ORDER

Per G.D. Agrawal, Vice-President. - This appeal by the revenue and the cross-objection by the assessee are directed against the order of CIT(A)-II, Nagpur dated 26-9-2007.

2. In this appeal by the revenue, the following grounds are raised:—

"1. On the facts and circumstances of the case the CIT(A) erred in holding that the assessee-firm was engaged in developing housing project and therefore profit from such business activity would be eligible for deduction under section 80-IB(10) of the Act.

2. On the facts and circumstances of the case the CIT(A) erred in holding that all the plots of sanctioned layout plan formed part of constituted one land on which housing project was developed though the assessee-firm has clubbed various plots of different sizes to make believe to show that land area was more than 1 acre.

3. On the facts and circumstances of the case the CIT(A) erred in holding that there is violation of any of the conditions to become eligible for claiming deduction under section 80-IB(10) of the Act through the assessee-firm has sold some of plots to individual buyers without constructing any tenements thereon.

4. On the facts and circumstances of the case the CIT(A) erred in holding that assessee-firm would be eligible for making pro rata deduction in respect of dwelling units having built-up area less than 1500 sq.ft.

5. On the facts and circumstances of the case the CIT(A) erred in holding that the assessee firm satisfies all the conditions stipulated in the provisions of section 80-IB(10) of the Act and, therefore, would become eligible to claim deduction.

6. On the facts and circumstances of the case the CIT(A) erred in holding that mandatory requirement of furnishing audit report in form CCB of the Act in respect of each layout separately would not be adverse to claim deduction under section 80-IB(10) of the Act.

7. Any other grounds that may kindly be allowed to be raised at the time of hearing of appeal."

3. At the time of hearing before us, the ld. D.R. argued at length. He stated that the building plans for construction of housing project were sanctioned on piecemeal basis in respect of plot having area of less than one acre. Thus, the assessee has not fulfilled the conditions prescribed in section 80-IB(10). He further submitted that the assessee has sold the plots to the individual purchasers and not developed the housing project. Similarly, the area of the residential unit constructed exceeded 1500 sq.ft. In view of the above, it was contended by the ld. D.R. that the assessee has not fulfilled the conditions for eligibility of exemption under section 80-IB(10). The ld. D.R. submitted that the provisions granting concession/relief to the assessee should be interpreted strictly. In support of his contention, he relied upon the following decisions:—

1. C. Dhanapalan v. CIT [2001] 252 ITR 513 (Ker.)
2. CIT v. Shivanand Electronics [1994] 209 ITR 63 (Bom.)
3. Commissioner Of Income-Tax v. Panama Chemical Works [2007] 292 ITR 147 (MP)
4. Hill Top Holdings India Ltd. v. CIT [2005] 147 Taxman 404 (Cal.).

He further submitted that the CIT(A) has accepted that some of the flats constructed by the assessee exceeded 1500 sq.ft. How-ever, he directed the Assessing Officer to allow the proportionate deduction. It is submitted by the ld. D.R. that when the assessee has violated the condition of section 80-IB(10), the entire deduction claimed should have been denied. There is no provision in section 80-IB(10) for allowing proportionate deduction. In support of this contention, he relied upon the decision of ITAT, Mumbai Bench in the case of Laukik Developers v. Dy. CIT [2007] 105 ITD 657 . In view of above, it is submitted by the ld. D.R. that the above order of the CIT(A) should be reversed and that of the Assessing Officer should be restored.

4. Ld. counsel for the assessee, on the other hand, relied upon the order of the CIT(A). He stated that the area of the project developed by the assessee was 2.06 acres and not less than one acre. In support of this contention, he referred to the letter of the Nagpur Improvement Trust (hereinafter referred to as 'NIT') which is placed at page 8 of the paper book wherein NIT has confirmed the development of 8370 sq.m. of the total plot area which is equivalent to 2.06 acres. It is submitted by the ld. counsel that the total land acquired by the assessee was 64 acres, out of which, the assessee developed a housing project in the total land of 2.06 acres. He pointed out that in such a project, there were more than one building and for each building, a separate approval was taken. However, each building was not a separate project but the part of one housing project scheme developed at Dixit Nagar by the assessee. He also stated that from the plot number given in the letter of NIT, it is seen that all the plots were adjoining and it is in the same campus. In support of this contention, he also referred to the printed brochure which was used by the assessee for sale of residential units in this project. With regard to the sale of plot, it is submitted by the ld. counsel that the assessee did not sell the plot but only sold the duplex bungalow as a residential unit. However, in order to identify the area of plot to each customer, there were marking of the plot area in the layout but on all the plots, buildings were constructed and a residential unit, that is, the plot along with the bungalow constructed thereon was sold. A consolidated amount was charged for the sale of this bungalow. With regard to the contention of ld. D.R. that the area of the residential unit exceeded 1500 sq.ft., it is submitted by the ld. counsel that the Assessing Officer included the area of the balcony. That, as per Development Control Regulation, 2000 for Nagpur City, the built-up area does not include the area of the balcony. In support of this contention, he produced before us the copy of Development Control Regulation, 2000. He submitted that section 80-IB(10) provides that built-up area of the residential unit should not exceed 1500 sq.ft. However, the built-up area has not been defined under the Income-tax Act. Therefore, the definition of built-up area under Development Regulation, 2000 applicable to Nagpur City should be applied.

4.1 In alternate, it is submitted by the ld. counsel that it has only a few residential units whose built-up area is 1500 sq.ft. (including the area of the balcony). Therefore, if a view is taken that the area of the balcony should be included in the built-up area of the residential unit, then the direction of the CIT(A) to allow proportion deduction should be upheld. In support of the contention, he relied upon the following decisions :

(i) ITA No. 1595/Kol./2005 in the case of Bengal Ambuja Housing Development Ltd. v. Dy. CIT vide order dated 24-3-2006
(ii) ITA No. 458 of 2006 in the case of Bengal Ambuja Housing Development Ltd. vide judgment dated 5-1-2007
(iii) Arun Excello Foundations (P.) Ltd. v. Asstt. CIT [2008] 166 Taxman 53 (Chennai) (Mag.).

In view of the above, it is submitted by the ld. counsel that the revenue's appeal should be dismissed and the assessee's cross-objection should be allowed wherein the assessee has claimed that the built-up area of the residential unit should be considered excluding the area of the balcony.

5. We have carefully considered the argument of both the sides and perused the materials before us. The only dispute, in this appeal, is whether the assessee is entitled to deduction under section 80-IB(10). At the relevant time, section 80-IB(1) reads as under :

"(10) The amount of profits in case of an undertaking developing and building housing projects approved [before 31-3-2005] 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 1-10-1998;
(b) the project is on the size of a plot of land which has a minimum area of one acre; and
(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 kilometers from the municipal limits of these cities and one thousand and five hundred square feet at any other place."

Let us examine whether the assessee has fulfilled the conditions prescribed by section 80-IB(10). There is no dispute about the fulfilment of the conditions prescribed under clause (a) of section 80-IB(10) i.e., the project was commenced after the first day of October, 1998.

5.1 The first dispute is whether the project is on the size of a plot of land which has a minimum area of one acre. As per the assessee, the project is developed on the area of 2.06 acres, while as per the Assessing Officer, the project is developed in an area of below one acre. In the paper book, the assessee has furnished the certificate from the NIT which is the local authority entitled to approve the housing project. Copy of the certificate placed at page 8 of the assessee's paper book reads as under :

"To,

AIR Developers

Nari, Nagpur.

Subject: Your housing project schemes at Dixit Nagar

Reference : Your Application dated 15-9-2001, 12-12-2006

Sir,

This has reference to your above said letter, we hereby confirm the following details of your first housing project submitted for sanction located at Dixit Nagar, Kh. No. 57,56/1, 56/2, Mouza Nari, Nagpur, with multiple sanctions as per the zoning of the plots and access roads as per layout, between dates 11-1-2002 and 15-5-2002.

Sd/- 27-12-2006

Building Engineer(NE)/572, NIT, Nagpur"

5.2 From the above, it is evident that the assessee has developed a housing project scheme at Dixit Nagar. In respect of such housing scheme, the assessee got the approval from NIT on six different dates ranging between 11-1-2002 to 15-5-2002. The area of land covered under each approval was below 4000 metres but the total area covered together in all the six approvals was 8370 metres which is more than two acres. Now, the question is whether by six different approvals, the assessee has developed six different housing projects or it was in pursuance to development of one housing project.

5.3 From the letter of NIT, it is evident that there was only one housing project at Dixit Nagar for which multiple sanctions were granted, as per the zoning of the plot and access road. This contention of the assessee is further fortified by the brochure circulated by the assessee for the sale of the plot. The copy of the brochure is placed at page 28 of the assessee's paper book. The relevant portion of the brochure reads as under :—

"Over ten years the group-AIR Developers, carefully studied home needs of the people of this region. After thoughtful and meticulous analysis, the group realized the people of this region needed a home which is much more affordable than all existing options. This glaring need of the people motivated AIR Developers to lay the foundation of Dixit Nagar. Dixit Nagar is not just a township. It's a determined effort by AIR Developers to provide luxury at affordable prices to the home seekers of central India. The Dixit Nagar Township is one of the largest in Central India, constructed on a sprawling 64 Acres of land.

Dixit Nagar is a residential township envisaging 100 Bungalows in three residential options in its first phase namely Rigved, Samved, Atharved.

As you turn through the details of these Bungalows, meticulously packaged with all the desirable Amenities, vis-a-vis the unbelievable price tag, you are sure to realize that this is your dream home translated to reality."

5.4 It was explained by the ld. counsel that the assessee has acquired total 64 acres of the land for development of housing project at Dixit Nagar. During the year under consideration, only 2.06 acres of the land was developed for the housing projects. From the above brochure, it is evident that during the year under consideration the assessee developed only one housing project at Dixit Nagar, merely because for such one project, the approval was taken from NIT more than once, it cannot be said that the assessee developed six different housing projects at Dixit Nagar. In view of totality of above facts, we agree with the finding of the CIT(A) that during the accounting year, relevant to assessment year under consideration, assessee developed one housing project at Dixit Nagar, Nagpur, which was on the area exceeding one acre.

5.5 The Assessing Officer has also mentioned that the assessee sold the plot and not the residential unit. From the assessee's brochure circulated for sale of the residential units, it is evident that the assessee sold bungalows. However, while selling bungalows, the plot area was duly mentioned but merely because plot area was mentioned, it cannot be said that the assessee sold the plot, not the residential unit. Moreover, the Assessing Officer himself has mentioned that the built-up area of the residential unit was exceeding 1500 sq.ft. This observation of the Assessing Officer itself would prove that the assessee has sold the residential unit, and not the plot of land.

5.6 The next question is whether the built-up area of the residential unit constructed by the assessee exceeded 1500 sq.ft.

5.7 From the perusal of the assessment order, it is evident that the Assessing Officer has worked out the built-up area after including the area of the balcony. The CIT(A) has also agreed with the above view of the Assessing Officer that the area of the balcony is to be included in the built-up area. The Income-Tax Act did not define the term "built-up" area till the Finance (No. 2) Act, 2004 inserted clause (a) in the section 80-IB(14). This clause defines the built-up area as under :—

(a) "built-up area" means the inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but does not include the common areas shared with other residential units;

5.8 The ld. CIT(A) is of the opinion that this definition of built-up area is clarificatory in nature and therefore would be retrospective in operation. He has, therefore, applied the same to the assessment year under consideration. We are unable to agree with the above view of the CIT(A) because the Finance (No. 2) Act, 2004 itself has made the provision effective from 1-4-05 i.e., from assessment year 2005-06. The Legislature has the power to give retrospective effect to any provision and wherever the Legisla- ture intends to make any provision effective from back date, a specific mention is made in the Act with regard to the date from which the provision is intended to be effective. In respect of the definition of the built-up area, we find that the provision is made effective from 1-4-2005. We find that the Hon'ble Apex Court in the case of Virtual Soft Systems Ltd. v. CIT [2007] 289 ITR 83 held as under :—

"It is a well-settled legal position that an amendment can be considered to be declaratory and clarificatory only if the statute itself expressly and unequivocally states that it is a declaratory and clarificatory provision. If there is no such clear statement in the statute itself, the amendment will not be considered to be merely declaratory or clarificatory. Even if the statute does contain a statement to the effect that the amendment is declaratory or clarificatory, that is not the end of the matter. The court will not regard itself as being bound by the said statement made in the statute but will proceed to analyse the nature of the amendment and then conclude whether it is in reality a clarificatory or declaratory provision or whether it is an amendment which is intended to change the law and which applies to future periods. It is only in the Notes on Clauses relating to the 2002 amendment that it has been stated that the said amendment is clarificatory. There is no such mention of the said amendment being clarificatory, anywhere in the statute itself. Such a statement in the Notes on Clauses cannot possibly bind the court when even a statement in the statute itself is not regarded as binding or conclusive. The statute expressly states that the amendment would take effect only from April 1, 2003."

5.9 Applying the ratio of the above decision of the Hon'ble Apex Court, we find that sub-clause (a) of section 80-IB(14) has been made effective by the Legislature from 1-4-2005. There is no mention in the Act that the insertion of the definition of the built-up area as above is clarificatory or declaratory. In view of above, we, relying up the decision of the Hon'ble Apex Court in the case of Virtuals Soft Systems Ltd. (supra) hold that the above definition would be applicable from 1-4-2005 i.e., for the assessment year 2005-06 onwards.

6. Since the assessment year under consideration before us is assessment year 2004-05, there remains no definition of the built-up area in the Income-tax Act. However, Development Control Regulation, 2000 for Nagpur City which was applicable at the relevant time in the city of Nagpur defined the word 'built-up area" in para 2.11 of the regulation which reads as under :

"2.11 Built-up Area - The area covered by a building on all floors including cantilevered portion, if any, but excepting the areas excluded specifically under these Regulations."

6.1 Para 15.4 provides exemption to the open spaces/covered area which reads as under:—

"15.4-1 The following exemption to open spaces shall be permitted:

(a) Projections into open spaces - Every open space provided either interior or exterior shall be kept free from any erection thereon and shall be open to the sky and no cornice, chajja, roof or weather shade more than 0.75m. wide shall overhang or project over the said open space so as to reduce the width to less than the minimum required. However, slopping chajja provided over balcony/gallery etc. may be permitted to project 0.3m. Beyond balcony projections at an angle of 30 degree from horizontal level.
(b) A canopy not exceeding 5m. in length and 2.5m. in width in the form of cantilever and unenclosed over the main entrance providing a minimum clear height of 2.40 mt. below the canopy. The canopy shall not have access from upper floors (above floors), for using as sitting out place. There shall be a minimum clearance of 1.5m. between the plot boundaries and canopy.
(c) Projections/Balconies - Balcony or balconies of a minimum width of 1.00 m. may be permitted free of FSI, at any floor, not more than 15% of the floor area and such balcony projection shall be subject to the following condition."

6.2 From the above, it is evident that as per regulation 15.4-1(c) of the Development Control Regulation, 2000, the balcony of a specific breadth is excluded from the built-up area for the purpose of FSI. In our opinion, in the year under consideration, when there is no definition of the built-up area under the Income-tax Act, the definition of the same in the Development Control Regulation, 2000 for Nagpur City would be applicable. However, we find that the relevant facts have not been examined in the light of the above regulation. We, therefore, direct the Assessing Officer to examine whether in view of Development Control Regulation, 2000 area of the balcony is to be included in built- up area or not. Thereafter, If the built-up area of any residential unit does not exceed 1500 sq.ft., then the entire deduction claimed under section 80-IB(10) would be allowed. However, if the area of the some of the residential units exceeds 1500 sq.ft., the question would be whether the entire deduction under section 80-IB is to be denied or proportionate deduction is to be allowed. The ld. DR has relied upon the decision of the ITAT, Mumbai Bench in the case of Laukik Developers (supra) in support of its claim that the entire deduction claimed under section 80-IB(10) should be denied. While the ld. counsel for the assessee has relied upon several other decisions wherein such deduction is allowed on proportionate basis.

6.3 We have considered the above decisions relied upon by the rival parties. In the case of Laukik Developers (supra) relied upon by the ld. DR, the ITAT, Mumbai Bench held as under :

"The assessee has admittedly constructed commercial area of 3,143 sq.ft. in its building project. The words "housing project" is not defined under section 80-IB(10). The Legislature has introduced the provision of section 80-IB(10) to encourage residential housing projects of units not exceeding specified built-up area. In order to avail the tax exemption with regard to the housing project, the assessee has to fulfil all the conditions laid down under the beneficial provision of section 80-IB(10). The construction of shops or commercial place cannot be considered a "housing project" for the purposes of application of the provision of section 80-IB(10). In this case, it was not established by the assessee that its building project is primarily a "housing project" in the facts of the case of the assessee. The building project of the assessee was approved by the local authority (KDMC) as a residential as well as commercial project. The CIT(A) has given a clear cut finding on this issue on the basis of a copy of the approval letter by KDMC filed by the assessee. It is not possible to accept the argument of the assessee that since the case pertains to pre-amendment period, the deduction under section 80-IB(10) will be available to the assessee even if the shops and other commercial establishments are included in the housing project of the assessee. If this argument of the assessee is accepted, then it shall nullify the very object of introducing the provision of section 80-IB(10) in the statute book for promotion of housing activity in the country since there shall be no limit of the total built-up area devoted to the construction of shops and other commercial establishments in the housing project of the assessee."

6.4 From the above, it is evident that in the above case, the assessee, apart from constructing the residential units, has also constructed the shops and other commercial establishments. Therefore, the ITAT held that the development of above project cannot be said to be a housing project. However, facts in the case under appeal before us are different. The assessee has constructed only residential units. Therefore, there is no dispute that the assessee developed a housing project. The only dispute is with regard to the size of built-up area of the residential units. As per the assessee, the size of the residential units is less than 1,500 sq.ft., while as per the revenue, the size of the some of the residential units is exceeding 1,500 sq.ft. However, there is no development of shops/commercial establishments by the assessee before us. Therefore, in our opinion, the above decision of the Hon'ble ITAT would not be applicable.

6.5 In the case of Bengal Ambuja Housing Development Ltd. (supra), the ITAT, Kolkata Bench held as under :

"It is apparent from the perusal of section 80-IB(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 Assessing Officer has denied the claim of the assessee observing that larger units were also constructed by the assessee, at the same time, it is also a fact on record that the assessee had claimed deduction only on account of smaller residential units which were fulfilling all the conditions as contained in section 80-IB(10) and the same has not been disputed by the Assessing Officer also. We have also noted down the fact that even the provision as laid down in section 80-IB(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 80-IB(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-IB(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 all the provisions as contained in the said section, in our considered opinion, such claim of the assessee was rightly allowed by the ld. CIT(A) by reversing the order of Assessing Officer."

6.6 The above decision of the ITAT, Kolkata Bench is also upheld by the Hon'ble ITAT, Kolkata High Court in ITA No. 453 of 2006 wherein the Hon'ble High Court vide order dated 5-1-2007 held as under :

"The appeal is now taken up for hearing and after hearing the learned counsel for the parties and perusing the order passed by the Tribunal, we find that no substantial question of law is involved in this matter. Hence we dismiss the appeal."

6.7 The ratio of the above decision of the ITAT, Kolkata Bench would be squarely applicable to the case under consideration before us because the facts are identical. Moreover, even if it is held that in view of the above two decisions of the ITAT, two views are possible with regard to interpretation of section 80-IB(10). It is a settled law that the view favourable to the assessee should be adopted. section 80-IB(10) is a beneficial provision and it has been held by the Hon'ble Apex Court in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188 that a beneficial provision should be interpreted liberally. If an assessee has developed a housing project, wherein the majority of the residential units has a built-up area of less than 1500 sq.ft. i.e., the limit prescribed by section 80-IB(10) and only a few residential units are exceeding the built-up area of 1500 sq.ft., there would be no justification to disallow the entire deduction under section 80-IB(10). It would be fair and reasonable to allow the deduction on proportionate basis i.e., on the profit derived from the construction of the residential unit which has a built-up area of less than 1500 sq.ft. i.e., the limit prescribed under section 80-IB(10). In view of the above, we direct the Assessing Officer that if he finds that the built-up area of some of the residential units is exceeding 1500 sq.ft., he will allow the proportionate deduction under section 80-IB(10). Accordingly, the appeal of the revenue is dismissed and cross objection of the assessee is deemed to be partly allowed as above.

7. In the result, the appeal by the revenue is dismissed and the cross-objection by the assessee is deemed to be partly allowed for statistical purposes as above.

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