HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 67 / 2017 Principal Commissioner of Income Tax, Jaipur-2, Jaipur. ----Appellant Versus M/s. Ashiana Mangalam Developers, 401, 3rd Floor, Apex Mall, Lal Kothi, Tonk Road, Jaipur. ----Respondent Connected With D.B. Income Tax Appeal No. 73 / 2017 Principal Commissioner of Income Tax, Jaipur-2, Jaipur ----Appellant Versus M/s. Ashiana Mangalam Developers, 401, 3rd Floor, Apex Mall, Lal Kothi, Tonk Road, Jaipur ----Respondent D.B. Income Tax Appeal No. 166 / 2017 Principal Commissioner of Income Tax, Jaipur-2, Jaipur ----Appellant Versus M/s Ashiana Mangalam Developers, 401, 3rd Floor, Apex Mall, Lal Kothi, Tonk Road, Jaipur ----Respondent For Appellant(s) : Mr. R.B. Mathur with Mr. Prateek Kedawat For Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment (2 of 16) [ ITA-67/2017] 14/11/2017 1. In all these appeals common question of law and facts are involved hence they are decided by this common judgment. 2. By way of these appeals, appellant has assailed judgment and order of tribunal whereby tribunal has dismissed appeal of department and confirmed order of CIT(A) and reversed view taken by AO. 3. This court while admitting appeals framed following substantial question of law:- 3.1 Appeal No.67/2017 admitted on 21.4.2017 1. Whether on facts and in circumstances of case and in law ITAT was justified law in upholding order of CIT(A) in deleting addition of Rs. 22360725/- made by Assessing Officer on account of disallowance of claim of deduction u/s. 80IB(10) without appreciating fact that built up area of villas constructed by assessee is 1772.81 Sq. Ft. that exceeds limit of 1500 Sq. Ft. thereby ignoring definition as given in section 80IB(14) (a) of IT Act 1961. 3.2 Appeal No.73/2017 admitted on 21.4.2017 Whether on facts and in circumstances of case and in law ITAT was justified law in upholding order of CIT(A) in deleting addition of Rs.71377130/- made by Assessing Officer on account of disallowance of claim of deduction under section 80IB(10) without appreciating fact that built up area of villas constructed by assessee is 1772.81 Sq. Ft. that exceeds limit of 1500 Sq. Ft. thereby ignoring (3 of 16) [ ITA-67/2017] definition as given in section 80IB(14) (a) of Income Tax Act, 1961? 3.3 Appeal No.166/2017 admitted on 16.8.2017 Whether on facts and in circumstances of case and in law ITAT was justified law in upholding order of CIT(A) in deleting addition of Rs.10043117/- made by Assessing Officer on account of disallowance of claim of deduction under section 80IB(10) without appreciating fact that built up area of villas constructed by assessee is 1620.81 Sq. Ft. that exceeds limit of 1500 Sq. Ft. thereby ignoring definition as given in section 80IB(14) (a) of Income Tax Act, 1961? 4. facts of case are that assessee was picked up for scrutiny and assessment was framed under section 143(3) of Income Tax Act, 1961 (hereinafter referred to as Act) vide order dated 25.03.2013. While framing assessment, AO rejected claim of deduction under section 80IB(10) of Act, on ground that assessee has not fulfilled basic eligibility condition for deduction u/s 80IB(10) as there is violation of clause (c). assessee aggrieved by this order, preferred appeal before ld. CIT (A), who after considering submissions of assessee allowed appeal of assessee and held that assessee is eligible for deduction under section 80IB(10) of Act. 5. Counsel for appellant Mr. Mathur has taken us to definition of Section 80IB (10) (iii) of Income Tax Act, 1961 which reads as under:- (4 of 16) [ ITA-67/2017] 80IB(10)(iii) of Income Tax Act, 1961 in case where housing project has been approved by local authority on or after 1st day of April, 2005, within five years from end of financial year in which housing project is approved by local authority. 5.1 He has also taken us to definition of Built up area u/s 80IB(10)(14)(a) which reads as under:- For purposes of this section, 1 [(a) "built-up area" means inner measurements of residential unit at floor level, including projections and balconies, as increased by thickness of walls but does not include common areas shared with other residential units; 5.2 He contended that in view of dictionary meaning of Terrace appearing in Oxford Dictionary, it is open gallery, colonnade, portico; balcony, later, raised platform or balcony in theater, Auditorium etc. 5.3 He has relied upon decision of Supreme Court in Commissioner of Income Tax-19, Mumbai vs. Sarkar Builders (2015) 7 SCC 579 wherein it has been held as under:- 23. Thereafter, significant amendment, with which we are directly concerned, was carried out by Finance (No. 2) Act, 2004 with effect from 1.4.2005. This amendment has already been noted above. Legislature made substantial changes in Sub-section (10). Several new conditions were incorporated for first time, including condition (5 of 16) [ ITA-67/2017] mentioned in Clause (d). This condition/restriction was not on statute book earlier when all these projects were sanctioned. Another important amendment was made by this Act to Sub-section (14) of Section 80IB with effect from 1.4.2005 and for first time Under Clause (a) thereof words 'built-up area' were defined. Section 80IB(14)(a) reads as under: 80IB.(14) For purposes of this section- (a) "built-up area" means inner measurements of residential unit at floor level, including projections and balconies, as increased by thickness of walls but does not include common areas shared with other residential units; 24. Prior to insertion of Section 80IB(14)(a), in many of rules and Regulations of local authority approving housing project "built-up area" did not include projections and balconies. Probably, taking advantage of this fact, builders provided large balconies and projections making residential units far bigger than as stipulated in Section 80IB(10), and yet claimed deduction under said provision. To plug this lacuna, Clause (a) was inserted in Section 80IB(14) defining words "built-up area" to mean inner measurements of residential unit at floor level, including projections and balconies, as increased by thickness of walls, but did not include common areas shared with other residential units. 5.4 He contended that decision taken by tribunal is contrary to law. 5.5 He also argued that decision of Madras High Court in Commissioner of Income Tax, Chennai vs. M/s. Ceebros Property Development (P) Ltd. T.C. (A) No.1366/2008 decided on 2.11.2012 will not apply in facts of case. (6 of 16) [ ITA-67/2017] 5.6 Mr. Mathur has contended that in view of provisions of Section 14A, Terrace is equivalent to balcony since it is attached to room, therefore, it can be included in built up area and no benefit can be granted. 7. Counsel for respondent Mr. Jhanwar has relied on following decisions:- 7.1 In Commissioner of Income Tax-IV vs. Amaltas Associates [2016] 389 ITR 175 (Gujarat), it has been held as under :- 8. Section 80(14) of Act contains definitions for purpose of said section. Clause-(a) thereof provides that built-up area means inner measurements of residential unit at floor level, including projections and balconies, as increased by thickness of walls, but does not include common areas shared with other residential units. Thus, built- up area would include inner measurements of residential unit on floor level added by thickness of wall as also projections and balconies. This would however, exclude common areas shared with other residential units. This exclusion clause of common areas shared by other units cannot be applied in reverse. In other words, moment certain area is not shared but is exclusively assigned for use of particular residential unit holder, would not mean that such area would automatically be included in built-up area. In order to be part of built-up area, same must be part of inner measurements of residential unit or projection or balcony. open terrace space on top floor of building would not satisfy this description. It will also not be covered in expression balcony. Term 'balcony' has been explained in Webster's Third International Dictionary (Unabridged) as unroofed platform projecting from wall of building, enclosed by parapet or railing, and usually resting on brackets or consoles. It is often used as (7 of 16) [ ITA-67/2017] synonyms to gallery, loggia, veranda, piazza, porch, portico, stoop etc. In context of residential or even commercial complexes, term 'balcony' has gained definite common parlance meaning. It usually consists of projection from building covered by parapet or railing and may or may not but usually is covered from top. This term 'balcony' certainly would not include open terrace adjoining bedroom or any other constructed area of penthouse. terrace is not projection. 7.2 In Commissioner of Income Tax vs. Mahalakshmi Housing [2014] 222 Taxmann 356 (Madras), it has been held as under :- 6. As far as issue in respect of inclusion of open terrace area with built up area is concerned, we had already held said issue against Revenue in our decision rendered in T.C. Nos. 581, 1186 of 2008 and 136 of 2009 - Ceebros Hotels Pvt. Ltd. v. Deputy Commissioner of Income Tax dated 19.10.2012 and accordingly, order Tribunal is set aside. assessee's appeal viz., T.C. (A). No. 318 of 2012 stands allowed holding that open terrace area cannot form part of built up area, in result, assessee would be entitled to deduction under Section 80-IB(10) of Act. No costs. 7.3 In Commonwealth Developers vs. Assistant Commissioner of Income Tax [2015] 370 ITR 265 (Bombay), it has been held as under :- On going through said provisions, in order to avail of deduction built-up area of residential unit cannot exceed 1,500 sq. ft. Having regard to rival contentions only aspect to be examined is whether area of rear courtyard which is open to sky and appurtenant to residential unit is to be included to compute built-up area as provided under s. 80-IB(10) of said Act. In order to examine situation at loco we called upon (8 of 16) [ ITA-67/2017] appellant and respondent to produce photographs with regard to such courtyard area and we have noted that such area is open piece of land though enclosed by compound wall but without any masonary construction therein. It is also contended by appellant that such area has not been transferred in favour of owner of residential unit. In fact, copy of agreement was even produced before learned Tribunal to show that built-up area mentioned in agreement in respect of each villa is 134.83 sq. mtrs, as computed by architect. In this background, we shall proceed to examine rival contentions. built-up area is carpet area plus thickness of outer walls and balcony. carpet area of property is defined as net usable area from inner side of one wall to another. carpet area comprises of carpet area of demised premises, toilet areas within such demised premises. Thus, it can be seen that to meet requirement of area to be treated as 'built-up area' some construction has to be in existence in such area. meaning of words 'building' and 'built-up' as per Oxford Dictionary reads thus: 'Building': structure with roof and walls. process or trade of building houses and other structures. 'Built-up': (of area) densely covered by buildings. Increased in height by addition of parts. 8. We have heard counsel for parties. 9. Before proceeding with matter, it will not be out of place to mention that tribunal being last fact finding authority has observed as under:- 3.4. From decisions of Madras High Court, Bombay High Court and ITAT Ahmedabad, discussed above in para 3.3 above, it is seen that area under consideration cannot be included in built up area if it is uncovered, open to sky, and without any construction on it, (9 of 16) [ ITA-67/2017] notwithstanding fact that it is private, exclusive area of owner, accessible only through dwelling unit (bed room) and adjoining to it. In this case, area under consideration is roof of ground floor, is uncovered, open to sky, and without any construction on it although it is accessible exclusively to owner through bedroom (and not part of common area). Therefore, following above case laws (discussed in pafra 3.3, above), this private, open terrace, cannot be included in built up area of residential unit, as defined in Sec 80IB(14)(a). Therefore, built up area of residential units is less than 1500 sq. ft. and consequently, assessee is eligible for deduction u/s 80IB(10). These grounds are allowed. There is no dispute with regard to fact that AO rejected claim of deduction under section 80IB(10) only on ground that terrace is entirely open and large space on top most level of building, whereas balconies are relatively smaller areas affixed to room of house. He further observed that balconies are accessible only through room that they are attached with and terraces will usually have independent entrances. assessee has demonstrated from pictures of building that area is terrace as it is completely open and is roof of room underneath. Merely because first floor rooms of villa has opening on terrace, in our considered view would not make terrace as balcony as balcony normally is attached with rooms and covered by enclosure but it is not supported by walls of room underneath. We find that Coordinate Bench under identical facts in ITA No. 12/Kol/2014 in case of M/s. Ashina Amar Developers vs. ITO after considering case law and provisions of section 80IB has decided issue by observing as under :- 4.2.1. We find that Learned AO during course of assessment proceedings asked assessee inter alia to submit before him copies of brochure issued by assessee to prospective buyers for effecting sale of residential units during (10 of 16) [ ITA-67/2017] asst year under appeal. assessee duly made available copies of brochure issued in order to attract prospective buyers and also copies of original sale deeds before Learned AO which were duly returned by Learned AO after verification. We find that Learned AO calculated super built up area of each building based on brochures by including area of open terrace and therefrom estimated built up area by taking 90% of super built up area of each building as built up area. We find that Learned AO brushed aside argument of assessee that brochures are only indicative in nature and actuals may vary from what is stated in brochures. assessee also tried to explain that as per sale deed which was registered with Registrar for stamp duty purposes, total built up area of each building was below maximum area specified in section 80IB(10) of Act. Learned AO simply ignored sale deeds that were produced before him and placed reliance on brochures issued by assessee to attract prospective buyers and estimated built up area by including terrace area. We find that actual built up area of residential building should not exceed maximum area specified in Act and there is no scope for making assumptions and estimates. 4.2.2. Reliance is placed on co-ordinate bench decision of Mumbai Tribunal in case of ACIT vs Sheth Developers reported in 33 SOT 277 (Mum)wherein it was held that built up area has to be calculated on actual basis and not on basis of estimates. In that case, AO relied on ratio worked out from map attached with occupancy certificate, for arriving at built up area from carpet area which was turned down by Tribunal. 4.2.3. We also find lot of force in alternative arguments of Learned AR that term terrace is not defined in Act. However word terrace originates from French term and is known as terrasse, terrazzo in Italian and spelled as terraza in Spanish. This is outdoor extension that can be occupied by lots of people and is (11 of 16) [ ITA-67/2017] beyond ground level. terrace has more space and with open-top. We find that definition of built up area means inner measurement of residential unit at floor level including projections and balconies as increased by thickness of walls but does not include common areas shared with other residential units. Hence it could be concluded that open terrace is not covered within meaning of built up area as it is open to sky and would not be part of inner measurement of residential floor at any floor level. Reliance in this regard is made on decision of co- ordinate bench of Ahmedabad Tribunal in case of Amaltas Associates vs ITO reported in 131 ITD 142 (AHD.) wherein it was held that definition of built up area is inclusive of balcony but not open terrace. It further held that DVO has considered open terrace as analogous to balcony/ verandah without any basis. Therefore, it took view that authorities below were not justified in taking open terrace as balcony / verandah rejecting claim of assessee. 4.2.4. Reliance in this regard is placed on decision of Hon ble Madras High Court in case of CIT vs M/s Mahalakshmi Housing in Tax Case (Appeal) Nos. 583 & 584 of 2011 and 316 & 317 of 2012 dated 2.11.2012, wherein questions raised before their Lordships and decision rendered thereon are as under:- Whether on facts and circumstances of case, Appellate Tribunal is right in law in holding that private terrace area should be included in built up area of flats for purpose of making out statutory extent of built up area as per Clause (a) of Section 80IB(14) of Income Tax Act ? Held: 5. It is seen from facts narrated herein that assessee is engaged in business of construction. assessee entered into agreement of sale with one Ashok Kumar for joint development of property. assessee's claim for deduction under Section 80IB(10) of Income Tax Act is rejected on ground that assessee was not owner of land. Aggrieved by same, (12 of 16) [ ITA-67/2017] assessee went on appeal before Commissioner of Income Tax (Appeals), who dismissed appeal. Aggrieved by same, assessee went on further appeal before Income Tax Appellate Tribunal. 6. Tribunal considered assessee's appeal along with two other assessees' appeals involving similar questions of law and passed common order. One such assessee's case came up for consideration in T.C.Nos.581, 1186 of 2008 and 136 of 2009 in case of Ceebros Hotels P\It. Ltd. Vs. Deputy Commissioner of Income "Tax. 8y judgment dated 19.10.2012, this Court allowed assessee's appeal, holding that open terrace area cannot form part of built up area; in result, assessee would be entitled to deduction under Section 80-IB(10) of Act and that assessee would be entitled to proportionate relief as regards units having built up area not more than 1500 sq.ft. 7. Even though learned standing counsel for Revenue raised additional grounds regarding principle of proportionality for grant of relief, yet, we find by reason of exclusion of open terrace are from built up area, application of proportionality theory does not arise. In circumstances, we find no justifiable ground to accept plea of Revenue on this aspect. 8. As far as Revenue s contention that for purpose of Section 80-IB(10} deduction, assessee should have owned property is concerned, same is liable to be rejected by reason of our decision rendered in T.C.Nos. 581, 1186 of 2008 and 136 of 2009 CEEBROS HOTELS PVT LTD v. DEPUTY COMMISSIONER OF INCOME TAX dated 19,10.2012. Hence, appeals filed by Revenue viz., T.C. (A). Nos. 583 and 584 of 2011 stands dismissed and this portion of Tribunal's order stands confirmed. assessee's appeals in T.C.Nos.316 and 317 of 2012 stand allowed, holding that terrace area . No costs. 4.2.5. Reliance is also placed on decision of co-ordinate bench decision of Pune Tribunal in case of Shri Naresh T. (13 of 16) [ ITA-67/2017] Wadhwani vs DCIT in ITA No.s 18, 19 & 20 /PN/2013 for Asst Years 2007-08,2008-09 & 2009-10 dated 28.10.2014, wherein it was held that :- 18. bare perusal of aforesaid question of law before Hon'ble Madras High Court would reveal that issue related to whether open space of terrace would fall within expression 'built-up area'. facts before Hon'ble High Court were that assessee had constructed various apartment blocks and each block had 64 apartments. apartments located at first to sixth floor were of areas less than 1500 sq.ft.. However, flats located on 7th floor had advantage of exclusive open terrace. While considering relief u/s 801B(10) of Act, Assessing Officer took into consideration area of such exclusive/private open terrace as part of built-up area of units located at 7th floor. After considering above aspect, built-up area of flats located at 7th floor exceeded 1500 sq.ft. and hence Assessing Officer held that condition prescribed in clause (c) of section 8018(10) of Act was not fulfilled. said position taken by Assessing Officer was upheld right up to Tribunal. However, Hon'ble High Court disagreed with stand of Revenue and held that such open terrace would not be includible in calculation of 'built-up area' for purpose of examining condition prescribed in clause (c) of section 8018(10) of Act. In this view of matter, aforesaid judgement of Hon'ble Madras High Court and which has been further affirmed in subsequent decision in case of Sanghvi and Doshi Enterprise (supra), covers issue before us. 19. However, in course of hearing, learned CIT -OR attempted to distinguish judgement of Hon'ble High Court by pointing out that same related to assessment year 2003-04, period during which definition of 'builtup area' contained in section 801B(14)(a) of Act was not on statute and also fact that housing project under consideration of Hon'ble High Court was approved by (14 of 16) [ ITA-67/2017] concerned local authority prior to 01.04.2005 i.e. prior to date when definition of 'built-up area' was brought on statute by way of section 80IB(14)(a) of Act. 20. We have carefully perused judgement of Hon'ble Madras High Court and find that though Hon'ble High Court was considering project approved prior to 01.04.2005 yet it has taken into consideration definition of 'built-up area' contained in section 801B(14)(a) of Act, which was inserted w.e.f. 01.04.2005. As per Hon'ble High Court even after assuming that such definition was to be retrospectively applied yet area of open terrace would not fall within meaning of expression 'built-up area'. Hon'ble High Court referred to Indian Standard Method of Measurement of Plinth, Carpet and Rentable Areas of Buildings as issued of Bureau of Indian Standards and also meaning of aforesaid expression assigned as per rules and regulations of local authority and concluded that open terrace could not be equated to 'projection' or 'balcony' referred to in section 80IB(14)(a) of Act. 21. Notably, Hon'ble High Court also considered argument from side of Revenue to effect that sale of area of open terrace by assessee to respective purchaser would justify inclusion of such terrace area into calculation of 'built-up area'. Before us also, learned CIT-DR has raised said issue though she has fairly conceded that such finding was not emerging from orders of lower authorities. Be that as it may, Hon'ble High Court has noted and dealt with said argument in following words ;- '29. Thus, in face of terrace being open area, not being projection and hence, not included in plinth area, question herein is as to whether Tribunal is justified in confirming order of assessment to include terrace area into built-up area solely by reason of fact that assessee had sold it to purchasers of 7th floor as private terrace. (15 of 16) [ ITA-67/2017] 30. We do not think, Tribunal is justified in taking view that open terrace would form part of built-up area for purpose of sub-clause (c) of section 80-IB(10). As already seen in preceding paragraphs, assessee having Approved Plan project alone has right to claim deduction under section 80-IB. Any project undertaken not approved by Local Authority is outside purview of Act. Thus, when Local Authority, endowed with jurisdiction to grant approval is guided in its approval by Regulation as to what constitutes plinth area, which is built-up area, it is difficult for us to agree with contention of Revenue as well as reasoning of Tribunal that for purpose of considering claim under section 80-IB, built-up area would be different from what has been given approval by Local Authority, on building project. Given fact that during 2003-04 there was no definition at all on what built-up area is, understanding of Revenue, which is evidently contrary to approval of Local Authority based on Rules and Regulations could not be sustained. Consequently, we have no hesitation in agreeing with assessee's contention that open terrace area, even if be private terrace cannot form part of built- up area 22. As per Hon'ble High Court, terrace area would not form part of built-up area by reason of fact that assessee sold it to purchaser as private terrace. At this stage, we may also point out that there is nothing in section 80IB(14)(a) of Act to suggest that factum of terrace being available for exclusive use of respective unit owner is ground to consider it as part of 'built-up area' for purposes of clause (c) of section 80IB(10) of Act. Thus, argument of learned CIT-OR is hereby rejected. 23. In view of aforesaid judgement of Hon'ble Madras High Court, we are unable to uphold stand of Assessing Officer to include area of terrace as part of 'built- up area' in case where such terrace is projection attached to residential unit and there being no room under such terrace, (16 of 16) [ ITA-67/2017] even if same is available exclusively for use of respective unit- holders. 10. Even judgment of Gujarat High Court in Amaltas Associates (supra) is very clear and in our considered opinion even after amendment legislature has included balcony and projection but not Terrace . 11. In our considered opinion, terrace is to cover room which is available on ground floor therefore, terrace is different then balcony which is provided in addition to facilities whereas terrace goes with projection of room. 12. Taking into consideration aforesaid, issue is required to be answered in favour of assessee and against department. 13. appeals stand dismissed. (VIJAY KUMAR VYAS)J. (K.S. JHAVERI)J. Bmg 81-83. Principal Commissioner of Income-tax, Jaipur-2, Jaipur v. Ashiana Mangalam Developer