C/TAXAP/25/2020 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 25 of 2020 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J. B. PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA 1 Whether Reporters of Local Papers may be allowed to NO see judgment ? 2 To be referred to Reporter or not ? NO 3 Whether their Lordships wish to see fair copy of NO judgment ? 4 Whether this case involves substantial question of law NO as to interpretation of Constitution of India or any order made thereunder? PRINCIPAL COMMISSIONER OF INCOME-TAX, VADODARA-1 Versus M/S. PRATHAM DEVELOPERS Appearance: MR.VARUN K.PATEL(3802) for Appellant(s) No. 1 for Opponent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 02/03/2020 ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) Page 1 of 7 Downloaded on : Tue Mar 31 11:04:53 IST 2020 C/TAXAP/25/2020 JUDGMENT 1. This tax appeal under Section 260A of Income Tax Act, 1961 [for short 'The Act, 1961'] at instance of Revenue is directed against order dated 30th April, 2019 passed by Income Tax Appellate Tribunal, Ahmedabad 'B' Bench, Ahmedabad [for short 'The Tribunal'] in ITA No.2000/AHD/2014 for A.Y 2010 11. 2. facts giving rise to this appeal may be summarized as under: 2.1 respondent assessee firm is engaged in business of Real Estate Developers. During assessment year 2010 11, assessee had undertaken various housing projects. 2.2 During course of assessment proceedings, it was noticed by Assessing Officer that assessee claimed deduction under section 80IB(10) of Act, 1961 in respect of five projects, for which, assessee had purchased land in respect of (1) Pratham Citadel Project, (2) Pratham Vatika Project, Ahmedabad, (3) Pratham Shrusti Project, (4) Pratham Residency Project and (5) Pratham Vistas, Bhaily, whereas, in case of Pratham Srushti, project was undertaken on land brought in/ introduced by partners as part of their project. 2.3 It is case of Assessing Officer that assessee claimed deduction under Section 80IB(10) in respect of aforesaid projects undertaken though assessee was not sole owner of land on which housing project was constructed. Accordingly, Assessing Officer disallowed deduction claimed by assessee under Section 80IB(10) of Act, 1961. Assessing Officer observed that in respect of Pratham Vistas, out of lay out plan for 158 residential units, 55 residential units were having built up areas of 2199 sq.ft., which exceeded, prescribed built up areas of 1500 sq.ft as envisaged Page 2 of 7 Downloaded on : Tue Mar 31 11:04:53 IST 2020 C/TAXAP/25/2020 JUDGMENT under Section 80IB(10)(c) of Act. 2.4 assessee being dissatisfied with assessment order preferred appeal before CIT(A). CIT(A) allowed appeal after following decision of this Court in case of CIT Vs. Radhe Developers (2012) 341 ITR 403 (Guj.). relevant portion of CIT(A) is reproduced herein as under: 3.3.3 I have also considered arguments taken up in assessment order and submissions made before me. In assessment order, Assessing Officer has disallowed Assessee's claim for deduction u/s.80IB(10) in respect of appellant's housing project 'Pratham Vista' by stating that Raja Chitti/Layout Plan consisted of 158 residential units of which 55 residential units had build up area which exceeded prescribed built up area of 1500 sq.ft. in contravention of provisions of section 80IB(10)(c) of Act. From submissions made by learned Authorized Representative, it is seen that appellant firm has developed residential housing project namely 'Pratham Vista' which consisted of 103 residential units and from details furnished, it is also seen that all residential units developed by appellant firm under scheme 'Pratham Vista' are below prescribed built up area of 1500 sq.ft. 3.3.4. As regards 55 residential units referred to in assessment order, appellant has furnished following documents to show that scheme 'Pratham Meadow' was developed by appellant's associate concern M/s. Pratham Properties and they do not form part of housing project developed by appellant. Appellant filed various documents which consist of copy of Brochure of 'Pratham Meadows' developed by Pratham Properties and copy of Development Agreement entered into between Land Owners and Pratham Properties on which 'Pratham Meadow' scheme is developed by Pratham Properties. appellant has also stated that M/s. Pratham Properties is assessed to income tax under PAN AAHFP5012C and has furnished copies of said firm's return of income filed for A.Y. 2010 11, 2011 12 and 2012 13 together with audited accounts for year ended 31.03.2010, 31.03.2011 and 31.03.2012. separate profit & loss account has also been furnished in respect of 'Pratham Meadows' scheme of Pratham Properties to show that entire expenditure for project is incurred by Pratham Properties and income on sale of residential units also forms part of profit & loss account of Pratham Properties. It is also brought to my notice that all these facts are verifiable from assessment order passed by Page 3 of 7 Downloaded on : Tue Mar 31 11:04:53 IST 2020 C/TAXAP/25/2020 JUDGMENT Assessing Officer u/s.143(3) of Act in respect of A.Y.2008 09. During course of assessment proceedings, in that case, Assessing Officer noted that partners of firm are very reputed builders and developers in real estate business in market of Baroda. project undertaken is located in fully developed area. Assessing Officer had made addition in case of Pratham Properties by applying profit ratio declared in case of M/s. Pratham Developers in which assessee has calimed deduction u/s.80IB(10) and has shown profit on around 30%, whereas in case of Pratham Properties rate of profit was shown 23.47% (in case of residential projects) and 36.12% (in case of commercial project). Thus, it can be seen that issue that appellant is separate concern fulfilling conditions prescribed u/s.80IB(10) of Act and profit of residential units which do not qualify conditions, is shown in separate business entity namely M/s. Pratham Properties. 3.3.5 From order of assessment as well as from above observations, it transpires that issue of separate taxability of profit earned from residential units of 'Pratham Meadow' was considered by Assessing Officer in case of assessment of M/s. Pratham Properties. Incidentally, Assessing Officer of both assessee is same. From examination of evidence furnished by Appellant and in view of submissions that revenues in respect of scheme Pratham Vistas are accounted for by appellant and that of 'Pratham Meadows' is accounted for by M/s. Pratham Properties, I hold that Pratham Meadows consisting of 55 residential units is separate project developed by another assessee and further hold that Appellant firm is entitled to deduction under section 80IB(10) in respect of 103 residential units in 'Pratham Vista' project which fulfils criteria prescribed as to size of plot, built up area of each residential unit being of less than 1500 sq. ft. 2.5 Revenue, therefore, went in appeal before Tribunal. Tribunal after considering decision of Radhe Developers [Supra] and fact that development of 55 residential units was separate project by another assessee M/s. Pratham Properties and not by assessee, affirmed order passed by CIT(A). 3. Revenue has proposed following substantial questions of law for consideration of this Court. [a] Whether in facts and circumstances of case, learned Page 4 of 7 Downloaded on : Tue Mar 31 11:04:53 IST 2020 C/TAXAP/25/2020 JUDGMENT ITAT has erred in law and on facts in upholding decision of CIT(A) deleting disallowance of Rs.7,61,58,914/ with respect to deduction u/s.80IB(10) of Income Tax Act, 1961 without appreciating that assessee is not eligible for deduction u/s.80IB(10) of Act as assessee had obtained single approval from Local Authority consisting of approval for development and construction of residential unit having area of more than 1500 sq.ft. which is in violation of provisions of clause (c) of section 80IB(10) of Act? [b] Whether in facts and circumstances of case, learned ITAT has erred in law and on facts in allowing deduction u/s.80IB(10) of Act to assessee without appreciating fact that no separate approval was taken from Local Authority for project 'Pratham Meadows', in which each residential unit has maximum built up area of more than 1500 sq.ft.? [c] Whether in facts and circumstances of case, learned ITAT has erred in law and on facts in upholding decision of learned CIT(A) allowing deduction u/s.80IB(10) of Income Tax Act, 1961 to assessee on pro rata basis when there is no such provision under stature permitting same? 4. learned senior standing counsel Mr. V.K. Patel appearing for appellant submitted that Assessing Officer has considered fact that there was only one commencement certificate/Raja Chhiththi for development of 158 units, which included project consisting of 103 units, which were developed by assessee and for other 55 units developed by M/s. Pratham Properties. Therefore, assessee is not entitled to deduction under Section 80IB(10) in view of common commencement certificate/raja chhiththi because it includes 55 residential units of having more than 1500 sq.ft. built up area. 5. On other hand, Mr. B.S. Soparkar, learned counsel appearing for assessee submitted that assessee never claimed any deduction for 55 residential units, which are having more than 1500 sq.ft. built up area. Page 5 of 7 Downloaded on : Tue Mar 31 11:04:53 IST 2020 C/TAXAP/25/2020 JUDGMENT 6. For this purpose, section 80IB(10) of Act reads thus: Section 80IB(10) [(10) amount of deduction in case of undertaking developing and building housing projects approved before 31st day of March, 4[2008] by local authority shall be hundred percent of profits derived in previous year relevant to any assessment year from such housing, if (a) Such undertaking has commenced or commences development and construction of housing project on or after 1st day of October, 1998 and completes such construction. (i) in case where housing project has been approved by local authority before 1st day of April, 2004, on or before 31st day of March, 2008. (ii) in case where as housing project has been or is approved by local authority on or after 1st day of April, 2004 5[but not later than 31st day of March, 2005] within four years from end of financial year in which housing project is approved by local authority; 6 [(iii) 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.] Explanation. For purposes of this clause, (i) in case where approval in respect of housing project is obtained more than once, such housing project shall be deemed to have been approved on date on which building plan of such housing project is first approved by local authority; (ii) 7date of completion of construction of housing project shall7 be taken to be date on which completion certificate in respect of such housing project is issued by local authority; (b) project is on size of plot of land which has minimum area of one acre: Provided that nothing contained in clause (a) or clause (b) shall apply to housing project carried out in accordance with scheme framed by Central Government or State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for time being in force and such scheme is notified by Board in this behalf; Page 6 of 7 Downloaded on : Tue Mar 31 11:04:53 IST 2020 C/TAXAP/25/2020 JUDGMENT (c) residential unit has maximum built up area of one thousand square feet where such residential unit is situated within city 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; 8 7. In view of above provisions, it is discernible that as there is no provision of obtaining commencement certificate from local authority for development and construction of residential unit having more than 1500 sq.ft area. In facts of present case, when assessee claimed deduction with respect to residential units, which are having built up area less than 1500 sq.ft, condition laid down under Section 80IB(10)(c) is fulfilled. Therefore, whether such development permission includes area for residential units, which are more than 1500 sq.ft. would not be relevant for deciding eligibility to deducting under Section 80IB(10) of Act. 8. In such circumstances, in view of concurrent findings of fact arrived at by CIT(A) and Tribunal, there is no legal infirmity in impugned orders of allowing deduction under Section 80IB(10) of Act. 9. For forgoing reasons, no question of law proposed by Revenue could be termed as substantial questions of law. appeal, therefore, fails and stand dismissed. (J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) aruna Page 7 of 7 Downloaded on : Tue Mar 31 11:04:53 IST 2020 Principal Commissioner of Income-tax, Vadodara-1 v. Pratham Developer