ACIT, Circle - 35, Kolkata, Kolkata v. M/s. North City Developers, Kolkata

ITA 1307/KOL/2010 | 2007-2008
Pronouncement Date: 14-07-2011

Appeal Details

RSA Number 130723514 RSA 2010
Assessee PAN AAEFN7622B
Bench Kolkata
Appeal Number ITA 1307/KOL/2010
Duration Of Justice 1 year(s) 21 day(s)
Appellant ACIT, Circle - 35, Kolkata, Kolkata
Respondent M/s. North City Developers, Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 14-07-2011
Appeal Filed By Department
Bench Allotted B
Tribunal Order Date 14-07-2011
Date Of Final Hearing 09-05-2011
Next Hearing Date 09-05-2011
Assessment Year 2007-2008
Appeal Filed On 23-06-2010
Judgment Text
1 B IN THE INCOME TAX APPELLATE TRIBUNAL BENCH- B KO LKATA [ . . . . . .. . ! ! ! ! '# ] BEFORE SHRI B.R.MITTAL JUDICIAL MEMBER & SRI AKBER BASHA ACCOUNTANT MEMBER $ $ $ $ / ITA NO. 1307 (KOL) OF 2010 %& '( / ASSESSMENT YEAR 2007-08 ASSTT.COMMISSIONER OF INCOME-TAX CIRCLE-35 KOLKATA. M/S.NORTH CITY DEVELOPERS KOLKATA. (PAN-AAEFN7622B) (+ / APPELLANT ) - % - - VERSUS - (/0+ / RESPONDENT ) + 1 2 '/ FOR THE APPELLANT: / SRI S.P. CHOWDHURY CIT /0+ 1 2 ' / FOR THE RESPONDENT: / SRI N.K. PODDAR '! / ORDER ( . . . . . .. . ) (B.R.MITTAL) JUDICIAL MEMBER : THIS IS THE APPEAL FILED BY THE DEPARTMENT FOR AS SESSMENT YEAR 2007-08 AGAINST THE ORDER OF LD. C.I.T.(A)-XX KOLKATA DATED 23/03/ 2010. THE APPEAL WAS LATE BY 03 DAYS FOR WHICH A PETITION PRAYING CONDONATION OF TH E SAID DELAY HAS BEEN FILED BY THE DEPARTMENT. THE LD. DEPARTMENTAL REPRESENTATIVE RE FERRING THE REASONS STATED IN THE PETITION DATED 23/6/2010 HAS REQUESTED FOR CONDONAT ION OF THE DELAY WHICH IS NOT OPPOSED BY THE LEARNED A/R. WE THEREFORE CONDONE THE DELAY OF 03 DAYS AND PROCEED TO DISPOSE OF THE APPEAL ON MERIT. 2. THE ASSESSEE-FIRM IS A REAL ESTATE DEVELOPER. IN THE COURSE OF SUCH BUSINESS THE ASSESSEE UNDERTOOK DEVELOPMENT AND CONSTRUCTION OF HOUSING PROJECTS ON 1 . 086 ACRES OF LAND SITUATED AT 3 KHELAT BABU LANE KOLKATA. T HE ASSESSEE OBTAINED A SANCTIONED BUILDING PLAN ON 06/5/2004 WHICH WAS LATER REVISED ON 12/5/2005. IN CONFORMITY WITH THE SAID REVISED BUILDING PLAN THE ASSESSEE STARTE D CONSTRUCTION ON 15/8/2005 OF 72 INDIVIDUAL RESIDENTIAL UNITS ON THE SAID LAND EACH ADMEASURING LESS THAN 1500 SQ. FT. OF BUILT-UP AREA RELEVANT TO F.Y. 2005-06. THE ARCHI TECT & STRUCTURAL ENGINEERS WHO SUPERVISED THE DEVELOPMENT OF THE HOUSING PROJECT ISSUED THE COMPLETION CERTIFICATE ON 2 26/3/2007 RELEVANT TO F.Y. 2006-07. THE ASSESSEE F ILED APPLICATION WITH KOLKATA MUNICIPAL CORPORATION (KMC) ON 28/3/2007 FOR ISSUAN CE OF COMPLETION CERTIFICATE AND KMC AFTER CONDUCTING INSPECTION ISSUED COMPLETION C ERTIFICATE ON 12/5/2007 WHICH WAS WITHIN FOUR YEARS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE HOUSING PROJECT WAS SANCTIONED BY KMC ON 06/5/2004. THE ASSESSEE TH US UNDERTOOK THE DEVELOPMENT OF THE HOUSING PROJECT IN F.Y. 2004-05 AND EXPENSES INCURRED IN RESPECT OF THE SAID HOUSING PROJECT APPEARED IN THE BOOKS SINCE A.Y. 20 05-06. THE EXPENSES INCURRED FROM YEAR TO YEAR WERE ACCUMULATED AND ACCOUNTED UN DER THE HEAD VALUE OF WORK-IN- PROGRESS. IN RESPECT OF BUSINESS OF DEVELOPING AND CONSTRUCTING HOUSING PROJECT THE ASSESSEE REGULARLY FOLLOWED COMPLETION CONTRACT MET HOD FOR RECOGNIZING THE INCOME AND THIS METHOD HAS SINCE BEEN ACCEPTED BY THE DEPA RTMENT IN THE PAST ASSESSMENTS. SINCE THE ARCHITECT AND STRUCTURAL ENGINEER CERTIFI ED THE HOUSING PROJECT TO BE COMPLETE ON 26/3/2007 THE ASSESSEE RECOGNIZED THE INCOME FROM DEVELOPING OF HOUSING PROJECT IN ITS BOOKS OF ACCOUNT FOR THE FIN ANCIAL YEAR ENDING 31/3/2007 AND INCOME FROM SALE OF CONSTRUCTED SPACES WITH REGARD TO RESIDENTIAL UNITS WHICH WERE SOLD UPTO 31/3/2007 IN THE AGGREGATE SUM OF RS.15 5 4 04 543/-. AS PER THE REPORT OF THE AUDITOR IN FORM 10CCB THE GROSS REVENUE DERIVE D FROM THE SAID HOUSING PROJECT WAS ALSO FOR RS.15 54 04 543/- AND THE INCOME DERIV ED FROM THE SAID HOUSING PROJECT WAS RS.5 67 97 128/- IN RESPECT OF WHICH THE ASSES SEE CLAIMED DEDUCTION U/S. 80- IB(10) OF THE ACT FOR THE ASSESSMENT YEAR UNDER CON SIDERATION I.E. A.Y. 2007-08. THE BREAK-UP OF SALES AS CREDITED IN THE P/L ACCOUNT OF THE ELIGIBLE UNDERTAKING OF THE ASSESSEE WAS AS UNDER :- SALE AMOUNT RS.15 09 28 642 LESS: (A) REBATE ALLOWED RS. 12 565 (B) NOMINATION CHARGES RS.4 49 000 RS. 4 61 565 RS.15 04 67 077 ADD : (A) EXTRA WORK RS. 3 66 763 (B) CESC/GENERATOR CHARGES RS.45 7 0 703 RS. 49 37 466 RS.15 54 04 543 THE A.O. DID NOT ACCEPT THE ASSESSEES AUDITED FINA NCIAL STATEMENT AND CHOSE TO RECAST THE P/L ACCOUNT FOR THE YEAR ENDING 31/3/2007 BY IN VOKING PROVISIONS OF SEC. 145(3) 3 OF THE ACT AS IN HIS OPINION THE P/L ACCOUNT PREP ARED BY THE ASSESSEE DID NOT TRULY AND CORRECTLY DISCLOSE THE INCOME OF THE ELIGIBLE U NDERTAKING. IN THE RECASTED P & L ACCOUNT THE A.O. BIFURCATED THE RECEIPTS AND EXPEN SES TO DETERMINE THE PROFIT OF THE UNDERTAKING ELIGIBLE FOR DEDUCTION AND THE PROFIT I N RESPECT OF BALANCE REVENUE ITEMS WHICH IN HIS OPINION WAS NOT ELIGIBLE FOR DEDUCTI ON U/S. 80-IB OF THE ACT. THE A.O. ALSO OBSERVED THAT THERE WERE CERTAIN INFIRMITIES I N THE ASSESSEES CLAIM FOR DEDUCTION U/S. 80-IB(10) OF THE ACT AND ULTIMATELY HELD THAT THE PROFIT DERIVED BY THE ASSESSEE FROM THE BUSINESS OF DEVELOPMENT AND CONSTRUCTION O F THE HOUSING PROJECT AT 3 KHELAT BABU LANE KOLKATA WAS NOT ELIGIBLE FOR DEDUCTION U /S. 80-IB(10) OF THE ACT. THE A.O. ACCORDINGLY ASSESSED THE TOTAL INCOME OF THE ASSESSEE AT RS.6 75 28 680/- AS AGAINST RETURNED INCOME OF RS.16 10 620/-. THE REL EVANT REASONS GIVEN BY THE A.O. FOR RECASTING THE P/L ACCOUNT AND THEREBY ESTIMATING TH E TOTAL INCOME AFTER DENYING THE BENEFIT OF DEDUCTION U/S. 80-IB OF THE ACT ARE AS U NDER :- (I) THAT THE EXEMPTION/DEDUCTION UNDER SECTION 80-I B(10) OF THE SAID ACT IS AVAILABLE ONLY IN RESPECT OF PROFITS DERIVED FROM UNDERTAKING DEVELOPING AND BUILDING THE HOUSING PROJECT THE ELIGIBLE BUSINES S. THE CONNOTATION OF THE WORDS USED IN THE SECTION DERIVED FROM IS NARROWE R TO THAT OF THE WORDS ATTRIBUTABLE TO USED IN OTHER SECTIONS OF THE STA TUTE. BY USING THE EXPRESSION DERIVED FROM PARLIAMENT INTENDED TO COVER SOURCE S NOT BEYOND THE FIRST DEGREE. RELIANCE IN THIS RESPECT HAS BEEN PLACED BY THE LEARNED AO INTER ALIA ON DECISION OF THE HONBLE SUPREME COURT IN LIBERTY IN DIA V. CIT (2009) 317 ITR 218 (SC). (II) THAT INCOMES HAVING DIRECT NEXUS WI TH THE DEVELOPMENT AND SALE OF HOUSING UNITS SHALL BE REGARDED AS PROFITS FROM SUCH HOUSI NG PROJECTS AND NOT PROFITS FROM SOME OTHER ACTIVITIES WHICH MAY BE ATTRIBUTABL E TO AND NOT EXACTLY DERIVED FROM THE HOUSING PROJECT. IF THESE OTHER INCOME OR PROFITS WHICH MAY BE MERELY ATTRIBUTABLE TO THE HOUSING PROJECT ARE INCLUDED IN THE PROFIT & LOSS ACCOUNT AND/OR THE BALANCE SHEET OF THE ASSESSEES UNDERTAK ING THE SAME WOULD RENDER SUCH ACCOUNTS LEGALLY INCORRECT. THEREFORE IT IS N ECESSARY TO SEPARATE ITEMS OF INCOME WHICH HAVE A DIRECT NEXUS WITH THE DEVELOPME NT AND SALE OF THE HOUSING PROJECT FROM OTHER INCOMES WHICH ARE NOT HAVING SUC H DIRECT NEXUS. (III) THAT AGGREGATE CONSIDERATION FOR SALE OF FLAT S IN THE SAID HOUSING PROJECT AS EVIDENT FROM SCHEDULE F OF THE REGISTERED DEED OF C ONVEYANCES EXECUTED IN FAVOUR OF THE BUYERS IS RS15 04 67 077 WHICH ALON E CAN BE CONSIDERED AS RECEIPT DERIVED FROM HOUSING PROJECT. 4 (IV) THAT RECEIPTS FOR EXTRA WORK CESC/GENERATO R CHARGES AND FOR COMMON INSTALLATIONS AND FACILITIES SET OUT IN SCHEDULE C SECTIONS A & B OF THE REGISTERED DEED OF CONVEYANCES FOR WHICH PROPORTIO NATE ADDITIONAL SEPARATE COSTS ARE PAYABLE BY THE PURCHASERS/ BUYERS OF DIFF ERENT FLATS FORMING PART OF SAID HOUSING PROJECT ARE NEITHER ELIGIBLE TO BE INCLUDE D IN THE SEPARATE PROFIT & LOSS ACCOUNT OF THE UNDERTAKING DOING THE DEVELOPMENT OF HOUSING PROJECT BUSINESS NOR ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IB(10) OF THE SAID ACT. (V) THAT GROSS RECEIPTS OF THE ASSESSEE FIRM UNDER THE HEADING CESC ELECTRICITY & GENERATOR WHICH ARE CLAIMED BY IT TO BE PART AND PARCEL OF BUILDING CONSTRUCTION ACTIVITY WITHOUT WHICH THE PROJECT DE VELOPMENT CANNOT BE SAID TO BE COMPLETE AND FOR WHICH SEPARATE CHARGES ARE REA LIZED FROM THE BUYERS IN THE VERY BEGINNING AT PREDETERMINED RATES ARE ACTIVITI ES FOR EARNING INCOME IN THE CAPACITY OF THE MIDDLEMAN OR AGENT AND THESE ACTIV ITIES ARE CLEARLY DIFFERENT AND DISTINGUISHABLE FROM PROFITS DERIVED FROM DEVELOPM ENT OF HOUSING PROJECT. PROFIT ELEMENT WAS INVOLVED IN CARRYING OUT THESE A CTIVITIES AND THE SUBMISSION/ CLAIM TO THE CONTRARY MADE BY THE ASSESSEE-FIRM TO THE EFFECT THAT THERE WAS NO PROFIT MOTIVE INVOLVED IN THESE ACTIVITIES WAS NOT CORRECT. (VI) THAT ASSESSEE FIRM HAS CLAIMED THAT IT SUFFERED A N ET LOSS OF RS.18 23 639 AS PER DETAILS SET OUT IN TABLE II APPEARING UNDER PAR AGRAPH 8.4 OF THE IMPUGNED ASSESSMENT ORDER. BUT THE EXPENSES IN THE AGGREGATE SUM OF RS.25 28 491 AGAINST THE HEADING ELECTRICAL GOODS AND ANOTHER AGGREGATE SUM OF RS.10 99 866 AGAINST THE HEADING ELECTRICAL WORKS ARE NOT RELATED TO THE GROSS RECEIPTS OF RS.45 70 703 UNDER THE HEADING C ESC ELECTRICITY & GENERATOR. THE EXPENSES UNDER THE HEADING ELECTRI CAL GOODS AND UNDER THE HEADING ELECTRICAL WORKS WERE ACTUALLY FOR ITEMS LIKE SWITCH BOARDS WIRING AND OTHER ELECTRICAL WORKS CARRIED OUT IN THE BUILD ING PROJECT HAVING NO DIRECT NEXUS WITH THE CONSTRUCTION OF THE BUILDINGS IN THE CAPACITY OF DEVELOPER AND ACTED AS A FACILITATOR/ MIDDLEMAN/ AGENT FOR WHICH ASSESSEE-FIRM REALIZED SEPARATELY THE SAID SUM OF RS.45 70 703 AGAINST CE SC ELECTRICITY & GENERATOR. (VII) THAT PROFITS OF RS.18 04 718 (GROSS RECEIPTS OF RS. 45 70 703 UNDER THE HEADING CESC ELECTRICITY & GENERATOR LESS THE RELATED EX PENSES OF RS.27 65 985 REPRESENTING PAYMENTS MADE TO CESC AND FOR GENERATO R ETC.) ARE NOT PROFITS OF THE UNDERTAKING DERIVED FROM DEVELOPMENT OF THE HOU SING PROJECT IN THE LIGHT OF PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COUR T IN LIBERTY INDIAS CASE (SUPRA). THESE PROFITS MAY BE ATTRIBUTABLE TO SUCH BUSINESS ACTIVITY AND ARE OUTSIDE PURVIEW OF DEDUCTION ADMISSIBLE UNDER SECTI ON 80-IB(10) OF THE SAID ACT. (VIII) THAT PROFITS FOR EXTRA WORK CARRIED OUT AFTER HANDI NG OVER OF POSSESSION TO THE BUYERS ARE NEITHER ELIGIBLE TO BE INCLUDED IN THE S EPARATE PROFIT. & LOSS ACCOUNT OF THE UNDERTAKING DOING THE DEVELOPMENT OF HOUSING PROJECT BUSINESS NOR ENTITLED TO DEDUCTION UNDER SECTION 80-IB(10). THE INCLUSION OF SUCH ITEMS 5 OF EXTRA WORK IN THE SEPARATE PROFIT & LOSS ACCOUNT OF THE UNDERTAKING HAS MADE SUCH PROFIT & LOSS ACCOUNT OF THE ASSESSEE-FIR M INCORRECT. (IX) THAT IT IS NECESSARY TO EXAMINE RECEIPT FROM SUCH E XTRA WORK DONE BY THE ASSESSEE AND TO DETERMINE THE PROFITS EARNED FROM SUCH ACTIVITY. THE ASSESSEE FIRM HAS DISCLOSED RECEIPTS OF RS.3 66 763 (WRONGLY MENTIONED IN ASSESSMENT ORDER AT SOME PLACES AS RS.3 36 763) FOR SUCH EXTR A WORK AND INTERESTINGLY CLAIMED RS.55 00 000 AS POST DELIVERY EXPENSES W HICH IS NOT ACCEPTABLE. IT IS A FACT THAT BUYERS TAKE AND THE DEVELOPERS GIVE DELIVERY OF FLATS ONLY AFTER COMPLETION OF CONSTRUCTION AS PER SPECIFICATION. TH E POST DELIVERY WORKS CANNOT BE PART OF SPECIFICATIONS CONTRACTED IN THE AGREEMENTS. THE EXPENSES ON ITEMS LIKE AIR CONDITIONER ARE FOR ADDITIONAL WORK DONE AFTER DELIVERY OF POSSESSION OF FLATS FOR EXTRA COST TO THE BUYERS O NLY. (X) THAT ASSESSEE FIRM HAS ITSELF CLAIMED THAT THERE WA S NO ELEMENT OF PROFIT INCLUDED IN CARRYING OUT EXTRA WORKS AS DESIRED BY BUYERS WHICH ARE CHARGED ON ACTUAL COST BASIS BUT SUCH CLAIM IS NOT ACCEPTA BLE. FURTHER NOBODY BY HUMAN NATURE WOULD SPEND RS.55 00 000 TO GET MERELY RS.3 66 763. THE ASSESSEES CLAIM THAT IT RECEIVED RS.3 66 763 ONLY FOR CARRYING OUT EXTRA WORKS IS NOT ACCEPTABLE AND IS REJECTED. THE DISCLOSURE O F THE SAID SUM OF RS 3 66 763 IN THE PROFIT & LOSS ACCOUNT AS GROSS RECEIPTS FOR EXTRA WORK HAS MADE SUCH PROFIT & LOSS ACCOUNT INCORRECT. THEREFORE IT IS N ECESSARY TO ESTIMATE THE PROBABLE RECEIPTS FROM SUCH EXTRA WORK TO THE BEST OF ONES JUDGMENT. THE ASSESSEE FIRM HAS DISCLOSED PROFITS @52.54% (PROFIT S OF RS.5 71 49 576 AS AGAINST THE EXPENSES OF RS.10 87 60 766). APPLYING THIS VERY RATE THE GROSS RECEIPTS AGAINST EXPENDITURE OF RS.55 00 000 ARE ES TIMATED AT RS.83 89 700. THE ESTIMATED PROFITS FOR CARRYING OUT SUCH EXTRA W ORKS ARE ACCORDINGLY ESTIMATED AT RS.28 89 700 (RS.83 89 700 MINUS RS.55 00 000) WHICH AMOUNT IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IB(1 0) AS THE SAME ARE DERIVED FROM ACTIVITIES OTHER THAN THAT OF THE BUSINESS OF DEVELOPING AND BUILDING THE SAID HOUSING PROJECT. (XI) THAT ASSESSEE HAS RECEIVED NOMINATION CHARGES IN TH E SUM OF RS.4 49 000 FROM MR. SUKUMAR BANERJEE WHICH AMOUNT ACCORDING TO THE ASSESSEE WAS PAYABLE TO THE ORIGINAL BUYER B.L. AGARWAL & SONS (HUF). T HE ASSESSEE COULD NOT ESTABLISH THAT SAID SUM OF RS.4 49 000 HAD EVER BEE N TRANSFERRED TO B.L. AGARWAL & SONS (HUF). THE ASSESSEE FIRM HAS KEPT TH E SAID MONEY WITH ITSELF. THE SAID SUM OF RS 4 49 000 IS INCOME OF THE ASSESS EE FOR ALLOWING THE TRANSFER BY WAY OF NOMINATION FROM THE ORIGINAL BUY ER M/S. B.L.AGARWAL & SONS (HUF) TO THE SECOND BUYER (NOMINEE OF THE ORIG INAL BUYER) MR. SUKUMAR BANERJEE AND THIS RECEIPT IS NOT ELIGIBLE FOR DEDUC TION UNDER SECTION 80-IB(10) OF THE SAID ACT. THE INCLUSION OF SAID SUM OF RS.4 49 000 IN THE PROFIT & LOSS ACCOUNT OF THE UNDERTAKING HAS MADE SUCH PROFIT & L OSS ACCOUNT INCORRECT. 3. THE A.O. AFTER INVOKING PROVISION OF SEC. 145(3 ) OF THE ACT REJECTED THE P/L ACCOUNT OF THE UNDERTAKING AND RECASTED THE SAME AS PER DETAILS IN TABLES III & IV OF THE 6 ASSESSMENT ORDER AT PAGES 12 & 13 AND ASSESSED THE PROFIT FROM HOUSING PROJECT AT RS. 6 08 74 646.88 AND PROFIT FROM OTHER ACTIVITIES ATT RIBUTABLE TO HOUSING PROJECT BUT DO NOT HAVE DIRECT NEXUS WITH IT AT RS.66 56 508/-. THE A .O. HAS STATED THAT THE LATTER IS ALWAYS OUTSIDE THE PURVIEW OF DEDUCTION U/S. 80-IB(10) OF THE ACT. 4. THE A.O. HAS FURTHER STATED THAT THE HOUSING PR OJECT OF THE ASSESSEE WAS COMPLETED ON 12/5/2007 AS PER CERTIFICATE ISSUED BY KMC AND ACCORDINGLY DEDUCTION U/S.80-IB(10) OF THE ACT CANNOT BE ALLOWED IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND PLACED RELIANCE ON EXPLANATION (II) OF SEC. 80-IB(10)(A) O F THE ACT. THE A.O. HAS STATED THAT THE ASSESSEE IS ENTITLED TO THE BENEFIT OF DEDUCTION IN TERMS OF CBDT INSTRUCTION NO.4 DATED 30/6/2009 AS THE SAID INSTRUCTION APPLIES ONLY WHER E THE ASSESSEE SHOWS PROFIT FROM PARTIAL COMPLETION OF THE PROJECT EVERY YEAR. HOWEVER THE ASSESSEE AS PER TAX AUDIT REPORT FOLLOWED PROJECT COMPLETION METHOD AND SALE OF CONS TRUCTED UNITS. 5. THE A.O. WHILE REJECTING THE CLAIM OF THE ASSES SEE U/S. 80-IB(10) OF THE ACT HAS STATED THAT THE ASSESSEE CREATED ONE RESIDENTIAL UN IT OF MORE THAN 1500 SQ. FT. IN RESPECT OF FLAT NOS. 7C & 7D IN THE SAID HOUSING PROJECT. THE REFORE THERE IS VIOLATION OF SEC. 80- IB(10)(C) OF THE SAID ACT. HE HAS FURTHER STATED T HAT THE ASSESSEE ALSO ADMITTED THAT IT PARTICIPATED IN THE PROCESS OF MAKING ONE SINGLE EN TRY DOOR FOR THE SAID FLATS ON THE REQUEST OF THE BUYERS. THE A.O. FURTHER STATED THAT IT IS NOT POSSIBLE TO ACCEPT THE ASSESSEES CLAIM THAT SUCH CONVERSION WAS DONE BY THE BUYERS WITHOUT KNOWLEDGE OR PARTICIPATION OF THE ASSESSEE-FIRM. 6. BEING AGGRIEVED ASSESSEE FILED APPEAL BEFORE L D. C.I.T.(A). THE ASSESSEE MADE HIS SUBMISSIONS DISPUTING THE ACTION OF THE A.O. IN RECASTING THE P/L ACCOUNT AND THEREBY REJECTING ASSESSEES CLAIM OF DEDUCTION U/S . 80-IB OF THE ACT. THE LD. C.I.T.(A) HAS SUMMARIZED THE SUBMISSIONS IN PARA-6 OF HIS ORD ER AS UNDER :- 6. THE LD. ARS IN THEIR ORAL AS WELL AS WRITTEN SU BMISSIONS VEHEMENTLY CONTESTED AND DISPUTED THE FINDINGS AND THE OBSERVATIONS OF T HE AO THAT EVENTUALLY LED TO THE REJECTION OF THE APPELLANTS CLAIM FOR DEDUCTION U/ S. 80-IB(10). FOR THE SAKE OF CLARITY OF THE ISSUES THE RELEVANT SUBMISSIONS MAD E ON BEHALF OF THE APPELLANT ARE EXTRACTED HEREUNDER (I) IT IS TRUE THAT THE WORDS USED IN SECTION 80IB(10) OF THE SAID ACT ARE DERIVED FROM WHICH ARE NARROWER THAN THE WORDS ATTRIBUTAB LE TO USED IN OTHER SECTIONS OF THE STATUTE AND AS LAID DOWN BY THE HO NBLE SUPREME COURT IN 7 VARIOUS DECISIONS THERE MUST BE A DIRECT NEXUS BET WEEN THE ACTIVITY OF UNDERTAKING DEVELOPING AND BUILDING OF THE HOUSING PROJECT THE ELIGIBLE BUSINESS AND THE PROFITS AND GAINS DERIVED THERE F ROM IN ORDER TO CLAIM DEDUCTION EXEMPTION UNDER SECTION 80-IB(10) OF THE SAID ACT; AND A MERE COMMERCIAL CONNECTION BETWEEN THE INCOME AND THE AC TIVITY OF UNDERTAKING DEVELOPING AND BUILDING HOUSING PROJECT WOULD NOT B E ENOUGH SINCE THE PROFITS OR GAINS CANNOT BE SAID TO HAVE BEEN DERIVE D FROM AN ACTIVITY MERELY BY REASON OF THE FACT THAT THE SAID ACTIVITY MAY HA VE HELPED TO EARN THE SAID INCOME OR PROFITS IN AN INDIRECT OR REMOTE MANNER. (II) BUT IT MUST BE APPRECIATED THAT WORDS USED IN SECT ION 80-IB(10) ARE UNDERTAKING DEVELOPING AND BUILDING HOUSING PROJEC TS AND NOT MERE CONSTRUCTION AND SALE OF HOUSING FLATS FORMING PA RT OF THE HOUSING PROJECT. THE WORDS HOUSING PROJECTS ARE MUCH WIDER THAN TH E WORDS HOUSING FLATS. THE ACTIVITY OF UNDERTAKING DEVELOPING CON STRUCTING AND BUILDING HOUSING PROJECTS INCLUDE WITHIN ITS PURVIEW THE ENT IRE ACTIVITY OF CONSTRUCTING THE RESIDENTIAL FLATS SURROUNDING OPE N SPACE COMMON AREAS AND FACILITIES PATHWAYS AIR CONDITIONED COMMUNITY HALL FOR SOCIAL GATHERINGS AND DOMESTIC FUNCTIONS OF THE FLAT OWNER S GARAGES AND PARKING SPACE MINI GYM AND HEALTH CORNER WALKING TRACK C HILDRENS PLAY AREA WATER BODY USABLE AS SWIMMING POOL INTERCOM SYSTEM 24 HOURS DRINKING WATER SUPPLY CONNECTION FOR CABLE TV FACILITY ELE CTRICITY INSTALLATIONS RELATING TO METER TRANSFORMER AND SUBSTATION FOR R ECEIVING ELECTRICITY FROM CESC AND ITS TRANSMISSION TO ALL THE FLATS INCLUDIN G THE COMMON AREAS SERVICES AND FACILITIES GENERATOR AND OTHER FACILI TIES INSIDE THE ENTIRE HOUSING COMPLEX INCLUDING INTER ALIA IN THE COMMON AREAS AND FACILITIES ETC AS SET OUT IN THE PUBLISHED BROCHURE (KINDLY SEE CO PY THEREOF AT PAGES 56-60 OF PAPER BOOK VOLUME-I). (III) IN FACT THE AGREEMENT FOR SALE IN THE FORM OF MEMO RANDUM SIGNED BY EACH OF THE FLAT BUYERS AT THE VERY INCEPTION OF THE BOO KING OF THE FLAT CLEARLY SPECIFIES THE CONSTRUCTION DEVELOPMENT AND SALE BY THE APPELLANT ASSESSEE FIRM IN ITS CAPACITY OF THE OWNER AND DEVELOPER OF THE SAID HOUSING PROJECT NOT ONLY OF THE PARTICULAR FLAT BEING PURC HASED BY THE CONCERNED BUYER BUT ALSO OF THE FLAT UNIT DEFINED IN CLAUS E A15 OF THE PREAMBLE OF THE SAID AGREEMENT WHICH INCLUDES INTER ALIA THE PA RTICULAR FLAT IN THE BUILDING BOOKED BY THE PARTICULAR BUYER THE OTHER PARTY TO THE SAID AGREEMENT THE RIGHT TO PARK ANY CAR IN THE PARKING SPACE THE RIGHT OF COMMON USE OF THE COMMON PORTIONS APPURTENANT TO TH E CONCERNED FLAT AS WELL AS THE COMMON AREAS INSTALLATIONS AND FACILITI ES MORE FULLY SET OUT IN SECTIONS A & B UNDER THE THIRD SCHEDULE FORMING PAR T OF AND APPEARING AT PAGE 15 OF EACH OF THE SAID AGREEMENTS WHICH ARE P REPARED AND DRAWN ON COMMON LINES. A COPY EACH OF THE SAID TWO AGREEMENT S RELATING TO FLAT NOS.7C & 7D ON THE 7TH FLOOR OF PREMISES NO.3 KHEL AT BABU LANE KOLKATA 700 037 FORMING PART OF THE SAID HOUSING PR OJECT IS INCLUDED IN THE PAPER BOOK AT PAGES 61-86 & 87-112 OF VOLUME-I. 8 (IV) THE AGGREGATE CONSIDERATION FOR SALE OF 67 FLATS (O UT OF AGGREGATE 72 FLATS CONSTRUCTED BY THE APPELLANT ASSESSEE FIRM AS PART OF UNDERTAKING DEVELOPING AND BUILDING THE SAID HOUSING PROJECT AT PREMISES NO.3 KHELAT BABU LANE KOLKATA-700037) DURING THE FINANCIAL YEA R 2006-07 CORRESPONDING TO THE ASSESSMENT YEAR 2007-08 NOW U NDER APPEAL BEFORE THE LEARNED CIT(A) IS ACTUALLY RS.15 54 04 543 AS RIGH TLY CREDITED TO THE AUDITED PROFIT & LOSS ACCOUNT DRAWN BY THE APPELLAN T ASSESSEE FIRM FOR THE SAID YEAR AND NOT RS.15 04 67 077 AS ARBITRARI LY AND WRONGLY ALLEGED BY THE LEARNED AO IN PARAGRAPH 7.1 AT PAGE 5 OF THE S AID IMPUGNED ASSESSMENT ORDER DATED 2912.2009 PASSED UNDER SECTION 143(3) O F THE SAID ACT FOR THE YEAR UNDER APPEAL. (V) THE MERE FACT THAT THE AGREEMENT FOR SALE DESCRIBED IN SECTION B OF PART I OF THE SIXTH SCHEDULE THEREOF THE ADDITIONAL AMOUNTS PAYABLE BY THE PURCHASER TO THE OWNER/ DEVELOPER THE APPELLANT ASSESSEE FIR M HEREIN CALCULATED AT THE FIXED RATE OF RS.55 PER SQUARE FEET OF THE SUPE R BUILT AREA OF THE SAID FLAT BY WAY OF CONSIDERATION FOR INSTALLATION OF GENERAT OR FOR THE COMMON PORTIONS AND FOR PROVIDING POWER TO THE SAID FLATS FORMATION OF THE ASSOCIATION FOR THE COMMON PURPOSES OBTAINING AND PROVIDING ELECTRICITY SUPPLY AND METER INCLUDING THOSE ON ACCOUNT OF AND /OR FOR TRANSFORMER AND ELECTRICAL SUB-STATION ETC. IT IS RESPECTFULLY SUB MITTED CANNOT LAWFULLY EXCLUDE SUCH CONSIDERATION FROM THE PURVIEW OF PRO FITS DERIVED FROM THE ACTIVITY OF UNDERTAKING DEVELOPING AND BUILDING HOU SING PROJECTS THE EXPRESSION USED AND APPEARING IN SECTION 80-IB(10) OF THE SAID ACT. IT MAY BE APPRECIATED THAT SUCH ADDITIONAL PAYMENTS CALCUL ATED @ RS.55 PER SQUARE FEET OF THE SUPER BUILT AREA OF EACH OF THE SAID FL AT CONSTRUCTED AND FORMING PART OF THE SAID HOUSING PROJECT IS PART AND PARCEL OF THE AGGREGATE CONSIDERATION PAYABLE BY THE RESPECTIVE BUYERS FOR BOOKING A FLAT IN THE HOUSING COMPLEX; AND THAT THE PROVISION OF ALL COMM ON FACILITIES INCLUDING ELECTRICITY SUPPLY AND METER TRANSFORMER AND ELECT RIC SUBSTATION INCLUDING PROVISION FOR GENERATOR IS PART AND PARCEL OF THE E NTIRE ACTIVITY OF DEVELOPING AND BUILDING HOUSING PROJECT AND WITHOUT WHICH THE PROJECT DEVELOPMENT CANNOT BE SAID TO BE COMPLETE. THE PROVISION OF SUC H COMMON FACILITIES WAS NOT CARRIED OUT BY THE APPELLANT ASSESSEE FIRM IN I TS CAPACITY OF A MIDDLEMAN/ AGENT AND/OR FACILITATOR AND THESE ACTI VITIES CANNOT BE ALLEGED TO BE DIFFERENT AND DISTINGUISHABLE AS ARBITRARILY AN D WRONGLY ALLEGED BY THE LEARNED ASSESSING OFFICER IN PARAGRAPHS 8.4 & 8.5 A T PAGES 7 & 8 OF THE SAID IMPUGNED ASSESSMENT ORDER DATED 29.12.2009 PASSED U NDER SECTION 143(3) OF THE SAID ACT IN THE INSTANT CASE NOW UNDER APP EAL PROFIT ELEMENT WAS ADMITTEDLY INVOLVED IN CARRYING OUT THESE ACTIVITIE S AS PART AND PARCEL OF THE ENTIRE ACTIVITY OF DEVELOPING AND BUILDING THE SAID HOUSING PROJECT; AND IT WAS NEVER SUBMITTED AND/OR CLAIMED BY AND/OR ON BEH ALF OF THE APPELLANT ASSESSEE FIRM BEFORE THE LEARNED AO IN COURSE OF TH E IMPUGNED ASSESSMENT PROCEEDINGS THAT THERE WAS NO PROFIT MOTIVE INVOLVE D IN CARRYING OUT THESE ACTIVITIES AS WRONGLY AND ARBITRARILY ALLEGED BY T HE LEARNED AO IN PARAGRAPH 8.5 AT PAGE 7 OF THE SAID IMPUGNED ASSESSMENT ORDE R OR OTHERWISE OR AT ALL. 9 (VI) THE AGGREGATE EXPENSES UNDER THE HEADING ELECTRICA L GOODS IN THE SUM OF RS.25 28 491 AND UNDER THE HEADING ELECTRICAL WOR KS IN THE SUM OF RS.10 99 866 NOT ONLY INCLUDE ITEMS LIKE SWITCH BOA RDS WIRING AND OTHER ELECTRICAL WORKS CARRIED OUT INSIDE THE RESPECTIVE FLATS BUT ALSO INCLUDE ITEMS LIKE CABLES COPPER WIRES DISTRIBUTION BOXES AUTOMATIC CHANGEOVERS UNDERGROUND CIVIL WORKS LIKE DIGGING PREPARING AND MAKING TRENCH ETC. DIRECTLY CONNECTED WITH THE ELECTRICITY SUPPLY AND METER INCLUDING TRANSFORMER AND ELECTRICAL SUBSTATIONS PUT UP BY CE SC THE EXPENSES ON THESE ACTIVITIES HAVE A DIRECT NEXUS WITH THE ADDIT IONAL PAYMENT OF RS.55 PER SQUARE FEET OF THE SUPER BUILT AREA OF EACH OF THE RESPECTIVE FLATS CONSTRUCTED AND SOLD AS PART OF UNDERTAKING DEVELOPING AND BUIL DING THE SAID HOUSING PROJECT. IN THE CIRCUMSTANCES MENTIONED HEREIN ABOV E IT IS RESPECTFULLY SUBMITTED THAT THE LEARNED AO WAS WHOLLY UNJUSTIFIE D IN LAW IN ARBITRARILY AND WRONGLY SEGREGATING AND/OR COMPUTING THE PROFIT S OF RS.18 04 718 (GROSS RECEIPTS OF RS.45 70 703 UNDER THE HEADING CESC ELECTRICITY & GENERATOR LESS THE RELATED EXPENSES OF RS.27 65 98 5 REPRESENTING PAYMENTS MADE TO CESC AND FOR GENERATOR ETC) AND ALLEGING TH E SAME TO BE NOT PROFITS OF THE UNDERTAKING DERIVED FROM DEVELOPMEN T OF THE HOUSING PROJECT AND ALSO ALLEGING THE SAME TO BE ONLY PRO FITS ATTRIBUTABLE TO SUCH BUSINESS ACTIVITY AS WRONGLY ALLEGED AND/OR HELD O R OTHERWISE OR AT ALL. THE APPELLANT ASSESSEE FIRM STATES AND SUBMITS THAT THE ENTIRE CONSIDERATION IN THE AGGREGATE SUM OF RS.45 70 703 RECEIVED FROM EAC H OF THE FLAT BUYERS BY WAY OF ADDITIONAL PAYMENTS CALCULATED @ RS.55 PER S QUARE FEET OF THE SUPER BUILT AREA OF EACH OF THE FLATS IS PART OF THE RECE IPT HAVING DIRECT NEXUS WITH THE ACTIVITY OF UNDERTAKING DEVELOPING AND BUILDING HOUSING PROJECT AND THEREFORE PART AND PARCEL OF THE PROFITS DERIVED TH ERE FROM; AND THAT NO PORTION THEREOF CAN BE EITHER SEGREGATED AND/OR SEP ARATELY COMPUTED AND/OR ALLEGED TO BE NOT PART OF THE PROFITS AND GAINS DER IVED FROM SUCH HOUSING PROJECT AS WRONGLY AND ARBITRARILY ALLEGED BY THE LEARNED AO IN PARAGRAPH 8.5 OF THE SAID IMPUGNED ASSESSMENT ORDER DATED 29. 12.2OO9 PASSED IN THE INSTANT CASE NOW UNDER APPEAL. THE APPELLANT ASSESS EE FIRM FURTHER STATES THAT THE ENTIRE EXPENDITURE OF RS.63 94 342 DETAIL S WHEREOF ARE SET OUT IN TABLE-II APPEARING UNDER PARAGRAPH 8.4 AT PAGE 7 OF THE IMPUGNED ASSESSMENT ORDER ARE DIRECTLY CONNECTED AND HAVE DI RECT NEXUS WITH THE RECEIPT OF RS.45 70 703 FROM THE FLAT OWNERS CALCUL ATED @ RS.55 PER SQUARE FEET OF THE SUPER BUILT AREA OF THE RESPECTIVE FLAT S IN TERMS OF SECTION B OF PART I OF THE SIXTH SCHEDULE FORMING PART OF THE RE SPECTIVE AGREEMENTS FOR SALE EXECUTED IN BETWEEN THE APPELLANT ASSESSEE FIR M AS OWNERS AND DEVELOPERS ON THE ONE HAND AND THE RESPECTIVE FLAT BUYERS. (VII) THE APPELLANT ASSESSEE FIRM STATES THAT THE AGGREGA TE SUM OF RS.3 66 763 RECEIVED FROM THE FLAT BUYERS FOR EXTRA WORK WAS STRICTLY IN TERMS OF CLAUSE (C) OF SECTION A OF PART-I OF THE SIXTH SCHEDULE OF EACH OF THE RESPECTIVE SALE AGREEMENTS ENTERED INTO WITH THE FLAT BUYERS AND SUCH RECEIPTS ALSO HAVE A DIRECT NEXUS WITH THE ACTIVITY OF UNDERTAKIN G DEVELOPING AND BUILDING HOUSING PROJECTS AND ARE THEREFORE PART OF THE PROF ITS DERIVED FROM SUCH ACTIVITY WITHIN THE MEANING OF SECTION 80-IB(10) OF THE SAID ACT. SUCH 10 RECEIPTS WERE CORRECTLY INCLUDED BY THE APPELLANT A SSESSEE FIRM IN ITS SEPARATE AUDITED PROFIT & LOSS ACCOUNT OF THE UNDER TAKING DRAWN FOR THE PURPOSES OF SECTION 80-IB(10) OF THE SAID ACT AND ALL CONTRARY OBSERVATIONS MADE AND/OR CONCLUSIONS DRAWN BY THE LEARNED AO IN PARAGRAPH 9.1 OF THE SAID IMPUGNED ASSESSMENT ORDER INCLUDING INTER ALIA TO THE EFFECT THAT RECEIPTS/ PROFITS FROM SUCH EXTRA WORK ARE NOT ELIG IBLE TO BE INCLUDED AS PART OF THE PROFITS DERIVED FROM THE ACTIVITY OF UNDERTA KING DEVELOPING AND BUILDING THE SAID HOUSING PROJECT ARE WHOLLY INCORR ECT ILLEGAL UNREASONABLE AND/OR OTHERWISE PERVERSE. THE APPELLANT ASSESSEE F IRM ALSO STATES THAT THE EXTRA WORK FOR WHICH IT RECEIVED THE SAID SUM OF RS .3 66 763 WAS CARRIED OUT BY IT IN ITS CAPACITY AS THE DEVELOPER AND WAS IN FACT CARRIED OUT LONG BEFORE THE HANDING OVER OF POSSESSION TO THE RESPEC TIVE FLAT BUYERS AND NOT AFTER THE HANDING OVER OF THE POSSESSION AS WRONGL Y AND ARBITRARILY ALLEGED BY THE LEARNED AO IN PARAGRAPH 9.1 OF HIS SAID IMPU GNED ASSESSMENT ORDER DATED 29.12.2009 NOW UNDER APPEAL BEFORE THE LEARN ED CIT(A). (VIII) THE APPELLANT ASSESSEE FIRM STATES THAT THE AGGREGA TE EXPENDITURE OF RS.55 00 000 WAS INCURRED BY IT FOR DEVELOPING AND BETTERMENT OF THE COMMON AMENITIES AND FACILITIES IN THE GROUND FLOOR THE PATHWAYS THE COMMON COMMUNITY HALL MINI GYM COMMON LOBBIES AS ALSO LANDSCAPING GARDEN AREA AND BEAUTIFICATION OF THE WATER BODY ET C. AS WELL AS FOR THE DRAINAGE FACILITY WHICH WORK CAN BE CARRIED OUT ON LY AFTER OBTAINING THE COMPLETION CERTIFICATE FROM THE KMC THE LOCAL AUTH ORITY. THE CARRYING OUT THESE ACTIVITIES ARE PART AND PARCEL OF THE OBLIGAT IONS UNDERTAKEN BY THE ASSESSEE FIRM AS OWNER AND DEVELOPER OF THE SAID HO USING PROJECT IN TERMS OF THE AGREEMENTS FOR SALE AND THE PRINTED BROCHURE ISSUED BY IT IN CONNECTION WITH UNDERTAKING DEVELOPING AND BUILDING THE SAID HOUSING PROJECT. THE SAID EXPENDITURE OF RS.55 00 000 HAS N O CONNECTION DIRECT OR INDIRECT WHATSOEVER WITH THE RECEIPT OF RS.3 66 76 3 FOR EXTRA WORK CARRIED OUT INSIDE SOME OF THE FLATS IN TERMS OF PARAGRAPH (C) OF SECTION A OF PART-I OF THE SIXTH SCHEDULE TO THE RESPECTIVE AGREEMENTS FOR SALE. IT WAS WHOLLY INCORRECT UNREASONABLE AND PERVERSE FOR THE LEARNE D AO TO ALLEGE IN PARAGRAPHS 91 TO 96 OF THE IMPUGNED ASSESSMENT ORDE R THAT THE SUM OF RS.3 66 763 WAS RECEIVED BY THE APPELLANT ASSESSEE FIRM FOR POST DELIVERY WORKS NOT FORMING PART OF THE SPECIFICATIONS CONTRA CTED IN THE RESPECTIVE AGREEMENTS AND/OR THAT THE SAID SUM OF RS.55 00 000 HAD BEEN INCURRED FOR ITEMS NOT FORMING PART OF THE SPECIFICATIONS CONTRA CTED IN THE RESPECTIVE AGREEMENTS. THE APPELLANT ASSESSEE FIRM FURTHER STA TES THAT THE EXPENSES ON AIR CONDITIONER ETC. IS FOR ITEMS INSTALLED INS IDE THE COMMON COMMUNITY HALL AS CLEARLY EVIDENT FROM THE DETAILS OF SUCH P OST DELIVERY EXPENSES IN THE AGGREGATE SUM OF RS.55 00 000 SUBMITTED BY THE APPE LLANT ASSESSEE FIRM BEFORE THE LEARNED AO IN COURSE OF THE IMPUGNED ASS ESSMENT PROCEEDINGS FOR THE YEAR UNDER APPEAL. A COPY OF THE SAID STATE MENT CONTAINING SUCH DETAILS APPEAR AT PAGE 237 OF PAPER BOOK VOLUME II . (IX) THE APPELLANT ASSESSEE FIRM STATE; THAT THE POST DE LIVERY EXPENDITURE OF RS.55 00 000 HAD BEEN INCURRED BY IT FOR PURPOSES A LREADY SET OUT IN SUB 11 PARAGRAPH (VIII) HEREIN ABOVE AND THAT THE SAME HA S NO CONNECTION WHATSOEVER WITH THE RECEIPT OF RS.3 63 763 FROM THE RESPECTIVE FLAT OWNERS WHICH WAS RECEIVED FOR CARRYING OUT EXTRA WORK INSI DE THE RESPECTIVE FLATS LONG BEFORE THE DELIVERY OF POSSESSION OF THE FLATS TO THE RESPECTIVE BUYERS. SINCE THE SAID SUM OF RS.3 63 763 AS ALREADY STAT ED EARLIER IS FOR CARRYING OUT ADDITIONAL WORK INSIDE THE FLATS IN TERMS OF TH E STIPULATIONS ALREADY SET OUT IN THE RESPECTIVE AGREEMENTS THE SAID RECEIPT HAS A DIRECT NEXUS WITH THE TOTAL ACTIVITY OF UNDERTAKING DEVELOPING AND BUILDI NG THE SAID HOUSING PROJECT AND THEREFORE WAS CORRECTLY CREDITED TO TH E PROFIT & LOSS ACCOUNT OF THE UNDERTAKING WITH REFERENCE TO WHICH THE DEDU CTION UNDER SECTION 80 IB(10) OF THE SAID ACT WAS CLAIMED BY THE ASSESSEE FIRM AND THE SAME IS PART AND PARCEL OF THE AGGREGATE PROFITS DERIVED BY IT FROM SUCH HOUSING PROJECT WITHIN THE MEANING OF THE SAID SECTION FUR THER SINCE THERE IS NO CONNECTION WHATSOEVER IN BETWEEN THE RECEIPT OF RS. 3 63 763 AND THE EXPENDITURE OF RS.55 00 000 REFERRED TO BY THE LEAR NED AO IN PARAGRAPHS 9.7 TO 9.9 OF THE SAID IMPUGNED ASSESSMENT ORDER N OW UNDER APPEAL IT IS RESPECTFULLY SUBMITTED THAT THE LEARNED AO WAS WHOL LY UNJUSTIFIED IN LAW IN ARBITRARILY ESTIMATING THE RECEIPTS FOR EXTRA WORK IN THE SUM OF RS.83 89 700 AND THE PROFITS OF RS.28 89 700 FROM THE SO CALLED EXTRA WORKS ADDING THE SAID AMOUNT TO THE ASSESSABLE INCOME OF THE ASSESSE E FIRM FOR THE YEAR UNDER APPEAL AND ALSO HOLDING THAT THE SAID ALLEGED INCO ME OF RS.28 89 700 IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IB(10) OF T HE SAID ACT. IT IS RESPECTFULLY SUBMITTED THAT THE ENTIRE APPROACH OF THE LEARNED AO WITH REFERENCE TO HIS OBSERVATIONS MADE AND/OR CONCLUSIO NS DRAWN IN PARAGRAPHS 9.7 TO 9.9 OF HIS SAID IMPUGNED ORDER IN RELATION T O THE ALLEGED ESTIMATED PROFITS OF RS.28 89 700 IS WHOLLY ILLEGAL AGAINST THE FACTS AND EVIDENCES ON RECORD UNREASONABLE AND/OR OTHERWISE PERVERSE. (X) THE APPELLANT ASSESSEE FIRM STATES THAT THE LEARNED AO WAS WHOLLY UNJUSTIFIED IN LAW IN ALLEGING AND/OR HOLDING THAT ITS AUDITED PROFIT & LOSS ACCOUNT OF THE UNDERTAKING AS PREPARED FOR THE PUR POSES OF SECTION 80 IB(10) OF THE SAID ACT WAS INCORRECT AND/OR IN ARBI TRARILY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE SAID ACT AND/OR IN REJECTING THE PROFIT & LOSS ACCOUNT OF THE UNDERTAKING AND/OR IN RECASTING THE SAME IN THE MANNER SET OUT IN TABLES III IV AND V AS STATED UNDER PA RAGRAPHS 12.1 12.2 & 12.3 AT PAGES 11 12 & 13 OF THE IMPUGNED ASSESSME NT ORDER DATED 29TH DECEMBER 2009 AND/OR IN ARBITRARILY AND WRONGLY CO MPUTING THE BUSINESS INCOME DERIVED FROM DEVELOPMENT OF HOUSING PROJECT IN THE SUM OF RS.6 08 74 647 AND/OR IN COMPUTING THE PROFITS FROM SO CALLED OTHER BUSINESS ACTIVITIES IN THE SUM OF RS.66 56 508. THE APPELLANT ASSESSEE FIRM STATES THAT THE ENTIRE APPROACH AND WORKING MA DE BY THE LEARNED AO IN TABLES III IV & V APPEARING UNDER PARAGRAPHS 12.1 12.2 & 12.3 OF THE SAID IMPUGNED ASSESSMENT ORDER PASSED IN THE INSTANT CAS E FOR THE YEAR UNDER APPEAL IS WHOLLY ILLEGAL AGAINST THE FACTS AND EV IDENCES ON RECORD UNREASONABLE AND/OR OTHERWISE PERVERSE. 12 (XI) IT IS TRUE THAT THE APPELLANT ASSESSEE FIRM RECEIVE D A SUM OF RS.4 49 000 BY WAY OF NOMINATION CHARGES FROM MR. SUKUMAR BANERJEE THE SECOND BUYER WHO PURCHASED FLAT NO. 5H FORMING PART OF THE SAID HOUSING PROJECT FROM M/S. B.L. AGARWAL & SONS (HUF) THE ORIGINAL BUYER WHO HAD ORIGINALLY BOOKED THE SAID FLAT IN TERMS OF THE AGREEMENT FOR SALE DATED 24.11.2005 EXECUTED BY THE APPELLANT ASSESSEE FIRM IN ITS FAVO UR. THE SAID SUM OF RS.4 49 000 WAS RECEIVED FROM MR. SUKUMAR BANERJEE AND WAS PAID BACK TO M/S. B.L. AGARWAL & SONS (HUF) BY CHEQUE NO.870158 DATED 17.7.2006 DRAWN ON CANARA BANK KOLKATA IN TERMS OF THE NOMIN ATION AGREEMENT A COPY WHEREOF APPEARS AT PAGES 249-255 OF PAPER BOOK VOLUME-II. A COPY OF THE SAID NOMINATION AGREEMENT WAS DULY FILED BEF ORE THE LEARNED AO IN COURSE OF THE IMPUGNED ASSESSMENT PROCEEDINGS AND THE BANK STATEMENT EVIDENCING SUCH PAYMENT OF RS.4 49 000 TO M/S. B.L. AGARWAL & SONS (HUF) INCLUDING COUNTERFOIL OF THE CONCERNED CHEQUE WAS DULY PRODUCED BEFORE THE LEARNED AO IN COURSE OF THE IMPUGNED ASS ESSMENT PROCEEDINGS. A PHOTOCOPY OF THE RELEVANT BANK STATEMENT AS WELL AS OF THE SAID CHEQUE COUNTERFOIL FORM PART OF THE PAPER BOOK AND APPEAR AT PAGES 243-248 OF VOLUME-II. IN THE CIRCUMSTANCES MENTIONED HEREIN AB OVE IT IS RESPECTFULLY SUBMITTED THAT THE LEARNED AO WAS NOT JUSTIFIED IN ADDING BACK OVER AGAIN THE SAID SUM OF RS.4 49 000 TO THE TOTAL INCOME OF THE APPELLANT ASSESSEE FIRM FOR THE YEAR UNDER APPEAL. MOREOVER THE LEARN ED AO MADE DOUBLE ADDITION OF THE SAID SUM OF RS.4 49 000 ONCE AS PA RT OF SALES OF RS.15 09 16 077 UNDER TABLE-III AND AGAIN UNDER T ABLE-IV BOTH AT PAGE 12 OF THE IMPUGNED ASSESSMENT ORDER UNDER PARAGRAPH S 12.1 & 12.2 THEREOF RESPECTIVELY. SINCE THE SAID SUM OF RS.4 49 000 HAD BEEN ACTUALLY PAID OVER BY THE APPELLANT ASSESSEE FIRM TO THE ORIGINAL BUYE R M/S. B.L.AGARWAL & SONS (HUF) THE SAME CANNOT BE LAWFULLY ADDED TO TH E TOTAL INCOME OF THE APPELLANT ASSESSEE FIRM. (XII) IN VIEW OF THE FACTS AND CIRCUMSTANCES STATED HEREI N ABOVE IT IS RESPECTFULLY SUBMITTED THAT THE LEARNED AO WHOLLY ERRED IN LAW A S WELL AS IN FACTS IN ARBITRARILY COMPUTING THE PROFITS FROM OTHER ACTIVI TIES IN THE SUM OF RS.66 56 508 AS PER CALCULATION GIVEN IN TABLE IV IN PARAGRAPH 12.2 APPEARING AT PAGE 12 OF THE IMPUGNED ASSESSMENT ORD ER. THE PROFITS FROM OTHER ACTIVITIES SHOULD HAVE BEEN LIMITED TO INCOME BY WAY OF INTEREST IN THE AGGREGATE SUM OF RS.14 58 171 LEGAL FEES IN THE SU M OF RS.62 942 AND MISCELLANEOUS RECEIPTS IN THE AGGREGATE SUM OF RS.8 9 506 AS WELL AS INCOME BY WAY OF DIVIDENDS (WHOLLY EXEMPT U/S 10(35) OF TH E SAID ACT) IN THE SUM OF RS.2 471. FURTHER THE LEARNED AO WAS WHOLLY UNJ USTIFIED IN LAW IN ARBITRARILY COMPUTING THE PROFITS FROM THE HOUSING PROJECT IN THE SUM OF RS.6 08 74 647 AS AGAINST RS.5 69 97 128 CORRECTLY DECLARED BY THE APPELLANT ASSESSEE FIRM BASED ON THE AUDIT REPORT D ATED 4TH SEPTEMBER 2007 GIVEN IN FORM NO.10CCB READ WITH SECTION 80IB( 10) OF THE SAID ACT AS WAS FILED BEFORE THE LEARNED AO IN COURSE OF THE IMPUGNED ASSESSMENT PROCEEDINGS FOR THE YEAR UNDER APPEAL. 13 (XIII) IT IS AN ADMITTED FACT ON RECORD THAT THE SAID HOUS ING PROJECT WAS ADMITTEDLY COMPLETED ON 12.5.2007 AS PER COMPLETION CERTIFICAT E DATED 12.5.2007 COPY WHEREOF WAS FILED IN COURSE OF THE IMPUGNED ASSESSM ENT PROCEEDINGS (KINDLY SEE COPY THEREOF AT PAGE 242 OF PAPER BOOK VOLUME-II) THAT IS TO SAY WITHIN THE PERIOD OF FOUR YEARS FROM THE END O F THE FINANCIAL YEAR 2004- 05 WITHIN WHICH THE SANCTION PLAN WAS ORIGINALLY A PPROVED BY THE LOCAL AUTHORITY KMC ON 06.05.2004 AS EVIDENT FROM THE A PPROVAL LETTER DATED 6.5.2004 (KINDLY SEE COPY THEREOF AT PAGES 238-239 OF PAPER BOOK VOLUME II). (XIV) IT IS RESPECTFULLY SUBMITTED THAT THE MERE FACT THA T THE COMPLETION CERTIFICATE WAS ISSUED BY THE LOCAL AUTHORITY KMC ON 12.5.2007 THAT IS TO SAY AFTER THE END OF THE PREVIOUS YEAR CORRESPONDING TO THE A SSESSMENT YEAR 2007-08 NOW UNDER APPEAL IS WHOLLY IRRELEVANT; AND FOR THA T ACCOUNT ALONE THE LEARNED AO WAS WHOLLY UNJUSTIFIED IN LAW IN DENYING TO THE APPELLANT ASSESSEE FIRM THE BENEFIT OF DEDUCTION LAWFULLY CLA IMED BY IT IN RESPECT OF THE PROFITS DERIVED BY IT FROM UNDERTAKING DEVELOPI NG AND BUILDING THE SAID HOUSING PROJECT WITHIN THE MEANING OF SECTION 80IB( 10) OF THE SAID ACT. THE CASE OF THE APPELLANT ASSESSEE FIRM IS FULLY COVERE D BY CBDTS INSTRUCTION NO.4 DATED 30TH JUNE 2009(KINDLY SEE COPY THEREOF AT PAGE 255 OF PAPER BOOK VOLUME4I). IT IS RESPECTFULLY SUBMITTED THAT THE LEARNED AO WAS WHOLLY UNJUSTIFIED IN LAW IN ALLEGING AND/OR HOLDIN G THAT THE APPELLANT ASSESSEE FIRM WAS REQUIRED TO FILE PARTIAL COMPLETI ON CERTIFICATE IN ORDER TO GET THE BENEFIT OF THE CBDTS SAID INSTRUCTION NO.4 DATED 30.6.2009. THE APPELLANT ASSESSEE FIRM FURTHER SUBMITS THAT PROFIT S ARISING ON THE SALE OF 67 FLATS FORMING PART OF THE SAID HOUSING PROJECT H AD BEEN DECLARED BY IT IN ITS PROFIT & LOSS ACCOUNT DRAWN FOR THE FINANCIAL Y EAR ENDING 31ST MARCH 2007 CORRESPONDING TO THE ASSESSMENT YEAR 2007-08 A S WELL AS IN THE INCOME TAX RETURN FILED BY IT FOR THE SAID YEAR STR ICTLY IN ACCORDANCE WITH PARAGRAPHS 10 & 11 OF THE ACCOUNTING STANDARD (AS)- 9 ON REVENUE RECOGNITION ISSUED BY THE INSTITUTE OF CHARTERED A CCOUNTANTS OF INDIA READ WITH ACCOUNTING STANDARD (AS)-7 DEALING WITH CONSTR UCTION CONTRACTS. THE APPELLANT ASSESSEE FIRM STATES THAT THE CONSTRUCTIO N ACTIVITY IN RELATION TO THE SAID HOUSING PROJECT HAD BEEN COMMENCED BY THE LEARNED AO IN THE FINANCIAL YEAR 2004-05 AND DURING THE ENTIRE CONST RUCTION PERIOD RANGING FROM FY 2004-05 TO FY 2006-07 THE INVENTORY IN THE FORM OF WORK-IN- PROGRESS AS WELL AS THE UNSOLD COMPLETED FLATS HAD ALL ALONG BEEN VALUED BY THE ASSESSEE FIRM IN ACCORDANCE WITH THE WELL ESTAB LISHED METHOD OF STOCK VALUATION NAMELY AT COST AS SET OUT IN ACCOUNT ING STANDARD (AS)-2 ON VALUATION OF INVENTORIES ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA THE SAID METHOD OF STOCK VALUATION HAS BE EN REPEATEDLY RECOGNIZED BY DIFFERENT COURTS INCLUDING THE HONBLE SUPREME C OURT FOR PURPOSES OF MAKING ASSESSMENTS UNDER THE INCOME TAX .ACT 1961 AND UNDER THE SAID METHOD OF STOCK VALUATION THE PROFITS WOULD ACCRUE AND ARISE ONLY IN THE YEAR IN WHICH SALES OF CONSTRUCTED FLATS BY WAY OF HANDING OVER PHYSICAL POSSESSION THEREOF TO THE RESPECTIVE BUYERS TAKE PL ACE. THIS PRINCIPLE IS ALSO RECOGNIZED IN ACCOUNTING STANDARD (AS)-9 ISSUED BY THE INSTITUTE AS WELL AS 14 IN SECTION 2(47)(V) OF THE SAID ACT. THE OBSERVATIO NS MADE BY THE LEARNED AO WITH REFERENCE TO THE DECISION OF THE HOUSE OF L ORDS IN B.S.C. FOOTWEARS CASE (1972) 83 ITR 269 AND THE DECISION OF THE HONBLE SUPREME COURT IN CIT V TUTICORIN ALKALI CHEMICALS A ND FERTILISERS LTD. V. CIT (1997) 227 ITR 172 (SC) IN REGARD TO RECOGNIZED ACCOUNTING PRACTICES IT IS RESPECTFULLY SUBMITTED IS WHOLLY IRRELEVANT FOR DECIDING THE QUESTION OF ELIGIBILITY OF THE APPELLANT ASSESSEE FIRM IN LAWFU LLY CLAIMING THE DEDUCTION ADMISSIBLE TO IT IN RESPECT OF THE PROFIT S DERIVED BY IT FROM UNDERTAKING DEVELOPING AND BUILDING THE SAID HOUSIN G PROJECT WITHIN THE MEANING OF SECTION 80IB(10) OF THE SAID ACT WHICH PROFITS HAVE ALSO BEEN ADMITTEDLY ASSESSED BY THE LEARNED AO IN THE HANDS OF THE APPELLANT ASSESSEE FIRM IN THE YEAR UNDER APPEAL. THE APPELLA NT ASSESSEE FIRM FURTHER STATES AND SUBMITS THAT THE SAID INSTRUCTIO N NO.4 DATED 30.6.2009 IS NOT CONFINED TO PARTIAL COMPLETION OF THE PROJECTS ONLY AND THAT THE DENIAL OF DEDUCTION LAWFULLY ADMISSIBLE TO THE APPELLANT A SSESSEE FIRM UNDER SECTION 80IB(10) OF THE SAID ACT FOR THE YEAR UNDER APPEAL IN RESPECT OF THE PROFITS ADMITTEDLY DERIVED BY IT FROM UNDERTAKING D EVELOPING AND BUILDING THE SAID HOUSING PROJECT IS WHOLLY ILLEGAL AGAINST THE FACTS AND EVIDENCES ON RECORD WHOLLY UNREASONABLE AND/OR OTHERWISE PERVER SE. THE APPELLANT ASSESSEE FIRM STATES THAT THE HOUSING PROJECT HAVIN G BEEN WHOLLY COMPLETED DURING THE YEAR UNDER APPEAL AND THE COMPLETION CE RTIFICATE DATED 12.5.2007 RECORDING THE FACT THAT THE CONSTRUCTION OF THE HOU SING PROJECT WAS COMPLETED ON 28.3.2007 AS CERTIFIED BY THE ARCHITE CT SRI MALAY KUMAR GHOSH AND AS ALSO MENTIONED IN THE NOTICE OF COMPL ETION DATED 28.3.2007 GIVEN TO KMC UNDER RULE 26 OF THE CMC BUILDING RULE S 1990 (SUCH NOTICE IS REQUIRED TO BE GIVEN WITHIN ONE MONTH AFTER COMP LETION OF THE CONSTRUCTION OF THE NEW BUILDING) HAVING BEEN DULY FILED WITH THE LEARNED AO IN COURSE OF THE ASSESSMENT PROCEEDINGS FOR THE YEAR UNDER APPEAL THE DENIAL OF THE BENEFIT OF DEDUCTION UNDER SECTION 80 IB(10) OF THE SAID ACT FOR THE YEAR UNDER APPEAL IS WHOLLY ILLEGAL UNREASONAB LE AND/OR OTHERWISE PERVERSE. (XV) THE APPELLANT ASSESSEE FIRM STATES THAT THE OBSERVA TIONS MADE BY THE LEARNED AO IN PARAGRAPHS 14.3.1 14.3.2 14.3.3 14 .3.4 AND 14.4 OF THE SAID IMPUGNED ASSESSMENT ORDER TO THE EFFECT THAT THE AS SESSEE FIRM VIOLATED THE REQUIREMENT OF SECTION 80-IB(10)(C) OF THE SAID ACT IN SO FAR AS FLAT NO.7C & 7D OF THE SAID HOUSING PROJECT ARE ALSO WHOLLY CO NTRARY TO THE FACTS AND EVIDENCES ON RECORD ILLEGAL UNREASONABLE AND/OR O THERWISE PERVERSE. IT IS A FACT THAT BOTH FLAT NO.7C & 7D ARE TWO INDEPENDENT FLATS AND HAD BEEN SOLD BY THE APPELLANT ASSESSEE FIRM JOINTLY TO SRI RUPAN KAR BAGCHI & SMT. CHAITALI LAHIRI IN TERMS OF TWO SEPARATE AGREEMENTS FOR SALE EXECUTED ON 10.5.2006. A COPY OF THE RESPECTIVE FLOOR PLANS OF EACH OF THE SAID TWO FLATS HAD BEEN DULY ANNEXED TO EACH OF THE SAID TWO INDEP ENDENT AGREEMENTS. IN THESE FLOOR PLANS THE POSITION OF ENTRANCE GATES F OR EACH OF THE SAID TWO FLATS BEARING NOS. 7C & 7D HAD BEEN SEPARATELY SHOWN. SUB SEQUENTLY THE SAID TWO BUYERS REQUESTED FOR ACQUIRING SOME MORE AREA ( 17 SQ. FT. FOR FLAT NO.7C & 16 SQ. FT. FOR FLAT NO.7D) IN FRONT OF EACH OF TH E SAID TWO FLATS IN OR ABOUT 15 FEBRUARY 2007 AFTER RECEIPT OF ADDITIONAL CONSIDE RATION FOR SUCH ADDITIONAL AREAS THE APPELLANT ASSESSEE FIRM AT THE REQUEST OF THE SAID TWO BUYERS SHIFTED THE ENTRANCE GATE TO EACH OF THE SAID TWO F LATS. BUT EVEN ON SUCH SHIFTING OF GATES THE IDENTITY OF EACH OF THE SAID TWO FLATS WAS DULY MAINTAINED AND EACH OF THE SAID TWO FLATS CONTINUED TO BE INDEPENDENT TO EACH OTHER AND HAD SEPARATE AND INDEPENDENT GATES IN TERMS OF THE FLOOR PLAN ANNEXED TO THE SEPARATE DEEDS OF CONVEYANCES S IGNED EXECUTED AND REGISTERED WITH APPELLANT ASSESSEE FIRM ON OR ABOUT 21 ST MAY 2008. A COPY OF EACH OF THE SAID TWO DEEDS OF CONVEYANCES F OR FLAT NO.7C & 7D APPEAR AT PAGES 113-137 & 138-163 OF PAPER BOOK VO LUME II. IT IS ALSO A FACT THAT THE AUTHORIZED REPRESENTATIVE OF THE SAID TWO BUYERS HAD APPEARED BEFORE THE LEARNED AO AND HAD FILED A WRITTEN EXPLA NATION WHICH IN THE LAST PARAGRAPH THEREOF RECORDED INTER ALIA AS UNDER: ONE OF THE CO-OWNER RUPANKAR BAGCHI IS A S INGER ARTIST AND THE OTHER CO-OWNER CHAITALI LAHIRI IS A LYRICIST AND SONG WRI TER. FOR THE SAID PURPOSE INDIVIDUAL SPACES WERE REQUIRED TO DO RIYA Z AND PRACTICE AND TO WRITE LYRICS IN RESPECTIVE CAPACITIES FOR WH ICH A CERTAIN DEGREE OF SECLUSION WAS REQUIRED FROM THE DAILY HOUSEHOLD CHO RES. AFTER USING THE SEPARATE FLATS FOR SOME TIME FOR THE PURPOSE O F CONVENIENCE AND SECURITY WE DECIDED TO HAVE COMMON ENTRANCE FOR TH E SAID TWO FLATS. THIS WE DID AT OUR OWN. AS THIS MODIFICATION DID NO T AFFECT THE STRUCTURES OF THE BUILDING NO PERMISSION WAS REQUIR ED TO BE TAKEN FROM OUTSIDE AGENCY. THE COST FOR THE MODIFICATION WAS B ORNE BY US. (XVI) THE APPELLANT ASSESSEE FIRM STATE S THAT IT NEVER ADMITTED BEFORE THE LEARNED AO AS ALLEGED IN PARAGRAPHS 14.3.1 TO 14.4 OF THE I MPUGNED ASSESSMENT ORDER OR OTHERWISE OR AT ALL THAT THE ASSESSEE FI RM HAD PARTICIPATED IN THE PROCESS OF MAKING ONE SINGLE ENTRY DOOR FOR THE SAI D TWO FLATS BEARING NOS.7C & 7D ON THE REQUEST OF THE BUYERS. THE STATE MENT TO THE AFORESAID EFFECT AS ALLEGED IN THE SAID IMPUGNED ASSESSMENT O RDER IS WHOLLY AGAINST THE FACTS AND EVIDENCES ON RECORD WHOLLY UNREASONABLE AND/OR OTHERWISE PERVERSE. AS ALREADY SET OUT IN THE LAST PARAGRAPH OF THE WRITTEN EXPLANATION FILED BY THE LEARNED A/R OF THE SAID TWO BUYERS ON 18.12.2009 (KINDLY SEE COPY THEREOF AT PAGES 23L-236 OF PAPER BOOK VOLUME II) BEFORE THE LEARNED AO IN COURSE OF THE IMPUGNED ASSESSMENT PROCEEDINGS IN THE CASE OF THE APPELLANT ASSESSEE FIRM FOR THE YEAR UNDER APPEAL T HAT THE COMMON ENTRANCE FOR THE SAID TWO FLATS WAS CONSTRUCTED BY THE SAID TWO FLAT BUYERS ON THEIR OWN AND THAT TOO AFTER USING THE FLAT FOR SOMETIME AND WITHOUT ANY PERMISSION FROM THE ASSESSEE FIRM. THE APPELLANT AS SESSEE FIRM STATES AND SUBMITS THAT IT HAD SOLD TO THE SAID TWO BUYERS TW O SEPARATE AND INDEPENDENT FLATS HAVING TWO SEPARATE INDEPENDENT GATES AND DOO RS AND THAT IT WAS NOT PARTY TO THE SO CALLED CREATION OF ONE RESIDENTIAL FLAT OF MORE THAN 1500 SQ. FT. AS WRONGLY AND ARBITRARILY ALLEGED BY THE LEAR NED AO IN HIS SAID IMPUGNED ASSESSMENT ORDER DATED 29-12-2009 OR OTHE RWISE OR AT ALL. THE APPELLANT ASSESSEE FIRM ALSO STATES THAT SEPARATE M AINTENANCE BILLS HAD ALL 16 ALONG BEEN ISSUED IN RESPECT OF EACH OF THE SAID TW O FLATS AND THERE ARE TWO SEPARATE ELECTRIC METERS IN RESPECT OF THE SAID TWO FLATS. 7. THE LD. C.I.T.(A) SOUGHT REMAND REPORT FROM THE A.O. COPY PLACED AT PAGES 327 TO 334 OF THE PAPER BOOK VOLUME-III. IN REPLY TO THE SAID REMAND REPORT THE ASSESSEE FILED ITS SUBMISSION ON 23/2/2010 WHICH IS PLACED AT PAGES 335-343 OF PAPER BOOK VOLUME-III. THE A.O.S COMMENT DATED 01/3/2010 ON THE LETTER OF THE ASSESSEE DATED 23/2/2010 AND REJOINDER DATED 11/3/2010 ARE PLACED AT PAGES 344-345 & 346 TO 349 RESPECTIVELY OF THE PAPER BOOK VOLUME-III. LD. C.I .T.(A) HAS STATED THAT AFTER PERUSING THE ASSESSMENT ORDER REMAND REPORT AND SUBMISSIONS OF BOTH THE PARTIES AND MATERIAL ON RECORD HE HAS SUMMARIZED THE PRINCIPAL ISSUES A S UNDER :- I) WHETHER THE AO WAS LEGALLY AND FACTUALLY JUS TIFIED IN RE-CASTING APPELLANTS PROFIT & LOSS ACCOUNT FOR THE YEAR ENDING 31-03-2007 BY IN VOKING THE PROVISIONS OF SECTION 145(3) AND THEREBY ESTIMATING THE GROSS R ECEIPTS OF THE ELIGIBLE UNDERTAKING AT RS.15 09 16 077/ AND ESTIMATING REC EIPTS FROM EXTRA WORK AT RS.83 89 700/- AND THEREBY ESTIMATING INCOME FROM THE ELIGIBLE HOUSING PROJECT AND NON-ELIGIBLE BUSINESS AT RS.6 08 74 646/- AND R S.66 56 508/-? II) WHETHER IN FACT AND IN LAW THE AO WAS CORRE CT IN ESTIMATING INCOME OF RS.66 56 508/ ARISING OUT OF RS.45 70 703/ RECEIVED IN RESPECT OF CESC AND GENERATOR CHARGES AND RS.83 89 700/- BEING ESTIMATE D RECEIPTS FOR EXTRA WORK AND THEREAFTER HOLDING THAT THE PROFIT DERIVED FROM TH E SAID TWO RECEIPTS WAS NOT ELIGIBLE FOR DEDUCTION U/S 80IB(10)? III) WHETHER THE AO WAS JUSTIFIED IN REJE CTING APPELLANTS CLAIM U/S 80IB(10) ON THE GROUND THAT THE APPELLANT HAS SOLD FLATS 7C AND 7D AS A COMBINED UNIT AND THEREBY CONTRAVENED THE CONDITION PRESCRIBED IN TH E SAID SECTION WHICH PERMITTED DEDUCTION ONLY TO THE HOUSING PROJECTS WHERE INDIVI DUAL UNIT SIZE DOES NOT EXCEED 1500 SQ. FT. OF BUILT-UP AREA? IV) WHETHER THE AO WAS JUSTIFIED IN NOT ALLOWING DEDUCTION U/S 80IB ON THE GROUND THAT THE APPELLANT WHO FOLLOWED COMPLETION CONTRACT MET HOD OF ACCOUNTING HAS NOT OBTAINED COMPLETION CERTIFICATE FROM THE LOCAL AUTH ORITY THAT IS KOLKATA MUNICIPAL CORPORATION PRIOR TO 31-03-2007 AND SO THE CONDIT ION PRESCRIBED IN CLAUSE (A)(II) OF SECTION 80IB(10) WAS NOT SATISFIED? V) WHETHER THE NOMINATION AMOUNT OF RS.4 49 000/- WAS ASSESSABLE AS INCOME OF THE APPELLANT; AND IF SO WHETHER IT WAS ELIGIBLE FOR D EDUCTION U/S. 80IB(10) AS PART OF PROFIT OF THE HOUSING PROJECT ? 8. IN REGARD TO THE FIRST ISSUE VIZ. REJECTION OF ACCOUNTS U/S. 145(3) OF THE ACT THE LD. C.I.T.(A) HELD THAT THE A.O. WAS NOT JUSTIFIED IN INVOKING PROVISIONS OF SEC. 145(3) 17 OF THE ACT. THE RELEVANT FINDING OF THE LD. C.I.T. (A) IS CONTAINED IN PARAS 16 TO 19 21 & 26 OF THE IMPUGNED ORDER WHICH IS REPRODUCED BEL OW :- 16. ON DUE CONSIDERATION OF THE AOS FINDINGS AND THE APPELLANTS SUBMISSIONS I FIND THAT THE AO WAS NOT LEGALLY JUSTIFIED OR COMPE TENT TO INVOKE SECTION 145(3) OF THE ACT IN THE PRESENT CASE THE ASSESSMENT ORDER HAS BEEN PASSED BY THE AO U/S 143(3) OF THE ACT AND NOT U/S 144. THE PROVISIONS OF SECTION 145(3) READ AS UNDER- WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE OR WHERE THE METHO D OF ACCOUNTING PROVIDED IN SUB-SECTION (1) OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2) HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE THE ASSESS ING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144 17. THE PROVISIONS OF SECTION 144 PRESCRIBE THAT B EFORE A BEST JUDGMENT IS MADE THE ASSESSEE SHOULD BE GIVEN AN OPPORTUNITY BY THE AO BY SERVING A SHOW- CAUSE NOTICE CALLING UPON THE ASSESSEE TO EXPLAIN AS TO WHY THE ASSESSMENT SHOULD NOT BE COMPLETED TO THE BEST OF HIS JUDGMENT. SECTION 145( 3) PERMITS THE AO TO MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144 I F THE AO IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OR WHERE THE METHOD OF ACCOUNTING PROVIDED U/S 145(1) OR ACCOUNTING STANDARDS NOTIFIE D U/S 145(2) HAVE NOT BEEN FOLLOWED. IN THE IMPUGNED ORDER THE AO HAS NOT SPE LT OUT AS TO HOW THE APPELLANT HAS NOT COMPLIED WITH THE METHOD OF ACCOUNTING PROV IDED U/S 145(1) OR ACCOUNTING STANDARDS NOTIFIED U/S 145(2) OR IN WHAT MANNER T HE APPELLANT HAS VIOLATED THE ACCEPTED METHOD OF ACCOUNTING OR CONTRAVENED ANY PA RTICULAR ACCOUNTING STANDARD 18. IN ORDER TO INVOKE THE PROVISIONS OF SECTION 14 5(3) ISSUE OF SHOW-CAUSE NOTICE WAS MANDATORY. FROM A PERUSAL OF THE ASSESSMENT ORD ER IT IS APPARENT THAT PRIOR TO INVOKING SECTION 145(3) AND RE-CASTING THE PROFIT & LOSS ACCOUNT THE AO HAS NOT ISSUED ANY SHOW-CAUSE NOTICE TO THE APPELLANT. EVEN THE PRINCIPLES OF NATURAL JUSTICE WHICH ARE SQUARELY APPLICABLE IN THE INCOM E TAX PROCEEDINGS REQUIRE THAT BEFORE DRAWING ANY ADVERSE INFERENCE THE ASSESSEE SHOULD BE GIVEN AN OPPORTUNITY FOR REBUTTAL. IN THE PRESENT CASE IT APPEARS THAT BEFORE INVOKING SECTION 145(3) NO OPPORTUNITY WAS PROVIDED TO THE APPELLANT. THE AOS ACTION OF INVOKING SECTION 145(3) AND RE-CASTING THE PROFIT & LOSS ACCOUNT THU S SUFFERS FROM FUNDAMENTAL INFIRMITY AND THEREFORE CANNOT BE UPHELD ON THIS P RIMARY GROUND ITSELF. 19. BUT EVEN ON MERITS I FIND THAT THE AO WAS N OT JUSTIFIED IN INVOKING SECTION 145(3). ACCORDING TO THE A0 THE APPELLANT HAS WRONG LY INCLUDED THE RECEIPT OF RS.3 66 763/- FOR EXTRA WORK AND CESE/GENERATOR C HARGES OF RS.45 70 703/- IN THE PROFIT & LOSS ACCOUNT OF THE ELIGIBLE UNDERTAKING; AND SO THE PROFIT & LOSS ACCOUNT SUFFERS FROM INFIRMITY. IN AOS OPINION TH ESE RECEIPTS HAD NO CONNECTION WITH APPELLANTS BUSINESS OF DEVELOPMENT OF THE HOU SING PROJECT AND THE APPELLANT WRONGLY INCLUDED THESE RECEIPTS IN THE PROFIT & LOS S ACCOUNT OF THE ELIGIBLE UNDERTAKING. IT IS HOWEVER UNDISPUTABLE FACT THAT IN THE PROFIT & LOSS ACCOUNT THE APPELLANT CREDITED AND OFFERED BOTH THE RECEIPTS AS INCOME OF THE RELEVANT YEAR. IT IS THEREFORE NOT THE CASE OF THE AO THAT THE APPELLANT EITHER SUPPRESSED OR UNDER STATED 18 THE INCOME FROM THESE SOURCES. WHETHER OR NOT SUCH RECEIPTS WERE ELIGIBLE FOR DEDUCTION U/S 80IB MAY BE A DEBATABLE ISSUE BUT F OR THAT REASON THE CORRECTNESS OR COMPLETENESS OF APPELLANTS AUDITED ACCOUNTS COULD NOT BE CALLED INTO QUESTION. WHEN THE APPELLANT HAS DISCLOSED THESE RECEIPTS IN ITS PROFIT & LOSS ACCOUNT ITS ACCOUNTS COULD NOT BE TERMED AS DEFECTIVE OR INCOMP LETE EVEN IF THE AO FELT THAT SUCH RECEIPTS WERE NOT ENTITLED FOR DEDUCTION U/S 8 0IB(10). I FIND THAT THOUGH THE APPELLANT HAS IN ITS PROFIT & LOSS ACCOUNT CREDIT ED INCOME FROM EXTRA WORK AMOUNTING TO RS.3 66 763/- THE AO HAS IN THE RECA STED PROFIT & LOSS ACCOUNTS TITLED AS TABLES III IV & V OMITTED TO CONSIDER A LTOGETHER THE INCOME OF RS.3 66 763/-. I ALSO FIND THAT NEITHER IN TABLE I V NOR IN TABLE V THE AO HAS INCLUDED THE INCOME BY WAY OF EXTRA WORK AMOUNTING TO RS.3 66 763/- EVEN THOUGH THE APPELLANT HAS DISCLOSED SUCH INCOME IN I TS PROFIT & LOSS ACCOUNT. THESE FACTS RATHER SHOW THE BONA FIDE CORRECTNESS AND COMPLETENESS OF THE APPELLANTS AUDITED ACCOUNTS. 21. I ALSO FIND THAT THE SALE VALUE OF RS.15 09 16 077/- AS CREDITED IN THE PROFIT & LOSS ACCOUNT INCLUDES SALE CONSIDERATION RS.23 31 2 00/- IN RESPECT OF FLAT NO 5H. THE SAID SALE CONSIDERATION INTER ALIA INCLUDES NOM INATION CHARGES OF RS.4 49 000/- BECAUSE THE ORIGINAL CONSIDERATION AGREED WITH B.L. AGARWAL & SONS (HUF) WAS RS.18 82 200/- ONLY. SINCE THE NOMINATION CHARGES W ERE IN TURN PAID TO B.L. AGARWAL & SONS (HUF) THE APPELLANT HAS RIGHTLY CLA IMED DEDUCTION OF RS.4 49 000/- IN ORDER TO ARRIVE AT THE NET CONSIDE RATION FOR SALE OF FLAT NO. 5H. IN VIEW OF THE ABOVE I DO NOT FIND ANY INFIRMITY IN T HE APPELLANTS AUDITED ACCOUNTS ON THE GROUND THAT ASSESSEE HAD CLAIMED REBATE OF N OMINATION CHARGES OF RS.4 49 000/- FROM THE GROSS SALE PROCEEDS. THE APP ELLANTS PROFIT & LOSS ACCOUNT COULD NOT THEREFORE BE REJECTED BY THE AO ON THI S GROUND. 26. IN THE IMPUGNED ORDER THE AO HAS ALSO FAILED TO PROVE THAT THE ACCOUNTS OF THE APPELLANT ARE EITHER NOT IN CONFORMITY WITH THE REC OGNIZED METHOD OF ACCOUNTING FOLLOWED OR DO NOT COMPLY WITH THE ACCOUNTING STAND ARDS PRESCRIBED U/S 145(2). AND IN ABSENCE OF ANY SUCH FINDING THE AO WAS NOT COMPETENT TO INVOKE SECTION 145(3). 1 AM OF THE CONSIDERED OPINION THAT NONE OF THE CONDITIONS PRESCRIBED IN SECTION 145(3) WERE FULFILLED BY THE AO BEFORE REJ ECTING THE AUDITED ACCOUNTS OF THE APPELLANT AND PROCEEDING TO ESTIMATE THE TOTA L INCOME. BUT EVEN ON MERITS I FIND THAT THE APPELLANTS ACCOUNTS DO NOT SUFFER FR OM ANY INACCURACY OR INFIRMITY AND THEREFORE COULD NOT BE REGARDED AS UNRELIABLE. PROFIT & LOSS ACCOUNT AS PLACED BEFORE THE AO CONTAINED ALL THE TRANSACTIONS CARRI ED ON BY THE APPELLANT IN ITS ORDINARY COURSE OF BUSINESS FROM WHICH THE TOTAL I NCOME COULD BE COMPUTED BY THE AO. IT MAY BE SO THAT WITH REFERENCE TO THE TRANSA CTIONS DISCLOSED AND ACCOUNTED IN THE AUDITED BOOKS OF ACCOUNT THE AO COULD DIFFER W ITH THE APPELLANTS CLAIM FOR DEDUCTION U/S 80IB(10) IN RESPECT OF CERTAIN INCOME S CREDITED IN THE PROFIT & LOSS ACCOUNT; BUT THEN MERELY BECAUSE THE AO ENTERTAIN ED A DIFFERENT LEGAL VIEW WITH REGARD TO THE ALLOWABILITY OF A STATUTORY DEDUCTIO N IT COULD NOT BE MADE THE BASIS TO REJECT THE BOOKS OF ACCOUNT AND REDRAW THE PRO FIT & LOSS ACCOUNT FOR THE PURPOSES OF ASSESSMENT. THE FIRST ISSUE IS THEREFOR E DECIDED IN FAVOUR OF THE APPELLANT. THE AO IS DIRECTED TO ASSESS THE INCOME WITH REFERENCE TO ACCOUNTS FURNISHED BY THE APPELLANT ALONG WITH FORM 10CCB. 19 9. IN REGARD TO SECOND ISSUE AS SUMMARIZED BY LD. C.I.T.(A) I.E. WHETHER THE A.O. WAS CORRECT IN ESTIMATING THE INCOME IN RESPECT OF THE AMOUNTS RECEIVED FROM THE BUYERS OF THE FLAT FOR CESC & GENERATOR CHARGES AM OUNTING TO RS.45 70 703/- AND ESTIMATED RECEIPT FOR EXTRA WORK AMOUNTING TO RS.83 89 700/- LD. C.I.T.(A) HAS STATED THAT IN SO FAR AS CESC & GENERATOR CHARGES RECEIVED FROM FLAT BUYERS WAS CONCERNED THE A.O. TREATED THE RECEIPT AS BEING NOT RECEIVED FROM THE ELIGIBLE UNDERTAKING ON THE GROUND THAT THE ASSESSEE ACTED AS A MERE FACILITATO R FOR PROVIDING ELECTRICITY CONNECTION FOR WHICH SEPARATE PAYMENTS WERE RECEIVED. THE A.O . REJECTED THE LOSS CLAIMED ON THE ASSESSEE ON THIS ACCOUNT OF RS. 18 23 638/- AND HEL D THAT IT HAD ACTUALLY INCURRED RS.27 65 985/- TOWARDS PROVISION OF ELECTRICITY CON NECTION GENERATOR ETC. AND THEREBY MADE A PROFIT OF RS.18 04 718/- IN ITS CAPACITY AS FACILITATOR FOR PROVIDING ELECTRIC CONNECTION. HE THEREFORE HELD THAT AS THE ASSESS EE DID NOT DERIVE PROFIT FROM THE DEVELOPMENT OF HOUSING PROJECT THE PROFIT OF RS.18 04 718/- WAS NOT ELIGIBLE FOR DEDUCTION U/S. 80-IB(10) OF THE ACT. THE LD. C.I.T. (A) HAS OBSERVED THAT THE REASONING ADOPTED BY THE A.O. FOR DENYING THE BENEFIT OF DEDU CTION U/S. 80-IB(10) OF THE ACT IN RESPECT OF ELECTRICAL INSTALLATIONS AND CONNECTION THEREOF WAS NOT PROPER INASMUCH AS THE A.O. COULD NOT DIVORCE PROVISION OF SUCH SERVIC ES FROM THE PURVIEW OF THE HOUSING PROJECT. HE THEREAFTER REFERRING TO SEVERAL CLAUSES OF SCHEDULES ANNEXED TO THE AGREEMENT FOR SALE OBSERVED THAT PROVISION OF ELECT RICITY CONNECTION THROUGH CESC AND/OR INSTALLATION OF GENERATOR SETS AND FITTINGS ETC. WERE INTEGRAL PART OF THE ASSESSEES OBLIGATION TO BE PERFORMED UNDER THE AGR EEMENT FOR SALE EXECUTED WITH EACH FLAT OWNER. HE HAS THEREFORE HELD THAT EXPENSES I NCURRED IN RELATION TO PROVISION OF VARIOUS ELECTRICAL INSTALLATIONS GENERATOR ELECTR ICITY POINTS AND CONNECTIONS PROVIDED FROM CESC WERE EXPENDITURE OF THE ELIGIBLE PROJECT AND QUALIFY FOR DEDUCTION U/S. 80- IB(10) OF THE ACT. THE RELEVANT OBSERVATION OF LD. C.I.T.(A) AT PARA 33 OF HIS ORDER IS AS UNDER :- 33. IT IS NOT THE CASE OF THE AO THAT THE ELECTRI CAL INSTALLATIONS AND CONNECTIONS WERE PROVIDED TO PERSONS OTHER THAN THE FLAT PURCHA SERS OR PERSONS OTHER THAN THE FLAT PURCHASERS WERE ENTITLED TO USE THESE FACILITI ES. THE ELECTRICAL INSTALLATIONS AND CONNECTIONS WERE PROVIDED WITHIN THE HOUSING PROJEC T AND ONLY THE PERSONS BUYING RESIDENTIAL UNITS IN THE HOUSING PROJECT WERE ENTIT LED TO USE THE FACILITIES AND 20 INSTALLATIONS AND ONLY THE INDIVIDUAL FLAT OWNERS WERE LIABLE TO PAY CHARGES FOR PROVISION OF ELECTRICITY CONNECTIONS AND ELECTRICAL INSTALLATION. IN THE CIRCUMSTANCES THE AO WAS UNJUSTIFIED IN TREATING THE AMOUNTS RECE IVED FROM THE INDIVIDUAL FLAT OWNERS TOWARDS ELECTRICAL INSTALLATIONS ELECTRICAL CONNECTIONS GENERATOR CHARGES ETC AS INCOME DERIVED FROM NON-ELIGIBLE BUSINESS. THE AO IS DIRECTED TO TREAT THE RECEIPT OF RS.45 70 703/- AS INTEGRAL PART OF THE R ECEIPT OF THE HOUSING PROJECT AND SIMILARLY TO TREAT ALL EXPENSES INCURRED IN RELATI ON TO PROVISION OF VARIOUS ELECTRICAL INSTALLATIONS GENERATOR AND ELECTRICITY POINTS AND CONNECTIONS PROVIDED FROM CESC AS EXPENDITURE OF THE ELIGIBLE PROJECT. ANY INCOME DERIVED FROM SUCH ACTIVITY WILL THUS FORM PART OF THE PROFITS OF THE ELIGIBLE BUSIN ESS QUALIFYING FOR DEDUCTION U/S 80IB (10). 10. IN REGARD TO THIRD ISSUE I.E. INDIVIDUAL UNIT SIZE EXCEEDING 1 500 SQ. FT. OF BUILT-UP AREA IN RESPECT OF COMBINED FLATS 7C & 7D SOLD TO M R. RUPANKAR BAGCHI AND MRS. CHAITALI LAHIRI THE A.O. ON THE BASIS OF INSPECTORS ENQUIR Y REPORT FOUND THAT THE AFORESAID TWO FLATS HAD ONLY ONE ENTRANCE AND THE COMBINED AREA O F THESE FLATS EXCEEDED 1 500 SQ. FT. ACCORDING TO HIM THEREFORE THE ASSESSEE HAD SOLD ONE SINGLE UNIT ADMEASURING MORE THAN 1 500 SQ. FT. OF THE BUILT-UP AREA AND IT WAS NOT E NTITLED TO DEDUCTION U/S. 80-IB(10) OF THE ACT. THE ASSESSEE EXPLAINED THE ISSUE BEFORE THE LD . C.I.T.(A) AS UNDER :- ONE OF THE CO-OWNER RUPANKAR BAGCHI IS A SINGER AR TIST AND THE OTHER CO-OWNER CHAITALI LAHIRI IS A LYRICIST AND SONG WRITER. FOR THE SAID PURPOSE INDIVIDUAL SPACE WERE REQUIRED TO DO RIYAZ AND PRACTICE AND TO WRI TE LYRICS IN RESPECTIVE CAPACITIES FOR WHICH A CERTAIN DEGREE OF SECLUSION WAS REQUIRED FROM THE DAILY HOUSEHOLD CHORES. AFTER USING THE SEPARATE FLATS FO R SOME TIME FOR THE PURPOSE OF CONVENIENCE AND SECURITY WE DECIDED TO HAVE COMMON ENTRANCE FOR THE SAID TWO FLATS. THIS WE DID AT OUR OWN. AS THIS MODIFICATION DID NOT AFFECT THE STRUCTURES OF THE BUILDING NO PERMISSION WAS REQUIRED TO BE TAKEN FROM OUTSIDE AGENCY. THE COST FOR THE MODIFICATION WAS BORNE BY US. THE LD. C.I.T.(A) OPINED THAT THE ASSESSEE HAS NOT VIOLATED THE CONDITIONS PRESCRIBED IN SEC. 80-IB(10) OF THE ACT AS NONE OF THE INDIVIDUAL UNITS EXCEEDED 1 500 SQ. FT. OF BUILT- UP AREA AND THEREFORE THE A.O. WAS NOT JUSTIFIED IN DENYING DEDUCTION U/S. 80-IB(10) OF THE ACT. HIS OBSERVATION IN THIS REGARD IN PARA -41 OF THE ORDER IS AS UNDER :- 41. DESPITE ABOVE SUBMISSIONS OF THE AR FOR THE FL AT PURCHASERS THE AO DID NOT BRING ON RECORD ANY MATERIAL LET ALONE COGENT MATER IAL TO REFUTE CATEGORICAL ASSERTIONS OF THE FLAT PURCHASERS. IN THE SUBMISSIO N THE AR OF THE FIAT PURCHASERS ADMITTED THAT AFTER USING TWO FLATS SEPARATELY TH E PURCHASERS DECIDED TO HAVE COMMON ENTRANCE FOR THE PURPOSE OF THEIR CONVENIENC E AND SECURITY AND THE MODIFICATIONS WERE MADE ON THEIR OWN. THE AR ALSO A DMITTED THAT BEFORE CARRYING OUT THE MODIFICATIONS TO THE FLATS THEY HAD NOT TA KEN ANY PERMISSION FROM ANY AGENCY AND THE COST OF MODIFICATION WAS BORNE BY TH EM. FROM THE SUBMISSIONS OF 21 THE APPELLANT AND THE LD. AR FOR THE FLAT PURCHASER S IT IS THEREFORE APPARENT THAT BOTH THE PARTIES AGREED THAT THE FIRST MODIFICATION IN THE FLAT LAYOUT RESULTING IN CHANGE IN THE POSITIONING OF FLAT ENTRANCE WAS CARR IED OUT WITH THE CONSENT OF THE APPELLANT BUT THE SUBSEQUENT CHANGE RESULTING IN HAVING ONE COMMON ENTRANCE TO BOTH THE FLATS WAS CARRIED OUT BY THE FIAT PURCHASE RS WITHOUT TAKING CONSENT OF THE APPELLANT OR ANY OTHER AUTHORITY. THESE FACTS THERE FORE NEGATE THE AOS HYPOTHESIS THAT THE ASSESSEE HAD PARTICIPATED IN CONSOLIDATING TWO FLATS INTO ONE WHICH EXCEEDED THE STATUTORY LIMIT OF 1500 SQ. FT. PER FL AT. THE LAYOUT PLANS ANNEXED TO THE AGREEMENT FOR SALE AND REGISTERED CONVEYANCES ESTAB LISH THAT THE APPELLANT CONSTRUCTED TWO INDEPENDENT FUNCTIONAL RESIDENTIAL UNITS BEING FLAT NO 7C & 7D WHICH WERE SOLD AND CONVEYED AS TWO SEPARATE AND IN DIVIDUAL FLATS. AS PER THE SANCTIONED BUILDING PLAN THERE WERE TWO SEPARATE A ND INDEPENDENT FLATS WHICH WERE ALSO CONSTRUCTED AS TWO INDEPENDENT UNITS. SUB SEQUENT TO THE HANDING OVER OF THE POSSESSION AND REGISTRATION OF CONVEYANCE IF T HE FLAT BUYERS SUO MOTO CARRIED OUT MODIFICATIONS IN THE FLATS AT THEIR OWN COST T HEN FOR SUCH SUBSEQUENT ACTS CARRIED OUT BY THIRD PARTY WITHOUT APPELLANTS PERM ISSION; THE APPELLANTS ELIGIBILITY TO CLAIM DEDUCTION U/S 80IB(10) CAN NOT BE QUESTION ED. THE FACTS AS ARE BROUGHT ON RECORD PROVE THAT SO FAR AS THE APPELLANT WAS CONCE RNED IT HAD CONSTRUCTED AND SOLD TWO INDEPENDENT FUNCTIONAL RESIDENTIAL UNITS AND EACH UNIT WAS HAVING AREA LESS THAN 1500 SQ. FT. THE APPELLANT COULD NOT THEREFORE BE SAID TO HAVE VIOLATED THE CONDITIONS OF SECTION 80IB(10) WITH REGARD TO THE S IZE OF INDIVIDUA1 RESIDENTIAL UNIT. SAVE AND EXCEPT THIS LONE INSTANCE THE AO HA S NOT POINTED OUT ANY OTHER INSTANCE WHERE INDIVIDUAL FLAT SIZE HAS EXCEEDED 15 00 SQ. FT. I HAVE CONSIDERED THE FACTS OF THE CASE. I AM OF THE OPINION THAT THE APP ELLANT HAS NOT VIOLATED THE CONDITIONS PRESCRIBED IN SECTION 80IB(10) AS NONE OF THE INDIVIDUAL UNITS EXCEEDED 1500 SQ. FT. OF BUILT-UP AREA. THE AO WAS THEREFORE NOT JUSTIFIED IN DENYING DEDUCTION U/S 80IB(L0). 11. REGARDING FOURTH ISSUE AS SUMMARIZED BY LD. C. I.T.(A) ABOUT COMPLETION CERTIFICATE FROM KMC TO JUSTIFY THE CLAIM OF DEDUCT ION U/S. 80-IB(10) OF THE ACT THE A.O. STATED THAT THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE WAS NOT IN CONFORMITY WITH AS-7 ISSUED BY ICAI AS PER WHICH T HE ASSESSEE WAS OBLIGED TO RECOGNIZE REVENUE ON YEAR TO YEAR BASIS BY FOLLOWIN G THE PARTIAL COMPLETION OF PROJECT METHOD. HE FURTHER STATED THAT THE BENEFIT OF INST RUCTION NO. 4 OF 2009 OF CBDT COULD ONLY BE AVAILED BY AN ASSESSEE WHO FOLLOWED PARTIAL COMPLETION OF PROJECT METHOD AND WHO ALSO OBTAINED COMPLETION CERTIFICATE WITHIN THE TIME PRESCRIBED I.E. IN THE SAME ACCOUNTING YEAR ENDING 31/3/2007. ACCORDING TO A.O. IN THIS CASE THE ASSESSEE OBTAINED COMPLETION CERTIFICATE FROM KMC (LOCAL AUT HORITY) ON 12/5/2007 AND AS PER EXPLANATION (II) TO SEC. 80-IB(10)(A) OF THE ACT T HE DATE OF COMPLETION OF CONSTRUCTION OF THE HOUSING PROJECT SHALL BE TAKEN TO BE THE DAT E ON WHICH COMPLETION CERTIFICATE IN 22 RESPECT OF SUCH HOUSING PROJECT IS ISSUED BY THE LO CAL AUTHORITY. HE THEREFORE HELD THAT THE ASSESSEE IS NOT ENTITLED TO CLAIM DEDUCTION U/S . 80-IB(10) OF THE ACT AS THE COMPLETION CERTIFICATE FROM THE LOCAL AUTHORITY WAS NOT OBTAINED BY 31/3/2007. THE LD. C.I.T.(A) AFTER ANALYZING AS-7 PRESCRIBED BY ICAI PROVISIONS OF EXPLANATION (II) TO SEC. 80-IB(10)(A) OF THE ACT AND AFTER CONSIDERING THE A.O.S OBSERVATION AND SUBMISSIONS OF THE ASSESSEE IN DIFFERENT PARAGRAPHS OF HIS APPELLATE ORDER DIRECTED THE A.O. TO GRANT DEDUCTION U/S. 80-IB(10) OF THE ACT W ITH REFERENCE TO AUDITED P/L ACCOUNT AS FILED ALONG WITH FORM 10CCB. THE RELEVA NT PORTION OF HIS FINDING AT PARA 46 OF THE ORDER IS AS UNDER :- 46. IN THE PRESENT CASE IT APPEARS FROM THE RECO RDS THAT THE KMC GRANTED APPROVAL TO THE HOUSING PROJECT ON 06-05-2004. COPY OF THE S ANCTION GRANTED TO THE BUILDING PLAN BY KMC ON 06-05-2004 IS PLACED AT PAGE 238 AND 239 OF THE PAPER BOOK. IN TERMS OF SECTION 80IB(10)(A)(II) THE APPELLANT WAS OBLIGED TO COMPLETE THE PROJECT AND OBTAIN THE COMPLETION CERTIFICATE WITHIN FOUR Y EARS FROM THE END OF FINANCIAL YEAR 2004-05. THE KMC BY ITS LETTER DATED 12-05-200 7 GRANTED THE COMPLETION CERTIFICATE TO THE HOUSING PROJECT OF THE APPELLANT ON 12-05-2007. COPY OF THE COMPLETION CERTIFICATE ISSUED BY KMC IS AT PAGE 242 OF THE PAPER BOOK. THESE FACTS CLEARLY ESTABLISH THAT THE HOUSING PROJECT WAS COMP LETED MUCH PRIOR TO 3L-03-2009 AND THE APPELLANT ALSO OBTAINED THE COMPLETION CER TIFICATE WITHIN THE DUE DATE CONTEMPLATED BY THE EXPLANATION TO SECTION 80IB(10) (A). IN VIEW OF THE ABOVE I FIND THAT THE APPELLANT HAS COMPLIED WITH THE CONDITIONS PRESCRIBED IN SECTION 80IB(10)(A) AND THEREFORE THE AO WAS NOT JUSTIFIE D IN DENYING DEDUCTION U/S 80IB(10). I FIND THAT THE AO HAS DENIED THE BENEFIT OF DEDUCTION U/S 80IB(10) FOR NOT COMPLYING WITH A CONDITION WHICH IS NOT SPECIFI CALLY PROVIDED FOR IN THAT SECTION. IN THIS REGARD I AM REMINDED OF THE CASE OF BAJAJ TEMPO LTD. VS.. CIT 196 ITR 188 WHEREIN THE HONBLE SUPREME COURT HAD OBSE RVED THAT A PROVISION IN A TAXING STATUTE GRANTING INCENTIVE FOR PROMOTING GRO WTH AND DEVELOPMENT SHOULD BE CONSTRUED LIBERALLY; AND SINCE THE PROVISION FOR P ROMOTING ECONOMIC GROWTH HAS TO BE INTERPRETED LIBERALLY; THE RESTRICTION ON IT HAS TO BE CONSTRUED SO AS TO ADVANCE THE OBJECTIVE OF THE PROVISION AND NOT TO FRUSTRATE IT. APPLYING THIS MAXIM I FIND THAT THE LEGISLATURE HAS PRESCRIBED THE CONDITION BY USI NG EXPRESS LANGUAGE AS PER WHICH THE ONLY CONDITION WHICH THE ASSESSEE WAS OBLIGED T O SATISFY WAS TO OBTAIN THE COMPLETION CERTIFICATE FROM THE LOCAL AUTHORITY AT ANY TIME TILL 31-03-2009 SO AS TO QUALIFY FOR DEDUCTION IN RESPECT OF PROFITS DERIVED FROM THE HOUSING PROJECT. THE SAID CONDITION WAS NOT LINKED WITH THE METHOD OF AC COUNTING OR ACCOUNTING METHOD FOLLOWED OR WITH THE YEAR IN WHICH REVENUE WAS RECO GNIZED. SINCE THE APPELLANT HAS COMPLIED WITH THE CONDITIONS PRESCRIBED IN SECTION 80IB(10)(A)(II) IN LETTER AND SPIRIT THE AO WAS NOT JUSTIFIED IN REJECTING THE C LAIM FOR DEDUCTION U/S 80IB(10). IN THE ASSESSMENT ORDER AS WELL IN HIS REPORT DATED 0L -03-2010 THE AO HAS POINTED OUT A PROCEDURAL IRREGULARITY OF NON-FILING OF THE COMP LETION CERTIFICATE BY THE AUDITOR ALONG WITH THE AUDIT REPORT IN FORM 10CCB. ACCORDIN G TO THE AO PARA 23(B) OF FORM 10CCB REQUIRED THE AUDITOR TO ATTACH A COPY OF THE COMPLETION CERTIFICATE TO 23 HIS REPORT WHICH HE HAS FAILED TO DO. ACCORDING TO THE AO THIS HAS RESULTED IN NON- FULFILLMENT OF THE STATUTORY CONDITION AND THEREFO RE THE CLAIM WAS LIABLE TO BE REJECTED. IT IS NOT IN DISPUTE THAT THE COMPLETION CERTIFICATE WAS OBTAINED BY THE APPELLANT FROM KMC IN MAY 2007 AND A COPY THEREO F WAS FURNISHED BEFORE THE AO MUCH PRIOR TO THE COMPLETION OF THE ASSESSMENT. FURNISHING OF THE COMPLETION CERTIFICATE BEFORE THE AO WAS A CONDITION PRECEDENT WHICH THE ASSESSEE HAD FULFILLED. ATTACHING THE COMPLETION CERTIFICATE BY THE AUDITORS AND ITS SUBMISSION ALONG WITH THE RETURN WAS NOT A STATUTORY CONDITION . MOREOVER ANY LAPSE ON THE PART OF THE AUDITOR CAN BE NO GROUND FOR REJECTING THE C LAIM FOR DEDUCTION PARTICULARLY WHEN THE STATUTORY CONDITION OF OBTAINING THE COMPL ETION CERTIFICATE WITHIN FOUR YEARS WAS SATISFIED BY THE APPELLANT. I ALSO DO NOT FIND FORCE IN THE AOS OBJECTION BECAUSE OF THE PECULIARITY OF PROVISIONS OF SECTION 80IB(10) AS PER WHICH THE ASSESSEES WHO FOLLOW PROGRESSIVE COMPLETION METHOD ARE ALSO ENTITLED TO CLAIM THE SAID DEDUCTION U/S 80IB(10) ON PRORATA BASIS. THE C BDT INSTRUCTION NO. 4 OF 2009 ALSO SUPPORTS THIS PROPOSITION. IN SUCH CASES OBVI OUSLY THE AUDITOR WILL NOT BE ABLE TO ATTACH A COMPLETION CERTIFICATE TO HIS REPORT IN FORM 1OCCB BECAUSE THE COMPLETION CERTIFICATE WOULD BE ISSUED ONLY ON COMP LETION AND NOT ON PROPORTIONATE BASIS. IN MY OPINION THEREFORE NON-REFERENCE OR N ON-ATTACHMENT OF COMPLETION CERTIFICATE MAY BE CONSIDERED AS A TECHNICAL DEFAUL T BUT THAT CANNOT BE CONSTRUED TO BE NON-COMPLIANCE OF A STATUTORY CONDITION PARTICU LARLY WHEN THE APPELLANT HAD FURNISHED BOTH THE REPORT OF THE ACCOUNTANT IN FORM 10CCB AND THE COMPLETION CERTIFICATE ISSUED BY KMC ON THE FIRST DATE OF HEAR ING AT THE ASSESSMENT STAGE. I DO NOT FIND SUBSTANCE IN THE AOS OBJECTIONS FOR THE A LLEGED PROCEDURAL DEFAULTS IN NOT ATTACHING THE COMPLETION CERTIFICATE BY THE AUDITOR S. IN VIEW OF THE ABOVE THE AO IS DIRECTED TO GRANT DEDUCTION U/S 80IB(L0) WITH REFER ENCE TO THE AUDITED PROFIT & LOSS ACCOUNT AS FILED ALONG WITH FORM 10CCB. 12. THE ONLY OTHER ISSUE CONSIDERED BY THE LD. C.I .T.(A) WAS WHETHER THE NOMINATION AMOUNT OF RS.4 49 000/- WAS ASSESSABLE A S INCOME OF THE ASSESSEE AND IF SO WHETHER IT WAS ELIGIBLE FOR DEDUCTION U/S. 80IB (10) OF THE ACT AS PART OF PROFIT OF THE HOUSING PROJECT. THE A.O. OBSERVED THAT THE AS SESSEE RECEIVED NOMINATION CHARGES OF RS.4 49 000/- FROM SRI SUKUMAR BANERJEE WHICH A MOUNT ACCORDING TO THE ASSESSEE WAS PAYABLE TO THE ORIGINAL BUYER B.L. AGARWAL & SO NS (HUF). THE A.O. FURTHER STATED THAT THE SAID SUM OF RS.4 49 000/- HAD NEVER BEEN TRANSFERRED TO B.L. AGARWAL & SONS (HUF) RATHER IT WAS KEPT WITH THE ASSESSEE. H E THEREFORE CONSIDERED THE SAID NOMINATION CHARGES TO BE THE ACTUAL INCOME OF THE A SSESSEE FOR ALLOWING THE TRANSFER BY WAY OF NOMINATION FROM THE ORIGINAL BUYER B.L. AGAR WAL & SONS (HUF) TO THE SECOND BUYER SRI SUKUMAR BANERJEE AND ACCORDINGLY DENIED DEDUCTION U/S. 80-IB(10) OF THE ACT. THE LD. C.I.T.(A) FOR THE REASONS DISCUSSED I N PARA-47 OF HIS ORDER HAS HELD THAT THE NOMINATION CHARGES OF RS.4 49 000/- DID NOT CON STITUTE ASSESSEES INCOME AND 24 HENCE QUESTION OF ALLOWING DEDUCTION U/S. 80-IB OF THE ACT IS IRRELEVANT. THE RELEVANT PORTION OF THE OBSERVATION OF LD. C.I.T.(A) ON THIS ISSUE READS AS UNDER :- 47. . FROM THE INFORMATION AVAILABLE FROM THE DOCUMENTS ON RECORD IT APPEARS THAT THE APPELLANT HAD ORIGINALLY ENTERED I NTO AN AGREEMENT DATED THE 24TH NOVEMBER 2005 WITH B.L. AGARWAL & SONS (HUF) FOR S ALE OF FLAT NO. 5H FOR RS.18 82 200/-. PURSUANT TO THE AGREEMENT THE APPE LLANT HAD RECEIVED AN AMOUNT OF RS.4 70 550/-. B.L. AGARWAL & SONS (HUF) THEREAFTER NOMINATED SRI SUKUMAR BANERJEE IN ITS PLACE TO PURCHASE THE FLAT 5H FOR A CONSIDERATION OF RS.23 31 200/-. IN OTHER WORDS B.L. AGARWAL & SONS (HUF) MADE A NO MINATION PROFIT OF RS.4 49 000/- BY APPOINTING SUKUMAR BANERJEE IN ITS PLACE. IN THE NOMINATION AGREEMENT DATED 12-12-2006 IT WAS AGREED THAT SRI SUKUMAR BANERJEE WOULD PAY THE ENTIRE CONSIDERATION OF RS.23 31 200/- TO THE A PPELLANT AND UPON RECEIPT OF SUCH CONSIDERATION THE APPELLANT WOULD REFUND RS.4 70 550/- RECEIVED TILL THEN AS ALSO THE NOMINATION CHARGE OF RS.4 49 000/- TO B.L. AGARWAL & SONS (HUF). IN CONFORMITY WITH THE NOMINATION AGREEMENT DATED 12-1 2-2006 THE APPELLANT REFUNDED THE AMOUNT OF RS.4 49 000/- TO B.L.AGARWAL & SONS (HUF) ON 20-07- 2006 BY CHEQUE NO. 870158 DRAWN ON THE CANARA BANK. THE EVIDENCE IN SUPPORT OF THE PAYMENT IS PLACED ON PAGE 248 OF THE PAPER BOOK . THE FACTS ON RECORD THEREFORE ESTABLISH THAT THE ASSESSEE ULTIMATELY RECEIVED ONL Y SALE CONSIDERATION OF RS.18 82 200/- IN RESPECT OF SALE OF FLAT 5H EVEN THOUGH SRI SUKUMAR BANERJEE PAID AGGREAGATE CONSIDERATION OF RS.23 31 200/-. TH E AMOUNT PAID BY SUKUMAR BANERJEE HOWEVER INCLUDED NOMINATION PROFIT OF RS .4 49 000/- WHICH WAS EVENTUALLY PASSED ON TO AND THEREFORE BECAME THE I NCOME OF B.L. AGARWAL & SONS (HUF). THE APPELLANT HAS RIGHTLY EXCLUDED SUCH NOMI NATION CHARGES FROM THE SALE CREDITED IN THE PROFIT & LOSS ACCOUNT. THE AO IS AC CORDINGLY DIRECTED TO EXCLUDE THE NOMINATION CHARGES OF RS.4 49 000/- FROM THE TO TAL INCOME OF THE APPELLANT. SINCE I HAVE HELD THAT THE NOMINATION CHARGES OF RS .4 49 000/- DID NOT CONSTITUTE APPELLANTS INCOME THE QUESTION OF ALLOWING DEDUCT ION U/S 80IB IS IRRELEVANT AND THEREFORE THE SAME IS NOT ADJUDICATED. 13. IN VIEW OF ABOVE LD. C.I.T.(A) REJECTED THE OBJECTIONS RAISED BY A.O. DENYING DEDUCTION U/S. 80-IB(10) OF THE ACT AND ALLOWED THE APPEAL OF THE ASSESSEE ON ALL FIVE ISSUES SUMMARIZED BY HIM AS STATED HEREINABOVE. 14. HENCE THIS APPEAL BY DEPARTMENT BEFORE THE TRI BUNAL ON FOLLOWING GROUNDS :- 1. LD. CIT(A) ERRED BOTH IN FACTS AND LAW I N ALLOWING THE ASSESSEES APPEAL WITH A DIRECTION TO GRANT DEDUCTION U/S 80IB(L0) FOR A.Y. 2007-08 WITH REFERENCE TO THE AUDITED P/L ACCOUNT AS FILED ALONG WITH FORM 10CCB. IN SL. NO. 23(B) OF THE SAID FORM DATE OF COMPLETION WAS CLAIMED BY THE ASSESSE E ON THE BASIS OF ARCHITECTS CERTIFICATE DATED 26/03/2007. LD. CIT(A) WHILE ACCE PTING ASSESSEES SAID CONTENTION DID NOT APPRECIATE THE ARGUMENTS PUT FORWARD DURING THE COURSE OF ASSESSMENT AS WELL AS REMAND REPORT AND SUBSEQUENT LETTERS IN PROPER C ONTEXT. LD. CIT(A) ALSO FAILED TO ADDRESS THE LEGAL REQUIREMENT AS PER EXPLANATION (I I) BELOW SECTION 80IB(10)(A) OF THE ACT TO THE EFFECT THAT KMCS CERTIFICATE DATED 12/05/2007 IS ACTUALLY THE DATE OF 25 COMPLETION WHICH IS NOT AN EMPTY FORMALITY AND THUS ASSESSEES CLAIM FOR DEDUCTION U/S. 80IB WAS NOT RELEVANT TO AY. 2007-08. LD. CIT( A) ALSO WAS NOT JUSTIFIED HOLDING ANY LAPSE ON THE PART OF THE AUDITOR CAN BE NO GROUND FOR REJECTING THE CLAIM FOR DEDUCTION AND ALSO FAILED TO CONSIDER THE MATER IALS BROUGHT ON RECORD DURING THE COURSE OF ASSESSMENT ALONG WITH VARIOUS JUDICIAL PR ONOUNCEMENTS AS REFERRED IN THE ASSESSMENT ORDER RESULTING THE APPELLATE ORDER PERV ERSE. 2. LD. CIT(A) ERRED BOTH IN FACTS AND LAW IN DECIDING THE APPEAL IN FAVOUR OF THE ASSESSEE WITH A DIRECTION TO ASSESS THE INCOME WITH REFERENCE TO ACCOUNTS FURNISHED BY THE ASSESSEE ALONG WITH FORM 10CCB WITHOUT PROPE R APPRECIATION OF ARGUMENTS PUT FORWARD DURING THE COURSE OF ASSESSMENT AS WELL AS REMAND REPORT AND SUBSEQUENT LETTERS IN RESPECT OF INVOKING PROVISION S U/S. 145(3) AND THEREBY ESTIMATING THE GROSS RECEIPTS OF THE ELIGIBLE UNDER TAKING AT RS.15 09 16 077/- AND ESTIMATING RECEIPTS FROM EXTRA WORK AT RS.83 79 700 /- WITHOUT CONSIDERING THE MATERIALS BROUGHT ON RECORD DURING THE COURSE OF AS SESSMENT ALONG WITH JUDICIAL PRONOUNCEMENTS AS REFERRED IN THE ASSESSMENT ORDER IN THIS REGARD. 3. LD. C1T(A) ERRED BOTH IN FACTS AND LAW IN ALLOWING THE ASSESSEES APPEAL WITH A DIRECTION TO TREAT THE RECEIPT OF RS.45 70 703/- AS INTEGRAL PART OF THE RECEIPT OF THE HOUSING PROJECT AND SIMILARLY TO TREAT ALL EXPENSE S INCURRED IN RELATION TO PROVISION OF VARIOUS ELECTRICAL INSTALLATIONS GENERATOR AND ELECTRICITY POINTS AND CONNECTIONS PROVIDED FROM CESC AS EXPENDITURE OF THE ELIGIBLE P ROJECT AND TO INCLUDE THE INCOME BY WAY OF EXTRA WORK AMOUNTING TO RS.3 66 763/- WIT HOUT PROPER APPRECIATION OF ARGUMENTS PUT FORWARD DURING THE COURSE OF ASSESSME NT AS WELL AS REMAND REPORT AND SUBSEQUENT LETTERS AND NOT CONSIDERING THE MATERIAL S BROUGHT ON RECORD DURING THE COURSE OF ASSESSMENT ALONG WITH JUDICIAL PRONOUNCEM ENTS AS REFERRED IN THE ASSESSMENT ORDER IN THIS REGARD. 4. LD. CIT(A) ERRED BOTH IN FACTS AND LAW IN DECIDING THE APPEAL IN ASSESSEES FAVOUR IN RESPECT OF FACT NOS. 7C & 7D TREATING BOTH ARE DIFF ERENT ON THE BASIS OF UNSUBSTANTIATED SUBMISSION OF THE WITNESS AS PRODUC ED BY THE ASSESSEE WITHOUT PROPER APPRECIATION OF ARGUMENTS PUT FORWARD DURING THE COURSE OF ASSESSMENT AS WELL AS REMAND REPORT AND SUBSEQUENT LETTERS AND NO T CONSIDERING THE MATERIALS BROUGHT ON RECORD DURING THE COURSE OF ASSESSMENT A LONG WITH JUDICIAL PRONOUNCEMENTS AS REFERRED IN THE ASSESSMENT ORDER IN THIS REGARD. 15. AT THE TIME OF HEARING BEFORE US THE LD. DEPA RTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE RECEIVED COMPLETION CERTIFICATE F ROM KMC DATED 12/5/2007. HE SUBMITTED THAT THE SAID KMC CERTIFICATE IS MANDATOR Y AS PER EXPLANATION TO SEC. 80- IB(10) OF THE ACT AND DATE OF THE CERTIFICATE IS TH E DATE OF COMPLETION OF CONSTRUCTION OF THE HOUSING PROJECT. HE FURTHER SUBMITTED THAT THE LD. C.I.T.(A) CONSIDERED THE CERTIFICATE OF ARCHITECT & STRUCTURAL ENGINEERS DAT ED 26/3/2007 AS THE DATE OF COMPLETION OF THE HOUSING PROJECT. HE SUBMITTED TH AT A.O. IS JUSTIFIED TO STATE THAT THE PROJECT WAS NOT COMPLETED TILL THE CERTIFICATE BY K MC WAS ISSUED WHICH IS DATED 26 12/5/2007. HENCE THE PROJECT WAS NOT COMPLETED IN T HE ASSESSMENT YEAR UNDER CONSIDERATION AND AS SUCH THE ASSESSEE WAS NOT ENTI TLED TO GET DEDUCTION U/S. 80-IB OF THE ACT. 16. ON THE OTHER HAND THE LD. A/R SUBMITTED THAT THE BASIC ISSUE IS AS TO WHETHER THE ASSESSEE IS ENTITLED TO DEDUCTION 80-IB OF THE ACT OR NOT. HE SUBMITTED THAT IN THIS REGARD IT IS TO BE ASCERTAINED AS TO WHEN THE HOUSI NG PROJECT WAS COMPLETED AND WHETHER THE ASSESSEE FULFILLED THE CONDITIONS STIPU LATED IN SEC. 80-IB(10) OF THE ACT. THE LD. A/R SUBMITTED THAT APPROVAL FOR COMMENCEMEN T OF CONSTRUCTION IS DATED 06/5/2004 AND REFERRED PAGES 283-284 OF THE PAPER B OOK VOLUME-II. HE SUBMITTED THAT THE PLAN WAS REVISED ON 12/5/2005 AND REFERRED PAGE 367 OF THE PAPER BOOK VOLUME- IV. HE SUBMITTED THAT SECOND REVISED BUILDING PERM IT WAS GRANTED ON 05/3/2007 BY KMC AND COPY IS PLACED AT PAGE 287 OF THE PAPER BOO K VOLUME-II. THE LD. A/R SUBMITTED THAT FOR THE PURPOSE OF SEC. 80-IB OF THE ACT THE ORIGINAL APPROVAL OF THE PLAN IS TO BE CONSIDERED FOR COMPUTING THE PERIOD O F FOUR YEARS FOR COMPLETING THE PROJECT AND AS SUCH THE DATE BY WHICH THE ASSESSEE WAS REQUIRED TO COMPLETE THE PROJECT WAS 06/5/2008. HE SUBMITTED THAT THE PROJECT WAS C OMPLETED ON 26/3/2007 I.E. WITHIN THE PERIOD OF FOUR YEARS AND REFERRED PAGE 286 OF T HE PAPER BOOK VOLUME-II WHICH IS A COPY OF THE CERTIFICATE OF ARCHITECT. HE SUBMITTED THAT ON THE BASIS OF THE SAID ARCHITECTS CERTIFICATE THE ASSESSEE APPLIED FOR A PPROVAL FROM THE COMPETENT LOCAL AUTHORITY FOR GETTING THE COMPLETION CERTIFICATE VI DE LETTER DATED 28/3/2007 AND REFERRED PAGE 285 OF THE PAPER BOOK VOLUME-II. HE SUBMITTE D THAT KMC ISSUED COMPLETION CERTIFICATE DATED 12/5/2007 ON THE BASIS OF THE VER Y CERTIFICATE OF THE ARCHITECT THAT THE PROJECT HAD BEEN COMPLETED. HE THEREFORE SUBMITT ED THAT THE ASSESSEE HAS FULFILLED ALL THE REQUISITE CONDITIONS FOR GETTING THE BENEFIT U/ S. 80-IB OF THE ACT AND ACCORDINGLY THE LD. C.I.T.(A) HAS RIGHTLY ALLOWED THE BENEFIT T O THE ASSESSEE OF SEC. 80-IB(10) OF THE ACT. HE SUBMITTED THAT THE PROVISIONS OF THE ACT D O NOT STATE THAT EACH YEAR THE ASSESSEE IS REQUIRED TO OBTAIN CERTIFICATE FROM LOC AL AUTHORITY. AS PER PROVISIONS OF THE ACT ASSESSEE IS ONLY TO FURNISH CERTIFICATE OF COM PLETION WITHIN FOUR YEARS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE HOUSING PROJECT WAS SANCTIONED BY LOCAL AUTHORITY I.E. KMC. TO SUBSTANTIATE HIS SUBMITTED THE LD. A /R REFERRED CBDT CIRCULAR NO. 4 OF 27 2009 DATED 30/6/2009 A COPY OF WHICH IS PLACED AT PAGE 322 OF THE PAPER BOOK VOLUME-III. HE SUBMITTED THAT THE ASSESSEE CONSTRU CTED TOTAL 72 FLATS AND OUT OF WHICH 67 FLATS WERE SOLD IN THE ASSESSMENT YEAR UNDER CON SIDERATION. THAT THE FLATS WHICH REMAINED UNSOLD WERE VALUED AT COST AND THE SAME WE RE SOLD NEXT YEAR AND ACCORDINGLY DEDUCTION U/S. 80-IB(10) OF THE ACT WA S CLAIMED ON THE PROFIT DERIVED THEREFROM IN THE NEXT YEAR AND THE SAME WAS ACCEPTE D BY THE DEPARTMENT. HE REFERRED PAGE 449 OF THE PAPER BOOK VOLUME-V TO SUBSTANTIAT E HIS SUBMISSION. THE LD. A/R SUBMITTED THAT THE A.O. REJECTED THE BOOK RESULTS O F THE ASSESSEE SUMMARILY AND RECONSTRUCTED THE SAME BY ASSUMPTIONS AND PRESUMPTI ONS. HE THEREFORE SUBMITTED THAT THE ORDER OF THE LD. C.I.T.(A) BE CONFIRMED. 17. WE HAVE CONSIDERED THE SUBMISSIONS OF LD. REPR ESENTATIVES OF THE PARTIES AND CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BEL OW. 18. CLAUSE (A)(II) OF SEC. 80-IB(10) OF THE ACT FOR THE RELEVANT FINANCIAL YEAR READS AS UNDER :- (10) THE AMOUNT OF DEDUCTION IN THE CASE OF AN UNDERTAKI NG DEVELOPING AND BUILDING HOUSING PROJECTS APPROVED BEFORE THE 31 ST DAY OF MARCH 2007 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 P ROJECT IF - (A) SUCH UNDERTAKING HAS COMMENCED OR CO MMENCES DEVELOPMENT AND CONSTRUCTION OF THE HOUSING PROJECT ON OR AFTER THE 1 ST DAY OF OCTOBER 1998 AND COMPLETE SUCH CONSTRUCTION - (I) IN A CASE WHERE A HOUSING PROJECT HAS BEEN APPROVED BY THE LOCAL AUTHORITY BEFORE THE 1 ST DAY OF APRIL 2004 ON OR BEFORE THE 31 ST DAY OF MARCH 2008; (II) IN A CASE WHERE A HOUSING PROJECT H AS BEEN OR IS APPROVED BY THE LOCAL AUTHORITY ON OR AFTER THE 1 ST 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 PURPOSE OF THIS CLAUSE - (I) IN A CASE WHERE THE APPROVAL IN RESPECT OF THE HOUS ING PROJECT IS OBTAINED MORE THAN ONCE SUCH HOUSING PROJECT SHALL BE DEEME D TO HAVE BEEN APPROVED ON THE DATE ON WHICH THE BUILDING PLAN OF SUCH HOUSING PROJECT IS FIRST APPROVED BY THE LOCAL AUTHORITY; 28 (II) THE DATE OF COMPLETION OF CONSTRUCTION OF THE HOUSI NG 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; 18.1. THE FACTS REGARDING THE ABOVE ISSUE HAVE BE EN DISCUSSED IN DETAIL ABOVE. HOWEVER TO REITERATE THE ASSESSEE FIRST OBTAINED A SANCTIONED BUILDING PLAN FROM KMC ON 06/5/2004 WHICH WAS LATER REVISED ON 12/5/2005. SECOND REVISED BUILDING PERMIT WAS GRANTED BY KMC ON 05/3/2007. HOWEVER IN CONFO RMITY WITH THE FIRST REVISED BUILDING PLAN DATED 12/5/2005 THE ASSESSEE STARTED CONSTRUCTION ON 15/8/2005 OF 72 INDIVIDUAL RESIDENTIAL UNITS ON THE SAID LAND EACH ADMEASURING LESS THAN 1500 SQ. FT. OF BUILT-UP AREA RELEVANT TO F.Y. 2005-06. DURING THE FINANCIAL YEAR 2006-07 RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE C OMPLETED AND SOLD 67 FLATS OUT OF THE AGGREGATE 72 FLATS IN THE HOUSING PROJECT AND ACCORDINGLY CREDITED THE SALE PROCEEDS TO ITS AUDITED P/L ACCOUNT FOR THE YEAR UN DER APPEAL. THE ARCHITECT & STRUCTURAL ENGINEER WHO SUPERVISED THE DEVELOPMENT OF THE HOUSING PROJECT VIDE HIS CERTIFICATE DATED 26/3/2007 HAS STATED THAT THE HOU SING PROJECT WAS COMPLETED AS PER THE SANCTIONED BUILDING PLAN. A NOTICE DATED 28/3/2007 INFORMING COMPLETION OF THE HOUSING PROJECT ISSUED BY THE ARCHITECT AS REQUIRE D UNDER RULE 26 OF CMC BUILDING RULES 1990 WAS ALSO GIVEN TO KMC. IN PURSUANCE O F THE SAID CERTIFICATE OF THE ARCHITECT CERTIFYING COMPLETION OF THE HOUSING PROJ ECT AS PER SANCTIONED BUILDING PLAN KMC HAD ISSUED THE FORMAL COMPLETION CERTIFICATE ON 12/5/2007 WHICH WAS ADMITTEDLY WITHIN FOUR YEARS FROM THE END OF THE FI NANCIAL YEAR IN WHICH THE ORIGINAL PLAN WAS SANCTIONED ON 06/5/2004 BY KMC AS ENUMERA TED IN SUB-CLAUSE (II) OF CLAUSE (A) OF SEC. 80-IB(10) OF THE ACT. EXPLANATION (II) TO SEC. 80-IB(10)(A) OF THE ACT PROVIDES THAT THE DATE OF COMPLETION OF CONSTRUCTIO N OF THE HOUSING PROJECT SHALL BE TAKEN TO BE THE DATE ON WHICH COMPLETION CERTIFICAT E IN RESPECT OF SUCH HOUSING PROJECT IS ISSUED BY THE LOCAL AUTHORITY. CERTIFICATE ISSUE D BY KMC IS ONLY AN AUTHENTIC DOCUMENT THAT THE PROJECT HAS ACTUALLY BEEN COMPLET ED. IN THE CASE BEFORE US THERE IS NO DISPUTE TO THE FACT THAT KMC HAS GIVEN THE CERTI FICATE OF THE COMPLETION OF THE PROJECT ON THE BASIS OF ARCHITECTS CERTIFICATE DAT ED 26/3/2007 THAT THE PROJECT HAD BEEN COMPLETED. CONSIDERING THE ABOVE FACTS IT IS EVIDE NT THAT THE PROJECT UNDER 29 CONSIDERATION WAS COMPLETED IN THE FINANCIAL YEAR 2 006-07 AND HENCE THE ASSESSEE IS ENTITLED FOR BENEFIT OF SEC. 80-IB(10) OF THE ACT. 18.2. WITHOUT PREJUDICE TO WHAT WE HAVE STATED ABO VE IF WE GO WITH THE CONTENTION OF THE DEPARTMENT THAT THE ASSESSEE IS ENTITLED TO GET EXEMPTION U/S. 80-IB(10) OF THE ACT ONLY AFTER GETTING THE CERTIFICATE OF COMPLETION OF THE PROJECT FROM KMC IN THAT CASE THE ASSESSEE WOULD NOT BE ENTITLED TO GET DEDUCTION U/S. 80-IB(10) OF THE ACT IN SPITE OF THE FACT THAT THE ASSESSEE HAS CLAIMED THE DEDUCTIO N ON PRORATE BASIS EVERY YEAR BECAUSE THE CERTIFICATE OF COMPLETION IS TO BE GIVE N ONLY WHEN THE PROJECT IS FULLY COMPLETED. IN VIEW OF THE ABOVE FACT ALSO THE CER TIFICATE OF THE ARCHITECT CERTIFYING COMPLETION OF THE PROJECT CANNOT BE IGNORED FOR CON SIDERING THE BENEFIT OF DEDUCTION ALLOWABLE TO THE ASSESSEE U/S. 80-IB(10) OF THE ACT . OBTAINING OF CERTIFICATE FROM KMC IS A STATUTORY REQUIREMENT EVIDENCING THAT PROJECT HAS BEEN COMPLETED AS PER CLAUSE (II) OF EXPLANATION TO SEC. 80-IB(10)(A) OF THE ACT BUT IT IS NOT THE CERTIFICATE ISSUED BY KMC CERTIFYING THAT THE PROJECT WAS COMPLETED ONLY ON THE DATE ON WHICH THE CERTIFICATE OF KMC WAS DATED. IN VIEW OF THE ABOVE IN OUR CONSIDERED OPINION THE A.O. WENT WRONG IN DENYING BENEFIT TO THE ASSESSEE U/S. 80-IB(10) OF THE ACT ON THIS GROUND. THE ASSESSEE FILED THE COMPLETION CERTIFIC ATE ISSUED BY KMC ON THE BASIS OF COMPLETION NOTICE GIVEN BY ARCHITECT ON 28/3/2007 IN THE COURSE OF ASSESSMENT PROCEEDINGS. THEREFORE THE LD. C.I.T.(A) HAS VALI DLY AND JUSTIFIABLY DIRECTED HIM TO GRANT DEDUCTION U/S. 80-IB(10) OF THE ACT WITH REFE RENCE TO THE AUDITED P/L ACCOUNT AS FILED ALONG WITH FORM 10CCB. WE THEREFORE UPHOLD THE ORDER OF LD. C.I.T.(A) AND DISMISS GROUND NO. 1 OF THE APPEAL. 19. IN RESPECT OF GROUND NO.2 OF THE APPEAL LD. D EPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE CARRIED OUT EXTRA WORK AFTER HANDING OVER OF POSSESSION OF FLATS TO THE BUYERS AND THEREFORE RECEIPTS/PROFIT S ARE NEITHER ELIGIBLE TO BE INCLUDED IN THE P/L ACCOUNT AS SEPARATE PROFIT AND LOSS OF THE UNDERTAKING OF THE HOUSING PROJECT BUSINESS NOR ENTITLED TO BE DEDUCTED U/S. 80-IB OF THE ACT. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT ASSESSEE-FIRM DISCLOS ED ONLY RS.3 66 763/- AS RECEIPT FOR EXTRA WORK BUT CLAIMED RS.55 00 000/- AS COST DELI VERY EXPENSES. HE SUBMITTED THAT THE A.O. HAS RIGHTLY STATED THAT EXPENSES ON ITEMS LIKE AIR-CONDITIONER ARE FOR 30 ADDITIONAL WORK DONE AFTER DELIVERY OF POSSESSION O F FLATS FOR EXTRA COST TO THE BUYERS ONLY. LD. DEPARTMENTAL REPRESENTATIVE JUSTIFIED THE ACTION OF A.O. BY STATING THAT ASSESSEE DISCLOSED PROFITS @ 52.54% AND THE A.O. BY APPLYING THE SAME VERY RATE ON THE GROSS RECEIPTS AGAINST EXPENDITURE OF RS.55 00 000/- RIGHTLY ESTIMATED THE RECEIPTS AT RS.83 89 700/- (WRONGLY MENTIONED IN GROUND OF A PPEAL AS RS.83 79 700). HE SUBMITTED THAT THE A.O. ESTIMATED PROFITS FOR SUCH EXTRA WORK IN A SUM OF RS. 28 89 700/- (RS.83 89 700 RS.55 00 000) AND THE S AME COULD NOT BE CONSIDERED TO BE ELIGIBLE FOR DEDUCTION U/S. 80-IB OF THE ACT. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE A.O. WAS JUSTIFIED TO INVOKE PRO VISIONS OF SEC. 145(3) OF THE ACT IN REJECTING THE BOOK RESULTS OF THE ASSESSEE. 20. ON THE OTHER HAND LD. A/R REFERRED TO PAGES 2 94 & 295 OF THE PAPER BOOK VOLUME-II WHICH GIVE THE DETAILS OF RS.55 00 000/- RECEIVED BY THE ASSESSEE AND SUBMITTED THAT THE ASSESSEE INCURRED EXPENDITURE FO R DEVELOPING AND BETTERMENT OF THE COMMON AMENITIES AND FACILITIES IN THE GROUND FLOOR PATHWAYS THE COMMON COMMUNITY HALL MINI GYM COMMON LOBBIES AS ALSO LA NDSCAPING GARDEN AREA AND BEAUTIFICATION OF THE WATER BODY ETC. AS WELL AS FO R THE DRAINAGE FACILITY WHICH WORK CAN BE CARRIED OUT ONLY AFTER OBTAINING THE COMPLETION CERTIFICATE FROM THE KMC THE LOCAL AUTHORITY. HE SUBMITTED THAT CARRYING OUT THESE AC TIVITIES ARE PART AND PARCEL OF THE OBLIGATIONS UNDERTAKEN BY THE ASSESSEE-FIRM AS OWNE R AND DEVELOPER OF THE SAID HOUSING PROJECT IN TERMS OF THE AGREEMENTS FOR SALE AND THE PRINTED BROCHURE ISSUED BY IT IN CONNECTION WITH UNDERTAKING DEVELOPING AND BUILDING THE SAID HOUSING PROJECT. HE SUBMITTED THAT SAID EXPENDITURE OF RS.55 00 000 HAS NO CONNECTION DIRECT OR INDIRECT WHATSOEVER WITH THE RECEIPT OF RS.3 66 763/- FOR EX TRA WORK CARRIED OUT INSIDE OF SOME OF THE FLATS IN TERMS OF PARAGRAPH (C) OF SECTION A OF PART-I OF THE SIXTH SCHEDULE FOR THE RESPECTIVE AGREEMENTS FOR SALE. HE SUBMITTED THAT T HE SUM OF RS.3 66 763/- WAS RECEIVED BY THE ASSESSEE FOR POST DELIVERY WORKS NOT FORMING PART OF THE SPECIFICATIONS CONTRACTED IN THE RESPECTIVE AGREEMENTS AND/OR THAT THE SAID SUM OF RS.55 00 000 HAD BEEN INCURRED FOR ITEMS NOT FORMING PART OF THE SPECIFICATIONS CONTAI NED IN THE RESPECTIVE AGREEMENTS. LD. A/R SUBMITTED THAT A.O. WAS WHOLLY UNJUSTIFIED IN A RBITRARILY ESTIMATING THE RECEIPTS FOR EXTRA WORK IN THE SUM OF RS.83 89 700/- AND TO ESTI MATE THE PROFIT AT RS.28 89 700/- FROM 31 THE SO-CALLED EXTRA WORK AND ADDING IT TO THE ASSES SABLE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 21. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE LEARNED REPRESENTATIVES OF THE PARTIES AND THE ORDERS OF THE AUTHORITIES BELOW. W E HAVE ALSO GONE THROUGH THE RELEVANT PAGES OF THE PAPER BOOK. ON PERUSAL OF AGREEMENT F OR SALE WE OBSERVE THAT THE ASSESSEE IS DEVELOPING THE HOUSING PROJECT. THE ACTIVITIES OF UNDERTAKING DEVELOPING CONSTRUCTING AND BUILDING OF HOUSING PROJECT INCLUDE NOT ONLY CO NSTRUCTION OF FLATS BUT ALSO INCLUDE WITHIN ITS PURVIEW THE ACTIVITY OF CONSTRUCTING THE RESIDENTIAL FLATS DEVELOPING SURROUNDING OPEN SPACE COMMON AREAS AND FACILITIES PATHWAYS A ND ALSO TO PROVIDE A COMMUNITY HALL FOR SOCIAL GATHERINGS. IT ALSO DEPENDS AS TO WHETH ER THERE IS ALSO THE FACILITY OF PROVIDING GYM GARAGES AND PARKING SPACES SWIMMING POOL INT ERCOM SYSTEM ETC. NOT ONLY THIS IN A HOUSING PROJECT DRINKING WATER SUPPLY ELECTRICIT Y INSTALLATIONS COMMON AREA SERVICES AND FACILITIES ARE ALSO REQUIRED TO BE PROVIDED BY THE DEVELOPER. WE OBSERVE THAT IN THE CASE BEFORE US AS PER BROCHURE PLACED AT PAGE 102 OF THE PAPER BOOK VOLUME-I THE ASSESSEE STATED THE AMENITIES TO BE PROVIDED IN THE HOUSING PROJECT TO BE SET UP VIZ. AIR- CONDITIONER HALL FOR SOCIAL GATHERINGS MINI GYM & HEALTH CORNER WALKING TRACK CHILDRENS PLAY AREA NATURAL WATER BODY INTERCOM 24 HOUR DRINKING WATER FROM TALA TANK GENERATOR INTERNAL WALLS WITH PLASTER OF PAR IS FINISH TELEPHONE & TV POINTS IN MASTER BED-ROOM AND LIVING ROOM ETC. THEREFORE WE ARE OF THE CONSIDERED VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE AGGREGATING TO RS.55 00 000/- THE DETAILS OF WHICH ARE GIVEN AT PAGES 294 TO 303 OF THE PAPER BOOK VO LUME-II ARE THE EXPENSES INCURRED FOR DEVELOPMENT OF COMMON AREAS WHICH THE ASSESSEE WAS OBLIGED TO PROVIDE AND IT WAS NOTHING TO DO WITH THE RECEIPT OF RS.3 66 763/- TH E DETAILS OF WHICH ARE STATED AT PAGES 288 TO 293 OF THE PAPER BOOK VOLUME-II. WE ALSO OBSER VE THAT AS PER DETAILS GIVEN AT PAGES 295 TO 303 OF THE PAPER BOOK ACTUAL EXPENDITURE CO MES TO RS.67 39 610/- AS AGAINST ESTIMATED AMOUNT OF RS.55 00 000/-. WE ALSO OBSERV E FROM THE SALE AGREEMENT A COPY OF WHICH IS PLACED AT PAGES 105 TO 130 OF THE PAPER BOOK VOLUME-I THAT IT ALSO PROVIDES THE DETAILS OF THE COMMON PORTIONS AND COM MON FACILITIES TO BE PROVIDED BY THE ASSESSEE AS THE DEVELOPER OF THE PROJECT. CONSIDERI NG THE ABOVE FACTS WE ARE OF THE CONSIDERED VIEW THAT THE ACTION OF THE A.O. TO ESTI MATE THE RECEIPT AT RS.83 79 700/- ON ACCOUNT OF CARRYING OUT THE ABOVE EXTRA WORK AND AL SO TAKING THE GROUND TO INVOKE 32 PROVISIONS OF SEC. 145(3) OF THE ACT INTER ALIA F OR NOT SHOWING THE SAID RECEIPT IS WITHOUT ANY MERIT AND/OR IS NOT BASED ON COGENT MATERIAL ON RECORD. WE ARE THEREFORE OF THE CONSIDERED VIEW THAT LD. C.I.T.(A)S ACTION IN NOT ACCEPTING THE SAID FINDING OF A.O. IS JUSTIFIED. HENCE GROUND NO.2 OF THE DEPARTMENT DIS PUTING THE ORDER OF LD. C.I.T.(A) ON THE ABOVE ISSUE IS ALSO REJECTED. 22. IN RESPECT OF 3 RD GROUND OF THE APPEAL LD. DEPARTMENTAL REPRESENTAT IVE RELIED ON THE ORDER OF A.O. AND FURTHER SUBMITTED THAT THE RE CEIPT OF RS.3 66 763/- IS THE RECEIPT FOR EXTRA WORK AND COULD NOT BE CONSIDERED AS INCOME DE RIVED FROM HOUSING PROJECT. THEREFORE A.O. WAS JUSTIFIED TO TREAT THE SAID IN COME AS OTHER INCOME. 23. LD. A/R SUBMITTED THAT AS PER AGREEMENT THE A SSESSEE WAS TO PROVIDE GENERATOR TRANSFORMER AND ELECTRIC CONNECTION AND THE ADDITIO NAL AMOUNTS PAYABLE BY THE PURCHASER TO THE ASSESSEE AS OWNER/DEVELOPER CALCULATED AT TH E FIXED RATE OF RS.55/- PER SQ.FT. OF THE SUPER BUILT-UP AREA OF THE RESPECTIVE FLATS. HE SU BMITTED THAT THE PAYMENT OF SUCH ADDITIONAL AMOUNT WAS DESCRIBED IN THE AGREEMENT FO R SALE IN SECTION-B PART-I OF SIXTH SCHEDULE THEREOF AND IT WAS IN CONSIDERATION FOR IN STALLATION OF GENERATOR FOR THE COMMON PORTIONS AND FOR PROVIDING POWER TO THE SAID FLATS FORMATION OF THE ASSOCIATION FOR THE COMMON PURPOSES OBTAINING AND PROVIDING ELECTRICIT Y SUPPLY AND METER INCLUDING THOSE ON ACCOUNT OF AND/OR FOR TRANSFORMER AND ELECTRICAL SUB-STATION ETC. THEREFORE THE SAID AMOUNT RECEIVED BY THE ASSESSEE COULD NOT BE EXCLUD ED FROM THE PURVIEW OF PROFITS DERIVED FROM THE ACTIVITY OF UNDERTAKING DEVELOPING AND CONSTRUCTING HOUSING PROJECT. THE SAID PAYMENT @ RS.55/- PER SQ. FT. OF SUPER BUI LT-UP AREA OF EACH OF THE SAID FLAT IS PART AND PARCEL OF THE AGGREGATE CONSIDERATION PAYABLE B Y THE RESPECTIVE BUYERS FOR BOOKING A FLAT IN THE HOUSING COMPLEX AND PROVIDING COMMON FA CILITIES AND WITHOUT WHICH THE PROJECT DEVELOPED COULD NOT BE SAID TO BE COMPLETE. THE PROVISION OF SUCH COMMON FACILITIES WAS NOT CARRIED OUT BY THE ASSESSEE IN I TS CAPACITY OF A MIDDLEMAN/AGENT AND/OR FACILITATOR AND THESE ACTIVITIES COULD NOT BE DIFFE RENT AND DISTINGUISHABLE AS CONSIDERED BY A.O. AND ALSO CONSIDERED ONE OF THE REASONS FOR REJ ECTING BOOK RESULTS OF THE ASSESSEE AND TO INVOKE PROVISIONS OF SEC. 145(3) OF THE ACT. LD . A/R SUBMITTED THAT RECEIPT AGAINST CESC ELECTRICITY AND GENERATOR WAS RS.45 70 703/- AND WHEREAS THE EXPENSES INCURRED WERE AGGREGATING TO RS.63 94 341.94 AND THUS THERE WAS A LOSS OF RS.18 23 638.94. LD. A/R REFERRED PAGE-60 OF THE PAPER BOOK VOLUME-I W HICH CONTAINS DETAILS OF THE RECEIPTS 33 AND EXPENSES INCURRED BY THE ASSESSEE. HE SUBMITTE D THAT THE A.O. DID NOT CONSIDER THE EXPENDITURE ON ELECTRICAL GOODS/ELECTRIC WORKS AGGR EGATING TO RS.36 28 000/- AND THEREFORE STATED THAT THE ASSESSEE MADE PROFIT WHI CH IS NOT FACTUALLY CORRECT. 24. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMISSIONS OF LEARNED REPRESENTATIVE OF THE PARTIE S. WE AGREE WITH LD. A/R THAT IN THE CONSTRUCTION OF A HOUSING PROJECT THE ASSESSEE WAS UNDER AN OBLIGATION AS PER AGREEMENT/MEMORANDUM ENTERED INTO TO PROVIDE ALL C OMMON FACILITIES INCLUDING ELECTRICITY SUPPLY & METER TRANSFORMER & ELECTRIC SUB-STATION INCLUDING PROVISION FOR GENERATOR. IT IS A PART AND PARCEL OF THE ENTIRE A CTIVITY OF DEVELOPING AND BUILDING A HOUSING PROJECT AND WITHOUT WHICH THE PROJECT DEVEL OPED COULD NOT BE SAID TO BE COMPLETE. WE OBSERVE THAT AS PER AGREEMENT IT IS PROVIDED THAT EACH OF THE PURCHASERS IS REQUIRED TO PAY AN ADDITIONAL AMOUNT @ RS.55/- P ER SQ. FT. OF SUPER BUILT-UP AREA OF THE SAID FLAT BY WAY OF CONSIDERATION FOR INSTALLAT ION OF GENERATOR FOR THE COMMON PORTIONS AND FOR PROVIDING POWER TO THE SAID FLATS AND ALSO FOR PROVIDING ELECTRICITY SUPPLY & METER ETC. FOR COMMON PURPOSES. WE AGREE THAT CHARGING OF EXTRA AMOUNT FOR PROVIDING THE ABOVE ESSENTIAL COMMON FACILITIES AS PER THE AGREEMENT IS IN THE CAPACITY OF DEVELOPING AND CONSTRUCTING THE HOUSING PROJECT BY THE ASSESSEE AND NOT TO ACT AS A MIDDLEMAN/AGENT AS ALLEGED BY A.O. THESE ACTIVITIES WE ARE OF THE CONSIDERED VIEW ARE PART AND PARCEL OF THE ENTIRE ACTIVITY OF DEVELOPING AND COMPLETING THE HOUSING PROJECT. HENCE WE HOLD THAT CHARGING OF THE SAID ADDITIONAL AMOUNT I.E. @ RS.55/- PER SQ. FT. OF SUPER BUILT-U P AREA FROM FLAT OWNERS/PURCHASERS IS HAVING DIRECT NEXUS WITH THE ACTIVITY OF DEVELOPING AND BUILDING HOUSING PROJECT. WE ALSO OBSERVE ON PERUSAL OF DETAILS AT PAGE 60 OF TH E PAPER BOOK THAT THE TOTAL RECEIPTS AGAINST CESC ELECTRICITY AND GENERATOR WAS OF RS.4 5 70 703/- AND WHEREAS THE EXPENSES INCURRED BY THE ASSESSEE WAS OF RS.63 94 3 41.94 AND THUS THERE WAS A LOSS OF RS.18 23 638.94. BESIDES ABOVE IN RESPECT OF RS.3 66 763/- WHICH IS ALSO MENTIONED IN GROUND NO.3 OF THE APPEAL RECEIVED BY THE ASSES SEE FROM FLAT OWNERS FOR EXTRA WORK WE OBSERVE THAT THE SAID WORK WAS CARRIED OUT BEFOR E HANDING OVER OF POSSESSION OF THE RESPECTIVE FLATS TO THE BUYERS AND NOT AFTER HANDIN G OVER OF THE POSSESSION. THE DEPARTMENT HAS DISPUTED THE POSITION BUT THER E WAS NO COGENT MATERIAL BROUGHT 34 ON RECORD TO DISLODGE THE FACT THAT THE SAID EXTRA WORK WAS CARRIED OUT BY THE ASSESSEE IN TERMS OF CLAUSE (C) OF SECTION-A OF SIXTH SCHEDU LE OF THE SALE AGREEMENTS ENTERED INTO WITH THE FLAT BUYERS. THEREFORE WE HOLD THAT LD. C.I.T.(A) HAS RIGHTLY HELD THAT THE SAID RECEIPT OF RS.3 66 763/- HAS A DIRECT NEXUS WI TH THE ACTIVITY OF UNDERTAKING DEVELOPING AND BUILDING HOUSING PROJECT AND IS ELIG IBLE TO BE INCLUDED WHILE COMPUTING DEDUCTION U/S. 80-IB(10) OF THE ACT. IN VIEW OF ABOVE FACTS WE HOLD THAT THERE IS NO REASON TO INTERFERE WITH THE ORDER OF L D. C.I.T.(A). GROUND NO.3 OF THE APPEAL TAKEN BY THE DEPARTMENT IS ALSO REJECTED. 25. IN RESPECT OF GROUND NO.4 OF THE DEPARTMENTS APPEAL THE A.O. HAS STATED THAT FLAT NO. 7C & 7D IS ONE RESIDENTIAL UNIT OF MORE TH AN 1500 SQ.FT. AND THEREFORE IT VIOLATES SEC. 80-IB(10)(C) OF THE ACT. THIS IS ONE OF THE GROUNDS TAKEN BY THE A.O. TO DENY DEDUCTION TO THE ASSESSEE U/S. 80-IB(1) OF THE ACT. 26. AT THE TIME OF HEARING LD. DEPARTMENTAL REPRE SENTATIVE RELIED ON THE ORDER OF A.O. ON THE OTHER HAND LD. A/R OF THE ASSESSEE RE FERRED TO PAGES 280 & 281 OF THE PAPER BOOK VOLUME-II WHICH ARE MAP/PLAN OF THE AB OVE TWO FLATS. LD. A/R REFERRED PAGES 157 TO 181 OF THE PAPER BOOK VOLUME-II WHIC H IS A COPY OF CONVEYANCE DEED IN RESPECT OF FLAT NO. 7C AND ALSO REFERRED PAGES 182 TO 206 OF THE SAID PAPER BOOK WHICH IS A COPY OF CONVEYANCE DEED OF FLAT NO. 7D AND SU BMITTED THAT THESE WERE TWO SEPARATE FLATS FOR WHICH CONVEYANCE DEEDS WERE EXEC UTED BY THE ASSESSEE WITH THE CONCERNED BUYERS OF THE FLATS. HE FURTHER SUBMITTE D THAT TWO SEPARATE AGREEMENTS FOR SALE/MEMORANDUM WERE ALSO ENTERED INTO WITH THE BUY ERS AND REFERRED PAGES 105 TO 130 IN RESPECT OF FLAT NO. 7C AND PAGES 131 TO 156 OF THE PAPER BOOK VOLUME-I IN RESPECT OF FLAT NO. 7D. LD. A/R REFERRED PAGES 27 4 & 275 OF THE PAPER BOOK VOLUME- II AND SUBMITTED THAT THE BUYERS CONFIRMED THAT THE Y PURCHASED TWO SEPARATE FLATS BEING FLAT NOS. 7C & 7D IN THE CONCERNED HOUSING PROJECT. HE SUBMITTED THAT THERE WERE TWO ELECTRICITY CONNECTIONS FROM CESC FOR THE RESPE CTIVE FLATS AND THE ASSESSEE WAS ALSO RAISING SEPARATE MAINTENANCE BILLS AND RECEIVI NG FROM THE BUYERS SEPARATELY. LD. A/R SUBMITTED THAT THE SAID TWO BUYERS LATER ON REQ UESTED FOR ACQUIRING SOME MORE AREA I.E. 17 SQ. FT. FOR FLAT NO. 7C AND 16 SQ. FT . FOR FLAT NO. 7D IN FRONT OF EACH OF THE 35 SAID TWO FLATS IN OR ABOUT FEBRUARY 2007 AND AFTER RECEIPT OF ADDITIONAL CONSIDERATION FOR SUCH ADDITIONAL AREAS THE SAID TWO BUYERS SHIF TED THEIR ENTRANCE GATE BUT THE IDENTITY OF EACH OF TWO FLATS WAS DULY MAINTAINED A ND EACH OF THE SAID TWO FLATS CONTINUED TO BE INDEPENDENT TO EACH OTHER. HE SUBM ITTED THAT EACH OF THE FLATS HAD SEPARATE AND INDEPENDENT GATES IN TERMS OF FLOOR PL AN ANNEXED TO THE SEPARATE DEEDS OF CONVEYANCE EXECUTED SIGNED AND REGISTERED BY THE ASSESSEE-FIRM WITH THE TWO BUYERS. HE FURTHER SUBMITTED THAT THE SAID TWO BUYERS ALSO CONFIRMED THAT WHEN THEY CARRIED OUT MODIFICATION IT DID NOT AFFECT STRUCTURE OF TH E BUILDING AND NO PERMISSION WAS REQUIRED TO BE TAKEN FROM OUTSIDE AGENCY AND THE CO ST OF SUCH MODIFICATION WAS BORNE BY THEM. AT THE TIME OF HEARING IN RESPONSE TO A QUERY FROM THE BENCH AS TO WHETHER TWO FLATS COULD BE SOLD TO A SINGLE PERSON IN THE S AME HOUSING PROJECT LD. A/R SUBMITTED THAT AT THE RELEVANT TIME THERE WAS NO SU CH RESTRICTION BUT THERE IS AN AMENDMENT BY FINANCE (NO.2) ACT 2009 W.E.F. 01/4/2 010 BY INSERTING CLAUSE (E) TO SEC. 80-IB(10) OF THE ACT AND NOW NOT MORE THAN ONE RESIDENTIAL UNIT IN THE HOUSING PROJECT COULD BE ALLOTTED TO ANY PERSON NOT BEING A N INDIVIDUAL. LD. A/R SUBMITTED THAT THE A.O. WAS NOT JUSTIFIED TO DENY DEDUCTION TO THE ASSESSEE U/S. 80-IB OF THE ACT ON THE GROUND THAT THERE WAS ONE RESIDENTIAL UNIT OF M ORE THAN 1500 SQ. FT. WHICH IS NOT FACTUALLY CORRECT. 27. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F LEARNED REPRESENTATIVES OF THE PARTIES AND THE ORDERS OF AUTHORITIES BELOW. WE HA VE ALSO CONSIDERED THE COPIES OF THE CONVEYANCE DEEDS AS WELL AS COPIES OF AGREEMENTS EN TERED INTO AND ALSO THE COPY OF FLOOR PLANS IN RESPECT OF FLAT NOS. 7C & 7D (SUPRA) . ON PERUSAL OF THE SAME WE AGREE WITH THE FINDING OF LD. C.I.T.(A) THAT THESE WERE T WO INDEPENDENT FLATS BEING FLAT NOS. 7C & 7D WHICH WERE SOLD BY THE ASSESSEE BY WAY OF TWO SEPARATE CONVEYANCE DEEDS. SUBSEQUENTLY IT IS OBSERVED THAT THE SAID TWO PURCH ASERS DECIDED TO HAVE COMMON ENTRANCE FOR THE PURPOSE OF THEIR CONVENIENCE AND S ECURITY AND THEY CARRIED OUT MODIFICATION AT THEIR OWN COST. THE DEPARTMENT HAS NOT BROUGHT ANY MATERIAL ON RECORD THAT BEFORE CARRYING OUT THE MODIFICATIONS TO THE S AID FLATS THEY HAD TAKEN CONSENT FROM THE ASSESSEE AND/OR COST OF MODIFICATION WAS BORNE BY THE ASSESSEE. ON THE OTHER HAND A CONFIRMATION IS PLACED AT PAGE 274 OF THE PAPER B OOK THAT THE SAID MODIFICATION WAS 36 CARRIED OUT BY THE PURCHASERS OF THE FLATS AT THEIR OWN COST AND NO PERMISSION WAS REQUIRED TO BE TAKEN FROM OUTSIDE AGENCY. WE ALSO OBSERVE THAT THERE WERE TWO SEPARATE ELECTRICITY CONNECTIONS AND SEPARATE MAINT ENANCE BILLS WERE RAISED. THE CONVEYANCE DEEDS WERE ALSO ENTERED INTO EXECUTED A ND REGISTERED SEPARATELY FOR THE ABOVE TWO FLATS. IT IS EVIDENT FROM THE ABOVE DOCU MENTS THAT EACH OF THE FLATS I.E. FLAT NOS. 7C & 7D WAS TWO INDEPENDENT FLATS AND THEREF ORE THE AREA OF INDIVIDUAL FLAT DID NOT EXCEED 1500 SQ. FT. OF THE SUPER BUILT-UP AREA. WE ALSO OBSERVE THAT PRIOR TO THE AMENDMENT CARRIED OUT BY FINANCE (NO.2) ACT 2009 W .E.F. 01/4/2010 THERE WAS NO SUCH RESTRICTION THAT AN INDIVIDUAL COULD NOT PURCH ASE MORE THAN ONE FLAT IN THE SAME HOUSING PROJECT. CONSIDERING THE ABOVE FACTS WE H OLD THAT THE LD. C.I.T.(A) HAS RIGHTLY HELD THAT A.O. WAS NOT JUSTIFIED TO DENY DEDUCTION TO THE ASSESSEE U/S. 80-IB(10) OF THE ACT ON THE GROUND THAT THE ASSESSEE VIOLATED ONE OF THE CONDITIONS THAT AN INDIVIDUAL FLAT SIZE EXCEEDED 1500 SQ.FT. WHICH IS FACTUALLY INCORRECT. ACCORDINGLY GROUND NO.4 OF THE APPEAL TAKEN BY THE DEPARTMENT IS ALSO REJEC TED. 28. BEFORE WE CONCLUDE THIS APPEAL WE OBSERVE THA T A.O. HAS ALSO REJECTED THE BOOK RESULTS OF THE ASSESSEE ON THE GROUND THAT THE METH OD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS NOT IN CONFORMITY WITH AS-7 ISSUED BY I CAI. ACCORDING TO THIS METHOD THE ASSESSEE SHALL BE OBLIGED TO RECOGNIZE REVENUE ON Y EAR TO YEAR BASIS BY FOLLOWING THE PARTIAL COMPLETION OF PROJECT METHOD. AS RIGHTLY ST ATED BY LD. A/R AS-7 IS APPLICABLE ONLY FOR CONSTRUCTION CONTRACTS I.E. ENTERPRISES C ARRYING ON BUSINESS AS CONTRACTORS AND NOT TO ANY OTHER ENTERPRISE. IN THIS CASE WE OBSER VE THAT THE ASSESSEE WAS NOT ACTING AS A MERE CONTRACTOR BUT IT WAS ENGAGED IN THE BUSINE SS OF DEVELOPING HOUSING PROJECT ON THE LAND BELONGING TO IT. FURTHER THE A.O. HIMSELF HAS ADMITTED THAT THE ASSESSEES NATURE OF BUSINESS WAS REAL ESTATE DEVELOPMENT AN D IN PARA-3 OF THE ASSESSMENT ORDER THE A.O. HAS STATED THAT THE DISCLOSED BUSIN ESS OF THE ASSESSEE WAS IN THE NATURE OF DEVELOPMENT OF HOUSING PROJECTS. THEREFORE THE CONTENTION OF A.O. THAT ASSESSEES METHOD OF ACCOUNTING WAS NOT IN CONFORMITY WITH AS- 7 IS INCORRECT IN VIEW OF THE FACT THAT THE ASSESSEE WAS NOT IN THE BUSINESS OF EXECUT ING CONSTRUCTION CONTRACTS RATHER IT WAS ENGAGED IN THE BUSINESS OF DEVELOPING HOUSING P ROJECTS. 37 28.1. THE SECOND OBJECTION OF A.O. WAS THAT BENEFI T UNDER INSTRUCTION NO. 4 OF 2009 OF C.B.D.T. COULD ONLY BE AVAILED BY AN ASSESSEE WH O FOLLOWED PARTIAL COMPLETION OF PROJECT METHOD AND OBTAINED COMPLETION CERTIFICATE WITHIN THE TIME PRESCRIBED I.E. IN THE SAME ACCOUNTING YEAR ENDING 31/3/2007. WE OBSE RVE THAT THE SAID INSTRUCTION NO. 4 INDICATES THAT AN ASSESSEE COULD FOLLOW EITHER PA RTIAL COMPLETION PROJECT METHOD OR PROJECT COMPLETION METHOD. THE SAID INSTRUCTION NOW HERE INDICATES/PROVIDES THAT THE ASSESSEES WERE OBLIGED TO FOLLOW PARTIAL COMPLETION OF PROJECT METHOD AS PROVIDED IN AS-7. IN OUR OPINION THEREFORE THE SAID INSTRUCTI ON WAS ISSUED BY C.B.D.T. IN THE BACKGROUND WHERE IT WAS AN ADMITTED POSITION THAT T HE ASSESSEES COULD FOLLOW EITHER PARTIAL COMPLETION OF CONTRACT METHOD OR COMPLETED CONTRACT METHOD IN RESPECT OF BUSINESS OF DEVELOPING A HOUSING PROJECT. BY THIS I NSTRUCTION THE DOUBTS WERE CLARIFIED ONLY WITH REGARD TO THE ELIGIBILITY OF THE ASSESSEE S TO CLAIM DEDUCTION U/S. 80-IB(10) OF THE ACT WHERE THE ASSESSEES FOLLOWED PARTIAL COMPLE TION OF PROJECT METHOD. AS PER TAX AUDIT REPORT THE SYSTEM OF ACCOUNTING AND THE METH OD OF REVENUE RECOGNITION REGULARLY FOLLOWED BY THE ASSESSEE ARE ONLY OF COMPLETION OF PROJECT. IN THAT VIEW OF THE MATTER THE OBJECTION OF THE A.O. ABOUT VIOLATION OF AS-7 VIS- -VIS INSTRUCTION NO. 4 OF 2009 OF C.B.D.T. IS NOT FOUND TO BE AT PAR WITH THE ACTIVIT IES OF THE ASSESSEE AND METHOD OF ACCOUNTING REGULARLY FOLLOWED BY IT. HENCE THE ACT ION OF THE A.O. TO REJECT BOOK RESULTS OF THE ASSESSEE EVEN ON THE GROUND THAT THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS NOT IN CONFORMITY WITH AS-7 IS NOT JUSTIFIED. WE THEREFORE UPHOLD THE ORDER OF LD. C.I.T.(A) BY DISMISSING THE APPEAL OF THE DEPARTMEN T. 29. CONSIDERING THE ABOVE FACTS AND THE FACT THAT THE ASSESSEE WAS A DEVELOPER OF THE PROJECT AND NOT MERELY A CONTRACTOR WE HOLD THAT T HE LD. C.I.T.(A) HAS RIGHTLY HELD FOR THE REASONS MENTIONED HEREINABOVE IN PARA-8 OF THIS ORDER THAT THE A.O. WAS NOT JUSTIFIED IN DENYING DEDUCTION CLAIMED BY THE ASSES SEE U/S. 80-IB(10) OF THE ACT. WE THEREFORE UPHOLD THE ORDER OF LD. C.I.T.(A) AND DI SMISS THE APPEAL OF THE DEPARTMENT. 38 ITA NO.1307/K/2010 ASSESSMENT YEAR 2007-08 30. IN THE RESULT THE APPEAL OF THE DEPARTMENT IS DISMISSED. 3 '! #4' 5 4% 6 37 THIS ORDER IS PRONOUNCED IN THE OPEN COURT ON 14.07 .2011 SD/- SD/- ( ! ! ! ! ) '# ( . . . . . .. . ) (AKBER BASHA) ACCOUNTANT MEMBER (B.R.MITTAL) JUDICIAL MEMBER ( (( (8# 8# 8# 8#) )) ) DATE: 14-07-2011 ORDER PRONOUNCED BY SD/- 14/07/11 SD/- AM(S.V.MEHROTRA) J.M.(B.R.MITTAL) '! 1 /9 :'9';- COPY OF THE ORDER FORWARDED TO: 1. + / THE APPELLANT : A.C.I.T. CIRCLE-35 KOLKATA. 2 /0+ / THE RESPONDENT : M/S. NORTH CITY DEVELOPERS ORBIT 1 GARSTIN PLACE KOLKATA-700 001. 3. !% () : THE CIT(A)-XX KOLKATA. 4. !%/ THE CIT KOL- 5 ?6 /% / DR ITAT KOLKATA BENCHES KOLKATA 6 GUARD FILE . 09 // TRUE COPY '!%4/ BY ORDER (DKP) @ A / DY/ASSTT. REGISTRAR .