded that- ITA No.2249/Ahd/2012 12 "45. Under circumstances, we are of opinion that Tribunal committed no error in holding that assessees were entitled to benefit under Section 80IB(10) of Act even where title of lands had not passed on to assessees and in some cases, development permissions may also have been obtained in name of original land owners. 46. We find that it is not even case of Revenue that other conditions of Section 80IB of Act were not fulfilled. We, therefore, answer question in favour of assessee and against Revenue and dispose of all appeals accordingly." facts of appellant are identical with cases dealt by Hon'ble Gujarat High Court. Even contention raised by AO along with reliance of various judicial authorities are identical. Therefore following ratio of Hon'ble Gujarat High Court in this case, disallowance and thereby additions made by AO in case of appellant are not justified and directed to be deleted. Appellant gets relief of Rs.1,24,13,739. Other grounds related to charging of interest u/s.234B of Act is therefore consequential in nature, while in respect of initiation of penalty u/s.271(1)(c) of Act is premature to be, adjudicated hence dismissed. 6. Before us, ld.DR relied upon order of AO, whereas, ld.counsel for assessee relied upon order of ld.CIT(A). 7. We have duly considered rival contentions and gone through record carefully. perusal of section 80IB(10) would indicate that it provides deduction at rate of 100% of profits derived in previous year relevant to assessment year for development and building of housing project. It puts certain conditions viz. project area must be comprised in one acre of land, building area of flat must not be more than 1500 sq.feets. Commercial area must be less than ITA No.2249/Ahd/2012 13 prescribed limit. project should be approved within prescribed time limit and it should be completed within prescribed time limit. project is to be approved by local authority and its completion certificate has also to be issued by local authority. As far as these conditions are concerned ld.AO has not raised any dispute in present case. ld.AO was of view that deduction under section 80IB(10) of Act admissible to developer and not contractor who constructed building on fixed percentage of remuneration. From analysis of development agreement, he inferred that assessee acted as contractor not as developer. His reasoning is based on two circumstances, viz. assessee never became owner of land, and thus, it has not acquired dominant control over land. second reason was given that assessee has not got approval from municipal authority. It was Mr.R.B. Patel, who was original owner. 8. With assistance of ld.representatives, we have not only gone through order of CIT(A), who has looked into these aspects, but also perused agreement entered into by assessee with both cooperative societies. Copies of these agreements are available on page nos.27 to 52 of paper books. Perusal of some of clauses viz. 4.4, 5.3, 9.1, 6.6 and 10.3 would indicate that assessee has dominant control over project. It has taken all decisions for development of project and risk and profit arising out of projects would be borne by assessee. assessee was authorized to hold land development of project. It was also authorized to remain in possession till scope and purpose of housing projects are achieved and amounts to be recovered from members are received. assessee ITA No.2249/Ahd/2012 14 was entitled to advertise project and also enroll new members. After making detailed analysis of these aspects, we are of view that ld.CIT(A) has not committed any error while appreciating facts of case. ld.CIT(A) has rightly placed its reliance on decision of Hon ble jurisdictional High Court in holding that assessee is entitled for deduction under section 80IB(10) of Act. We do not find any infirmity in order of ld.CIT(A). Accordingly, appeal of Revenue is dismissed. 9. In result, appeal of Revenue is dismissed. Order pronounced in Court on 28th September, 2016 at Ahmedabad. Sd/- Sd/- (N.K. BILLAIYA) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER ITO, Ward-9(1) Ahmedabad v. M/s.Pramukh Corporation Parmeshwar Park