Citation Codes

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Case Number

ITA No. 1339.PN/2010 (Assessment Year: 2006-07)

Advocates

Assessee by: Mr. Nikhil Pathak
Department by: Mr. Rajesh Damor

Judges

G.S. Pannu, A.M.
R.S. Padvekar, J.M.

Acts

u/s 143(3) r.w.s. 147 of the Income-tax Act, 1961 (in short the Act)
FINANCE NO 2 ACT 2004

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Smart Summary

Case Summary — Runwal Daffodils / Assessment Year 2006-07 (Order dated 28.09.2010 / AO order dated 30.12.2009)

Factual and Procedural Background

The appeal is by the assessee (a partnership firm engaged as promoters/builders) against the order of the Commissioner of Income Tax (Appeals)-II, Pune dated 28.09.2010, which arose from an assessment order dated 30.12.2009 passed by the Assessing Officer under section 143(3) read with section 147 of the Income-tax Act, 1961 for assessment year 2006-07. The assessee undertook a housing project named "Runwal Daffodils" which commenced on 12.12.2003. The assessee claimed deduction under section 80-IB(10) in respect of profits from the project amounting to Rs. 1,20,25,699/-. The Assessing Officer disallowed the deduction on the ground that the completion certificate issued by the local authority (Pune Municipal Corporation) was not obtained on or before 31.03.2008, as required by Explanation (ii) to clause (a) of section 80-IB(10) (post-amendment). The CIT(A) affirmed the disallowance, and the assessee appealed to the Tribunal.

Legal Issues Presented

Whether the assessee is entitled to deduction under section 80-IB(10) of the Income-tax Act for profits from the housing project "Runwal Daffodils" where construction was assertedly completed by 31.03.2008 but the local authority (PMC) did not issue the completion certificate on or before that date?
Whether the requirement of production/issuance of a completion certificate by the local authority on or before the stipulated date (as provided in Explanation (ii) to clause (a) of section 80-IB(10) after the Finance (No. 2) Act, 2004 amendment effective 01.04.2005) can be insisted upon in respect of a project that commenced prior to 01.04.2005?

Arguments of the Parties

Assessee's Arguments

The project commenced on 12.12.2003 (prior to the 01.04.2005 amendment) and construction of all residential units (56 flats and 7 row houses) was completed and possession was handed over to buyers by the stipulated date.
The assessee had applied for occupancy/completion certificate from Pune Municipal Corporation (PMC) but the PMC did not issue the completion certificate by 31.03.2008 for reasons internal to the PMC.
Supporting factual material was produced: electricity bills, possession documents, MSEB receipts and evidence that municipal taxes were being levied in the names of the respective owners — indicating actual completion and use of the flats.
Assessee had taken necessary steps to obtain NOCs from relevant departments (Fire Department, Garden Department, Encroachment Department, Construction and Development Control Department, etc.) before applying for the completion certificate, and the non-issuance of the completion certificate was beyond the assessee's control.
Reliance was placed on the judgment of the Hon'ble Delhi High Court in Commissioner of Income Tax-I v. CHD Developers Ltd. (2014) 362 ITR 177 (Delhi) for the proposition that the requirement of issuance of a completion certificate on or before the stipulated date could not be insisted upon for projects commenced prior to the amendment effective 01.04.2005.

Revenue's (Departmental) Arguments

The requirement of completion of construction within the stipulated time in clause (a) to section 80-IB(10) must be satisfied by the issuance of the completion certificate by the local authority, i.e., the date of completion is the date on which the completion certificate is issued (Explanation (ii)).
Because the project's stipulated date for completion was 31.03.2008 and the completion certificate from PMC was not issued on or before that date, the deduction under section 80-IB(10) was rightly disallowed by the Assessing Officer and affirmed by the CIT(A).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Commissioner of Income Tax-I v. CHD Developers Ltd., (2014) 362 ITR 177 (Delhi)	Proposition that where a housing project commenced prior to the amendment brought into force w.e.f. 01.04.2005 (which introduced the insistence on production of a completion certificate within the specified period), the requirement of issuance of a completion certificate by the local authority on or before the stipulated date cannot be insisted upon to deny deduction under section 80-IB(10).	The Tribunal held that the facts of the present case are fully covered by the ratio of CHD Developers Ltd. and, accordingly, found no reason to uphold the lower authorities' disallowance of the deduction under section 80-IB(10).

Court's Reasoning and Analysis

The Tribunal's analysis proceeded in the following steps, reflecting the sequence set out in the opinion:

Statutory framework: The Tribunal set out section 80-IB(10) as it stood pre-amendment and post-amendment (Finance (No. 2) Act, 2004, effective 01.04.2005), highlighting sub-clause (i) of clause (a) which prescribes completion by 31.03.2008 for projects approved on or before 01.04.2004, and Explanation (ii) which provides that the date of completion shall be taken as the date on which the completion certificate is issued by the local authority.
Factual position: It was admitted that the project commenced on 12.12.2003, so the relevant completion date requirement was on or before 31.03.2008. It was also not denied that the completion certificate had not been issued by PMC on or before 31.03.2008.
Assessee's factual evidence: The assessee consistently asserted before the lower authorities and the Tribunal that construction was completed by 31.03.2008, had applied for the completion certificate before that date, had handed over possession, produced electricity bills, possession documents, MSEB receipts and showed municipal tax levies in the names of respective owners; and had obtained necessary NOCs before applying for completion certificate — facts which the lower authorities did not controvert.
Precedent application: The Tribunal relied on the Delhi High Court decision in CHD Developers Ltd., where similar facts arose and the court held that the requirement of issuance of a completion certificate within the stipulated period could not be insisted upon where the project was approved/commenced prior to the amendment effective 01.04.2005. The Tribunal found that the present case was fully covered by that ratio.
Conclusion from facts and law: Given the uncontested factual assertions establishing completion by the stipulated date and the binding precedent, the Tribunal found no reason to sustain the disallowance by the lower authorities.

Holding and Implications

Holding: The appeal is allowed. The Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to allow the assessee's claim for deduction under section 80-IB(10) of the Income-tax Act amounting to Rs. 1,20,25,699/- in respect of profits from the housing project "Runwal Daffodils".

Implications:

Direct effect: The immediate consequence is that the Assessing Officer is directed to allow the claimed deduction of Rs. 1,20,25,699/- to the assessee for assessment year 2006-07.
Reasoning scope: The Tribunal's decision rests on (a) the uncontested factual finding that construction was complete by 31.03.2008 and (b) application of the ratio in CHD Developers Ltd. regarding projects commenced prior to the amendment effective 01.04.2005. The opinion does not purport to lay down a new general precedent beyond applying the cited authority to the facts before it.

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Runwal Developers, 41/12, Karve Road, Runwal Plaza, Pune411 004 v. Asstt. Commissioner Of Income Tax, Circle 3, Pune .

G.S. Pannu, A.M.:— The captioned appeal by the assessee is directed against an order of the Commissioner of Income Tax (Appeals)-II, Pune dated 28.09.2010 which, in turn, has arisen from an order dated 30.12.2009 passed by the Assessing Officer u/s 143(3) r.w.s. 147 of the Income-tax Act, 1961 (in short “the Act”) pertaining to the assessment year 2006-07.

2. In this appeal, the solitary dispute raised by the assessee is with regard to the action of the income-tax authorities in denying the claim for deduction u/s 80-IB(10) of the Act amounting to Rs. 1,20,25,699/- in respect of the profits earned from development and building of a housing project, named, ‘Runwal Daffodils’.

3. In brief, the relevant facts giving rise to the impugned dispute can be summarized as follows. The appellant is a partnership firm engaged in the business of promoters and builders. The assessee firm undertook development and building of a housing project, named, ‘Runwal Daffodils’ and with respect to the profits earned from such project, it claimed exemption u/s 80-IB(10) of the Act amounting to Rs. 1,20,25,699/-.

4. The project of the assessee commenced on 12.12.2003. The Assessing Officer was of the view that the project of the assessee did not comply with the conditions prescribed in clause (a) to section 80-IB(10) of the Act read with Explanation (ii) thereof. As per the Assessing Officer, the construction of the project was to be completed by 31.03.2008 and in terms of Explanation (ii) of clause (a) to section 80-IB(10) of the Act, the date on which the completion certificate is issued by the local authority is to be taken as the date of completion. In the present case, according to the Assessing Officer, assessee did not obtain the completion certificate from the local authority i.e. Pune Municipal Corporation (PMC) on or before 31.03.2008. Therefore, the Assessing Officer disallowed assessee's claim for deduction u/s 80-IB(10) of the Act amounting to Rs. 1,20,25,699/-. The aforesaid action of the Assessing Officer has also been affirmed by the CIT(A), against which assessee is in appeal before us.

5. Before us, the Ld. Representative for the assessee vehemently pointed out by referring to the submissions made before the Assessing Officer, which are reproduced in the assessment order, that assessee had duly applied for obtaining of occupancy certificate from PMC but the same was not issued by PMC for their internal reasons. Factually, it is pointed out that the project of the assessee consisted of 56 flats and 7 row houses and the construction of all of them was completed and in-fact possession was handed-over to the respective buyers. The Ld. Representative also pointed out that the PMC was levying municipal taxes in respect of each of the residential unit and the same was being done in the name of the concerned owners. Assessee also relied upon the electricity bills and the possession documents to prove that the buyers of the flats were indeed using the flats and the same could have been possible only after completion of the project. The Ld. Representative submitted that the aforesaid assertions of the assessee have not been disputed but the claim of deduction u/s 80-IB(10) of the Act had been rejected merely because the PMC did not issue the occupancy certificate on or before 31.03.2008. In this context, reference has also been made to the judgement of the Hon'ble Delhi High Court in the case of Commissioner Income Tax-I v. Chd Developers Limited ., (2014) 362 ITR 177 (Delhi) for the proposition that the requirement of issuance of completion certificate by the local authority before the stipulated date cannot be insisted upon in the present case since the project of the assessee had commenced prior to the amendment inserted by the Finance (No. 2) Act of 2004, w.e.f. 01.04.2005 in terms of Explanation (ii) to section 80-IB(10)(a) of the Act which required production of completion certificate.

6. On the other hand, the Ld. Departmental Representative submitted that the requirement of completion of construction within the stipulated time contained in clause (a) to section 80-IB(10) of the Act is to be understood of being fulfilled only on the date on which the completion certificate in respect of the housing project is issued by the local authority. According to him, in present case, the stipulated date of completion of construction is 31.03.2008 and in respect of such project, completion certificate has not been issued by the PMC on or before 31.03.2008 and therefore the lower authorities were justified in disallowing the deduction claimed by the assessee u/s 80-IB(10) of the Act.

7. We have carefully considered the rival submissions. The crux of the controversy in the present appeal relates to the provisions of sub-clause (i) of clause (a) to section 80-IB(10) of the Act read with Explanation (ii) thereof. As per the Revenue, having regard to sub-clause (i) of clause (a) to section 80-IB(10) of the Act, the construction of the housing project was to be completed on or before 31.03.2008. Sub-clause (i) of clause (a) to section 80-IB(10) of the Act prescribes that where a housing project is approved on or before 01.04.2004 then the development and construction of such housing project shall be completed on or before 31.03.2008. Explanation (ii) below clause (a) of section 80-IB(10) of the Act provides that the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority.

8. In the present case, it is an admitted position that the housing project of the assessee known as ‘Runwal Daffodils’ commenced with effect from 12.12.2003 and therefore construction of such a housing project was required to be completed on or before 31.03.2008 as stipulated in sub-clause (i) of clause (a) to section 80-IB(10) of the Act. It is also not denied by the assessee that the relevant completion certificate has not been issued by the local authority i.e. PMC on or before 31.03.2008. However, the case setup by the assessee is that the project of the assessee was approved and it commenced on 12.12.2003, which pertains to a period prior to 01.04.2005 i.e. the date on which the amendment which insisted on production of completion certificate was brought into force. In order to appreciate the aforesaid plea of the assessee, we may refer to the provisions of section 80-IB(10) of the Act as it stood prior to the amendment brought by the Finance (No. 2) Act of 2004, w.e.f. 01.04.2005:—

“(10) The amount of profits in case of an undertaking developing and building housing projects approved before the 31st day of March, 2005 by a local authority, shall be hundred per cent. of the 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 the housing project on or after tile 1st day of October, 1998;

(b) the project is on the size of a plot of land which has minimum area of one acre; and

(c) the residential unit has a minimum built-up area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twenty-five kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place.”

9. Subsequently, Finance (No. 2) Act of 2004, which was brought into force w.e.f. 01.04.2005, amended the provisions of section 80-IB(10) of the Act; and, post-amendment section 80-IB(10) of the Act read as under:—

“(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 2008 by a local authority shall be hundred per cent. of the profits derived in the previous year relevant to any assessment year from such housing project if,—

(a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction—

(i) in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008;

(ii) in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004 but not later than the 31st day of March, 2005, within four years from the end of the financial year in which the housing project is approved by the local authority.

(iii) In a case where a housing project has been approved by the local authority on or after the 1st day of April, 2005, within five years from the end of the financial year in which the housing project is approved by the local authority.

Explanation-For the purposes of this clause,-

(i) in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority;

(ii) the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority;

(b) the project is on the size of a plot of land which has a minimum area of one acre:

Provided that nothing contained in clause (a) or clause (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the Board in this behalf;

(c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twenty-five kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place;

(d) the built-up area of the shops and other commercial establishments included in the housing project does not exceed three per cent. of the aggregate built-up area of the housing project of five thousand square feet, whichever is higher.”

10. In the instant assessment year i.e. 2006-07, the Assessing Officer has sought to disallow the deduction claimed by the assessee on the ground that the completion certificate in terms of Explanation (ii) has not been obtained. A similar situation had arisen before the Hon'ble Delhi High Court in the case of CHD Developers Ltd. (supra). In the case before the Hon'ble Delhi High Court, the project of the assessee was approved on 16.03.2005 and the Assessing Officer proceeded to disallow the deduction claimed for assessment year 2007-08 on the ground that the completion certificate in terms of Explanation (ii) was not granted within the stipulated period i.e. on or before 31.03.2009. Notably, in the case before the Hon'ble Delhi High Court, the time-limit for completion of construction of the housing project was governed by sub-clause (ii) of clause (a) to section 80-IB(10) of the Act. The Hon'ble Delhi High Court noted that since the project of the assessee was approved prior to 2005 i.e. before the amendment which insisted on issuance of completion certificate by the end of four years was brought into force, the claim of deduction could not be denied for the said reason. The case of the assessee before us is fully covered by the ratio of the judgement of the Hon'ble Delhi High Court in the case of CHD Developers Ltd. (supra). In this background, we therefore find no reasons to uphold the objection of the lower authorities in order to disallowance claimed u/s 80-IB(10) of the Act.

11. Factually speaking, assessee has consistently canvassed before the lower authorities as well as before us that the construction of the project was complete in all respects by 31.03.2008. In-fact, before the CIT(A) assessee also pointed out that it had made an application to the PMC for issuance of completion certificate before 31.03.2008. It was, thus, contended that the construction of the project was complete within the stipulated period and the same should be taken as a due compliance with the requirements of clause (a) to section 80-IB(10) of the Act. We find that the lower authorities have reproduced the submissions of the assessee in this regard in their respective orders. The Assessing Officer has reproduced the submissions of the assessee in para 4 of the assessment order. The Assessing Officer has also noted that assessee furnished the copy of electricity bills and possession documents in respect of the flat owners, which formed a part of written submissions. Assessee had asserted before the Assessing Officer that the PMC was levying municipal taxes in respect of each of the flat in the project and such levies were in the name of the respective owners. The MSEB receipts and possession documents were also furnished to the Assessing Officer. Before the CIT(A) assessee also pointed out that while making application for issuance of completion certificate to PMC, assessee had taken all the necessary steps required to be done before seeking the completion certificate, namely, obtaining of NOCs from various Departments like, Fire Department, Garden Department, Encroachment Department, Construction and Development Control Department, etc. On this basis, it was sought to be contended that the non-issuance of the completion certificate by the PMC before 31.03.2008 was for reasons beyond the control of the assessee.

12. We find that all the aforesaid factual assertions made by the assessee have not been controverted either by the Assessing Officer or by the CIT(A). In the absence of any material to controvert the assertions of the assessee that the construction was completed before the stipulated dated i.e. 31.03.2008, we find no reasons to belie the same. Therefore, on facts, the position consistently canvassed by the assessee to the effect that the construction of the project was complete before the stipulated date of 31.03.2008 has to prevail. We hold so.

13. Thus, having regard to the position of law and facts of the present case as discussed above, we set-aside the order of the CIT(A) and direct the Assessing Officer to allow assessee's claim for deduction u/s 80-IB(10) of the Act amounting to Rs. 1,20,25,699/- in respect of the profits of the housing project, namely, ‘Runwal Daffodils’.

14. In the result, appeal of the assessee is allowed.

Runwal Developers, 4... v. Asstt. Commissioner ...