ORDER

T.R. Sood, Accountant Member. - In all these appeals the issue regarding deduction under section 80-IB(10) is common in all the three years. Therefore, first of all, we shall take up this issue. With the consent of the parties for this purpose the assessment order and First Appellate Authority's order for assessment year 2007-08 was considered because, according to both the parties, all the facts in respect of deduction under section 80-IB(10) are available in detaile for this year.

2. Brief facts of the case are that assessee being an individual, was carrying on proprietary business of construction and development of residential land building projects in the name and style of M/s. Emgee Developers & Consultants. The assessee vide Development Agreement dated 3-11-2003 with various co-owners entered into a Development Agreement for construction of residential flats on the land situated at Antop Hill, Wadala, Matunga, Mumbai and the total plot measured approximately 7633.82 sq.mts. Through this agreement the assessee was granted development rights. Out of this land area admeasuring 637.48 sq.mts. was excluded which was referred to a 'Reserved land' falling under School Reservation which was not to be included in the project. However, the project included 200 sq.mts. of land referred to as 'Office Block land' which was for self use. Through this agreement assessee was to get 51 per cent of the constructed area and 49 per cent of the constructed area was to go to the land-lord in lieu of the land. The costs towards construction and various other charges and development of land etc., were to be incurred by the assessee. The assessee filed an application seeking approval of the plans from Municipal Corporation which were sanctioned by intimation of Disapproval [for short 'IOD'] dated 8-1-2004. A detailed block plan showed that assessee wanted to construct four wings known as wings A, B, C and D and these were supposed to be independent wings. Initially, assessee decided to develop wings A, B and C as a housing project consisting of residential units measuring in the range of 500 sq.ft. to 800 sq.ft. It was also proposed that built-up area of shops and other commercial establishments would not exceed 5 per cent of the aggregate built up area of the housing project or 2000 sq.ft. Whichever is less. The commencement certificate of the ground work of the entire plot of land was sanctioned vide Commencement Certificate CC No. EEBPC/118/FN/A, dated 11-2-2004. This certificate was issued up to to plinth level only. Some amendments were made to the plans and therefore a fresh commencement certificate dated 12-3-2004 was issued. After this certificate, assessee wanted to develop wings B and C of the project and accordingly obtained commencement certificate for the entire work of wings B and C vide commencement certificate dated 29-3-2004. The work of these blocks was completed during the assessment year 2005-06. Later on, work on wing A was also commenced and ultimately occupation certificates were received as under:

The areas which were completed during assessment years 2005-06, 2006-07 and 2007-08 and which came to the share of the assessee were sold during these years and deduction under section 80-IB(10) was claimed during all these years on the profits on sale of flats. According to the assessee, assessee had complied with and fulfilled all the conditions laid down in section 80-IB(10) of the Income-tax Act.

3. A survey was conducted on 1-3-2006. In this survey statements of few of the flat owners were recorded in which it was accepted that some of the flat have been joined by such owners together and the combined unit area was in excess of 1000 sq.ft. Video CDs and photo clips were also taken during the survey. On a query by the Assessing Officer in this regard, the assessee during assessment year 2005-06 stated vide letter dated 18-12-2007 as under:

"4-4. In reply, the assessee filed a letter dated December 18, 2007, wherein it was stated as under:

From the facts above, it is respectfully submit that the assessee had at no point of time intended to construct and sell units in excess of 1000 sq.feet. In the entire project, out of 100 flats and more, only 2 flats have been combined (that also by the owners). This clearly evidences the intention of the builder. Had there been an entire win or a section where two or more flats have been combined to form residential units in excess of 1000 sq. feet. One could argue that the intention of the builder was mala fide and to abuse the law. However, the facts of the assessee are quite to the contrary. The 100 plus flats are constructed as separate independent residential units with less then 1000 sq. feet built up area. All flats were constructed as per approved plan and were marketed and sold as single units.
Further, you will appreciate that at the time of giving possession, the flats were separate independent residential units. They had separate entrances, separate kitchen, bathrooms etc. It may be noted that the flats were combined by the owners at their cost and means. The assessee was not even informed by the flat owners. The assessee had not knowledge and was in no manner a party to the decision of the owner to combine the flats. In fact when it was bought to the knowledge of the assessee, he objected to the same and instructed the owner to seek approval prior to any further renovation.
It is respectfully submitted that the assessee cannot in any manner be held responsible for the unilateral act of the owner specially after the possession is given. The assessee had no control over the flats and it would be unfair and unjust to penalize the assessee from what the owner of the flats has done.
It is respectfully submitted that section 80-IB(10) requires that the developer constructs units less then 1000 sq.feet. Nowhere in law is the builder prohibited to sell adjoining flats to members of the same family. Also, the law does not require once the project is completed or the flats are handed over, the builder should ensure that the condition specified in section 80-IB(10) are continued to be complied with by the new owners. The law cannot make the builder permanently responsible for the project.
The section 80-IB(10) provides tax relief to the developer. As long as the developer has satisfied the conditions of section 80-IB(10), he should be entitled to the relief. It would be wrong and bad in law to deny the benefit to the developer for reasons and act of a third person.
It is once again submitted that the assessee has satisfied all the conditions specified under section 80-IB and therefore rightly entitled to the deduction. Further, the assessee should not be penalized for the act done by the owner of the flat without the knowledge and approval of the assessee.
Without prejudice to the above, we would further like to submit that even if the disallowance is to be made on this ground, disallowance should be on proportionate basis. Further, you will appreciate the fact that even after combining the flat No. 301 (349 sq.ft.) and 302 (456 sq.ft.) of Mr. D. Prasad the area of flat still would not does exceed 1000 sq.ft. Hence, there is only one unit (flat Nos. 103 and 104) in the entire project which is exceeding 1000 sq.ft. Accordingly, since only one unit does not satisfying the conditions of section 80-IB, disallowance should be restricted to profit attributable to this unit only. In this regards, reliance is place on the judgment of Hon'ble ITAT in the case of Arun Excello Foundation (P.) Ltd. v. Asstt. Commissioner of Income-tax [2007] 108 TTJ (Chennai) 71 ."

However, Assessing Officer did not agree with these submissions as he was of the view that it is not relevant who has created the combined unit as long as the size of the each unit was more than 1000 sq.ft. deduction under section 80-IB(10) could not be allowed and, therefore, in assessment year 2005-06 deduction under section 80-IB(10) was denied on this account.

4. In assessment year 2006-07 deduction was denied on the basis of size of the units as discussed above as well as a further objection that assessee has not filed completion certificate in respect of D wing. In assessment year 2007-08 again detailed queries were raised and in response it was mainly stated that assessee had fulfilled all the conditions prescribed in section 80-IB(10). Another issue was raised that assessee was not the owner of the land. It was submitted that there is no requirement under the section that assessee should be owner of the land and in this regard reliance was placed on the decision of the Ahmedabad Bench of the Tribunal in the case of Radhe Developers v. ITO [2008] 113 TTJ 300/23 SOT 420 . In respect of non-submission of completion certificate, it was submitted that the housing project consisted of four wings i.e. A, B, C and D. It was further submitted that wing A had 13 floors with four flats on each floor and wings B and C had ten floors with four flats on each floor. The D wing was to have only two floors with five flats and therefore the area in D wing was only 3 per cent of the total project. Further, A, B and C wings were completed before 31-3-2008 and hence same should be treated as an independent housing projects. It was also pointed out that D wing was delayed because of local regulatory problems and even the commencement certificate was not issued for the same. Since assessee had not completed D wing and had also not sold any of the flats in the D wing, and deduction was claimed only in respect of A, B and C wings, same were allowable and in this regard reliance was placed on the decision of the Tribunal in the case of Saroj Sales Organisation v. ITO [2008] 115 TTJ (Mum.) 485 .

5. The Assessing Officer after considering these submissions held that assessee had completed only A, B and C wings up to 31-3-2008 and D wing was not completed and, accordingly, no completion certification was obtained for D wing from Municipal Authorities and, therefore, the housing project was not completed. It was further observed that total project area was 1.88 acres and since assessee's share was only 51 per cent of the built up area. Therefore, the project area was only of less than one acre. Lastly, the Assessing Officer relying on the observations made in the assessment years 2005-06 and 2006-07 that in some of the flats units area exceeded 1000 sq.ft., deduction under section 80-IB(10) was denied.

6. The ld. CIT(A) after considering the submissions opined that as far as objection regarding size of each unit being more than 1000 sq.ft. is concerned, the assessee has successfully explained. In fact, it was observed by the CIT(A) vide para 3.4-4 as under:

"3.4.4 The third ground on which deduction under section 80-IB has not been given is that, certain flats have been merged and their area exceed 1000 sq.ft. This has surfaced during survey conducted under section 133A at the project site. However the appellant has successfully explained that builder will have no control if after the sale the certain flat-owners decide to merge the flats."

However, he further observed that since D wing was not completed, therefore, the housing project was not completed. Similarly, since assessee's share was only 51 per cent of the built up area, therefore, the total land area with assessee was less than one acre. In fact, he concluded his finding vide para 3.4.5 which is as under:

"I find that as discussed above certain basic condition such as completion of the project before 31st March, 2008 has not been accomplished by the assessee. In this scenario deduction under section 80-IR cannot be given. Reliance placed by the assessee on the case of Brigade Enterprises 119 ITJ Bangalore 269 is also not acceptable. In the cited case the sanctions and permissions were obtained separately for eligible units. However, in the case of the assessee the project under consideration, Emgee Green, is a single unit and this project has not been completed. Other case laws cited by the assessee do not address this issue. Therefore I find that disallowance made by the Assessing Officer is according to law. The assessee has also not satisfied the second requirement that the project has to be on an area exceeding one acre. The disallowance of Rs. 1,78,70,807 is upheld. This ground of appeal is dismissed."

7. Before us, ld. counsel for the assessee carried us through the assessment order and CIT(A)'s order and summarized the facts again. He pointed out that the assessee entered into a Development Agreement dated 3-11-2003 through which a parcel of the land was taken for development. The total area of the land was 7633.82 sq.mts. which would be about 1.88 acres. Out of this 637.48 sq.mt. was not taken up for development because that portion of the land fell under school reservation. Further 200 sq.mt. of the land on which an office block was constructed was to be used for construction of personal use in the shape of office etc. He pointed out that a copy of the Development Agreement is annexed at pages 1 to 30 of the paper book and the facts are clearly mentioned at page 5 of the paper book. The built up area was to be shared with the co-owners of the land and assessee was entitled to 51 per cent of the built up area non-deduction of tax at source. Balance 49 per cent would go to the land owner as per clause 13 of the agreement. In pursuance of this Development Agreement assessee made plans and sought approval of the Bombay Municipal Corporation and ultimately the plans were approved by an IOD vide letter dated 8-1-2004, copy of which is placed at pages 31 to 38 of the paper book. He then referred to page 39 of the paper book, which is a copy of plans and explained that assessee had planned to construct four wings consisting of A, B, C and D wings. Wing D was meant for personal use of the assessee and the owners of the land as office complex and, in fact, an old complex was already existing there.

8. The assessee initially decided to develop A, B and C wings consisting of residential units between 500 sq.ft. to 800 sq.ft. In view of the IOD dated 8-1-2004 commencement certificate was issued to the assessee on 11-2-2004 through which permission to construct up to plinth level was only given and the copy of the same is placed at page 47 of the paper book. Later on, there was some amendment in the plans and, accordingly, these amended plans were approved by the BMC vide letter dated 11-3-2004, copy enclosed at page 40 of the paper book and a further commencement certificate was issued on 12-4-2004. The assessee decided to develop initially B and C wings and accordingly a commencement certificate for the entire work of wings A, B and C was issued by the Municipal Corporation and endorsement for the same was made on 29-3-2004 which is available at page 48 of the paper book. Accordingly, the work for these two wings was commenced and same was completed in assessment year 2005-06 and total saleable area available out of these two wings was 43516 sq. fts. [Wing B 23410 sq.ft. + Wing C 20097 sq.ft.]. The entire cost of construction was booked under the head 'Work-in-progress' [WIP] Wadala. Out of this, during assessment year 2005-06 assessee sold 10441 sq.ft. area and received a total consideration of Rs. 4,27,09,133 which was credited to the profit & loss account. The cost of construction regarding this portion amounting to Rs. 2,21,94,564 was transferred from work-in-progress account which ultimately resulted into net profit of Rs. 1,79,03,569 in assessment year 2005-06 against which deduction under section 80-IB(10) was claimed which was mainly denied on the basis of the survey report in which the statements of few flat owners were recorded and it was found that the size of the flat was more than 1000 sq.ft. He submitted that during assessment proceedings itself it was pointed out to the Assessing Officer that assessee had constructed all the flats for less than 1000 sq.ft. and it was the purchaser who had joined the same. In fact, one of the buyers had confirmed this fact in his statement itself. Though Assessing Officer did not accept this position, but when this was explained to the ld. CIT(A), he agreed with the submissions of the assessee vide para 3.4.4. Since the department has not filed any appeal or cross objection against this finding, therefore, this issue has become final in favour of the assessee.

9. Later on, after completed of B & C wings assessee proposed to start work on A wing for which commencement certificate was again issued by the Municipal Corporation vide endorsement dated 18-3-2005. The certificate was issued for construction up to the fourth floor. This was further extended up to the 9th floor vide endorsement dated 24-3-2006 and later on the construction was allowed up to 10th & 11th floors. He submitted that Occupation Certificates for the above construction have been obtained well before 31-3-2008 and relevant certificates are available at pages 48A to 53 of the paper book. The area constructed in assessment years 2006-07 and 2007-08 was accordingly sold and proportionate cost was debited from work-in-progress account and deduction under section 80-IB(10) was claimed. The deduction has been mainly denied by the Assessing Officer and confirmed by the ld. CIT(A) on two points viz. (i) that the housing project would consist of A, B, C and D wings and since assessee has not constructed and completed the D wing, therefore, deduction was not allowable; and (ii) the assessee was entitled only to 51 per cent share of the built up area on the total project in 1.88 acres of land, therefore, assessee's share was less than 1 acre and as such assessee is not entitled to the deduction.

10. He carried us through the provisions of section 80-IB(10) and submitted that basically deduction in housing project is to be allowed if the following conditions are fulfilled:

1. The development and construction of housing project commences on or after 1-10-1998 and is completed before 31-3-2008;
2. The project is approved by the local authority before 31-3-2007;
3. Land area for the project should not be less 1 acre;
4. Built up area of flat should not exceed 1000 sq.ft., if project is located in Mumbai;
5. Built up area of shops should not exceed 5 per cent of aggregate built up area or 2000 sq.ft. whichever is less.

He pointed out that the assessee had fulfilled all these conditions because the project was approved on 8-1-2004 and completed before 31-3-2008 which means that the project was approved by the local authority before 31-3-2007. The land area of the project was more than 1 acre, the size of the flats in all the three wings, i.e. A, B and C was between 500 sq.ft. to 800 sq.ft. thus, less than 1000 sq.ft. Even the commercial area was to be less than 5 per cent of the aggregate built up area or 2000 sq.ft. whichever is less. He pointed out that deduction has been mainly denied by the Assessing Officer and the denial has been confirmed by the ld. CIT(A) on the basis of the two issues i.e., (i) since D wing was not completed, therefore, the housing project would not be said to have been completed; and (ii) the area of the land was less than 1 acre.

11. Coming to the first objection he pointed out that the housing project has not been defined in section 80-IB(10). Therefore, to understand the definition of housing project, one has to either look at the dictionary or at various judicial decisions. In various decisions it has been held that the housing project does not necessarily mean that there should be group of buildings and only then same can be called as the housing project. In fact, Board itself on 4-5-2001 in its clarification pointed out that addition to housing project on existing housing project site can qualify as infrastructure facility under section 10(23G) and section 80-IB(10) provided that it is taken up as a separate undertaking having separate books of account so as to ensure that correct profits can be ascertained for the purpose of section 80-IB(10). Therefore, it is clear that where there are different wings in a particular building, each one of them singly or jointly can form a housing project, is allowable for deduction under section 80-IB(10).

12. He also submitted that assessee had planned four wings i.e. A, B, C and D as housing project, but right from the beginning the intention was to clearly construct A, B, C and D wings which are residential buildings. The D wing was to be constructed only as an office block and was to be used for personal use and never meant to be sold. In this regard reference was also made to the recitation clauses in the Development Agreement, particularly clause (h) at page 5 where this fact has been clearly mentioned. In any case the plan was approved for all the wings together but as far as the commencement certificate is concerned, the same was never given by the authorities for D wing which is clear from the various commencement certificates given by the Municipal Corporation copy of which is placed at pages 47 & 48 of the paper book. He explained that no construction can taken place unless commencement certificate is received. The Municipal Corporation tries to control the construction activities in various parts of the City considering various factors like, noise levels, disposal of debris and other disturbances created during construction and, therefore, the construction activity is controlled through the medium of commencement certificate. In the case before us construction was not possible at all in respect of the D wing in the absence of commencement certificate. He also pointed out that though it is not disputed that assessee has determined the profits separately for A, B and C wings but as a matter of record, he clarified that assessee has maintained separate accounts for Wadala project by way of work-in-progress account through which profit in respect of A, B, C wings was determined. He also pointed out that Occupation Certificates in respect of these three wings were also received before 31-3-2008 the cut off date provided in under section 80-IB(10) and the copies of the same are available at pages 48A to 53 of the paper book.

13. Coming to the case laws, he first of all relied on the decision of the Tribunal in the case of Saroj Sales Organisation (supra). He submitted that this is a first judgment in the series of judgments where the definition of housing project was considered and in almost identical circumstances it was held that each wing or block would constitute a separate housing project. Then he carried us through the judgment and pointed out that how ultimately the Tribunal concluded that deduction under section 80-IB(10) was available in respect of six wings which complied with the conditions prescribed under section 80-IB(10) out of the total eleven wings constructed by the assessee. In this case reference has also been made to the decision of the Calcutta Bench of the Tribunal in the case of Bengal Ambuja Housing Development Ltd. v. Dy. CIT [IT Appeal Nos. 1594 & 1737 (Cal.) of 2005] wherein in identical circumstances deduction under section 80-IB(10) was allowed by the Tribunal and when the matter was further carried to the Hon'ble Calcutta High Court the appeal of the revenue was dismissed. The order of the Hon'ble Calcutta High Court is placed at pages 26 & 27 of the paper book dealing with the case laws. He submitted that similar view was taken in the case of Vandana Properties v. Asstt. CIT [2010] 128 TTJ (Mum.) (UO) 89/[2009] 31 SOT 392 . He also relied on the following decisions—

(a) ITO v. Khyati Financial Services [IT Appeal No. 3740-M-2008] copy of the decision available at pages 42 to 59 of the paper book; and
(b) Dy. CIT v. Brigade Enterprises (P.) Ltd. [2009] 119 TTJ (Bang.) 269/[2009] 28 SOT 7(URO) .

He also relied on the following observations of the Special Bench of the Tribunal in the case of Bramha Associates v. Jt. CIT [2009] 119 ITD 235 (Pune).

"....if the income of the project pertaining exclusively to the construction of residential unit can be separately worked out and the other requirements of the section are satisfied there is no good reason to withhold grant of incentives to such income of the undertaking".

14. Coming to the second objection of the Assessing Officer regarding area of land being lass than one acre which has been confirmed by the ld. CIT(A), he submitted that land area on which this project was undertaken was 1.88 acres i.e. about 7633.88 sq.mts. In fact, the Development Agreement would show this position in the recitation clauses. Out of this total area, a small portion admeasuring 637.48 sq.mt. was designated separately because the same was reserved for land falling under school reservation category. Another potion of the land i.e. 200 sq.mt. on which an office block was constructed, was basically meant for construction of commercial space as D wing and ultimately the net area of the project was about 7000 sq.mt. as mentioned in clause (h) of the recitation clauses of the Development Agreement which is more than one acre. The only objection of the department is that since as per the Development Agreement assessee was entitled to only 51 per cent share of the built up area, the plot of land coming to the assessee's share would be reduced to 0.96 acre and hence the condition prescribed under section 80-IB(10) would not be fulfilled. He argued that a careful reading of section 80-IB(10) would reveal that there is no condition prescribed that for claiming deduction under section 80-IB(10) the ownership of the land is also required and this aspect has already been confirmed by the Ahmedabad Bench of the Tribunal in the case of Radhe Developers ( supra), wherein it was argued by the Revenue that for claiming deduction under section 80-IB(10), assessee must be owner of the land on which the housing project is to be constructed and the Tribunal had held that such contention was not sustainable because there is no such condition prescribed in the provisions of section 80-IB(10). What is required is development and building work and as such carried out by the assessee through repatriate agreement through land owner, would also make the assessee eligible for deduction under section 80-IB(10). He further submitted that what is required by section 80-IB(10) is that there should be a housing project on a land measuring above one acre. In the case before us, the housing project on the land even after excluding the portion reserved for school is about 7000 sq.mts. which is more than one acre. Since the assessee was not owner of the land and, therefore, owners were allocated 49 per cent share of the built up area and the cost of construction was to be borne by the assessee. Therefore, as far as the project is concerned it remained on the whole area. In any case, similar objection was raised in the case of Vandana Properties ( supra) wherein it was pointed out that if the said land was proportionately allocated amongst each buildings, then area allotted to building 'E' would be less than one acre. The Tribunal rejected this objection on the basis of clarification given by the Board where even additional project within the same housing project was to be considered for the purpose of deduction under section 80-IB(10) and it was specifically observed as under:

"So far as the present case is concerned, we have to take into consideration the entire area of the plot on which all the building projects have been planned i.e. A, B, C, D & E though some of the buildings do not qualify for deduction under section 80-IB(10) of the Act and admittedly, the same is also not claimed. We, therefore, do not agree with the view taken by the Assessing Officer as well as the Learned CIT(A) that the assessee has violated the another condition in respect of the size of the plot."

Thus, in view of the above decisions and in view of the provisions of section 80-IB(10) as well as the clarification of the Board whereby deduction is available even for additional building on the same area, then the project was definitely on an area of more than one acre and would qualify for deduction under section 80-IB(10). Reliance was also placed on the decision of the Ahmedabad Bench of the Tribunal in the case of ITO v. Shakti Corporation [2009] 32 SOT 438 .

15. On the other hand, ld. DR Ms. Reena J. Tripathi, referred to page 39 of the paper book which is a copy of the plan of various wings and submitted that a mere look at this plan would show that all the wings were basically connected and it was a case of only one building. Then she referred to the provisions of section 80-IB(10) and pointed out that a reading of this provision would show that the intention of the legislation was to given deduction for constructing houses for economically backward classes and the deduction was meant for the whole project and if one portion of the building is not constructed, then it cannot be said that the housing project has been completed and thus it would not fulfil the conditions laid down in section 80-IB(10). In the case before us, admittedly, D wing was not completed. In fact, construction itself has not commenced and, therefore, it cannot be said that the housing project has been completed before 31-3-2008 as provided in section 80-IB(10).

16. Further to above, ld. DR Shri Hari Gobind Singh, submitted that it has not been disputed that assessee had only 51 per cent share in the built up area. He also referred to the provisions of section 80-IB(10) and pointed out that deduction was possible only when the project was situated on a land which is measuring more than one acre. Since the assessee's share in the built up area was only 51 per cent and if the land area was proportionately allocated, the share of the assessee in land area would come to less than one acre and, therefore, it cannot be said that, the condition regarding project being on more than one acre of land would not be fulfilled and, therefore, CIT(A) has rightly disallowed the deduction on this count vide para 3.3 of his order.

17. We have considered the rival submissions carefully. First of all let us reproduce the provisions of section 80-IB(10) which read as under:

"80-IB(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, within four 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 city 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 [and]

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

A perusal of assessment order shows that deduction has been denied by the Assessing Officer on the basis of following three issues:

1. That the size of some of the residential units was more than 1000 sq.ft.
2. The housing project was not completed because D wing was not completed before 31-3-2008, and
3. The area of the land on which the housing project is situated is less than one acre.

As pointed out by the ld. Counsel of the assessee, as far as the first objection is concerned, it was explained during the assessment proceedings as well as appeal proceedings that assessee had constructed all the residential units between the size of 500 sq.ft. to 800 sq.ft. and some of those flats were later converted by the buyers by joining the same wherever the buyers had purchased more than one unit. The assessee had no control on such joining of the flats and this position has already been accepted by the ld. CIT(A) and, therefore, this finding has become final. We find that the ld. CIT(A) while dealing with the size of the units observed vide para 3.4.4 as under:

"3.4.4 The third ground on which deduction under section 80-IB has not been given is that, certain flats have been merged and their area exceed 1000 sq.ft. This has surfaced during survey conducted under section 133A at the project site. However the appellant has successfully explained that builder will have no control if after the sale the certain flat-owners decide to merge the flats."

Thus, from the above it becomes clear that the ld. CIT(A) was satisfied that each unit of the residential flat in all the three wings was less than 1000 sq.ft. and since Revenue has not filed any cross objection against this finding, the same has become final and binding on the Revenue.

18. Coming to the second objection raised by the Revenue i.e. that the assessee has not completed the project. This objection is raised on the basis that since the project consisted of four wings i.e. A, B, C and D and since completion certificate has not been filed for D wing and, therefore, the project cannot be said to have been completed. This would lead us to the question as to what is the meaning of a housing project. For understanding the meaning of the housing project, we would straight way go to the case law cited by the ld. counsel for the assessee.

19. In the case of Saroj Sales Organization (supra), the firm M/s. A.W.Pereira & Ors. were the owners of certain plots of land and M/s. Kenwood Agency Pvt. Ltd. acquired the development rights of these plots of land from the said owners. A building plan for construction of eleven wings was made and got sanctioned from the Municipal authorities. The principal developers i.e. M/s. Kenwood Agency Pvt. Ltd., constructed two wings viz., A and B of this building and granted the sub-development rights for the remaining nine wings of the building to the assessee firm i.e.Saroj Sales Organisation (supra). As per this agreement, assessee firm was to construct six wings of the aforesaid building which were named as 'Nisarg'. Later on another agreement was entered into by which assessee was entitled to construct three more wings of the building which was to be named as 'Breezy Corner'. The assessee claimed deduction under section 80-IB(10) in respect of 'Nisarg' complex. The claim was rejected by the revenue authorities on the basis that only one building having eleven wings was approved by the Municipal authorities and, therefore, construction of six wings of the same building of the assessee could not be treated as a separate independent housing project. Moreover, if three wings consisting of 'Breezy Corner' were included, some of the flats in 'Breezy Corner' were more than 1000 sq.ft. and, therefore, assessee violated the conditions prescribed under section 80-IB(10). The Tribunal considered the issue in detail and observed vide para 12 as under:

"12. There is no dispute that the housing project in the case of 'Nisarg' is approved before 31st March, 2005. The substituted section extended the benefit of 100 per cent deduction of income derived from housing projects approved up to 31st March, 2007 but simultaneously imposed a restriction on the area of shopping complex that is permissible to be included in the housing project by inserting the sub-section 80-IB(10)(d) w.e.f. 1st April, 2005. The Legislature nowhere provided the definition of a housing project either in the section or anywhere in the IT Act. Is it open for the Revenue to consider all the housing activities undertaken by the assessee as one project or different projects ? The Concise Oxford Dictionary (9th Edition) defines a 'project' as "a plan, a scheme, a planned undertaking, a usually long-term task undertaken by a student to be submitted for assessment. The commencement certificates in respect of building No. 1 were received by the principal developer on 7th March, 2001 and 30th March, 2001 respectively. But the commencement certificates for various wings were approved by the municipality as per the details given below :

Wing-C on 10-9-2001

Wing-E on 11-9-2001

Wings-C, D, E, F & G on 27-3-2002

Wings-F & G on 7-5-2002

Wing-Fl on 23-9-2003

All the above wings are part of 'Nisarg' block and independently satisfies the necessary approval of a housing project. It really makes no difference whether M/s. Conwood Agencies had applied for or the assessee had applied to the municipal corporation to make any difference in deciding the assessee's claim for deduction under section 80-IB(10) of the Act. It must be appreciated that the main developer was M/s. Conwood Agencies (P) Ltd. The sanction plan have only approved the construction of the dwelling units of less than 1,000 sq. ft. in all the wings of the said project. There is no dispute that all the flats in these wings contain the eligible units. It is not open to the Revenue to conclude the next project as part of the earlier housing project just to deny the statutory relief which the assessee is entitled in respect of the eligible housing project. In that way the legislative intention to give a relief to the assessee who are undertaking the low housing projects will get defeated. 'Breezy Corner' project which was meant for higher strata of the society. The assessee has segregated the same and in no way mixed in these projects either in the design or in the structural manipulation or in the provision of amenities and the assessee has not claimed any relief in respect of project which admittedly does not admit the test laid down under section 80-IB(10) of the Act. In our view, combining these two projects into one will lead to a result which manifestly will be unjust and absurd and defeat the very provisions of deduction sections. Unless there is a clear intention of the Legislature the Revenue cannot be permitted to do so. After all the assessee have obtained different commencement certificates and started on different periods of time. They are separate by time, space and statutory approvals and even in designs, maintenance of separate books of account. The Revenue, in our view, is not right in treating both the projects as one and integrated without the facts warranting for such conclusion. In identical situation in the case of Bengal Ambuja Housing Development Ltd. (supra), the assessee was having a housing project which consisted of 261 residential units and the individual flat size varied between 800 sq. ft. to 3,000 sq. ft. and the total built-up area of that housing project was 3,46,599 sq. ft. The said project contained 150 residential units with a built-up area of individual unit of less than 1,500 sq. ft. aggregating to 1,59,005 sq. ft. The remaining built-up area of 1,87,593 sq. ft. was consumed by other residential units wherein the size of individual unit exceeded 1,500 sq. ft. of built-up area. The Assessing Officer on the basis of these facts was of the view that since the units comprised in the housing project of the assessee was more than 1,500 sq. ft., the assessee's claim for deduction under section 80-IB(10) was not entertained. The Tribunal after appreciating the clear provisions of section 80-IB(10), which does not speak regarding such denial of deduction in case of profit from a housing complex containing both the small 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 was held to be based on narrow and restricted interpretation of the provisions of clause (c) of section 80-IB(10) of the Act. They drew support from the decision of the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT (1992) 104 CTR (SC) 116 : [1992] 196 ITR 188 (SC) , wherein it was held that provisions should be interpreted liberally and since the present case also, the assessee by claiming pro rata income on qualifying units which satisfied the condition laid down by section 80-IB(10), the assessee's claim should accepted. This order of the Tribunal was taken up in appeal before the Kolkata High Court, the Kolkata High Court dismissed the appeal arising from this order. The ratio laid down by this Tribunal order, in our view, based on the same set of facts as exist in our present case are equally applicable and the assessee's claim for deduction of section 80-IB(10) in respect of the eligible units of this housing project is therefore, deserves to be accepted.

13. As regards the objection of the Assessing Officer that the permissible shopping area of housing project exceeds 5 per cent, the assessee is not entitled for relief under section 80-IB(10). We are of the view that the housing project were approved before 31st March, 2005 and for such project which were so approved, there was no stipulation as to the shopping complex area is permissible in the project. As already stated earlier that the amendments were subsequently made while extending the deduction of income from housing project approved up to 31st March, 2007, the denial of deduction, in our view, is clearly not in accordance with law.

14. One of the objections of the Assessing Officer in his assessment order is failure of the assessee to obtain a completion certificate in respect of 6 wings in the block 'Nisarg' from which it has returned the income in the asst. yr. 2005-06. The assessee has filed completion certificate issued by the local authority in respect of 3 wings viz. C, D and E before submission of its return and for the rest of the wings viz. F, F1 and G, it had applied for such certificate on 17th Aug., 2004, but the same was not received till date of filing of the return. It was reported in the course of hearing by the learned counsel for the assessee that the occupation certificate in respect of the remaining wings i.e. F, F1 and G has also been issued by the municipal authorities on 20th Dec., 2006. Copies of such certificates issued by the local authorities have been placed in the paper book filed by the learned counsel for the assessee. It was explained that since the housing project in this case has been approved by the local authorities before 1st April, 2004 and the construction is required to be completed before 31st March, 2008. As the occupation certificate in respect of the wings F, F1 and G have been issued on 20th Dec., 2006, i.e. prior to 31st March, 2008, the condition relating to completion of the construction as prescribed in section 80-IB(10)(a) should also be taken to be satisfied.

15. In the result, the assessee's claims for deduction under section 80-IB(10) are accepted and the appeal is to be treated as allowed. The Assessing Officer is directed to allow the deduction as claimed by the assessee in the light of the above discussions."

Thus, from the above it is clear that Legislature has not provided any definition of the housing project and, therefore, the definition has to be construed by making reference to the dictionary and as long as the segregated blocks are being eligible for deduction under section 80-IB(10), then same shall be construed as eligible housing project and deduction has to be allowed accordingly. In fact, in this decision the Tribunal has referred to the decision of the Calcutta Bench of the Tribunal in the case of Bengal Ambuja Housing Development Ltd. (supra). In that case the assessee had undertaken construction of a housing project Eastern Metropolitan Bye-Pass, which was also known as Udayan. This project, inter alia, included Udita-III housing project which was under construction during the relevant year and such construction was being made on land measuring 4.2 acres. The said housing project consisted of 251 residential units and the individual flat size varied between 800 sq.ft. to 3000 sq.ft. The assessee claimed deduction under section 80-IB(10) on the part of the project in which 150 residential units were constructed where area was less than 1500 sq.ft. The deduction was denied by the Revenue authorities. In appeal the Tribunal allowed the deduction vide para 22 which reads as under:

"22. It is apparent from the perusal of section 80-IB(10) that the section has been enacted with a view to provide incentive for businessmen to undertaken 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(1) while coming to such conclusion, we also find support from the order of the Hon'ble Supreme Court in the 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."

This matter was carried by the Revenue before the Hon'ble Calcutta High Court which was dismissed in I.T.A. No. 458 of 2006 by holding that no substantial question of law was involved [copy of this order is available at pages 26-27 of the paper book containing case laws]. From the above it becomes clear that even the Hon'ble Calcutta High Court confirmed the fact that deduction under section 80-IB(10) is allowable in respect of the part of the project which was eligible for deduction.

20. Again in the case of Vandana Properties (supra) he assessee was engaged in the construction of various flats consisting of A, B, C, D and E wings on the land area of 2.36 acres. The assessee claimed deduction under section 80-IB(10) only in respect of building 'E'. This deduction was denied by the Revenue authorities on the basis that the size of the plot was less if only E block was completed [This issue we shall deal later while dealing with the second objection], and the block E could not be considered as a separate housing project. The deduction was further denied on the basis that size of the flat was more than the prescribed size [this issue has already been decided by the CIT(A) in favour of the assessee in the case before us].

21. The issue regarding definition of housing project has been dealt by the Tribunal vide paras 10 & 11 wherein the decision in the case of Saroj Sales Organisation (supra) has been followed. The relevant paras 10 & 11 reads as under:

"10. The first issue is to be decided before us is the interpretation of the phrase "housing project" which is contemplated in section 80-IB(10) of the Act. There is no definition of the term 'housing project' given either in the section 80-IB or in the Act itself. But so far as section 80HHBA which provides for a deduction in respect of profits and gains derived from the execution of the housing project which are awarded on the basis of global tender and also aided by the World Bank, deduction is allowed as prescribed in sub-section (1) to section 80HHBA. In the said section, the Legislature had defined the expression "housing project" by way of Explanation to mean that project for the construction of any building, road, bridge or other structure in any part of India. The concept of housing project in section 80HHBA is much more wider, but so far as section 80-IB(10) is concerned, as there is no definition of expression "housing project", then definition given in section 80HHBA will be internal aid to decide whether housing project means the project of the group of the buildings or whether it can be the project of a single building also. As per the definition of housing project in section 80HHBA, housing project includes construction of "any building". If the legislature was desiring to define nature of the housing project for the purpose of section 80-IB(10), then either the specific definition would have been incorporated in the Act or it would have been explained by way of Explanation to section 80-IB.

11. In our opinion, the concept of housing project does not mean that there should be the group of the buildings and only then same is called as "housing project". In the present case, it is seen that initially, as per the documents on record i.e. copy of CC the assessee had planned for four independent buildings, but, so far as Wing 'E' is concerned, that was only planned when the status of the surplus land was converted as 'within ceiling limit' (WCL) and the assessee could get additional FSI for launching Wing 'E'. Another Co-ordinate Bench of the Tribunal has considered somewhat identical situation in the case of Saroj Sales Organisation (supra) and said decision of the Co-ordinate Bench of the Tribunal is more relevant also to decide issue before us. As in the said case, the different units of the building were completed step by step and it was the case of the Department that all the buildings were comprise of one project only. Rejecting the contention of the Revenue, it is held as under:"

Thus, again it is clear that the housing project does not necessarily have to be various group of buildings constructed on a particular land but it can also be a particular building or any building which is part of the large project.

22. This type of issue also came up for consideration before Bangalore Bench of the Tribunal in the case of Brigade Enterprises (P.) Ltd (supra). In that case assessee undertook development of a project in an area of 22 acres 19 gunthas consisting of five residential blocks, row houses, oak tree place, a club community centre and school etc. The deduction under section 80-IB(10) was claimed in respect of two residential units only which if taken separately were eligible for relief. Assessing Officer treated the entire project as single project and denied the deduction. On appeal, CIT(A) allowed the relief and on further appeal by the Revenue, Tribunal confirmed the order of the CIT(A) by holding that group housing was approved as a master plan as a concept and the words "residential unit" in clause (c) of section 80-IB(10) means that deduction should be computed unit-wise.

23. In fact, the Special Bench of the Tribunal in the case of Brahma Associates (supra) while dealing with issue of deduction under section 80-IB(10) observed at para 105 as under:

"105. There may be cases where the total built-up commercial area is more than 10 per cent of total area. These projects, normally should not get benefit of exemption unless such undertaking can show that income from construction of residential dwelling units can be worked out separately and even after excluding the commercial use of plot, the project satisfies all the requirements of section 80-IB(10). In other words, in order that the profits from dwelling unit segment of the project is eligible for deduction under section 80-IB(10) in such a case, size of the plot, excluding portion under commercial unit, must be more than minimum area of one acre and residential units built on such area must satisfies condition of clause (c) of the provision. Above income of undertaking from project referred to above should be granted exemption under the statutory provision, as such income satisfy the purpose of the enactment. In any case, denial of deduction in such cases will be purely based on hyper-technical ground, because instead of seeking approval as residential-cum-commercial project for the entire project, the assessee could have as well taken separate approval for residential segment which, even on standalone basis, would have satisfied all the requisite conditions. Approval as residential project was not a condition precedent for grant of deduction under section 80-IB, and in city like Pune, there was no provision in the local regulation to approve project as a 'housing project'. There would be no legal justification to deny exemption to residential segment of such a housing project, which satisfies conditions of section 80-IB(10) on standalone basis, merely because their project has been approved by local authority as a residential-cum-commercial project. If the income of the project pertaining exclusively to the construction of the residential units can be separately worked and other requirements of section are satisfied, there is no good reason to withhold grant of incentive to such income of the undertaking. Apart from the above, other undertakings exceeding above limit i.e. those with commercial built-up of more than 10 per cent of area, in our opinion, are not entitled to benefit of exemption as those undertakings have not worked in accordance with spirit and intendment of the statutory provision."

From the above, it is clear that whatever portion of the housing project is other wise found to be eligible has to be considered as a housing project for the purpose of deduction under section 80-IB(10).

24. From all the above decisions, it becomes clear that independent units are residential units and have to be treated as separate housing projects for the purpose of deduction under section 80-IB(10) as long as they fulfil the other conditions prescribed under the Act.

25. In the case before us, assessee entered into a Development Agreement on 3-11-2003, copy of which is available at pages 1 to 30 of the paper book. In this agreement, the recitation clauses (h), (i) and (j ) reads as under:

"(h)A portion admeasuring approximately 637.48 sq.mts. delineated on the plant thereof hereto annexed and thereon demarcated by green colour hatched lines and hereinafter referred to as "RESERVED LAND", falls under School Reservation and is not intended to be developed; and

(i)On another portion admeasuring approximately 200 sq.mts. of the said lands one office block is constructed. The said another portion is delineated on the plan thereof annexed hereto and thereon demarcated by yellow colour wash and is herein after referred to as "THE OFFICE BLOCK LAND"; and

(j)The lands measuring approximately 7000 sq.mts. other than "Reserved Land" but inclusive of the "Office Block Land" is hereafter referred to as the "DEVELOPMENT LANDS" delineated on the plan thereof hereto annexed and thereon demarcated by blue colour hatched lines."

From the above, it becomes clear that assessee got rights of development in approximately 7000 sq.mts. of land after excluding 637.48 sq.mts. on reserved land which fell under school reservation. The 200 sq. mts. of land on which an office block was already there was included in the development project. The D wing was supposed to be constructed on this portion of the land and was stated to be only having two floors and was meant for personal use. While dealing with the developers it is provided in clause (i) which is available at page 8 of the paper book] as under:

(i) He has surveyed the said lands and is aware that the said Land have been converted from "I-2" zone to "R" zone as per BMMC order dated 4-8-2003. The Developer confirms that the said Development Lands admeasures approximately 7000 sq.mts. and particulars regarding D.P.Road, Set-Back BES & T. Substation, SAS Amenity, Creation etc. are as per details furnished in Annexure I hereto. The total FSI available on the said lands for Development, after deducting 250.68 sq.mts. FSI utilised for constructed area of the Office Block is 7930.69 sq.mts. The Office Block will not be demolished but balance FSI of the Office Block land area will be utilised in the remaining portion of Development Land.

From the above, it becomes clear that only 250.68 sq. mts. Of FSI which was already utilized for construction of office block and which would not be demolished, rest of the FSI was to be used for other wings. The plan for whole of the project was sanctioned on 8-1-2004, copy of the same letter is available at pages 31 to 38 of the paper book. Though in the map annexed at page 39 of the paper book it seems to be a one building consisting of four wings, but four wings have been separately marked in different colours. The wings are independent wings become clear from commencement certificate which was originally issued on 11-2-2004 and later on the following endorsements have been issued:

The above endorsements make it clear that various commencement certificate endorsements were made in respect of A, B and C wings and for D wing only endorsement up to the plinth level is dated 8-2-2005 was made which makes it clear that assessee was never permitted to go beyond the plinth level in respect of D wing and, therefore, could not have constructed the same. However, at the same time, this wing is stated to be used for business purposes and, therefore, same cannot be treated as residential unit. Since the area involved in this wing was only 3 per cent, therefore, it is immaterial whether this is considered for the purpose of housing project or not. In any case, as held in the above noted cases which have been discussed in detail, whatever portion is eligible for deduction, has to be allowed deduction under section 80-IB(10). We also find that even Occupation Certificates were issued separately by the Municipal authorities [copy filed at pages 48A to 53 of the paper book]. The details of the same are as under:

This only shows that each wing was a separate wing as has been recognized by the Municipal authorities.

26. We further find no force in the submission of the ld. DR that the intention of the Government in giving deduction under section 80-IB(10) was to encourage housing projects for the poor people and, therefore, unless and until all the wings were completed it cannot be said that the project has been completed. As pointed out earlier and as mentioned in the Development Agreement, D wing consisted of office block area which was already constructed and was to be developed again only as an office area and, therefore, it cannot be said that purpose of deduction itself has been defeated because office area was meant for different purpose and even the Legislature has recognized that 5 per cent of the area could be in terms of shops or commercial establishments. Even if this wing was constructed, it would have been within the prescribed limits provided in the section itself. Therefore, in view of the above discussion and facts, we are of the opinion, that the Revenue was not right in holding that assessee is not entitled to deduction under section 80-IB(10) because the housing project was not completed as D wing was never completed before the specified date.

27. Coming to the second objection that area of the land is lower than the one acre because the assessee is entitled only to 51 per cent of the total built-up area, a perusal of the Development Agreement shows and it is an admitted fact that whole of the construction and development expenses were to be incurred by the assessee and the land owners were to be allotted 49 per cent of the constructed area free of cost in view of the land given by the land owners for the purpose of the development. The plain reading of the section itself shows that the deduction in respect of a housing project which an undertaking is developing, is for development and, therefore, it is clear that there is no requirement that such undertaking or assessee should be the owner of such land and this position has been confirmed by the decision of the Ahmedabad Bench of the Tribunal in the case of Radhe Developers (supra). In that case it was held that there is no condition that assessee must be the owner of the land on which the housing project is constructed because development and building work carried out by the developers is not working on remuneration for the land owner, but is working for himself in order to exploit the potential of its business of developing the project. Same view was taken in the case of Shakti Corporation (supra).

28. Further, the deduction is meant for the housing project and not for the share of the developer. Had the assessee purchased this land, then assessee would have definitely incurred some cost in terms of land and assessee would have become the owner of the 100 per cent built-up area and would have got deduction on such 100 per cent built-up area subject to deduction of such cost of land. Therefore, in reality it does not make a difference whether assessee has purchased the land or simply shared the built-up area with the land owners. This situation becomes further clear from the decision of the Mumbai Bench of the Tribunal in the case of Vandana Properties (supra), wherein the deduction under section 80-IB(10) was denied on account of various objections and one of the objection was that the land area pertaining to wing E on which deduction was claimed was less than one acre. We have already discussed the facts of this case in the above noted paras but to summarise the same again in this case the assessee was constructing five wings known as A, B, C, D and E and perhaps the area of flats in these A, B, C, D wings was more or because of some other reasons, deduction was claimed in respect of only E wing. Assessing Officer denied the deduction on account of the fact that proportionate area of E wing would be less than one acre because the total project consisting of A, B, C, D and E wings was constructed on 2.36 acres. This issue was dealt with by the Tribunal at para 13 which reads as under:

"13. Now the next objection is in respect of the size of the plot of the land. There is no dispute about the fact that assessee acquired the development rights in respect of the plot which was admittedly 2.36 acres on which assessee executed the different building projects. The case of the Assessing Officer for rejecting the claim of the assessee is that if the said land is proportionately allocated among different buildings, then area allocated to building 'E' is less than one acre. As per clause (b) to section 80-IB(10), it is provided that the project should be on a size of plot of land which has the minimum area of one acre. As per the area statement given in the plans, we find that no specific demarcation in respect of the plot of 2.36 acres has been made. It is seen that the surplus land available with the assessee or earlier owner was given the status as 'within ceiling limit' (WCL) and due to change or conversion of the land status, that the assessee was able to plan the project for building Wing-'E'. The learned counsel brought to our notice, the correspondence made by the Maharashtra Chamber of Housing Industry, Mumbai with the Hon'ble Finance Minister, Government of India, New Delhi, seeking clarification of certain aspects on section 10(23G) and section 80-IB(10). The main issue was in respect of the treatment to be given to the transfer of development rights (TDR) which is purchased by the developer and used on the existing plot of land or the project. As per the letter dated 4th May, 2001, it appears that the CBDT, New Delhi has replied giving the clarification that additional housing project on the existing housing project can qualify for exemption/deduction under sections 10(23G) and 10-IB(10) provided the correct profit can be ascertained. So far as the present case is concerned, we have to take into consideration the entire area of the plot on which all the building projects have been planned i.e. A, B, C, D and E though some of the buildings do not qualify for deduction under section 80-IB(10) of the Act and admittedly, the same is also not claimed. We, therefore, do not agree with the view taken by the Assessing Officer as well as the learned CIT(A) that the assessee has violated the another condition in respect of the size of the plot."

In the above case, Tribunal also referred to the letter dated 4-5-2001 (F.No. 205/3/01/I.T. Act 11), wherein it is clearly explained by the Board that if some additional housing project is constructed on the existing housing project, then even the same is eligible for deduction under section 80-IB(10) as long as separate books are maintained so that the profit for this additional area can be ascertained separately. In the case before us, assessee has already mentioned separate work-in-progress in respect of Wadala project and this aspect has not been disputed by the Revenue. The second aspect of that letter is that even if the additional project is mounted on the existing project, even then the deduction is available. We have already observed that in the present case assessee is a developer of the whole of the project and, therefore, the share could not be allocated only in terms of 51 per cent of the land area because the whole project is developed and constructed by the assessee and 49 per cent share is going to the land owners in respect of the land cost. In fact, assessee got its 51 per cent share towards the cost to be incurred from this project. Therefore, assessee was not receiving any fixed remuneration. The assessee's undertaking was engaged in the development of the project and deduction is available to an undertaking which is engaged in the development of the project. In view of this discussion, we are of the view that the area under the project was about 7000 sq.mts. which was meant for development and which is more than one acre and, therefore, deduction cannot be denied on this ground.

29. At the very beginning we have reproduced provisions of section 80-IB(10) and also the conditions which were required to be fulfilled for availing of deduction under section 80-IB(10). Therefore, as we have seen the first condition is met because the project is commenced after 1-10-1998 and the same has been completed before 31-3-2008 because of the relevant Occupation Certificates for A, B and C wings have been obtained before 31-3-2008. The project was approved on 8-1-2004 which means the same has been approved before the dead-line given in the provision i.e. 31-3-2007. As discussed above, the land area of the project was more than one acre i.e. approximately 7000 sq.mts. The built-up area of the units was less than 1000 sq.ft. as has been accepted by the ld. CIT(A) does not exceed 5 per cent. In fact, Revenue has not raised any objection or any arguments on this point. In the light of fulfilment of these conditions, we are of the view, that assessee is entitled to deduction under section 80-IB(10).

30. Now, we shall proceed to decide the individual appeals.

31. I.T.A. No. 3220/Mum/2010 - assessment year 2005-06: In this appeal, the assessee has raised the following grounds of appeal:

"Aggrieved by the order of the Assessing Officer (Assessing Officer) as confirmed by Commissioner of Income-tax (Appeals) [CIT(A)], your appellant prefers an appeal against the same on following grounds, which it is prayed may be considered without prejudice to one another.

1. On the facts and circumstances of the case and in law, the learned Assessing Officer erred in disallowing deduction under section 80-IB amounting to Rs. 1,78,70,807.
2. On the facts and circumstances of the case and in law, the learned Assessing Officer erred in disallowing Rs. 28,868 being amount payable to Vikas Housing Private Limited.
3. On the facts and circumstances of the case and in law, the learned Assessing Officer erred in disallowing Rs. 6,742 being 20 per cent of car insurance and car expenses incurred by the assessee.
4. On the facts and circumstances of the case and in law, the learned Assessing Officer erred in disallowing Rs. 41,044 being proportionate interest expenses incurred by the assessee.
5. On the facts and circumstances of the case and in law, the learned Assessing Officer erred in disallowing Rs. 58,006 being 10 per cent of Miscellaneous expenses, Entertainment expenses, Conveyance and Travelling expenses incurred by the assessee.
6. On the facts and circumstances of the case and in law, the learned Assessing Officer erred in levying interest under section 234B of the Act.

32. Ground No. 1: This issue we have adjudicated right at the outset of our order vide paragraph Nos. 2 to 29 and in the light of above discussion we hold that assessee is entitled to deduction under section 80-IB(10) and, therefore, we set aside the order of the ld. CIT(A) and direct the Assessing Officer to allow deduction under section 80-IB(10).

33. Ground No. 2: After hearing both the parties, we find that during assessment proceedings it was noticed by the Assessing Officer that assessee has shown a sum of Rs. 28,868 as liability payable to Vikas Housing Pvt. Ltd. In response to the query, it was stated that this sum was shown as loan. In fact, the amount represented reimbursement of certain expenses incurred by the assessee on behalf of Vikas Housing Pvt.Ltd. and this should have been credited to expenses account. Assessing Officer disallowed this amount by observing that the assessee has shown the expenses in excess of this amount. On appeal, the addition was confirmed by the ld. CIT(A).

34. Before us, ld. counsel of the assessee submitted that actually this amount represented reimbursement of expenses incurred by the assessee. It was further submitted that Assessing Officer has already examined the books of account and no expenditure was found excessive and, therefore, disallowance is unwarranted.

35. On the other hand, ld. DR supported the orders of the Assessing Officer and the ld. CIT(A).

36. After considering the rival submissions, we do not agree with the contentions for the ld. counsel of the assessee. If as stated before the Assessing Officer and also before us that this amount should have been credited to the expenses account, then expenses would stand reduced to that extent. Simply because Assessing Officer has examined the books of account, would not amount that he has seen each and every entry in the books. When assessee himself is accepting the position that expenses should have been credited to the expenses account, which means expenses have been shown at a higher side and, therefore, addition is justified and we confirm the same.

37. Ground No. 3: During assessment proceedings, Assessing Officer disallowed 20 per cent of the car insurance and car expenses being personal in nature because no log book etc., were produced. On appeal, the addition was confirmed by the ld. CIT(A).

38. Before us, general submissions were made and it was stated that perusal of the personal balance-sheet which has been enclosed with the paper book, would show that assessee has sufficient withdrawals.

39. On the other hand, ld. DR relied on the order of the ld. CIT(A).

40. After considering the rival submissions, we find that element of personal usage has not been denied before us. Even if sufficient withdrawals have been shown, this does not mean that assessee has not used the vehicle for personal use. 20 per cent disallowance seems to be reasonable and, therefore, we confirm the same.

41. Ground No. 4: The assessee has claimed interest expenses of Rs. 1,17,516. It was found during the assessment proceedings that assessee had advanced various loans to various concerns which are related to the assessee. Since the assessee had given interest free advances, therefore, proportionate interest was disallowed which was worked out as under:

Total funds employed = 40111777

Total loan/advance given = 14009475

Interest disallowed =117516 × (14009475/40111777) = Rs. 41044

The addition was confirmed by the ld. CIT(A).

42. Before us, ld. counsel of the assessee submitted that this addition has been made without establishing any nexus between the borrowed funds and interest free advances and, therefore, addition made is on an ad hoc basis.

43. On the other hand, ld. DR relied on the orders of the Assessing Officer and the ld. CIT(A).

44. After considering the rival submissions, we find that recently the Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities Powers Ltd. [2009] 313 ITR 340/178 Taxman 135 , has held as under:

"Held, dismissing the appeal, that if there were funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest free funds generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption was established considering the finding of fact by the Commissioner (Appeals) and the Tribunal. The interest was deductible."

Therefore, we set aside the order of the ld. CIT(A) and remit the matter back to the file of the Assessing Officer with a direction to readjudicate this issue in the light of the above decision.

45. Ground No. 5: During assessment proceedings Assessing Officer noticed that assessee has incurred certain cash expenses amounting to Rs. 58,006. It was further noticed that assessee has shown expenses of Rs. 33,032 on entertainment, Rs. 15,013 on conveyance and Rs. 21,094 on travelling. Assessing Officer observed that most of these expenses are supported by self-made vouchers and, therefore, he disallowed 10 per cent of the same amounting to Rs. 48,006. The addition has been confirmed by the ld. CIT(A).

46. Before us, it was submitted that all the vouchers were duly produced before the Assessing Officer and no specific defect has been found and addition has been made merely on conjectures and surmises on the above basis which cannot be sustained under the law.

47. On the other hand, ld.DR relied on the orders of the Assessing Officer and the ld. CIT(A).

48. After considering the rival submissions we find some force in the submissions of the ld. counsel for the assessee that Assessing Officer has not given any specific defect in respect of any particular expenditure. At the same time he has mentioned only in respect of three items of expenses i.e. entertainment expenses of Rs. 33,073, conveyance of Rs. 15,013 and travelling expenses of Rs. 21,094. On the basis of self-made vouchers in respect of these items, the addition seems to be on a higher side. Since the expenses were only self supported, only reasonable disallowance should have been made. Considering the all over facts, we are of the view, that if an addition of Rs. 15,000 is made that would meet the ends of justice, therefore, we set aside the order of the ld. CIT(A) and direct the Assessing Officer to make disallowance of only Rs. 15,000 out of cash expenses.

49. Ground No. 6: The levy of interest under section 234B is of consequential nature and, therefore, we set aside the order of the ld. CIT(A) and direct the Assessing Officer to levy interest in accordance with law.

50. I.T.A. No. 3445/Mum/10 - assessment year 2006-07: In this appeal, the assessee has raised the following grounds:

Aggrieved by the order of the Assessing Officer (Assessing Officer) as confirmed by Commissioner of Income-tax (Appeals) [CIT(A)], your appellant prefers an appeal against the same on following grounds, which it is prayed may be considered without prejudice to one another.

(1) On the facts and circumstances of the case and in law, the learned Assessing Officer erred in disallowing deduction under section 80-IB amounting to Rs. 1,78,70,807.
(2) On the facts and circumstances of the case and in law, the learned Assessing Officer erred in disallowing Rs. 51,397 being 20 per cent of car insurance and car expenses incurred by the assessee.
(3) On the facts and circumstances of the case and in law, the learned Assessing Officer erred in disallowing Rs. 75,549 being proportionate interest expenses incurred by the assessee.
(4) On the facts and circumstances of the case and in law, the learned Assessing Officer erred in levying interest under section 234B of the Act.
(5) On the facts and circumstances of the case and in law, the learned Assessing Officer erred in initiating penalty proceedings under section 271(1)( c) of the Act."

51. Ground No. 1: This issue we have adjudicate right at the outset of our order vide paragraph Nos. 2 to 29 and in the light of above discussion we hold that assessee is entitled to deduction under section 80-IB(10) and, therefore, we set aside the order of the ld. CIT(A) and direct the Assessing Officer to allow deduction under section 80-IB(10).

52. Ground No. 2: During assessment proceedings, Assessing Officer disallowed 20 per cent of the car insurance and car expenses being personal in nature because no log book etc., were produced. On appeal, the addition was confirmed by the ld. CIT(A).

53. Before us, general submissions were made and it was stated that perusal of the personal balance-sheet which has been enclosed with the paper book, would show that assessee has sufficient withdrawals.

54. On the other hand, ld. DR relied on the order of the ld. CIT(A).

55. After considering the rival submissions, we find that element of personal usage has not been denied before us. Even if sufficient withdrawals have been shown, this does not mean that assessee has not used the vehicle for personal use. 20 per cent disallowance seems to be reasonable and, therefore, we confirm the same.

56. Ground No. 3: During assessment proceedings Assessing Officer noticed that assessee has incurred certain cash expenses amounting to Rs. 51,880. It was further noticed that assessee has shown entertainment expenses of Rs. 76,274, Rs. 14,718 on conveyance and Rs. 14,219 on travelling. Assessing Officer observed that most of these expenses are supported by self-made vouchers and, therefore, he disallowed 10 per cent of the same amounting to 75,549. The addition has been confirmed by the ld. CIT(A).

57. Before us, it was submitted that all the vouchers were duly produced before the Assessing Officer and no specific defect has been found and addition has been made merely on conjectures and surmises on the above basis which cannot be sustained under the law.

58. On the other hand, ld. DR relied on the orders of the Assessing Officer and the ld. CIT(A).

59. After considering the rival submissions we find some force in the submissions of the ld. counsel for the assessee that Assessing Officer has not given any specific defect in respect of any particular expenditure. At the same time he has mentioned only in respect of three items of expenses i.e. entertainment expenses of Rs. 76,274, conveyance of Rs. 14,718 and travelling expenses of Rs. 14,219. On the basis of self-made vouchers in respect of these items, the addition seems to be on a higher side. Since the expenses were only self supported, only reasonable disallowance should have been made. Considering the all over facts, we are of the view, that if an addition of Rs. 20,000 is made that would meet the ends of justice, therefore, we set aside the order of the ld. CIT(A) and direct the Assessing Officer to make disallowance of only Rs. 20,000 out of cash expenses.

60. Ground No. 4: The levy of interest under section 234B is of consequential nature and, therefore, we set aside the order of the ld. CIT(A) and direct the Assessing Officer to levy interest in accordance with law.

61. Ground No. 5: After hearing both the parties, we feel that the issue regarding initiation of penalty proceedings under section 271(1)(c) is premature and, therefore, dismissed as infructuous.

62. I.T.A.No. 3444/Mum/2010 - assessment year 2007-08: In this appeal, the assessee has raised the following grounds:

Aggrieved by the order of the Assessing Officer (Assessing Officer) as confirmed by Commissioner of Income-tax (Appeals) [CIT(A)], your appellant prefers an appeal against the same on following grounds, which it is prayed may be considered without prejudice to one another :

1. On the facts and circumstances of the case and in law, the learned Assessing Officer erred in disallowing deduction under section 80-IB amounting to Rs. 2,50,48,491.
2. On the facts and circumstances of the case and in law, the learned Assessing Officer erred in levying interest under section 234B of the Act.
3. On the facts and circumstances of the case and in law, the learned Assessing Officer erred in levying interest under section 234C of the Act.
4. On the facts and circumstances of the case and in law, the learned Assessing Officer erred in giving TDS of Rs. 56,000 Rs. 64,456 was claimed in Return filed, whereas credit given by Assessing Officer is Rs. 8,456.
5. On the facts and circumstances of the case and in law, the learned Assessing Officer erred in initiating proceedings under section 271(1)( c) of the Act.

63. Ground No. 1: This issue we have adjudicate right at the outset of our order vide paragraph Nos. 2 to 29 and in the light of above discussion we hold that assessee is entitled to deduction under section 80-IB(10) and, therefore, we set aside the order of the ld. CIT(A) and direct the Assessing Officer to allow deduction under section 80-IB(10).

64. Ground Nos. 2 & 3: The levy of interest under section 234B & 234C is of consequential nature and, therefore, we set aside the order of the ld. CIT(A) and direct the Assessing Officer to levy interest in accordance with law.

65. Ground No. 4: It was submitted by the ld. counsel for the assessee that proper credit for TDS has not been given. The credit was claimed for Rs. 64,456, whereas credit has been given only to Rs. 8456. We remand the matter regarding credit of TDS to the file of the Assessing Officer with a direction to verify the TDS certificates and allow the proper credit.

66. Ground No. 5: After hearing both the parties, we feel that the issue regarding the initiation of penalty proceedings under section 271(1)(c) is prematured and, therefore, same is dismissed as infructuous.

67. In the result, all the appeals are partly allowed.