A.F.R. Reserved Case :- INCOME TAX APPEAL Nos. - 113 of 2016 Appellant :- Pr. Commissioner Of Income Tax Respondent :- Sahara States Gorakhpur Counsel for Appellant :- Manu Ghildyal,Manu Ghildyal Counsel for Respondent :- Archi Agarwal,Abhinav Mehrotra Connected with Case :- INCOME TAX APPEAL Nos. - 114 of 2016 Appellant :- Pr. Commissioner Of Income Tax Respondent :- Sahara States Gorakhpur Counsel for Appellant :- Manu Ghildyal,Manu Ghildyal Counsel for Respondent :- Archi Agarwal,Abhinav Mehrotra Hon'ble Bharati Sapru,J. Hon'ble Piyush Agrawal,J. (Delivered by Hon'ble Piyush Agrawal, J) present appeals have been filed against common order dated 7.12.2015 passed in ITA No. 04 & C15/Alld 2012 for Assessment Year 2005-06 & 2007-08 passed by Income Tax Appellate Tribunal, Allahabad, Bench Allahabad. aforesaid appeals on 3.5.2016 was firstly admitted on question No. B, which reads as under: (B) Whether on facts and circumstances of case, order of Income Tax Appellate Tribunal was correct in Law holding that Section 80- IB(10) which is substituted w.e.f. 1.4.2005 is not applicable to project approve before 01.04.2004. provision of Section 80(IB)(10)(a)(i) is as such applicable for all projects which has been approved by local authority before 1.4.2004. Thereafter, on 11.1.2017 this Hon'ble Court accepted and admitted one more question of law mentioned as 'C' in memo of appeals, which reads as under: "Whether on facts and in circumstances of case, order of Income Tax Appellate Tribunal was correct in law holding that there is change of opinion by Assessing Officer. As such, there is no change of opinion as information regarding completion of project has been collected by Assessing Officer is new information and Assessing Officer had correctly applied provision of Section 147/148 for reopening assessment of A.Y. 2007- 08. In both appeals common facts and question of law are involved, as well as both parties are agreed for disposal of appeals by common order. facts of case are that respondent-assessee (hereinafter referred to as 'assessee') is engaged in business of development of land, construction of house and its sales thereof. For purpose of factual background facts of assessment year 2005-06 has been taken up. assessee filed its return showing income of Rs. 59,37,200/- and claimed deduction under Section 80IB(10) of Income Tax Act (hereinafter referred to as 'the Act'). case of assessee was selected under scrutiny and subsequently on 24.12.2007, assessment order was passed on total income of Rs. 61,91,134/-, then exemption as claimed by assessee under Section 80-IB(10) of Act was allowed. Thereafter, reassessment proceeding were initiated on basis of some information received during assessment proceeding for year 2006-07 that assessee has not obtained completion certificate within four year from Local Authority who have approved project and therefore, there was violation of provision of Section 80-IB(10)(a)(i) of Act. assessing authority was of opinion that since assessee has lost eligibility for claiming deduction under Section 80IB(10) of Act. Therefore, claim cannot be legally permitted, proceeding for reassessment were initiated for both assessment years. notice dated 5.6.2009 was issued under Section 148 of Act which was served upon assessee on 8.6.2009. assessee submitted his return under protest on 8.7.2007 and further made request for supply copy of reasons recorded for reopen completed assessment. assessee has filed his objection on 27.10.2010 pointing out that re- assessment proceedings have been initiated on basis of change of opinion and assumption of jurisdiction has been made without any tangible fresh material /information on record which is permissible under provision of Section 147 of Act. Notice under Section 143(2) of Act was issued on 10.6.2010 and thereafter notice under Section 142 (1) along with questionnaire were issued on 18.6.2010 and same was served upon assessee on 24.6.2010. Assessing authority by its re-assessment order dated 27.10.2010 has rejected claim of exemption under Section 80IB(10) of Act to Tune of Rs. 58,44,230/-. Again aforesaid order, assessee preferred appeal before Commissioner of Income Tax (appeals), Lucknow who vide its order dated 23rd September, 2011 partly allowed appeal but has confirmed rejection of claim under Section 80IB(10) of Act. Feeling aggrieved by said order assessee preferred appeal before Income Tax appellate Tribunal who by its impugned order has allowed appeal and has set aside re-assessment proceeding and directed assessing authority to allow claim of deduction to assessee under Section 80IB(10) of Act. Feeling aggrieved by impugned order revenue has preferred present appeals. Heard Mr. Manu Ghildyal, learned counsel for Revenue and Mr. Archit Mehrotra, learned counsel for assessee. It has been argued on behalf of Revenue that Section 80IB(10) of Act has been substituted by Finance Act, 2004 and sub- section (d) in Section 80IB(10) of Act has been inserted which operates retrospectively and therefore said amendment is applicable in case of respondent even though whose projects have been approved before 1.4.2004 and therefore impugned order passed by Tribunal are not justifiable which deserves to be set aside. It was further argued that since there is no change of opinion, Tribunal was not justified in allowing appeal of assessee and directing assessing authority to grant benefit of Section 80IB(10) of Act to assessee. reassessment proceeding was rightly initiated. counsel for assessee has vehemently opposed contention of Revenue and has argued that Tribunal has rightly passed impugned order and has further submitted that Tribunal was justified in relying upon judgment of Bombay High Court in case of CIT vs. Brahma Associates reported in 333 ITR 289 (Bombay) wherein Bombay High Court has specifically held that amendment made in Section 80IB(10)(d) of Act is prospectively and not retrospectively. It was further argued that Apex Court in case of CIT vs. Sarkar Builders reported in [2015] 375 ITR 392(SC) has also approved judgment of Bombay High Court. We have perused record of case and finds that assessee projects were approved by respective Development Authority on April 2003 for construction of 7 types of residential units comprising all 429 units out of which 120 units were sold against Income of Rs. 83,74,72028/- and net profit of Rs. 1,17,81,384/- has been declared after debating expenditure of Rs. 82,56,90,664/- on account of land and development, construction & Development, personnel & site running expenses and selling and distribution expenses etc. assessee has claimed deduction under Section 80-IB(10) of Act of Rs. 58,44,230/- on net profit of Rs. 1,17,81,384/-. record reveals that reassessment proceedings have been initiated on basis of observation made by assessing officer during assessment proceeding for assessment year 2006-07 that respondent has not obtained completion certificate within four years from local authority and has not fulfilling condition as stipulated under Section 80IB(10)(d) of Act and therefore assessee has lost eligibility of claim deduction under Section 80-IB(10) of Act in disputed assessment years. Section 80-IB(10) of Act for relevant assessment year is quoted below: "Section 80-IB(10) prior to amendment of 1.4.2005: "(10) amount of profits in case of undertaking developing and building housing projects approved before 3 I" day of March, 2005, by local authority, shall be hundred percent, of profits derived in any previous year relevant to any assessment year from such housing project if,- (a) such undertaking has commenced or commences development and construction of housing project on or after 1" day of October, 1998; (b) project is on size of plot of land which has minimum area of one acre; and (c) residential unit has minimum built up area of one thousand square feet where such residential unit is situated within cites of Delhi or Mumbai or within twenty-five kilometers from municipal limits of these cities and one thousand and five hundred square feet at any other place." From perusal of said section which provides that only three conditions for eligibility of deduction under Section 80- IB(10) of Act and in said provision there is no such condition that project in question should be completed and obtained completion certificate with period of four years. In impugned order Tribunal has recorded finding of fact that there was no such requirement under Act for completing project before particular date and would have obtained completion certificate from Local Authority who have approved project. Bombay High Court in case of CIT vs. Brahma Associates (Supra) has observed (see page 399) as under: " Held that clause (d) inserted to Section 80-IB(10) with effect from April 1, 2005, is prospective and not retrospective and hence could not be applied were on profits derived from housing projects under Section 80-IB(10) were on profits derived from housing project approved by local authority as whole, Tribunal not justified in restricting Section 80-IB (10) deduction only to part of project. However, in present case, since, assessee has accepted decision of Tribunal in allowing 80-IB (10) deduction to part of project, findings of Tribunal in that behalf could not be disturbed." Subsequently, against judgement of Bombay High Court revenue preferred SLP before Hon'ble Supreme Court being SLP (C)- No. 24330 of 2011 and others) Hon'ble Supreme Court by its judgement and order dated 15th May, 2015 has dismissed appeal of Revenue and has confirmed order and judgement passed by Bombay High Court. Hon'ble Supreme Court in case of CIT vs. Sarkar Builders (supra) while considering bunch of cases has observed as under (see page 399): "We would also like to point out that following this judgment of Bombay High Court, or independently, other High Courts had also taken similar view. Against aforesaid judgments, special leave petitions were filed by Revenue in this Court. All these SLPs have been disposed of by this Court vide order dated 29.04.2015, we would like to reproduce said order in entirety hereunder: "All these special leave petitions are filed by Revenue/ Department of Income tax against judgments rendered by various High Courts deciding identical issue which pertains to deduction under Section 80IB(10) of Income Tax Act, as applicable prior to 01.04.2005. We may mention at outset that all High Courts have taken identical view in all these cases holding that deduction under aforesaid provision would be admissible to "housing project". All assessees had undertaken construction projects which were approved by municipal authorities/local authorities as housing projects. On that basis, they claimed deduction under Section 80IB(10) of Act. This provision as it stood at that time, i.e., prior to 01.04.2005 reads as under: - Section 80IB(10) [as it stood prior to 01.04.2005] "(10) amount of profits in case of undertaking developing and building housing projects approved before 31st day of March, 2005 by local authority, shall be hundred per cent of profits derived in any previous year relevant to any assessment year from such housing project if, (a) such undertaking has commenced or commences development and construction of housing project on or after 1st day of October, 1998; (b) project is on size of plot of land which has minimum area of one crore; and (c) residential unit has maximum built-up area of one thousand square feet where such residential unit is situated within cities of Delhi or Mumbai or within twenty-five kilometres from municipal limits of these cities and one thousand and five hundred square feet at any other place." However, income tax authorities rejected claim of deduction on ground that projects were not "housing project" inasmuch as some commercial activity was also undertaken in those projects. This contention of Revenue is not accepted by income tax Appellate Tribunal as well as High Court in impugned judgment. High Court interpreted expression "housing project" by giving grammatical meaning thereto as housing project is not defined under Income Tax Act insofar as aforesaid provision is concerned. Since sub-section (10) of Section 80IB very categorically mentioned that such project which is undertaken as housing project is approved by local authority, once project is approved by local authority it is to be treated as housing project. We may also point out that High Court had made observations in context of Development Control Regulations (hereinafter referred to as 'DCRs' in short) under which local authority sanctions housing projects and noted that in these DCRs itself, element of commercial activity is provided but total project is still treated as housing project. On basis of this discussion, after modifying some of directions given by ITAT, conclusions which are arrived at by High Court are as follows: - "30. In result, questions raised in appeal are answered thus:- a) Upto 31/3/2005 (subject to fulfilling other conditions), deduction under Section 80IB(10) is allowable to housing projects approved by local authority having residential units with commercial user to extent permitted under DC Rules/Regulations framed by respective local authority b) ... c) .. d) ... (See page 401) e) Clasue (d) inserted to section 80-IB(10) with effect from April 1, 2005, is prospective and not retrospective and, hence, cannot be applied for period prior to 2005. We are in agreement with aforesaid answer given by High Court to various issues. (See page 402) "...................In aforesaid scenario, we revert back to question that is to be answered. We have already pointed out that parties are ad idem that amendment is prospective in nature and, therefore, it operates from 01.04.2005. We have also mentioned that in instant appeals, all these assessees had got housing projects sanctioned prior to 01.04.2005 and construction of said housing project also started before 01.04.2005. All other conditions mentioned namely date by which approval was to be given and dates by which projects were to be completed as on date when project was sanctioned, are also met by assessees......." (See page 404) "...... Revenue had argued that clause (d) inserted with effect from 01.04.2005 should be applied retrospectively, which argument was repelled by High Court. Therefore, for better understanding, we would like to begin our discussion with meaning given to 'housing project' along with issue of retrospectivity of clause (d), as raised by Revenue, which was dealt with by High Court and repelled. That portion of discussion contained in High Court judgment, which has some bearing on issue at hand, runs as under: "21. Thus, on date on which legislature introduced 100% deduction under Income Tax Act, 1961 on profits derived from housing projects approved by local authority, it was known that local authorities could approve projects as houding projects with commercial user to extent permitted under DC Rules framed by respective local authority. In other words, it was known that local authorities could approve housing project without or with commercial user to extent permitted under Development Control Rules. If legislature intended to restrict benefit of deduction only to projects approved exclusively for residential purposes, then it would have stated so. However, legislature has provided that Section 80IB(10) deduction is available to all housing projects approved by local authority. Since local authorities could approve project to be housing project with or without commercial user, it is evident that legislature intended to allow Section 80IB(10) deduction to all housing projects approved by local authority without or with commercial user to extent permitted under DC Rules. 22. It is not in dispute that where project is approved as housing project without or with commercial user to extent permitted under Rules/Regulations, then, deduction under Section 80IB(10) would be allowable. In other words, if project could be approved as housing project having residential units with permissible commercial user, then it is not open to income tax authorities to contend that expression 'housing project' in Section 80IB(10) is applicable to projects having only residential units. 23. Once it is held that local authorities could approve project to be housing project without or with commercial user to extent permitted under DC Rules, then project approved with permissible commercial user would be eligible for Section 80IB(10) deduction irrespective of fact that project is approved as 'housing project' or approved as 'residential plus commercial'. In other words, where project fulfills criteria for being approved as housing project, then deduction cannot be denied under Section 80IB(10) merely because project is approved as 'residential plus commercial'. 24. fact that deduction under Section 80IB(10) prior to 1.4.2005 was allowable on profits derived from housing projects constructed during specified period, on specified size of plot with residential units of specified size, it cannot be inferred that deduction under Section 80IB(10) was allowable to housing projects having residential units only, because, restriction on size of residential unit is with view to make available large number of affordable houses to common man and not with view to deny commercial user in residential buildings. In other words, restriction under Section 80IB(10) regarding size of residential unit would in no way curtail powers of local authority to approve project with commercial user to extent permitted under DC Rules/Regulations. Therefore, argument of Revenue that restriction on size of residential unit in Section 80IB(10) as it stood prior to 1.4.2005 is suggestive of fact that deduction is restricted to housing projects approved for residential units only cannot be accepted. 25. above conclusion is further fortified by Clause (d) to Section 80IB(10) inserted with effect from 1.4.2005. Clause (d) to Section 80IB(10) inserted w.e.f. 1.4.2005 provides that even though shops and commercial establishments are included in housing project, deduction under Section 80IB(10) with effect from 1.4.2005 would be available where such commercial user does not exceed five per cent of aggregate built- up area of housing project or two thousand square feet whichever is lower. By Finance Act, 2010, clause (d) is amended to effect that commercial user should not exceed three percent of aggregate built-up area of housing project or five thousand square feet whichever is higher. expression 'included' in clause (d) makes it amply clear that commercial user is integral part of housing project. Thus, by inserting clause (d) to Section 80IB(10) legislature has made it clear that though housing projects approved by local authorities with commercial user to extent permissible under DC Rules/Regulation were entitled to Section 80IB(10) deduction, with effect from 1.4.2005 such deduction would be subject to restriction set out in clause (d) of Section 80IB(10). Therefore, argument of revenue that with effect from 1.4.2005 legislature for first time allowed Section 80IB(10) deduction to housing projects having commercial user cannot be accepted. 29. Lastly, argument of revenue that Section 80IB(10) as amended by inserting clause (d) with effect from 1.4.2005 should be applied retrospectively is also without any merit, because, firstly, clause (d) specifically inserted with effect from 1.4.2005, and therefore, that clause cannot be applied for period prior to 1.4.2005. Secondly, clause (d) seeks to deny Section 80IB(10) deduction to projects having commercial user beyond limit prescribed under clause (d), even though such commercial user is approved by local authority. Therefore, restriction imposed under Act for first time with effect from 1.4.2005 cannot be applied retrospectively. Thirdly, it is not open to revenue to contend on one hand that Section 80IB(10) as stood prior to 1.4.2005 did not permit commercial user in housing projects and on other hand contend that restriction on commercial user introduced with effect from 1.4.2005 should be applied retrospectively. argument of revenue is mutually contradictory and hence liable to be rejected. Thus, in our opinion, Tribunal was justified in holding that clause (d) inserted to Section 80IB(10) with effect from 1.4.2005 is prospective and not retrospective and hence cannot be applied to period prior to 1.4.2005." issues dealt with from paras 21 to 25 by High Court already stands approved by this Court. In para 29, High Court has held that clause. (d) has prospective operation, viz., with effect from 01.04.2005, and this legal position is not disputed by Revenue before us. What follows from above is that prior to 01.04.2005, these developers/assessees who had got their projects sanctioned from local authorities as 'housing projects', even with commercial user, though limited to extent permitted under DC Rules, were convinced that they would be getting benefit of 100% deduction of their income from such projects under Section 80IB of Act..." In view of observation of Hon'ble Apex Court, we are of opinion that projects which were approved prior to 1.4.2005 applicability of Section 80IB(10) (d), of Act is not permitted. In other words, Section 80(IB)(10)(d) of Act will be applicable prospectively and not retrospectively. Once it has come on record by fact finding Authority also that there is no such condition to have completion certificate within four years from local authority granting approval of projects in question, reassessment proceedings taken against assessee are bad and against settled principle of law. Therefore, Tribunal has rightly set aside re-assessment proceeding and directed assessing authority to grant benefit of Section 80IB(10) of Act to assessee. In view of above facts and circumstances of case question of law are answered in favour of assessee and against Revenue. appeals are, accordingly, answered. Both appeals fail and are therefore dismissed. Copy of this order be placed in connected Income Tax Appeal No. 114 of 2016. Order Date :- 19.8.2019 SY Pr. Commissioner of Income-tax v. Sahara States Gorakhpur