1. Both these appeals have been filed by the assessee for the A.Y 2002-2003 and
I.T.A No. 165.PN/2007 for A.Y 2003-2004
2. This appeal has been filed against the order of the CIT(A). This appeal was heard and decided on merit vide Tribunal's Order dated 31.05.2011 Subsequently, at the instance of revenue, order was recalled on the point of alternate contention i.e, liability of prorata claim u/s. 80IB(10) with reference to area of residential portion of housing project. On this, Tribunal has recalled its order on this limited point of proportionate disallowance by observing as under:
“We find that the issue relating to prorata claim u/s. 80IB(10), with reference to the residential portion of the Housing Project raised in ground No. 2 of the appeal has been adjudicated upon by the Tribunal simply following the decision of Nagpur Bench of Tribunal in the case of ITO v. Air Developers (2009) 123 TTJ (Nagpur) 359. Thus, undisputedly, the decision of the Hon'ble Jurisdictional Bombay High Court in the case of CIT v. M.S Brahma Associates (supra) to which this Bench of the Tribunal is bound with has remained to be discussed for its applicability on the issue which, in our view, has resulted into a mistake apparent from record in the order dated 31 May 2011 of the Tribunal. We thus are of the opinion that para Nos. 17 & 18 of the order of the Tribunal dealing with Ground No. 2 needs rectification under the provisions of section 254(2) of the Act. We thus recall the order of the Tribunal on ground No. 2 i.e, para 17 & 18 of the order with direction to the Registry to fix the appeal for hearing on ground No. 2 on an earlier possible date with advance notices to the parties.”
3. So the limited issue before us is with regard to allowability of prorata claim u/s. 80IB(10) with reference to the residential portion of the housing project. In this regard, Ld. Authorised Representative submitted that this issue of allowability of prorata claim u/s. 80IB(10) with reference to area of residential unit of housing project has been decided in favour of the assessee by Mumbai Tribunal in DCIT v. Ekta Housing Pvt. Ltd., wherein it has been held as under:
“11. Rival contentions heard. On careful consideration of the facts and circumstances of the case and on perusal of the papers on record, orders of the authorities below as well as the case laws cited before us, we hold as follows:—
i) The controversy can be brought out by extracting para-6 from the assessment order, which reads as under:—
“6. The submissions of the assessee have been duly considered. The same are not acceptable as section 80IB(10) does not lay down the theory of proportionate deduction. If the assessee satisfies all the conditions of the said section then only the deduction is allowable. If one of the conditions is not satisfied the assessee cannot be granted the deduction. The assessee's submission that area of each flat is below 1,000 sq. ft. (built-up) and purchasers might have combined the adjoining flat is not a correct fact. This has been disproved beyond doubt from the material impounded in the course of survey action under section 133A and post survey proceedings. This gets further supported by the assessee's application before ITSC. Since the assessee's houing project undisputedly includes some residential units, which are of an area exceeding 1,000 sq. ft. (built-up), one of the conditions of section 80IB(10) stands violated and therefore, the whole of the profit of the housing project is not eligible for deduction under section 80IB(10). Accordingly, the deduction under section 80IB(10) allowed earlier is hereby withdrawn. Since the assessee has furnished inaccurate particulars of income and concealed the particulars of income, the penalty proceedings are initiated under section 271(1)(c) for wrong claim of deduction under section 80IB(10).”
ii) The issue as to whether, some of the residential units in the assessee's project exceeding the built up area of 1,000 sq. ft. or not, need not be adjudicated by us as no deduction under section 80IB(10) is claimed on income derived from the units by the assessee. The short point for our adjudication is, on the facts and circumstances of the case, whether the assessee is entitled to proportionate deduction under section 80IB(10).
iii) The Nagpur Bench of this Tribunal in AIR Developers (supra), held as follows:—
“…..Therefore, A.O is directed to determine the built-up area of the residential units by applying the Development Control Regulation, 2000, and to allow proportionate deduction under section 80IB(10) if he finds that the built up area of some of the residential units exceeds 1,500 sq. ft.”
iv) Bangalore Bench of this Tribunal in DCIT v. Brigade Enterprises Pvt. Ltd., has held as under:—
“….. Therefore, if a particular unit satisfied the condition of section 80IB, the assessee is entitled for deduction and it should be denied in respect of those units only which do not satisfy the conditions - Again, the accounting principles would also mandate recognition of profits from each unit separately.”
v) Mumbai ‘G’ Bench of this Tribunal in Sheth Developers Pvt. Ltd. (supra), has held as follows:
“…. As regards the A project assessee is eligible for relief on prorata basis in respect of the flats which did not have a built-up area exceeding 1,000 sq. ft. - quantum of deduction in respect of the flats which have built-up area less than 1,000 sq. ft., has to be worked out on pro-rata basis - A.O accordingly directed to verify the claim of the assessee and allow the deduction on pro-rata basis in respect of flats in A Project.”
vi) Kolkata ‘C’ Bench of this Tribunal in Bengal Ambuja Housing Development Ltd. v. DCIT, ITA No. 1595.Kol./2005, vide order dated 24 March 2006, held as under:—
“It is apparent from the perusal of section 8018(10) that this section has been enacted with a view to provide incentive for businessmen to undertake construction of residential accommodation for smaller residential units and the deduction is intended to be restricted to the profit derived from the construction of smaller units and not from larger residential units. Though the A.O has denied the claim of the assessee observing that larger units were also constructed by the assessee, at the same time, it is smaller residential units which were fulfilling all the conditions as contained in section 80IB(10) and the same has not been disputed by the A.O also. We have also noted down the fact that even the provision as laid down in section 80IB(10) does not speak regarding such denial of deduction in case of profit from a housing complex containing both the smaller and large residential units and since the assessee has only claimed deduction on account of smaller qualifying units by fulfilling all the conditions as laid down under section 80IB(10), the denial of claim by the assessee is on account of rather restricted and narrow interpretation of provisions of clause (c) of section 80/8(10) while coming to such conclusion, we also find support from the order of the Hon'ble Supreme Court in case of Bajaj Tempo Ltd. (supra) wherein it was held that provisions should be interpreted liberally and since in the present case also, the assessee by claiming pro-rata income on qualifying units has complied with claim of the assessee was rightly allowed by the learned CIT(A) by reversing the order of the A.O
vi) Bangalore “A” Bench of this Tribunal in SJR Builders (supra), held that “merely because some flats are larger than 1,500 sq. ft., the assessee will not lose the benefit in its entirety but only with reference to the flats which has more than prescribed built up area, the assessee will lose the benefit.
vii) Thus, different Benches of the Tribunal have taken a view that, in case, some residential house have a built up area in excess of 1,000 sq. ft., the assessee would not lose the total exemption under section 80IB(10) in its entirety but will only lose the proportionate exemption, under section 80IB(10).
viii) We now examine the applicability of the decision of the Hon'ble Bombay High Court in Brahma Associates (supra) to the facts of this case. On a careful reading of this judgment, we find that nowhere it is stated that proportionate deduction should not be allowed, in case certain residential units had built up area in excess of prescribed limit of 1,000 sq. ft. In fact, this issue was not before the Hon'ble jurisdictional High Court. The questions before the Hon'ble jurisdictional High Court were different and, hence the judgment cannot be said to be on this issue. The only issue before the High Court is when there is a commercial element in a residential project, will the assessee be denied the entire exemption. In this case, the Hon'ble High Court has observed that when the local authority approved a plan as a housing project or a residential cum commercial project, the assessee would be entitled to claim for deduction under section 80IB(10) even if the project had commercial element in excess of 10%. At paras-27 and 28, the Court observed as follows:
“27. The question then to be considered is, whether the Special Bench of the Tribunal was justified in holding that the projects having commercial area upto 10% of the built-up area of the plot are eligible for deduction under section 80IB(10) on the entire project upto 1.4.2005 Once the basic argument of the revenue that the housing projects with commercial user are not entitled to section 80IB(10) deduction is rejected, then in the absence of any restriction imposed under the Act, it was not open to the Tribunal to hold that the projects approved by the local authorities having residential buildings with commercial user upto 10% of the plot area would alone be entitled to deduction under section 80IB(10). As noted earlier, restriction regarding commercial user has been imposed for the first time by introducing clause (d) to section 80IB(10) with effect from 1.4.2005 Therefore, it was not open to the Tribunal to hold that prior. to 1.4.2005, projects having commercial user upto 10% of the plot area alone would be eligible for section 801B(10) deduction.
28. In the present case, though the commercial user is more than 10% of the plot area, the Tribunal has allowed section 80IB(10) deduction in respect of 15 residential buildings on the ground that the profits from these exclusively residential buildings could be determined on stand along basis. In our opinion, that would not be proper, because section 80IB(10) allows deduction to the entire project approved by the local authority and not to a part of the project. If the conditions set out in section 80IB(10) are satisfied, then deduction is allowable on the entire project approved by the local authority and there is no question of allowing deduction to a part of the project. In the present case, the commercial user is allowed in accordance with the DC Rules and hence the assessee was entitled to section 80IB(10) deduction on the entire project approved by the local authority. However, the assessee has not challenged the decision of the Tribunal in restricting the deduction to a part of the project. Therefore, while holding that in law, the assessee was entitled to section 80IB(10) deduction on the profits of the entire project, in the facts of the present case, since the assessee has not challenged the decision of the Tribunal, we are not inclined to disturb the decision of the Tribunal in restricting the section 80IB(10) deduction only in respect of the profits derived from 15 residential buildings.”
ix) Thus, it could be seen that the Hon'ble High Court do not approve the findings of the Tribunal that a residential building with commercial user up to 10% of the plot area would alone be entitled to deduction under section 80IB(10). The issue that, in case where certain residential units are of a built up area in excess of the prescribed limit of 1,000 sq. ft. in residential project, this would result in the entire exemption being lost, or whether the assessee would be entitled to a proportionate deduction was not before the High Court. Thus, in our opinion, the decision of Hon'ble Jurisdictional High Court in Brahma Associates (supra), does not come to the rescue of the Revenue.
x) On the other hand, all the decisions of the co-ordinate Benches of the Tribunal cited before us are in favour of the assessee. Respectfully following the same, we uphold the following finding of the Commissioner (Appeals), vide Para-2.8 of his order:—
“2.8 The appellant's claim is supported by the decision of Hon'ble Mumbai ITAT in case of Saroj Sales Organisation ITA No. 4008.Mum./2007 order 24.1.2008, wherein on identical facts the Hon'ble ITAT following the Hon'ble Supreme Court decision in the case of Bajaj Tempo Ltd., reported in 196 ITR 188 has observed that the provisions should be interpreted liberally. Further, following the Hon'ble TAT decision in the case of Bengal Ambuja Housing Development Ltd. Kolkata, the Hon'ble Mumbai ITAT allowed the assessee's claim on prorata basis on qualifying units which satisfied the conditions laid down by section 80IB(10). The Hon'ble ITAT Kolkata in the case of Bengal Ambuja Housing Development Ltd. v. DCIT (ITA No. 1595.Kol./2005, A.Y 2002-2003, Bench ‘C’, order dated 24.3.2006 (2007) 39 D BCAJ 546) has held that even if the units constructed are both smaller and larger units with reference to the stipulated area, the profit derived from the construction of the smaller units i.e, within the stipulated area of 1,000 sq. ft. built-up area ought to be allowed as deduction under section 80IB(10) of the Act. The above decision is approved by the Hon'ble Kolkata High Court as referred in the decision of ACIT v. Shree Balaji Developers (ITA No. 2592.Mum./2006, A.Y 2004-2005, Bench “C” order dated 21.10.2008) wherein the theory of pro-rata deduction is approved and held the deduction under section 80IB on prorata basis meets the objectives of the provisions of section 80IB. The Hon'ble ITAT Bangalore Bench in the case of DCIT v. Brigade Enterprises Pvt. Ltd. [24 DTR 371 Bangalore (2008)] has held that the disallowance if any will have to be restricted to the extent of non-compliance of the provisions. This rule of proportionately is well founded in the income tax law and is recognized under various provisions of the Act. The Hon'ble ITAT Chennai in the case of Arun Excello Foundations Private Ltd. v. Income Tax (2007) 108 TTJ 71 (Chennai) has also upheld the pro-rata deduction on eligible residential units. Thus, respectfully following the above judgments of the various ITAT and Courts and particularly the jurisdictional ITAT in the case of Saroj Sales Organisation (supra), I hold that assessee is entitled for deduction under section 80IB on pro-rata basis. The A.O is therefore, directed to allow the deduction under section 8018(10) on pro-rata basis as discussed above. This ground of appeal is allowed.
In the result, Revenue's appeal is dismissed.”
3.1 It was further submitted that similarly in the case of Sanghvi Doshi Enterprises v. ITO (141 TTJ 1), it was held as under:
“As a matter of fact it is to be seen from the order of the Chennai Bench of the Tribunal in the case of Viswas Promotors (P) Ltd., that the Tribunal has not effectively considered the order of the Calcutta Tribunal and the judgment of the Calcutta High Court. Therefore the argument that all the earlier decisions on the subject were considered by the Chennai Bench of the Tribunal in the case of Viswas Promotrs (P) Ltd., is not a correct statement of fact. It is also not correct to argue that the said order of the Tribunal Chennai Bench in the case of Viswas Promotors (P) Ltd., has been confirmed by the Madras High Court. The Madras High Court in its writ order has dealt with only the writ application filed by the assessee against the order of the tribunal dismissing the miscellaneous petition filed by the assessee. The Court has specifically mentioned that the writ petition was misconceived and therefore liable to be dismissed. The ratio laid down by the High Court in the said case was that writ petition against order under s. 254(2) cannot be rejected on the ground of availability of alternate remedy. The Madras High Court has not considered anything concerning the merit of the issue that whether in the circumstances stated above the assessee could claim deduction under s. 80IB(10) or not. The Court clarified that it was still open for the assessee to appeal against the finding of the Tribunal on merits of the issue in appeal before the High Court permitted under s. 260A. Therefore it is premature to hold that the order of the Tribunal, Chennai Bench in the case of Asst. CIT v. Viswas Promotors (P) Ltd. has been upheld by the jurisdictional High Court. Where the jurisdictional High Court has dismissed the appeal against the order of the Tribunal holding that no substantial question of law arises, the said decision of the High Court is a decision on merits confirming the findings arrived at by the Tribunal and it is not possible to argue that the High Court has not considered the merits of the issue decided by the Tribunal. An appeal always raises question arising out of the merits of an issue. Whether High Court discusses a case in very many words or dismisses the appeal shortly stating that no question of law arises, the judicial result is the same that the High Court has upheld the reasonings and findings given by the Tribunal in its order. The judgment of the Calcutta High Court rendered in the case of CIT v. Bengal Ambuja Housing Dev. Ltd. in IT Appeal No. 458 of 2006, dt. 5 Jan., 2007 is a judgment directly on the issue upholding the view of the Calcutta ‘C’ Bench of the Tribunal that a prorata deduction is permissible under s. 80IB(10). As there is no direct decision of the jurisdictional High Court still available on the subject, the judgment of the Calcutta High Court must be followed. The assessees are entitled for deduction under s. 80IB(10) in respect of flats having built-up area not exceeding 1,500 sq. ft. and not entitled for deduction in respect of those flats having their built-up area exceeding 1,500 sq. ft. - CIT v. Bengal Ambuja Housing Development Ltd. (IT Appeal No. 458 of 2006, decided by the Calcutta High Court on 5 Jan., 2007) followed: Medicare Investments Ltd. v. Jt. CIT (2007) 112 TTJ (Del) (SB) 889 : (2008) 114 ITD 34 (Del) (SB) applied; Asst. CIT v. Viswas Promotors (P) Ltd. (ITA No. 1912.Mad/2007, dt. 13 Oct., 2008) impliedly overruled; Viswas Promotors (P) Ltd. v. ITAT (2009) 226 CTR (Mad.) 638 : (2009) 30 DTR (Mad) 65 : (2010) 323 ITR 114 (Mad) distinguished.”
4. Lower authorities were not having advantage of above legal decision to apply to the facts of the assessee's case to reach a conclusion. So in the interest of justice we set aside the order of the CIT(A) on the issue and restore the same to the Assessing Officer with a direction to decide the same as per fact and law after providing due opportunity to the assessee of being heard.
5. As a result, both the appeals filed by the assessee are allowed for statistical purposes.