By Jagdish D. Shah, Jagdish T. Punjabi
Chartered Accountants
fiogf49gjkf0d
Section 80IB(10) — Deduction in case of housing project — (1) Whether an assessee builder can follow project completion method of accounting — Held, Yes; (2) Whether the AO justified in refusing to grant deduction on the ground that the commercial area exceeded the permissible limit and/or the area of the flat exceeded the permissible limit after considering balcony and terrace — Held that the limit as applicable as on the date when the project was approved should be applied and not as on the date of completion of the project and based thereon, the assessee had not exceeded the permissible limit as laid down in the Act;
Section 2(22)(e) — Deemed dividend — Loans and advances to related concern — Held that taxable in the hands of the shareholder and not in the hands of the assessee borrower.
Facts:
(1) A.Y. 2005-06:
The assessee was engaged in the business of construction and builder. On account of revision in AS-9, it changed its method of accounting in respect of projects which commenced after 1st April, 2003 from percentage completion method and started recognising revenue from the projects on completion of the projects, when the risk of ownership was transferred to the customer. However, the AO termed the change to project completion method as invalid. On appeal, the CIT(A) agreed with the AO and rejected the project completion method of accounting applied by the assessee to the new projects.
(2) A.Y. 2006-07:
The assessee was denied the benefit of deduction u/s.80IB(10) for the following reasons:
(a) The commercial area in the housing project exceeded 5% of the total project area;
(b) Some of the purchasers of flats had also purchased adjacent flats, the sum total of these two flats exceeded 1000 sq.ft.;
(c) Majority of the flats sold exceeded the area of 1000 sq.ft. after including balcony and terrace.
(3) A.Y. 2007-08:
The assessee had taken unsecured loan of Rs.8.02 crore during the year from HEB Pvt. Ltd., which had got free reserves of Rs.50.96 crore. According to the AO the provisions of section 2(22)(e) were attracted since one of the shareholders of the assesseecompany was holding more than 20% equity capital in HEB Pvt. Ltd. and the assessee-company.
Held:
(1) A.Y. 2005-06: Relying on the various decisions (listed below), the Tribunal held that the project completion method was an accepted and recognised method of accounting. It also noted that the same was also accepted by the AO in the preceding as well as in the subsequent assessment year. According to it, an assessee can follow any recognised method of accounting and the condition was that the same method should be followed consistently. Since the assessee in the instant case was regularly following the project completion method and has offered the income in the year of completion of project, the Tribunal did not find any reason to reject the same. Accordingly, the assessee’s appeal was allowed.
(2) A.Y. 2006-07:
(a) Relying on the decision of the Special Bench of the Tribunal in the case of Brahma Associates reported in 122 TTJ 443 and the Co-ordinate Bench of the Tribunal in the case of Shri Girdharilal K. Lulla vide ITA No. 4207/Mum./2009 order dated 30-5-2011, the Tribunal found merit in the submissions of the assessee that when the approval was obtained prior to 31-3-2005, the condition of shopping area not exceeding 5% of built-up area or 2000 sq.ft. whichever is less, as introduced by the subsequent amendment are not applicable in respect of projects approved and commenced before 1-4-2005. Accordingly, the appeal filed by the assessee was allowed on this ground.
(b) As regards the second objection of the revenue that the assessee had sold two or more than two flats to one party, the combined area of which was more than 1000 sq.ft., the Tribunal accepted the submission of the assessee that the area of two flats should not be combined even though the two flats were sold to one person because:
- the built-up area of each flat as approved by CIDCO was less than 1000 sq.ft.;
- the assessee has sold each flat under separate agreement;
- the assessee has not sold two flats by combining them together as one flat to one party;
- there is no evidence with the Department that the assessee had sold the flat after combining the two flats together;
- It is also not the case of the Revenue that each flat in the housing project undertaken by the assessee could not have been used as an independent or as a self-contained residential unit not exceeding 1000 sq.ft. of built-up area and that there would be a complete habitable residential unit only if two or more flats were joined with each other which would ultimately exceed 1,000 sq.ft. of built up area;
- the condition that not more than one residential unit in the housing project was allotted to any person not being an individual, has been inserted by the Finance (No. 2) Act, 2009 w.e.f. 1-4-2010.
(c) The Tribunal agreed with the assessee that the definition of ‘built-up area’ as given in s.s 14(a) of section 80IB, whereby the balcony/terrace area was also considered as part of built-up area, was inserted by the Finance Act, 2004 w.e.f. 1-4-2005 and, therefore, the same was applicable only in respect of the projects approved after 1-4-2005. In the given case of the assessee, as the project was approved prior to 1-4-2005, the appeal filed by the assessee was allowed on this ground.
(3) A.Y. 2007-08:
The Tribunal noted that the assessee was not a registered shareholder in HEB Pvt. Ltd. Therefore, relying on the decision of the Special Bench of the Tribunal in the case of ACIT v. Bhaumik Colour P. Ltd., [313 ITR (AT) 146] where it was held that deemed dividend can be assessed only in the hands of the person who is a shareholder of the lender company and not in the hands of a person other than a shareholder and not in the hands of the borrowing concern in which such shareholder is member or partner having substantial interest, the appeal filed by the assessee was allowed and directed the AO to delet the addition.
Cases relied on (A.Y. 2005-06):
1. Awadesh Builders v. ITO, 37 SOT 122 (Mumbai);
2. Prestige Estate Projects (P) Ltd. v. DCIT, 129 TTJ (Bang) 680;
3. CIT v. Bilahari Investment (P) Ltd., 299 ITR 1 (SC);
4. H. M. Constructions v. CIT, 90 TTJ (Bang.) 510.
