R.Sethuraman, Trichy v. DCIT, Trichy

ITA 596/CHNY/2011 | 2003-2004
Pronouncement Date: 11-07-2011 | Result: Allowed

Appeal Details

RSA Number 59621714 RSA 2011
Assessee PAN AAGPS2195C
Bench Chennai
Appeal Number ITA 596/CHNY/2011
Duration Of Justice 3 month(s) 11 day(s)
Appellant R.Sethuraman, Trichy
Respondent DCIT, Trichy
Appeal Type Income Tax Appeal
Pronouncement Date 11-07-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 11-07-2011
Date Of Final Hearing 11-07-2011
Next Hearing Date 11-07-2011
Assessment Year 2003-2004
Appeal Filed On 31-03-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH D CHENNAI B E F O R E DR. O.K.NARAYANAN VICE PRESIDENT AND SHRI HARI OM MARATHA JUDICIAL MEMBER .. ITA NOS.679 TO 684(MDS)/2011 ASSESSMENT YEARS: 2000-01 TO 2005-06 THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE I(1) TIRUCHIRAPALLI. (APPELLANT) VS. SHRI R.SETHURAMAN WIN PHARMA/SHENBAGAM BUILDERS 4E-DINDIGUL RD. TIRUCHIRAPALLI-620 001. PAN AAGPS2195C. (RESPONDENT) AND ITA NOS.596 & 597(MDS)/20 11 ASSESSMENT YEARS: 2003-04 & 200 4-05 SHRI R.SETHURAMAN SHENBAGAM BUILDERS 4E DINDIGUL ROAD VS TIRUCHIRAPALLI-621 001. (APPELLANT) THE DEPUTY COMMISSIONER OF INCOME-TAX COMPANY CIRCLE I TIRUCHIRAPALLI. (RESPONDENT) DEPARTMENT BY : SHRI K.E.B.RENGARAJAN JR. STAND ING COUNSEL ASSESSEE BY: SHRI V.D.GOPAL ADVOCATE. ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 2 O R D E R PER DR.O.K.NARAYANAN VICE-PRESIDENT: THIS BUNCH OF EIGHT APPEALS CONSISTS OF SIX APPEA LS FILED BY THE REVENUE AND TWO APPEALS BY THE ASSESSEE. TH E REVENUES APPEALS RELATE TO THE ASSESSMENT YEARS 20 00-01 TO 2005-06. THE APPEALS OF THE ASSESSEE RELATE TO THE ASSESSMENT YEARS 2003-04 AND 2004-05. 2. THESE APPEALS ARE DIRECTED AGAINST THE COMMON ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APP EALS) TIRUCHIRAPALLI ON 11-1-2011. THE APPEALS ARISE OUT OF THE ASSESSMENTS COMPLETED UNDER SECTION 143(3) AND UNDE R SECTION 143(3) READ WITH SECTION 147 OF THE INCOME-TAX ACT 1961. 3. THE ASSESSEE IS THE PROPRIETOR OF M/S.WIN PHARM A AN UNDERTAKING CARRYING ON BUSINESS IN PHARMACEUTIC ALS. M/S. WIN PHARMA WAS INITIALLY A PARTNERSHIP FIRM WITH TH E ASSESSEE AND TWO OTHERS AS THE PARTNERS. WHEN THE PARTNERSH IP WAS ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 3 SUBSISTING LAND MEASURING ABOUT 1 ACRE WAS PURCHAS ED ON 14- 12-1978 AND SHOWN AS THE BUSINESS ASSET OF THE FIRM M/S.WIN PHARMA. LATER ON THE TWO OTHER PARTNERS RETIRED F ROM THE FIRM ON 24-6-1979 WHEREUPON THE ASSESSEE BECAME THE ABSOLU TE OWNER OF THE LAND AND ALSO OF THE BUSINESS OF M/S.WIN PHA RMA. THE ASSESSEE HELD THE LAND AS HIS INDIVIDUAL PROPERTY A ND CONTINUED TO RUN THE BUSINESS OF M/S. WIN PHARMA AS HIS PROPR IETARY CONCERN. THEREAFTER THE ASSESSEE AGAIN PURCHASED A NOTHER ACRE OF LAND ADJACENT TO THE LAND ALREADY PURCHASED IN THE ACCOUNTS OF M/S. WIN PHARMA. THE SUBSEQUENT PURCHASE OF THE LAND WAS ON 24-1-1981. THUS THE ASSESSEE BECAME THE OWNER O F ABOUT TWO ACRES OF LAND. OUT OF THE ABOVE LAND AN AREA TO THE EXTENT OF 25 000 SFT. WAS SOLD TO THE LIFE INSURANCE CORPORAT ION OF INDIA WAY BACK IN THE YEAR 1991-92. 4. AFTER A LONG TIME THE ASSESSEE STARTED SELLING THE UNDIVIDED SHARE IN THE REMAINING PORTION OF THE LAN D HELD BY HIM FROM THE YEAR 1999-2000 ONWARDS. THE RIGHT IN THE LAND WAS TRANSFERRED TO OTHERS BY MEANS OF REGISTERED DOCUME NTS. THE ASSESSEE ALSO SIMULTANEOUSLY CONSTRUCTED FLATS ON T HE LAND AND ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 4 FINALLY SOLD OUT THE LAND AND FLATS AS A UNIT OF HO USING PROJECT. ACCORDING TO THE ASSESSEE THE ACTIVITIES CARRIED O UT BY HIM AMOUNTED TO DEVELOPMENT OF HOUSING PROJECT. ON THE BASIS OF THE ABOVE HE CLAIMED DEDUCTION UNDER SECTION 80IB( 10) OF THE INCOME-TAX ACT 1961. 5. THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 80IB(10) WAS NOT ACCEPTABLE TO THE ASSESSIN G AUTHORITY. IT WAS THE VIEW OF THE ASSESSING AUTHORITY THAT THE ASSESSEE HAD NOT SOLD THE FLATS AS SUCH BUT SOLD ONLY LAND DURI NG THE YEARS 1999-2000 TO 2003-04. ACCORDING TO THE ASSESSING A UTHORITY THE ASSESSEE SOLD LAND AND THEREAFTER ENTERED INTO AGRE EMENTS WITH THE BUYERS TO DEVELOP AND CONSTRUCT DWELLING UNITS ON THE BASIS OF THE TERMS AND CONDITIONS MUTUALLY AGREED UPON. THE ASSESSING AUTHORITY THEREFORE HELD THAT THE ASSES SEE COULD NOT BE TREATED AS A DEVELOPER OF HOUSING PROJECT AND O N THE OTHER HAND HIS ROLE WAS THAT OF A BUILDING CONTRACTOR. THE ASSESSING AUTHORITY HELD THAT THE LAND WAS SEPARATELY SOLD BY THE ASSESSEE AND THE CONSTRUCTION WAS DONE THEREAFTER AND THEREF ORE THE TRANSACTION ENTERED INTO BY THE ASSESSEE CANNOT BE TREATED AS ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 5 PART OF A COMPOSITE UNIT AND THE SALE OF THE LAND A ND CONSTRUCTION OF FLATS NEED TO BE CONSIDERED AS DIFFERENT ACTIVIT IES. 6. ON THE BASIS OF THE ABOVE FINDING THE ASSESSIN G AUTHORITY CONVEYED HIS PROPOSAL TO THE ASSESSEE TO TREAT THE SURPLUS ARISING ON THE SALE OF THE LAND AS CAPITAL GAINS LIABLE FOR TAXATION. THE ASSESSEE EXPLAINED BEFORE THE ASSESS ING AUTHORITY THAT A HOUSING PROJECT MENTIONED IN SECTION 80IB(10 ) CANNOT BE MERE BUILDINGS ALONE AND SUCH PROJECT NECESSARILY I NCLUDES BOTH LAND AND SUPERSTRUCTURE THEREON. THE ASSESSEE EXPL AINED THAT SUPERSTRUCTURE AS SUCH IS NOT A MARKETABLE UNIT WIT HOUT LAND AND THE BUILDING IN THE FORM OF FLATS ALL WENT TOGETHER AND SOLD AS SUCH CONVEYING INDEPENDENT RIGHT OF INDIVIDUAL HOUSING U NITS ALONGWITH UNDIVIDED RIGHT IN THE LAND. THE ASSESSEE EXPLAINE D THAT THE ASSESSEE IS NOT A DEALER IN LAND AND THEREFORE THER E IS NO REASON FOR THE ASSESSING OFFICER TO COME TO A FINDING THAT WHAT WAS SOLD BY THE ASSESSEE WAS ONLY LAND. THE ASSESSEE ALSO E XPLAINED THAT THE PROJECT AS A WHOLE WAS APPROVED BY THE COM PETENT LOCAL AUTHORITY AND ALL THE CONDITIONS LAID DOWN IN THE I NCOME-TAX ACT HAVE BEEN COMPLIED WITH BY THE ASSESSEE AND THEREFO RE THERE IS ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 6 NO REASON TO TREAT THE SALE OF FLATS AS TWO DIFFERE NT TRANSACTIONS ONE RELATING TO LAND AND THE OTHER RELATING TO SUPE RSTRUCTURE. 7. REJECTING THE CONTENTIONS OF THE ASSESSEE THE ASSESSING AUTHORITY PROCEEDED TO COMPLETE THE ASSES SMENTS AS PROPOSED BY HIM BY COMPUTING CAPITAL GAINS ATTRIBUT ABLE TO THE ALLEGED SALE OF LAND. THE ASSESSING AUTHORITY HAS R ELIED ON THE FOLLOWING DECISIONS TO SUPPORT HIS CONTENTION:- 1. COMMISSIONER OF INCOME-TAX VS. ALPS THEATRE 65 ITR 377 (SC) 2. COMMISSIONER OF INCOME-TAX VS. VIMALCHAND GOLECHA 201 ITR 442 (RAJ.) 3. COMMISSIONER OF INCOME-TAX VS. DR. D.L.RAMA- CHANDRA RAO 236 ITR 51 (MAD) 4. COMMISSIONER OF INCOME-TAX VS. CITIBANK N.A. 261 ITR 570 (BOM). 8. THEREAFTER THE ASSESSING AUTHORITY COMPUTED CAP ITAL GAINS SEPARATELY BY TREATING THE SALE CONSIDERATION OF LAND AS PER THE AMOUNTS REFLECTED IN THE REGISTERED TRANSFER DE EDS. THUS AGAINST THE CLAIM OF DEDUCTION MADE BY THE ASSESSEE UNDER SECTION 80IB(10) THE ASSESSING OFFICER EXCLUDED A PORTION OF THE ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 7 INCOME FROM THE BUSINESS PROFITS AND BROUGHT THE SA ME TO TAX UNDER THE HEAD CAPITAL GAINS. 9. THE ASSESSMENTS WERE TAKEN IN FIRST APPEAL BEFO RE THE COMMISSIONER OF INCOME TAX (APPEALS) AT TIRUCHI RAPALLI. THE ISSUES RAISED BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) WERE ASSESSMENT OF CAPITAL GAINS IN ALL T HE IMPUGNED ASSESSMENT YEARS DENIAL OF DEDUCTION UNDER SECTION 80IB(10) FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 AND AS SESSMENT OF UNEXPLAINED INVESTMENT IN CONSTRUCTION OF FLATS IN THE ASSESSMENT YEAR 2003-04. 10. AS FAR AS THE CAPITAL GAINS ASSESSMENT IS CONCERNED THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE ASSESSEE HAD ADMITTED THE ENTIRE RECEIPTS ON SALE OF LAND AS WELL AS ON SALE OF FLATS AS BUSINES S RECEIPTS IN HIS PROFIT AND LOSS ACCOUNTS FOR THE ASSESSMENT YEARS 2 003-04 ONWARDS. THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT ATTEMPTING OF SEPARATE CAPITAL GAINS ASSESSMEN T WOULD AMOUNT TO DUPLICATION OF ASSESSMENT OF SAME RECEIPT TWICE; THAT ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 8 IS ONE UNDER THE HEAD BUSINESS INCOME AND AGAIN U NDER THE HEAD CAPITAL GAINS. APART FROM THIS DUPLICATION OF ASSESSMENT OF THE SAME RECEIPT THE COMMISSIONER OF INCOME TAX (A PPEALS) OBSERVED THAT DEVELOPING AND BUILDING OF A HOUSING PROJECT BEING A BUSINESS ACTIVITY AND THE RECEIPTS ARISING OUT OF SUCH ACTIVITY MUST BE ASSESSED UNDER A SINGLE HEAD AS INCOME FROM BUSINESS. THE COMMISSIONER OF INCOME TAX (APPEALS) ALSO OBSER VED THAT THE SALE OF LAND MADE BY THE ASSESSEE WAS IN FACT S ALE OF UNDIVIDED SHARES IN THE LAND TO VARIOUS PERSONS WHO HAVE PURCHASED FLATS AND THEREFORE THE ENTIRE TRANSACTIO N SHOULD BE TREATED AS A COMPOSITE ONE INVOLVING SALE OF FLATS ALONGWITH UNDIVIDED SHARE IN THE LAND AND COMMON AREA. HE A LSO OBSERVED THAT THE ASSESSEE HAD ADMITTED THE ENTIRE SALE OF UNDIVIDED SHARE IN THE LAND IN THE YEAR OF COMPLETI ON OF THE PROJECT. ACCORDINGLY HE HELD THAT THE ENTIRE TRANS ACTION WAS IN THE NATURE OF DEVELOPING OF HOUSING PROJECT AND THE ENTIRE SALE PROCEEDS RELATED TO BUSINESS RECEIPTS AND THEREFORE THE INCOME SHOULD BE ASSESSED UNDER THE HEAD BUSINESS INCOME. HE CANCELLED THE CAPITAL GAINS ASSESSMENTS MADE BY THE ASSESSING AUTHORITY FOR THE ASSESSMENT YEARS 2000-01 TO 2005- 06. ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 9 11. AS FAR AS THE NEXT ISSUE OF DENIAL OF DEDUCTIO N UNDER SECTION 80IB(10) FOR THE ASSESSMENT YEARS 2003-04 A ND 2004-05 IS CONCERNED THE COMMISSIONER OF INCOME TAX (APPEA LS) HELD THAT THE ASSESSEE HAD FAILED TO PROVE THAT THE EXTE NT OF LAND UTILIZED FOR THE HOUSING PROJECT WAS MORE THAN ONE ACRE WHICH AMOUNTED TO VIOLATION OF A NECESSARY STIPULATION EM BEDDED IN THE SCHEME OF DEDUCTION AVAILABLE UNDER SECTION 80IB(10 ). EVEN THOUGH THE CLAIM OF THE ASSESSEE WAS THAT THE APPRO VAL IN RESPECT OF THE PROJECT WAS GRANTED TO AN EXTENT OF LAND MEASURING 47 048 SFT. THE COMMISSIONER OF INCOME TAX (APPEAL S) AGREED WITH THE ASSESSING AUTHORITY THAT THE ASSESSEE HAD SOLD ONLY 35 864 SFT. THEREBY KEEPING A PORTION OF LAND FOR HIMSELF AND AWAY FROM THE PROJECT. ACCORDINGLY HE UPHELD THE D ENIAL OF DEDUCTION UNDER SECTION 80IB(10). THIS POINT WAS D ECIDED AGAINST THE ASSESSEE. 12. REGARDING THE ADDITION OF ` . 1 39 08 127/- MADE FOR THE ASSESSMENT YEAR 2003-04 UNDER SECTION 69C THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE REPORT OF ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 10 THE DEPARTMENTAL VALUATION OFFICER CANNOT BE THE ON LY BASIS FOR WORKING OUT THE COST OF CONSTRUCTION AND ALL THE NE CESSARY FACTORS MUST BE CONSIDERED IN UNISON. HE OBSERVED THAT IN THE PRESENT CASE THE ASSESSING OFFICER WAS CARRIED AWAY BY THE VALUATION REPORT OF THE DVO WHICH PROMPTED HIM TO IGNORE THE REPORT OF THE REGISTERED VALUER SUBMITTED BY THE ASSESSEE. THE COMMISSIONER OF INCOME TAX (APPEALS) RELIED ON THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF SARGAM CINEMA VS. COMMISSIONER OF INCOME-TAX 328 ITR 513 AND IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME-TAX VS. DHAVIYA CONSTRUXCTION CO. 328 ITR 515 WHERE IT HAS BEEN H ELD THAT THE OPINION OF THE DVO ALONE CANNOT BE RELIED ON WITHOU T MATERIALS TO SUPPORT IT. TAKING INTO CONSIDERATION ALL THE A SPECTS OF THE CASE HE DELETED THE ADDITION MADE FOR THE ASSESSMEN T YEAR 2003-04. 13. ACCORDINGLY THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE APPEALS FILED BY THE ASSESSEE FOR THE ASSESSMENT YEARS 2000-01 TO 2002-03 AND 2005-06 AND PARTLY ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 11 ALLOWED THE APPEALS FOR THE ASSESSMENT YEARS 2003-0 4 AND 2004-05. 14. THE REVENUE AS WELL AS THE ASSESSEE ARE AGGRIEVED ON THE ORDERS OF THE COMMISSIONER OF INCO ME TAX (APPEALS) AND THEREFORE FILED THESE APPEALS BEFORE THE TRIBUNAL. 15. AS FAR AS THE SIX APPEALS FILED BY THE REVENUE ARE CONCERNED THE ISSUE IS COMMON THAT RELATING TO TH E QUESTION OF COMPUTATION OF CAPITAL GAINS. ACCORDINGLY THE GROUN DS RAISED ARE ANALOGOUS. THE REVENUE HAS RAISED EXACTLY THE SAME GROUNDS FOR ALL THE SIX ASSESSMENT YEARS AS THE ISSUE IS A LSO ONE AND THE SAME. 16. FOR THE SAKE OF CONVENIENCE THE GROUNDS RAISE D BY THE REVENUE AS REFLECTED FOR THE ASSESSMENT YEAR 2 000-01 ARE REPRODUCED BELOW:- 1. THE CIT(APPEALS) ERRED IN COMING TO A CONCLUSI ON THAT THERE WAS NO MATERIAL FOR THE ASSESSING OFFICE R TO ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 12 DECIDE THAT THERE WAS UNDER ESTIMATION OF THE COST OF CONSTRUCTION BY THE ASSESSEE. THE CIT(APPEALS) FAI LED TO NOTE THAT ASSESSING OFFICER HAS CLEARLY MENTIONE D IN THE ASSESSMENT ORDER THAT COST OF CONSTRUCTION WAS ONLY 38.6% OF THE SALE PROCEEDS PLUS CLOSING STOCK OF THE UNSOLD FLATS. THE GROSS PROFIT SHOWN BY THE ASSESSEE WAS TOO HIGH TO BE BELIEVED AND THEREFORE BOOKS OF ACCOUNTS FOR COST OF CONSTRUCTION COULD NO T BE RELIED UPON. THE CIT(APPEALS) FAILED TO APPRECIATE THAT HIGHER GROSS PROFIT WAS SHOWN TO AVAIL MORE BENEFIT U/S 80IB(10). 2. THE CIT(APPEALS) ALSO ERRED IN CONCLUDING THAT ASSESSING OFFICER MERELY PLACED RELIANCE ON THE VALUATION REPORT TO MAKE THE ADDITION. THE CIT(APPEALS) FAILED TO TAKE NOTE OF THE FACT THAT T HE COST OF CONSTRUCTION DETERMINED BY THE DISTRICT VALUATION OFFICER WAS ` . 4 99 62 000/- WHILE THE ASSESSING OFFICER ADOPTED THE CONSTRUCTION AT ` .5 39 53 114/- IN THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS TAKEN INDEPENDENTLY DECISION ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 13 TOWARDS COST OF CONSTRUCTION THOUGH HE HAS CONSIDER ED THE REPORT OF THE DISTRICT VALUATION OFFICER WHILE WORKING OUT THE ESTIMATED COST OF CONSTRUCTION. 3. THE RELIANCE OF THE CIT(APPEALS) ON THE CASE OF DHARIYA CONSTRUCTION AND V.T.RAJENDRAN WAS MISPLACED AS BOTH THESE CASES RELATE TO REOPENING O F THE ASSESSMENT SOLELY ON THE BASIS OF DISTRICT VALUATION OFFICERS VALUATION REPORT WHICH WAS NOT THE CASE IN THE IMPUGNED APPEAL. 4. THE RELIANCE OF THE CIT(APPEALS) ON THE C ASE OF SARGAM CINEMA IS ALSO MISPLACED AS IN THAT CASE MATTER WAS REFERRED TO THE DISTRICT VALUATION OFFIC ER WITHOUT REJECTING THE BOOKS OF ACCOUNTS. THIS WAS NOT THE CASE IN RESPECT OF THE PRESENT ASSESSEE. THE ASSESSING OFFICER IN THE INSTANT CASE REFERRED THE MATTER TO VALUATION ON ACCOUNT OF FAILURE OF THE ASSESSEE TO PRODUCE THE BOOKS OF ACCOUNTS CALLED FO R AND ON THE BASIS OF ANALYSIS OF DETAILS AVAILABLE O N RECORD IN RESPECT OF COST OF CONSTRUCTION & COMING TO A PRIMA FACIE CONCLUSION THAT ADMITTED COST OF ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 14 CONSTRUCTION WAS VERY LOW AS COMPARED TO OTHER SIMILARLY PLACED ASSESSEES. 17. WE CONSIDERED THE ISSUE VERY SERIOUSLY. THE ASSESSEE HAD CONSTRUCTED 82 RESIDENTIAL FLATS IN TH E LAND OWNED BY HIM. THE RESIDENTIAL UNITS WERE CONSTRUCTED BY THE ASSESSEE AFTER OBTAINING THE APPROVAL FROM THE LOCAL AUTHORI TY VIDE APPROVAL ORDER NO.21/2000 DATED 20-4-2000. AFTER OBTAINING THE APPROVAL AND AFTER PROMOTING THE HOUSING PROJECT THE ASSESSE E ENTERED INTO CONSTRUCTION AGREEMENTS WITH BUYERS AND ALSO S OLD SHARE OF UNDIVIDED RIGHTS IN THE LAND TO THOSE BUYERS OF THE FLATS THROUGH REGISTERED SALE DEEDS. THE PROJECT WAS COMPLETED D URING THE ASSESSMENT YEAR 2003-04 AND FEW REMAINING FLATS WER E SOLD IN 2004-05. THE ASSESSEE GOT THE APPROVAL OF THE LOCA L AUTHORITY TO CONSTRUCT 82 APARTMENTS OF AN AREA OF 47 048 SFT. ALL THE FLATS MEASURED LESS THAN 1 500 SFT. EACH. THE ASSESSEE C OMPLETED THE PROJECT WITHIN THE PRESCRIBED TIME LIMIT. 18. THE ABOVE FACTS AVAILABLE ON RECORD GO TO SHOW THAT THE ASSESSEE HAS COMPLIED WITH ALL THE STIPULATIONS PROVIDED IN ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 15 THE STATUTE TO CLAIM THE DEDUCTION UNDER SECTION 80 IB(10). THE ASSESSEE MIGHT HAVE SOLD THE UNDIVIDED SHARE OF RIG HT IN THE LAND TO THE APARTMENT OWNERS AT THE FIRST INSTANCE AND T HEREAFTER ENTERED INTO AGREEMENT FOR CONSTRUCTING THE APARTME NTS ON THE LAND SOLD TO THOSE PERSONS. THE COURSE OF ACTION FO LLOWED BY THE ASSESSEE IS A COMMON MODUS OPERANDI IN THE BUSINESS OF DEVELOPING HOUSING PROJECTS. THE ASSESSEE HAS NOT SOLD LAND IN IDENTIFIABLE PIECEMEAL INDEPENDENTLY TO THE BUYERS. THE ASSESSEE HAD IN FACT SOLD THE PRO RATA RIGHT IN THE FORM OF UNDIVIDED SHARES IN THE LAND. THEREFORE IT IS NOT POSSIBLE FOR ANY BUYER OF THE PROPERTY TO PINPOINT THAT A PARTICULAR PIECE OF LAND IS OWNED BY HIM. THE OWNERS OF 82 FLATS WHO PURCHASED THE DWELLING UNITS IN THE PROJECT ARE NOT IN A POSITION TO IDENTIFY ANY PARTICULAR PIECE OF LAND AS BELONGING TO THEM. ALL OF THEM ARE HOLDING THE RIGHT IN THE UNDIVIDED SHARE OF LAND ON WHICH THE APARTMENTS HAVE BEEN BUILT. THE MODUS OF CONSTRUCT ING APARTMENTS IS USUALLY CONTEMPLATED IN DIFFERENT MET HODS DEPENDING UPON THE TERMS AND CONDITIONS ARRIVED AT BETWEEN THE PARTIES. IN CERTAIN CASES AN ASSESSEE HIMSELF MAY CONSTRUCT THE BUILDING AND THEREAFTER SELL THE DWELLING UNITS TO THE BUYERS. IN ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 16 CERTAIN CASES AN ASSESSEE MAY DEVELOP A HOUSING PRO JECT BY ENTERING INTO INDIVIDUAL CONTRACTS WITH THE BUYERS TO CONSTRUCT THE APARTMENTS FOR THEM. 19. WHATEVER MAY BE THE METHOD ADOPTED FOR CONSTRUCTING THE SUPERSTRUCTURE THE CONSTRUCTIONS ARE MADE AS A COMPOSITE WORK ON THE BASIS OF THE PLAN APPROVED BY THE COMPETENT AUTHORITY. THE BUYERS DO NOT HAVE CHOICE TO DECIDE THE FRAME OF THE STRUCTURE OF THEIR DWELLING UNIT A CCORDING TO THEIR LIKES AND DISLIKES. THE FRAME OF THE SUPERSTRUCTUR E AND THE PLAN OF INDIVIDUAL DWELLING UNITS ARE PRE-DETERMINED ON THE BASIS OF THE APPROVED PLAN AND THE BUYERS DO NOT HAVE ANY OPTION TO MAKE ANY STRUCTURAL CHANGES. THEREFORE THE MODUS OPERAN DI EMPLOYED IN CONSTRUCTING THE SUPERSTRUCTURE IS A MA TTER OF RELATIONSHIP BETWEEN THE PROMOTER AND THE BUYERS FO R THE PURPOSE OF CONSTRUCTION AND DOES NOT CHANGE THE CHA RACTER OF THE DWELLING PROJECT AS A WHOLE. 20. IN THE PRESENT CASE IT IS TO BE SEEN THAT EVEN THOUGH THE UNDIVIDED SHARE OF RIGHT IN THE LAND WAS SEPARA TELY SOLD TO THE ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 17 BUYERS BY EXECUTING SALE DEEDS ALL SUCH SALE DOCUM ENTS OF LAND WERE REGISTERED IN THE NAME OF THE VERY SAME BUYERS WHO HAVE OPTED FOR THE APARTMENTS IN THE PROJECT INITIATED B Y THE ASSESSEE. THERE IS NO CASE THAT THE ASSESSEE HAD SOLD LAND TO CERTAIN PERSONS AND THE APARTMENTS WERE SOLD TO SOME OTHER PERSONS. THIS IS QUITE IMPOSSIBLE ALSO. AS RIGHTLY ARGUED B Y THE ASSESSEE THE SALE OF UNDIVIDED SHARE IN THE TOTAL LAND AND T HE CONSTRUCTION OF INDIVIDUAL DWELLING UNITS BOTH ARE SEGMENTS OF A COMPOSITE PROJECT AND THEREFORE THERE CANNOT BE A CASE OF TWO DIFFERENT TRANSACTIONS AS SALE OF LAND AND CONSTRUCTION OF FL ATS. WHAT THE ASSESSEE HAS UNDERTAKEN WAS PURELY A HOUSING PROJEC T APPROVED BY THE COMPETENT LOCAL AUTHORITY. 21. THEREFORE THE COMMISSIONER OF INCOME TAX (APPEALS) IS JUSTIFIED IN HOLDING THAT HE ENTIRE SA LE PROCEEDS OF THE PROJECT AMOUNTED TO BUSINESS RECEIPTS AND THE E NTIRE INCOME SHOULD BE COMPUTED UNDER THE HEAD BUSINESS INCOME. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS RIGHTLY HE LD THAT THERE IS NO SEPARATE SALE OF LAND AND THEREFORE THE RE IS NO REASON TO MAKE AN ASSESSMENT OF CAPITAL GAINS. HE HAS RIG HTLY DELETED ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 18 THE CAPITAL GAINS ASSESSMENTS FOR THE ASSESSMENT YE ARS 2000-01 TO 2005-06. 22. IN THE LIGHT OF THE ABOVE DISCUSSION WE UPHOLD THE FINDING OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE AND REJECT THE GROUNDS RAISED BY THE REVENUE. 23. THE NEXT POINT TO BE CONSIDERED IN THE APPEALS FILED BY THE REVENUE IS THE ADDITION OF ` . 1 39 08 127/- MADE BY THE ASSESSING AUTHORITY FOR THE ASSESSMENT YEAR 2003-04 UNDER SECTION 69C TOWARDS UNDER-STATEMENT OF COST OF CONS TRUCTION. THE BASIS OF MAKING AN INDEPENDENT VALUATION OF THE SUPERSTRUCTURE ITSELF HAS BEEN ATTEMPTED BY THE ASS ESSING AUTHORITY ON THE PREMISE THAT THE PROJECT OF THE AS SESSEE CONSTITUTED TWO TRANSACTIONS NAMELY THE SALE OF L AND AND THEREAFTER CONSTRUCTION OF APARTMENTS. UPHOLDING T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) WE HAVE ALREA DY HELD THAT THERE WAS NO TWO DIFFERENT TRANSACTIONS IN THE SALE OF APARTMENTS AND THE ASSESSEE HAD SOLD THE APARTMENTS ALONGWITH THE UNDIVIDED SHARE OF RIGHT IN THE LAND AND THE PR OJECT ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 19 UNDERTAKEN BY THE ASSESSEE WAS A COMPOSITE PROJECT AND PARTICULARLY A HOUSING PROJECT. WHEN IT IS FOUND THAT THERE ARE NO TWO DIFFERENT TRANSACTIONS THERE IS NO BASIS FOR M AKING AN INDEPENDENT VALUATION OF THE SUPERSTRUCTURE. 24. APART FROM THE ABOVE BASIC FALLACY RELIED ON B Y THE ASSESSING AUTHORITY IT IS TO BE SEEN THAT THE CONS IDERATION WAS PAID BY THE BUYERS AS A WHOLE FOR THE PURCHASE OF A PARTMENTS ALONGWITH THE UNDIVIDED SHARE OF RIGHT IN THE LAND AND AS SUCH THE VALUE OF LAND AND VALUE OF APARTMENT CANNOT BE WORK ED OUT INDEPENDENTLY. THE VALUE ADOPTED FOR THE PURPOSE O F EXECUTING SALE DEEDS TO CONVEY THE UNDIVIDED SHARE OF RIGHT I N THE LAND WAS ONLY FOR THE PURPOSE OF REGISTRATION WHICH IS EVID ENT FROM THE FACT THAT THE GUIDELINE VALUE WAS ADOPTED BY THE ASSESSE E TO REGISTER SUCH DOCUMENTS. IT IS TO BE SEEN THEREFORE THAT TH E CONSIDERATION PAID BY THE BUYERS OF THE APARTMENTS IS WHOLESOME C ONSIDERATION FOR A DWELLING UNIT. THE ASSESSING AUTHORITY HAS N O CASE THAT THE ASSESSEE HAD RECEIVED ANY CONSIDERATION IN EXCESS O F THE CONSIDERATION REFLECTED IN THE REGISTERED DOCUMENTS AND IN THE BOOKS OF ACCOUNTS. NO BUYER HAS EVER TOLD THE ASSE SSING OFFICER ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 20 THAT HE HAS PAID SOMETHING MORE TO THE ASSESSEE THA N WHAT WAS STATED IN THE ACCOUNTS. THEREFORE THERE CANNOT BE A CASE THAT THE ASSESSEE HAD SPENT SOMETHING MORE AND REALIZED SOMETHING MORE FROM THE BUYERS. WHEN SUCH A CASE IS NOT POSS IBLE THERE IS NO BASIS FOR DISSECTING THE SUPERSTRUCTURE FROM THE WHOLESOME TRANSACTION AND ATTEMPT TO ADOPT A DIFFERENT VALUAT ION FOR THE SAID SUPERSTRUCTURE. THE WHOLE EXERCISE OF THE ASSESSIN G AUTHORITY IN THIS REGARD IS IRRATIONAL. 25. IN ADDITION TO THAT AS RIGHTLY POINTED OUT BY THE COMMISSIONER OF INCOME TAX (APPEALS) THERE IS NOTH ING AVAILABLE ON RECORD TO SUPPORT THE FINDINGS ARRIVED AT BY THE DVO IN THE MATTER OF VALUATION. IN FACT THE ASSESSING OFFICER HAS GONE BEYOND THE VALUATION REPORT OF THE DVO. WE FIND TH AT ALL THESE EXERCISES ARE JUST ARBITRARY AND UNFOUNDED. 26. IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND THAT THERE IS NO JUSTIFICATION TO MAKE THE ADDITION OF ` .1 39 08 127/- FOR THE ASSESSMENT YEAR 2003-04 AND THE ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 21 COMMISSIONER OF INCOME TAX (APPEALS) HAS RIGHTLY DE LETED THE SAME. 27. THIS ISSUE IS ALSO DECIDED AGAINST THE REVENUE . 28. AS SUCH THE REVENUE FAILS IN ITS APPEALS FILED BEFORE THE TRIBUNAL. 29. NOW COMING TO THE APPEALS FILED BY THE ASSESSE E FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 THE COMMO N GROUNDS RAISED ARE REPRODUCED BELOW:- 1. THE CIT(A) OUGHT TO HAVE ALLOWED DEDUCTION OF T HE PROFITS UNDER SECTION 80IB(10) HAVING NOTICED THAT APPELLANT DEVELOPED AND PROMOTED THE HOUSING PROJEC T AS PER THE PLAN APPROVED BY THE LOCAL AUTHORITY ON HIS OWN LAND MEASURING 47 048 SFT. (MORE THAN ONE ACRE) AND SATISFIED ALL OTHER CONDITIONS PRESCRIBE U/S 80IB(10). 2. THE CIT(A) ERRED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER MISTAKING THE UNDIVIDED SHARE IN ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 22 LAND TRANSFERRED BY REGISTERED SALE DEEDS WHICH MEASURED 35 864 SFT. TO THE TOTAL EXTENT OF LAND OF THE PROJECT AND HOLDING THAT THE EXTENT OF LAND OF THE PROJECT WAS LESS THAN ONE ACRE. THE CIT(A) GLOSSED OVER SCHEDULE C OF THE REGISTERED SALE DEEDS WHICH CATEGORICALLY AFFIRMED THAT UNDIVIDED SHARE WAS SOL D TOGETHER WITH THE USUAL COMMON PATHWAY RIGHTS IN SHENBAGAM AVENUE LANE WITH ALL EASEMENT RIGHTS. 3. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE APPROVED PLAN OF THE LOCAL AUTHORITY WAS THE CONCLUSIVE PROOF AS TO THE EXTENT OF LAND AND UNDIV IDED SHARE IN LAND MENTIONED IN THE REGISTERED SALE DEED S WAS BASED ON THE CONSTRUCTED AREA ONLY. 30. IN SHORT THE ISSUE RELATES TO DENIAL OF EXEMP TION TO THE ASSESSEE UNDER SECTION 80IB(10) FOR THE ASSESSM ENT YEARS 2003-04 AND 2004-05. THE LOWER AUTHORITIES HAVE HE LD AGAINST THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS VI OLATED ONE OF THE CONDITIONS OF EXEMPTION INASMUCH AS THE ASS ESSEE HAS FAILED TO PROVE THAT THE EXTENT OF LAND USED FOR TH E HOUSING PROJECT WAS MORE THAN ONE ACRE. IN ORDER TO COME TO THE AB OVE ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 23 CONCLUSION THE LOWER AUTHORITIES HAVE HELD THAT THE ASSESSEE HAD IN FACT TRANSFERRED ONLY 35 864 SFT. OUT OF THE TOT AL AREA OF 47 048 SFT. AS APPROVED BY THE COMPETENT LOCAL AUTHORITY. THIS ALLEGED DIFFERENCE OF 11 184 SFT. BY WAY OF SHORTAGE MADE THE LOWER AUTHORITIES TO HOLD THAT THE ASSESSEE HAS NOT UTILI ZED MORE THAN ONE ACRE OF LAND TO EXECUTE THE HOUSING PROJECT. T HIS IS THE ONLY REASON STATED BY THE LOWER AUTHORITIES TO REJECT TH E CLAIM OF THE ASSESSEE UNDER SECTION 80IB(10). ALL OTHER CONDITI ONS HAVE BEEN SATISFIED. 31. NOW COMING TO THE CRUX OF THE MATTER THE ASSE SSEE HAD FILED THE DETAILS OF THE PROPERTY IN THREE SCHE DULES BEFORE THE LOWER AUTHORITIES NAMELY SCHEDULE-A SCHEDULE-B A ND SCHEDULE-C. THE PROPERTIES COVERED BY SCHEDULE-C H AVE NOT BEEN CONSIDERED BY THE LOWER AUTHORITIES. IT IS WE LL EXPLAINED IN SCHEDULE-C THAT THE AREA ALLOTTED FOR ROADS AND PUB LIC PLACES FORMS PART OF THE COMMON AREA OF WHICH THE UNDIVIDE D SHARES HAVE ALREADY BEEN TRANSFERRED TO THE ALLOTTEES OF T HE APARTMENTS. THIS DIFFERENCE OF 11 184 SFT. IN FACT REPRESENTED ROADS COMMON PATHWAYS AND OTHER ACCESS ROADS IN AND OUT OF THE H OUSING ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 24 PROJECT AND WITHIN THE PROJECT. THEY ARE ALL ASSET S IN THE NATURE OF COMMON FACILITIES ALLOTTED TO ALL THE 82 ALLOTTE ES WHO HAVE OCCUPIED THE PROJECT. IT IS TO BE SEEN THAT A HOUS ING PROJECT WITH 82 FLATS CANNOT FUNCTION WITHOUT ROADS AND OTHER IN TER-CONNECTING PATHWAYS WITHIN THE PROJECT SITE. WITHOUT SUCH FAC ILITY A PROJECT WOULD NOT BECOME OPERATIONAL. THEREFORE IT IS BEYO ND DOUBT THAT THE ASSESSEE HAS UTILIZED THE ENTIRE AREA OF 47 048 SFT. TO EXECUTE THE HOUSING PROJECT IN ACCORDANCE WITH THE TERMS OF THE APPROVAL GIVEN BY THE LOCAL AUTHORITIES. 32. WHEN THE ASSESSING AUTHORITY SAYS THAT THE DIFFERENCE OF 11 184 SFT. HAS BEEN TAKEN BY THE ASS ESSEE FOR HIS USE IN FACT THE ASSESSING OFFICER WAS MAKING JUST A CASUAL STATEMENT. HE HAS NOT CAUSED TO MAKE A SITE INSPEC TION OF THE PROJECT. HE HAS NOT DISCUSSED ANYTHING ABOUT THE C OMMON FACILITIES LIKE ROADS ETC. IN HIS ASSESSMENT ORDER . HE HAS NOT CONFRONTED WITH ANY OF THE ALLOTTEES OF THE FLATS O UT OF THE 82 BUYERS TO WHOM THE ASSESSEE HAD SOLD THE APARTMENTS . THE ENTIRE CASE WAS BUILT UP BY THE ASSESSING AUTHORITY ON THE BASIS OF CERTAIN ARITHMETICAL CALCULATIONS WHICH DO NOT H AVE ANY LIVE ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 25 NEXUS WITH THE GROUND REALITIES. THE ASSESSING AUT HORITY HAS NOT POINTED OUT HOW THE ASSESSEE COULD USE THE DIFFEREN TIAL AREA FOR HIS PERSONAL BENEFIT. HE HAS NOT STATED HOW THIS D IFFERENTIAL AREA STANDS AWAY INDEPENDENT OF THE HOUSING PROJECT. 33. IN SHORT WE FIND THAT THE LOWER AUTHORITIES HA VE GROSSLY ERRED THEMSELVES IN OVERLOOKING THE AREA CO VERED BY ROADS AND OTHER PATHWAYS FORMING PART OF THE LAND O F WHICH UNDIVIDED SHARES HAVE ALREADY BEEN CONVEYED TO THE BUYERS OF THE APARTMENTS. 34. THEREFORE IN THE FACTS AND CIRCUMSTANCES OF T HE CASE WE FIND THAT THE LOWER AUTHORITIES HAVE ERRED IN DENYING THE BENEFIT OF DEDUCTION AVAILABLE UNDER SECTION 80IB(1 0) TO THE ASSESSEE FOR THE ASSESSMENT YEARS 2003-04 AND 2004- 05. WE REVERSE THE ORDERS OF THE LOWER AUTHORITIES ON THIS POINT. WE DIRECT THE ASSESSING OFFICER TO GRANT THE BENEFIT O F SECTION 80IB(10) TO THE ASSESSEE FOR THE TWO ASSESSMENT YEA RS 2003-04 AND 2004-05 AS WELL. ITA 679 TO 684 OF 2011 & 596 & 597 OF 2011 26 35. THE ASSESSEE IS SUCCESSFUL IN HIS APPEALS. 36. IN RESULT THE APPEALS FILED BY THE REVENUE ARE DISMISSED AND THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON MONDAY THE 11 TH DAY OF JULY 2011 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI DATED THE 11 TH JULY 2011. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.