Devi Construction Co.,, Pune v. Addl. CIT,Range-3,, Pune

ITA 1390/PUN/2010 | 2006-2007
Pronouncement Date: 27-07-2012 | Result: Partly Allowed

Appeal Details

RSA Number 139024514 RSA 2010
Assessee PAN AAAFD8922A
Bench Pune
Appeal Number ITA 1390/PUN/2010
Duration Of Justice 1 year(s) 8 month(s)
Appellant Devi Construction Co.,, Pune
Respondent Addl. CIT,Range-3,, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 27-07-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 27-07-2012
Date Of Final Hearing 08-05-2012
Next Hearing Date 08-05-2012
Assessment Year 2006-2007
Appeal Filed On 26-11-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE SHRI G.S. PANNU ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR JUDICIAL MEMBER ITA NOS. 1390 & 1391/PN/2010 (ASSTT. YEAR : 2006-07 & 2007-08) DEVI CONSTRUCTION COMPANY ... APPELLANT C/O. SHAH KHANDELWAL JAIN & ASSOCIATES CHARTERED ACCOUNTANTS OFFICE NO-301 PLOT NO. 84 WELLESLEY ROAD PUNE- 411001 PAN : AAAFD 8922A V. ADDL. COMMISSIONER OF INCOME TAX RESPONDENT RANGE -3 INCOME TAX OFFICE PMT BLDG. PUNE ITA NO. 1449/PN/2010 (ASSTT. YEAR : 2007-08 ) DY. COMMISSIONER OF INCOME TAX APPELLANT CIRCLE 3 1 ST FLOOR PMT BUILDING SWARGATE PUNE 411 037 V. DEVI CONSTRUCTION CO RESPONDENT 1161/10 DEVI NIWAS SHIVAJINAGAR PUNE 411005 PAN : AAAFD 8922A ASSESSEE BY : SHRI. NILESH KHANDELWAL DEPARTMENT : SHRI MUKESH DUBE DATE OF HEARING : 14/6/12 DATE OF PRONOUNCEMENT : -7-12 ORDER PER R.S. PADVEKAR JM IN THIS BATCH OF 3 APPEALS TWO APPEALS ARE FILED BY THE A SSESSEE FOR THE A.Y. 2006-07 AND 2007-78 AND REVENUE HAS FILED CROS S APPEAL IN THE A.Y. 2007-08. THE ISSUES IN BOTH THE A.YS. ARE INTER-LINKED AND HENCE THESE THREE APPEALS ARE DISPOSED OFF BY THIS COMMON ORDE R FOR THE SAKE OF CONVENIENCE. 2. WE FIRST TAKE ASSESSEES APPEAL FOR THE A.Y. 2006-07 B EING ITA NO. 1390/PN/2010 AND THE FIRST GROUND READS AS UNDER : ITA . NOS.1390 1391 & 1449//PN/2010 DEVI CONSTRUCTION CO. A.YS. 2006-07 & 2007-08 PAGE OF 13 2 1. ON FACTS & CIRCUMSTANCES PREVAILING IN THE CAS E & AS PER PROVISIONS OF LAW IT BE HELD THAT THE AUTHORITIES BELOW HAVE ERRED IN TAXING THE INCOME OF THE ELIGIBLE PROJECT DEVI ORCH ID COVERED UNDER PROVISIONS OF SEC. 80IB (10) IN THE YEAR UNDER CONSID ERATION AND DENYING THE CLAIM OF DEDUCTION U/S. 80IB(10) OF THE A CT PERTAINING TO SUCH INCOME. IT BE HELD THAT THE INCOME IS ELIGIBLE FO R DEDUCTION U/S. 80IB(10) OF THE ACT. IT FURTHER BE HELD THAT THE INCO ME IS NOT ASSESSABLE IN THE AY: 2006-07. JUST AND PROPER RELIEF BE GRANTED T O THE APPELLANT ON THIS SCORE. 3. THE FACTS REVEAL FROM THE RECORD ARE AS UNDER. THE ASSESSEE IS A BUILDER AND DEVELOPER. THE A.O HAS OBSERVED THAT THE AS SESSEE WAS CONSTRUCTING AND DEVELOPING VARIOUS PROJECTS LIKE SACRED HEART TOWER -1 SACRED HEART TOWER-2 HILL VIEW RESIDENCY DEVI LINK-2 DEVI O RCHID & EMPRESS COURT AND OTHER PROJECTS. AS OBSERVED BY T HE A.O THE ASSESSEE HAS COMPLETED DEVI ORCHID EMPRESS COURT SACRED HEART T OWER-2 DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2006-07. THE ASSESSE E HAS SHOWN THE SALES OF SACRED HEART TOWER-2 DEVI LINK-2 EMPRESS TOWER A SILVER GATE AND DEVI ORCHID DURING THE YEAR. IN RESPECT OF THE ISSU E IN CONTROVERSY IS CONCERNED THERE ARE TWO LIMBS. SO FAR AS THE FIRST LIMB IS CONCERNED THE A.O HAS RESERVATION IN ALLOWING THE DEDUCTION TO THE ASSES SEE U/S. 80 IB (10) IN RESPECT OF THE HOUSING PROJECT UNDERTAKEN BY TH E ASSESSEE AND THE SECOND LIMB IS THAT THE A.O BROUGHT TO TAX RS.2 34 76 838 /- AS THE ASSESSEES NET PROFIT FROM THE HOUSING PROJECT IN THE A .Y. 2006-07 AND WHEREAS THE ASSESSEE HAS DECLARED THE SAID PROFIT IN THE A.Y. 2007-2008 AND CLAIMED THE DEDUCTION U/S. 80 IB (10). 4. LET US ADDRESS TO THE FIRST ISSUE IN CONTROVERSY I.E. FIR ST LIMB OF CONTROVERSY FOR DENIAL OF DEDUCTION U/S 80 IB (10). AS O BSERVED BY THE A.O AS PER PLAN THE GROSS AREA OF THE PLOT ON WHICH THE HOU SING PROJECT OF DEVI ORCHID HAS BEEN UNDERTAKEN IS 4875.25 SQ. MTS. OUT OF WHIC H THE AREA FOR D.P. ROAD IS 536.036 SQ. MTS. THE A.O HAS FURTHER OBSERVE D THAT AFTER REDUCING THE D.P. ROAD AREA THE NET AREA LEFT WITH THE AS SESSEE FOR ITA . NOS.1390 1391 & 1449//PN/2010 DEVI CONSTRUCTION CO. A.YS. 2006-07 & 2007-08 PAGE OF 13 3 DEVELOPMENT IS 4339.21 SQ. MTS. THE A.O ALSO REDUCED THE AREA FOR OPEN SPACE AND THEREAFTER WORKED OUT THE NET AREA AT 3823 .21 SQ. MTS. THE A.O HAS OBSERVED THAT THE ASSESSEE HAS TO RESERVE 25% F SI FOR HOSPITAL ON THE PLOT WHICH WORKS OUT 976 SQ. MTS. AS OBSERVED BY THE A.O. AS PER THE DETAILS GIVEN IN THE PLAN AN AREA OF 494 SQ. MTS. HAS TO BE RESERVED FOR THE HOSPITAL PROJECT. THE A.O THEREFORE CAME TO THE CONCLUSIO N THAT IF THE SAID AREA IS REDUCED FROM 4339.21 SQ. MTS. I.E. AREA LEFT AFTER RE DUCING THE AREA FOR D.P. ROAD THEN THE ASSESSEE WOULD BE LEFT WITH 3845 SQ . MTS. WHICH IS LESS THAN 1 ACRE. THE A.O. SOUGHT THE EXPLANATION OF THE ASSESSEE WHY THE DEDUCTION SHOULD NOT BE DENIED U/S. 80 IB (10) AS THE CONDITION FOR THE AREA OF THE PLOT FOR THE HOUSING PROJECT WAS NOT FULFILLED. THE AS SESSEE FILED THE REPLY AND JUSTIFIED THE CLAIM OF DEDUCTION U/S. 80 IB (10). THE ASSESSEE CONTENDED THAT AREA UNDER OPEN SPACE TO THE EXTENT OF 516 SQ. MTS. IS THE PART AND PARCEL OF THE TOTAL LAND ON WHICH PERMISSION FOR CONSTRUCTION HAS BEEN GRANTED AND THE SAID AREA CAN NOT BE EXCLUDED. T HE ASSESSEE IS BOUND TO KEEP THE OPEN SPACE AS PER THE REGULATION. 5. SO FAR AS THE AREA REMAINED FOR HOSPITAL TO THE EXTE NT OF 976.33 SQ.MTS. IS CONCERNED WHICH WAS FOR THE MATERNITY HOSPITAL FOR THE PMC. THE ASSESSEE CONTENDED THAT AS PER THE DRAFT PLAN ON LY SOME PORTION OF FSI AVAILABLE FOR CONSTRUCTION WAS RESERVED BY PMC FOR MATERN ITY HOSPITAL AND NOT THE LAND. THE ASSESSEE ALSO DISTINGUISHED THE TERMS FSI AND THE LAND AND SUBMITTED THAT THE ASSESSEE HAS BEEN COMPENSATED BY USE OF THE ADDITIONAL FSI. THE ASSESSEE ALSO CONTENDED THAT THE A REA OF THE OPEN SPACE AND THE D.P. ROAD CANNOT BE EXCLUDED AND THE TO TAL AREA WHEN AVAILABLE WITH THE ASSESSEE IS MORE THAN 1 ACRE. THE A.O. WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE. IN HIS OPINION THE HOUSING PROJECT AND THE HOSPITAL PROJECT; THOSE WERE TW O DISTINCT & SEPARATE PROJECTS AND MATERNITY HOSPITAL WAS NOT THE PART OF THE HOUSING PROJECT. AS OBSERVED BY THE A.O IT IS SEEN THAT THE APPROVAL FOR THE CONSTRUCTION OF THE RESIDENTIAL UNITS IS GIVEN WITH THE STIPULATION THAT HE SHO ULD CONSTRUCT THE ITA . NOS.1390 1391 & 1449//PN/2010 DEVI CONSTRUCTION CO. A.YS. 2006-07 & 2007-08 PAGE OF 13 4 HOSPITAL AND HAND OVER THE SAME TO PMC FREE OF COST FOR THE PURPOSE OF USE AS MATERNITY HOSPITAL. THE A.O THEREFORE REJECTED THE CLA IM OF THE ASSESSEE U/S. 80 IB (10) ON THE REASON THAT ONE OF THE CONDITIONS I.E. U/S. 80 IB (10)(B) IS NOT COMPLIED. THE ASSESSEE CHALLENGED THE DECISIO N OF THE A.O BEFORE THE LD CIT(A) DENYING THE BENEFIT OF SEC. 80 IB (10) TO THE ASSESSESSEE WITHOUT SUCCESS. THE LD CIT(A) CONFIRMED THE VIEW TAKEN BY THE A.O. AND ALSO THE REASONS GIVEN FOR DENYING THE DEDUC TION TO THE ASSESSEE FOR THE VIOLATION OF ADDITION OF THE AREA OF THE PLOT. 6. SO FAR AS THE SECOND LIMB OF THE CONTROVERSY IS CONCE RNED THE A.O BROUGHT TO TAX THE PROFIT FROM HOUSING PROJECT I.E. DEVI O RCHID DECLARED BY THE ASSESSEE IN THE A.Y. 2007-08 IN THE A.Y. 2006-07. SO FAR AS THIS ISSUE IS CONCERNED THE A.O HAS OBSERVED THAT AS PER THE ASS ESSEES WORKING NET PROFIT DERIVED FROM THE HOUSING PROJECT IS RS. 2 43 01 812/- WHICH HAS BEEN CLAIMED AS DEDUCTION FOR THE A.Y. 2007-08. AS OBSERVED BY THE A.O TOTAL SALES FROM THE SAID PROJECT WERE TO THE EXTENT OF RS.11 7 8 30 654/- OUT OF WHICH THE SALES TO THE EXTENT OF RS. 11 38 30 654/- ARE EFFECTED IN THE A.Y. 2006-07 AND ONLY THE SALES TO THE EXTENT OF RS. 40 00 00 0/- HAVE BEEN SHOWN DURING THE A.Y. 2007-08. THE A.O CONCLUDED THAT IN THE A.Y. 2006- 07 THE ASSESSEE HAS COMPLETED THE PROJECT TO THE EXT ENT OF 95% AND HENC THE PROFIT TO THE EXTENT OF THE SAID SALES SHOULD BE TAXED IN THE A.Y. 2006 -07. HE THEREFORE PREPONED THE TAXABILITY OF NET PROFIT FROM T HE HOUSING PROJECT TO THE EXTENT OF RS. 2 34 76 838/- WHICH WAS PART OF THE P ROFITS DECLARED BY THE ASSESSEE IN THE A.Y. 2007-08 AND HAS CLAIMED DEDUCTI ON ON THE SAID PROFIT U/S. 80 IB (10) IN SAID ASST. YEAR. THE A.O AFTER DEN YING THE BENEFIT OF DEDUCTION U/S. 80 IB (10) BROUGHT TO TAX THE ENTIRE PRO FIT AS INCOME FOR THE A.Y. 2006-07. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD CIT(A) BUT WITHOUT SUCCESS. LD CIT(A) CONFIRMED THE ACTION OF THE A.O. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. 7. WE FIRST DEAL WITH THE REASONS OF THE AUTHORITIES BELOW FOR DENYING THE DEDUCTION TO THE ASSESSEE U/S. 80 IB (10) . THE ONL Y RESERVATION WE FIND ITA . NOS.1390 1391 & 1449//PN/2010 DEVI CONSTRUCTION CO. A.YS. 2006-07 & 2007-08 PAGE OF 13 5 IS THAT THE PLOT OF LAND IN THE OPINION OF THE AUTHORITIES BE LOW IS LESS THAN 1 ACRE AS THE SUBSTANTIAL PORTION OF THE PLOT IS RESERVED F OR D.P. ROADS HOSPITAL BUILDING AND OPEN SPACE. THE LD COUNSEL VEHEMENT LY ARGUED THAT NOWHERE IT IS MENTIONED IN THE RELEVANT PROVISION THAT THE RESERVATIONS PUT BY THE PLAN SANCTIONING AUTHORITY ARE TO BE EXCLUDED AND ONLY THE NET AREA OF THE PLOT SHOULD BE CONSIDERED. HE VEHEMENTLY ARGUED THAT SO FAR AS THE MATERNITY HOSPITAL IS CONCERNED IT IS AS PER THE CONDITION PUT BY THE SANCTIONING AUTHORITY FOR CONSTRUCTING THE BUILDING AND HA NDING OVER THE SAME TO THE PMC. HE SUBMITS THAT ASSUMING FOR THE SAKE OF ARGUMENT EVEN IF THE AREA OF CONSTRUCTION BELOW THE MATERNITY HOSPITAL T O THE EXTENT OF 494 SQ. MTS. IS EXCLUDED FROM THE TOTAL AREA OF THE PLOT I.E. 4 875 SQ. MTS. THEN ALSO THE PLOT IS MORE THAN 1 ACRE. HE PLEADED FOR ALLOWING THE DEDUCTION U/S. 80 IB (10) TO THE ASSESSEE. PER CONTRA THE LD. D.R. SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE AREA OF THE PLOT IS TO BE CONSIDERED WHICH IS AVAILABLE FOR THE CONSTRUCTION WITH T HE ASSESSEE. HE SUBMITS THAT THE AREA RESERVED FOR THE HOSPITAL CANNOT BE PART OF THE PLOT OF THE LAND ON WHICH THE HOUSING PROJECT HAS BEEN UNDERTA KEN AND THE SAME HAS TO BE EXCLUDED. 8. IN OUR OPINION THE FACTS RELEVANT TO THE ISSUE ARE IN NARROW COMPASS. WE FIND THAT THERE IS NO DISPUTE THAT THE GROS S AREA OF THE PLOT IS 84875 SQ.MTS. AS PER THE D.C. RULES THE ASSESSEE WAS R EQUIRED TO GIVE AREA FOR THE D.P. ROAD AS WELL AS FOR OPEN SPACE AS PER T HE REGULATIONS. IN ADDITION TO THAT THERE WAS A RESERVATION FOR THE HOSPITA L PROJECT THAT WAS TO THE EXTENT OF 25% OF THE FSI OF THE PLOT WHICH WORKS OUT 976 SQ. MTS BUT AT THE SAME TIME THE TOTAL AREA COVERED UNDER THE HOSPIT AL BUILDING AS NOTED BY THE A.O IS 494 SQ. MTS AND THE BALANCE AREA IS LEFT WITH THE ASSESSEE FOR HIS HOUSING PROJECT. SO FAR AS THE AREA OF THE D.P. AND OPEN SPACE IS CONCERNED THE ASSESSEE IS GIVEN THE ADDITIONAL FSI TO TH E EXTENT OF THE AREA LEFT. THE SAID AREA IS LEFT AS PER THE DC RULES BUT WHILE SA NCTIONING THE FSI THE TOTAL AREA OF THE PLOT IS CONSIDERED BY THE SAN CTIONING AUTHORITY. ITA . NOS.1390 1391 & 1449//PN/2010 DEVI CONSTRUCTION CO. A.YS. 2006-07 & 2007-08 PAGE OF 13 6 THE LAW IS WELL SETTLED ON THIS ISSUE THAT SO FAR AS OPEN ING SPACE AND THE AREA OF THE D.P. ROAD IS CONCERNED THE SAME CANNOT BE E XCLUDED FROM THE TOTAL AREA OF THE PLOT. EVEN THE LANGUAGE OF CLAUSE (B) DO ES NOT EVEN REMOTELY SUGGEST THAT ONLY THE NET AREA OF THE PLOT IS TO BE CONSIDERED. SO FAR AS THE RESERVATION OF THE HOSPITAL IS CONCERNED THE S AME IS TO BE TREATED AS A SEPARATE PROJECT AND THE AREA OCCUPIED BY THE S AID PROJECT HAS TO BE REDUCED FROM THE GROSS AREA OF 4875 SQ. MTS. AS OBSER VED BY THE A.O THE AREA COVERAGE IN THE HOSPITAL BUILDING IS 494 SQ. MRS. AND IF THE AREA OF 494 SQ. MTS. IS REDUCED FROM THE 4875 SQ. MT S. THE AVAILABLE AREA FOR THE HOUSING PROJECT IS 4381 SQ. MTS. EQUIVALENT TO 47157 SQ. FTS WHICH IS MORE THAN 1 ACRE. WE THEREFORE HOLD THAT BOTH THE AUTHORITIES BELOW ERRED IN HOLDING THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U /S. 80 IB (10) AS THE AREA OF THE PLOT OF LAND ON WHICH THE HOUSIN G PROJECT HAS BEEN CONSTRUCTED IS LESS THAN 1 ACRE. WE ACCORDINGLY REVERS E THE ORDER OF THE LD CIT(A) ON THIS ISSUE AND ALLOW THE RELEVANT GROUND TAKEN BY THE ASSESS EE. 9. THE NEXT LIMB OF THE CONTROVERSY IS WHETHER THE A.O WA S JUSTIFIED IN BRINGING TO TAX A SUM OF RS. 2 34 76 838/- IN A.Y. 2006-07 WH ICH IS A PART OF PROFIT FROM THE HOUSING PROJECT DECLARED BY THE ASSES SEE IN THE A.Y. 2007- 08. WE FIND THAT THE ASSESSEE HAS DECLARED THE TOTAL P ROFIT FROM THE HOUSING PROJECT TO THE EXTENT OF RS. 2 43 01 812/- IN A.Y. 2 007-08. ON THE BASIS OF THE SALES DECLARED BY THE ASSESSEE THE A.O IS OF THE OPINION THAT ASSESSEE HAS COMPLETED THE HOUSING PROJECT IN THE A.Y. 2006-07 ONLY BUT DECLARED THE PROFIT IN THE A.Y. 2007-08. IN OUR OPINION THE ACTION OF THE A.O IS NOT CORRECT. THE A.O CANNOT GO MERELY ON THE BASIS OF THE SALES RECORDED BY THE ASSESSEE. ADMITTEDLY THE COMPLETION CERTIFICATE H AS BEEN ISSUED TO THE ASSESSEE IN THE F.Y. 2006-07 RELEVANT TO THE A.Y. 200 7-08. MOREOVER THE A.O HAS NOT AT ALL CONSIDERED WHAT METHOD OF ACCOUN TING THE ASSESSEE WAS FOLLOWING WHETHER IT IS PROJECT COMPLETION OR PERCENTAG E COMPLETION. WE FIND THAT EVEN AS PER THE INSTRUCTIONS ISSUED BY TH E CBDT BEING INSTRUCTION NO. 4/2009 DATED 30.6.2009 THE OPTION IS GIVEN TO THE ASSESSEE ITA . NOS.1390 1391 & 1449//PN/2010 DEVI CONSTRUCTION CO. A.YS. 2006-07 & 2007-08 PAGE OF 13 7 TO CLAIM THE DEDUCTION IF HE IS FOLLOWING THE PROJECT COMPLETION METHOD. THE SAID INSTRUCTION IS MIS-INTERPRETED BY THE LD CIT(A). THE S AID INSTRUCTION SUGGEST TWO SITUATIONS - (1) THE OPTION IS WITH THE ASSESS EE TO CLAIM DEDUCTION AS PER THE COMPLETION OF THE PROJECT IF HE DESIR ES OR AFTER COMPLETION OF THE PROJECT AND (2) IN CASE THE PROJECT IS N OT COMPLETED WITHIN THE TIME LIMIT SPECIFIED THEN THE DEDUCTION CAN BE WITHDRAW N. WE FAIL TO UNDERSTAND THE LOGIC OF THE A.O FOR BRINGING TO TAX THE PROFITS DECLARED BY THE ASSESSEE FROM A.Y. 2007-08 TO A.Y. 2006-07. IN OUR OPINION SUCH ACTION OF THE A.O CANNOT BE SUSTAINED. AS PER THE COPY OF THE COMPLETION CERTIFICATE ON RECORD DATED 28.2.2007 (PAGE NO. 32 OF THE C OMPILATION) THE FINAL COMPLETION CERTIFICATE IS GRANTED TO THE ASSESSEE IN TH E F.Y. 2006-07 AND PARTIAL COMPLETION WAS GRANTED ON 31.3.2006 (PAGE NO.3 1 OF THE COMPILATION). WE FURTHER FIND THAT THE ASSESSEE IS CONSISTEN TLY FOLLOWING A PARTICULAR METHOD OF ACCOUNTING RECOGNIZING THE PROFIT WHICH HAS NOT BEEN REJECTED IN PAST. WE FURTHER FIND THAT THE A.O HAS NOT REJECTED THE ME THOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IN THE A.Y. 2006-07. W E THEREFORE HOLD THAT THERE IS NO JUSTIFICATION TO BRING TO TAX THE PART OF PROFIT FROM THE HOUSING PROJECT DECLARED BY THE ASSESSEE IN THE A.Y. 2007-08 TO TH E EXTENT OF RS. 2 34 76 838/-. WE ACCORDINGLY DELETE THE ADDITION. 10. THE GROUND NO. 2 READS AS UNDER : 2. ON FACTS & CIRCUMSTANCES PREVAILING IN THE CASE & AS PER PROVISIONS OF LAW IT BE HELD THAT THE AUTHORITIES BELOW HAVE ERRED IN ADDING A SUM OF RS. 65 65 880/- U/S. 40(A)(IA) OF THE ACT CONTRARY TO THE PROVISIONS AND SCHEME OF THE ACT & FACTS PREVAILING IN THE CASE. IT FURTHER BE HELD THAT AMOUNT OF RS. 65 65 880/- IS NOT DI SALLOWABLE AS PER THE PROVISIONS AND SCHEME OF THE ACT. THE CLAIM BE ALLOWED IN FULL. JUST AND PROPER RELIEF BE GRANTED TO THE APPELLANT IN THIS RESPECT. 11. THE ISSUE IS IN RESPECT OF NON-DEDUCTION OF TAX AT S OURCE AND THE DISALLOWANCE CONFIRMED BY THE LD CIT(A) IS AT RS. 65 65 880/ -. THE A.O. ITA . NOS.1390 1391 & 1449//PN/2010 DEVI CONSTRUCTION CO. A.YS. 2006-07 & 2007-08 PAGE OF 13 8 HAS OBSERVED THAT THE ASSESSEE HAS PAID THE TOTAL AMO UNT OF RS. 70 22 985/- UNDER THE HEAD PAID CONTRACTORS AS FOLLOWING : SR.NO. NAME OF THE CONTRACTOR AMOUNT 1. JAGDALE BAJIRAO REINFORCEMENT RS.13 83 642/- 2. MORE PARWANT CENTERING RS.9 76 589/- 3. RANDHAVE BHALCHANDRA- BBM/PLASTER RS.8 47 330/- 4. RASKER MADHUKAR HACKING RS.28 88 991/- 5. VATEKAR KANIFNATH LABOUR WORK RS.9 26 433/ - TOTAL . RS.70 22 985/- THE ASSESSEE CONTENDED THAT THE PAYMENTS WERE NOT M ADE TO CONTRACTOR BUT TO THE VARIOUS WORKERS/LABOURERS. THOSE 5 PARTIES/PERS ONS ARE SUPPOSED TO HAVE BROUGHT THE LABOUR AND THE ASSESSEE HAS SUPPOS ED TO HAVE MADE PAYMENTS DIRECTLY TO THE WORKERS. THE ASSESSEE ALSO C ONTENDED THAT THOSE 5 PARTIES ARE NOT ACTUAL RECIPIENT OF MONEY BUT THERE WER E NUMEROUS WORKERS TO WHOM THE PAYMENTS WERE MADE. THE A.O REJECTED THE EXPLANATION OF THE ASSESSEE THAT THE PAYMENTS WERE NOT MADE TO THE CON TRACTORS BUT THE LABOURERS/WORKERS. THE A.O THEREFORE MADE THE DISALLOWANC E TO THE EXTENT OF RS. 65 65 880/- BY EVOKING THE PROVISION OF SEC. 40(A)(IA) OF THE ACT. THE A.O. ALLOWED THE EXPENSES TO THE EXTENT OF RS. 4 57 105/-. THE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE THE LD CIT(A) BUT WITHOU T SUCCESS. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. THOUGH THE LD COUNSEL SUBMITS THAT PAYMENTS W ERE MADE TO THE WORKERS THEN THE QUESTION COMES WHY THE PAYMENTS ARE MADE TO A PARTICULAR PERSON. IT APPEARS THAT THE PERSONS TO WH OM THE PAYMENTS ARE MADE ARE THE LABOUR CONTRACTORS AND ASSESSEE WAS BOU ND TO DEDUCT THE TAX AT SOURCE FROM THE PAYMENTS MADE TO THE LABOUR CONTRA CTORS AS PROVIDED U/S. 194C OF THE ACT. ALTERNATIVELY THE LD. COUNSEL SUBMIT S THAT DISALLOWANCE CAN BE RESTRICTED TO THE EXTENT THE PAYM ENTS OUTSTANDING AS ON THE 31 ST MARCH OF THE RESPECTIVE FINANCIAL YEAR. THE LD. COUNSEL HAS ITA . NOS.1390 1391 & 1449//PN/2010 DEVI CONSTRUCTION CO. A.YS. 2006-07 & 2007-08 PAGE OF 13 9 ALSO RELIED ON THE DECISION OF THE HONBLE SPECIAL BENCH OF I TAT VISAKHAPATANAM IN THE CASE OF MERILYN SHIPPING AND TRANS PORT VS. ACIT VISAKHAPATANAM BEING ITA NO. 477/VIZAG/2008 DATED 29 M ARCH 2012. WE FIND FORCE IN THE ARGUMENT OF THE LD. COUNSEL ON ALTERNATE PLEA. WE ACCORDINGLY RESTORE THE GROUND NO. 2 TO THE FILE OF THE A .O TO SUSTAIN THE DISALLOWANCE TO THE EXTENT OF AMOUNT OUTSTANDING OUT OF THE 5 PARTIES AS ON 31.3.2006 IN THE LIGHT OF THE PRINCIPLES LAID DOWN IN THE CASE OF M/S. MERILYN SHIPPING AND TRANSPORT V/S. ACIT (SUPRA). THE A. O IS DIRECTED TO GIVE THE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DECIDE THE ISSUE AFRESH. ACCORDINGLY GROUND NO. 2 IS PARTLY ALLOWED. 13. THE GROUND NO. 3 READS AS UNDER : 3. ON THE FACTS & CIRCUMSTANCES PREVAILING IN THE CASE & AS PER PROVISIONS OF LAW IT BE HELD THAT THE ASSESSING OFFIC ER HAS ERRED IN HOLDING PART OF THE EXPENDITURE INCURRED PERTAINING TO WINDMILLS AS RELATED TO CIVIL WORK ON WHICH DEPRECIATION IS ADMITT ED @ 10% AS AGAINST 80% CLAIMED BY THE APPELLANT. IT BE HELD THAT AS PER FACTS PREVAILING IN THE CASE THE ENTIRE EXPENDITURE PERTA INING TO WINDMILL IS ELIGIBLE FOR DEPRECIATION @80% & NO PART OF SUCH EXP ENDITURE CAN BE CONSIDERED AS RELATED TO CIVIL WORK. JUST & PROPER RELIEF BE GRANTED TO THE APPELLANT IN THIS RESPECT. 14. THE BRIEFLY STATED FACTS PERTAINING TO THE GROUND NO. 3 ARE AS UNDER. THE ASSESSEE HAS CLAIMED DEPRECIATION AT THE RATE OF 80 % ON THE WINDMILLS. THE 80% OF THE DEPRECIATION WAS ON THE TOTAL COST OF T HE WINDMILLS INCLUDING THE CIVIL WORK. THE A.O. HAS OBSERVED THAT M/S. SUZLON INFRASTRUCTURE HAS RAISED COMPOSITE BILLS OF RS. 31 96 616/- FOR CIVIL WORK CONSISTING OF CONSTRUCTION OF ONE WINDMILL FOUNDATION AND TRAN SFORMER PLINTH ELECTRICAL YARD FENCING ROAD FOR MOVEMENT OF CRANE AN D PREPARATION OF CRANE PLATFORM. THE A.O HAS RESERVATION IN ALLOWING THE E XPENDITURE RELATED TO THE ELECTRICAL YARD FENCING ROAD FOR MOVEMENT OF CRANE AND PREPARATION OF CRANE PLATFORM AS IN HIS OPINION ONLY 10% DE PRECIATION CAN BE ALLOWED. HE ALLOWED THE DEPRECIATION ON THE WINDMILL FOUND ATION AND ITA . NOS.1390 1391 & 1449//PN/2010 DEVI CONSTRUCTION CO. A.YS. 2006-07 & 2007-08 PAGE OF 13 10 TRANSFORMER PLINTH TAKING THE SAME AS DIRECTLY RELATED AN D NECESSARY FOR THE WORKING OF THE WINDMILL. THE LD COUNSEL RELIED ON THE DECISION OF THE ITAT AHMEDABAD IN THE CASE OF ACIT (OSD) AHMEDABAD VS. PAR RY ENGINEERING AND ELECTRONICS P.LTD. ITA NO. 3317/AHD/ 2011 DT. 2.3.2012 . HE PRAYED FOR ALLOWING THE DEPRECIATION AT 80% ON THE ENTIRE CAPITAL EXPENDITURE. WE HAVE ALSO HEARD THE LD. D.R. 15. IN THE CASE OF PARRY ENGINEERING AND ELECTRONICS P. LT D. (SUPRA) IT IS HELD THAT FOUNDATION CIVIL AND ELECTRICAL WORK ARE NECESSA RY FOR THE INSTALLATION OF THE WINDMILL AND IS CLEARLY PART AND PARCEL OF THE WINDMILL PROJECT ON WHICH DEPRECIATION AT THE RATE OF 80% IS ALLOWA BLE. IN THE PRESENT CASE THE A.O HAS DISALLOWED ON ELECTRICAL YARD FENCING AND ROAD FOR MOVEMENT OF THE CRANE BUT ALLOWED THE DEPRECIATION ON WIN DMILL FOUNDATION AND TRANSFORMER PLINTH. IN OUR OPINION ROAD CON STRUCTED FOR MOVEMENT OF THE CRANE CANNOT BE SAID TO BE THE PART O F THE WINDMILL BUT THE ELECTRICAL YARD FENCING IS A PART OF THE WINDMILL. WE ACCORDIN GLY DIRECT THE A.O TO ALLOW THE DEPRECIATION AT THE RATE OF 80% ON THE E LECTRICAL YARD FENCING. ACCORDINGLY GROUND NO. 3 IS PARTLY ALLOWED. 16. NOW TAKE UP THE ASSESSEES APPEAL FOR A.Y. 2007-08 B EING ITA NO. 1391/PN/2010. 17. GROUND NO. 1 READS AS UNDER : 1. ON FACTS & CIRCUMSTANCES PREVAILING IN THE CASE & AS PER PROVISIONS OF LAW IT BE HELD THAT THE AUTHORITIES BELOW HAVE ERRED IN DENYING THE CLAIM OF DEDUCTION U/S. 80IB(10) OF THE AC T ON INCOME OF THE ELIGIBLE PROJECT DETERMINED AT RS.2 34 76 838/-. IT BE HELD THAT THE INCOME IS ELIGIBLE FOR DEDUCTION U/S. 80IB(10) OF THE ACT. JUST AND PROPER RELIEF BE GRANTED TO THE APPELLANT ON THIS SCORE. 18. WE HAVE HEARD THE PARTIES. IN THIS YEAR ON PROTECT IVE BASIS THE A.O BROUGHT TO TAX RS. 2 34 76 838/- AND ALSO DENIED THE DE DUCTION U/S. 80 KIB (10). WHILE DECIDING ASSESSEES APPEAL FOR A.Y. 2006-07 W E HAVE HELD THAT THE ASSESSEE IS ENTITLED FOR THE DEDUCTION U/S. 80 I B (10) AND FOLLOWING ITA . NOS.1390 1391 & 1449//PN/2010 DEVI CONSTRUCTION CO. A.YS. 2006-07 & 2007-08 PAGE OF 13 11 OUR REASONING AND FINDING FOR A.Y. 2006-07 WE DIRECT THE A .O TO ALLOW THE DEDUCTION TO THE ASSESSEE U/S. 80 IB(10) IN RESPECT OF HOUSING PROJECT AS CLAIMED. WHILE DECIDING THE ASSESSEES APPEAL FOR A.Y. 2006- 07 WE HAVE FURTHER HELD THAT THE A.O WAS NOT JUSTIFIED IN BRINGING TO TAX A SUM OF RS.2 34 76 838/- OUT OF THE PROFIT FROM THE HOUSING PROJECT WHICH HAS BEEN DECLARED BY THE ASSESSEE IN THE A.Y. 2007-08. AS WE HAV E DELETED THE ADDITION IN THE A.Y.2006-07 THEN TO THAT EXTENT THE PRO FIT FROM THE HOUSING PROJECT AT RS. 2 34 76 838/- IS TO BE ASSESSED ON THE S UBSTANTIVE BASIS. ACCORDINGLY GROUND NO. 1 IS ALLOWED. 19. GROUND NO. 2 IS IN RESPECT OF THE CLAIM OF THE DEPRECIAT ION AT 80% ON THE CIVIL WORK OF THE WINDMILL. WE HAVE ALREADY ADJUDICATED T HE IDENTICAL ISSUE IN THE A.Y. 2006-07. WE ACCORDINGLY DIRECT THE A.O T O ALLOW THE DEPRECIATION ON WDV OF WINDMILL AS PER OUR FINDINGS ON THIS IS SUE IN THE A.Y. 2006-07. ACCORDINGLY GROUND NO. 2 IS PARTLY ALLOWED. 20. SO FAR AS GROUND NO. 3 IS CONCERNED IT IS IN RESPECT OF THE DISALLOWANCE OF SUM OF RS. 27 03 673/- U/S. 40A(IA) OF THE ACT. WE HAVE ALREADY ADJUDICATED IDENTICAL ISSUE IN THE A.Y. 2006-07. FOLLO WING OUR REASONING AND FINDINGS IN THE A.Y. 2006-07 WE DIRECT THE A. O TO SUSTAIN THE DISALLOWANCE TO THE EXTENT OF AMOUNT OUTSTANDING AS ON 3 1.3.2007. ACCORDINGLY IN THIS YEAR ALSO THE SAID GROUND IS PARTLY ALLOWED. 21. NOW WE TAKE UP THE REVENUES APPEAL FOR A.Y. 2007- 08 BEING ITA NO. 1449/PN/2010. THE REVENUE HAS TAKEN THE FOLLOWING TWO EFFECTIVE GR OUNDS : 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) E RRED IN DELETING THE INCOME OFFERED BY THE ASSESSEE ITSELF U /S 80IB(10) OF THE I.T. ACT 1961 WHICH WAS ASSESSED TO TAX BY THE ASSESS ING OFFICER ON PROTECTIVE BASIS MERELY ON THE GROUND THAT THE SAME HAS BEEN SUBSTANTIVELY CONFIRMED IN THE EARLIER YEAR. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN NOT APPRECIATING THE FACT THAT THE DEDUCTION U/S 80IB(10) CLAIMED BY THE ASSESSEE FOR THE IMPUGNED INCOME HAD BEEN DENIED BY THE ASSESSING OFFICER SINCE THE ASSESSEE HAD VIOLATED THE CONDITI ON LAID DOWN IN SEC. ITA . NOS.1390 1391 & 1449//PN/2010 DEVI CONSTRUCTION CO. A.YS. 2006-07 & 2007-08 PAGE OF 13 12 80 IB(10)(B) WHICH WAS FURTHER UPHELD BY HIM IN HIS APP ELLATE ORDER FOR THE EARLIER A.Y. 22. SO FAR AS GROUND NO. 2 IS CONCERNED THE SAME IS TO ALLOWED AS WE HAVE DELETED THE ADDITION MADE BY THE A.O IN THE A.Y. 200 6-07 IN RESPECT OF THE PART OF THE PROFIT FROM THE HOUSING PROJECT. IN THE A.Y. 2007-08 THE ASSESSEE OFFERED THE ENTIRE PROFIT FROM THE HOUSING PROJEC T BUT WHILE COMPLETING ASSESSMENT THE A.O. SUSTAINED THE ADDITION ON T HE PROTECTIVE BASIS TO THE EXTENT OF PROFIT BROUGHT TO TAX IN THE A.Y. 2 006-07. AS WE HAVE DELETED THE ADDITION MADE BY THE A.O IN RESPECT OF THE P ART OF THE PROFIT ASSESSED IN THE A.Y. 2006-07 THE SAME HAS TO BE TAXED ON THE SUBSTANTIVE BASIS IN A.Y. 2007-08. ACCORDINGLY GROUND NO. 2 IS ALLOWED. 23. SO FAR AS NEXT GROUND IS CONCERNED IT IS MISPLACED AS THE LD CIT(A) HAS NOT ALLOWED THE CLAIM OF THE ASSESSEE U/S. 80 IB (10) H ENCE GROUND NO. 3 IS DISMISSED AS INFRUCTUOUS. 24. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEES A RE PARTLY ALLOWED AND REVENUES APPEAL IS ALSO PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 27TH JULY 2012. SD/- SD/- (G.S. PANNU) ACCOUNTANT MEMBER (R.S.PADVEKAR ) JUDICIAL MEMBER PUNE DATED THE 27TH JULY 2012 US COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT II PUNE 4. THE CIT(A)-II PUNE ITA . NOS.1390 1391 & 1449//PN/2010 DEVI CONSTRUCTION CO. A.YS. 2006-07 & 2007-08 PAGE OF 13 13 5. THE D.R. B BENCH PUNE 6. GUARD FILE /- TRUE COPY-/ BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE