October 2008
S. 80IB(10) — Land purchased in 1996 — Revised plan approved, commencement certificate issued, and use of land for non-agricultural purposes permitted after 1-10-1998 — Whether AO justified in denying deduction u/s.80IB(10) on ground that commencement of
By Jagdish D. Shah, Jagdish Punjabi, Chartered Accountants
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Part B — Unreported Decisions
(Full texts of the following Tribunal decisions are available
at the Society’s office on written request. For members desiring that the
Society mails a copy to them, Rs.30 per decision will be charged for
photocopying and postage.)
1 ITO, 14(3)(3) v.
Shri Vimalchand M. Dhoka
ITAT ‘A’ Bench, Mumbai
Before K. C. Singhal (JM) and V. K. Gupta (AM)
ITA No. 5520/Mum./2005
A.Y. : 2002-03. Decided on : 19-5-2008
Counsel for revenue/assessee : Sanjay Agarwal/
Vimal Punmiya
S. 80IB(10) of the Income-tax Act, 1961 — In respect of
Lonavala Project of the assessee for which deduction was claimed u/s.80IB(10),
land was purchased in 1996 — Wall was constructed — WIP of this project on
31-3-1998 was stated to be Rs.10,17,615 — Original plan expired after validity
period of one year — Revised plan was approved and commencement certificate
issued on 30-9-2000 — User of land for non-agricultural purposes was permitted
on 28-6-2001 — Whether AO justified in denying deduction u/s.80IB(10) on the
ground that the condition u/s.80IB(10)(a) viz. commencement of the
construction after 1-10-1998 was not satisfied — Held, No.
Per V. K. Gupta :
Facts :
The assessee was engaged in the business of textiles and
construction. In A.Y. 2002-03, in respect of construction business, the assessee
claimed deduction u/s.80IB(10) at Rs.62,21,131 in respect of his projects at
Virar and Lonavala. In respect of Lonavala project, land was purchased in 1996
for Rs.5.50 lakhs and work-in-progress as on 31-3-1998 was shown at
Rs.10,17,615. The AO disallowed the claim for deduction u/s.80IB(10) of
Rs.3,32,369 in respect of Lonavala project, on the ground that the project had
commenced prior to 1st October 1998, since land for Lonavala project was
purchased in 1996 and as on 31st March 1998, certain expenses were shown as
work-in-progress and also a wall was constructed. According to the AO, the
project did not satisfy the condition stated in S. 80IB(10)(a). Before the CIT(A)
the assessee contended that :
(a) no construction work actually took place before 1st
October 1998;
(b) the wall was constructed merely to prevent the entry of
trespassers;
(c) the plan, originally submitted, expired after the
validity period of one year, hence revised plan was submitted, which was
approved by the concerned statutory authorities and, thereafter construction
work started after 1-10-1998;
(d) the land was an agricultural land and conversion of
land use was permitted only on 28-6-2001;
(e) the expenses shown in the balance sheet were of
administrative nature and not of construction activity. The CIT(A) found force
in the arguments of the assessee that the expenses incurred on architect fees,
landscape and elevation on filling the plot are the expenses which were
necessary for submitting the plan for the project and that incurring of these
expenses cannot be taken as commencement of the project. The fact that
permission for conversion of land from agricultural use to non-agricultural
use was issued on 28-6-2001 and also the commencement certificates were issued
by the relevant authority only on 30-9-2000 also weighed with the CIT(A). The
CIT(A) also stated that before getting the order for conversion and
commencement certificate, the construction activity cannot be started. He,
therefore, agreed with the assessee and directed the AO to grant deduction to
the assessee as claimed by it. The Revenue preferred an appeal to the
Tribunal.
Held :
The expenses incurred for change of land use and other
administrative/other land development expenses incurred prior to statutory
approvals, which approvals have been received after 1st October 1998 cannot
result into commencement of the project before 1st October 1998. The Tribunal
observed that the CIT(A) has examined the issue in detail and found itself to be
in agreement with the findings of the learned CIT(A), hence the Tribunal
confirmed the order passed by CIT(A). Accordingly, appeal filed by the Revenue
was dismissed.
