DCIT vs M/s. Mahagun (India) Pvt. Ltd

We have heard the rival submissions and perused the materials available on record. The assessee company is engaged in the business of construction and development of housing projects. The assessee purchased a piece of land from M/s Crossing Infrastructure Private Limited (CIPL) measuring 40716 square meter located at NH-24 Ghaziabad as per registered sale deed dated 27-12-2007 along with approved plan dated 27-12-2007 in the name of M/s CIPL. The assessee conceived a project namely “Mahagan Mascott” on the captioned land and also started construction on the site as per plan during the year. Subsequent to that, an adjoining piece of land was also purchased vide registered sale deed dated 31-7-2009 measuring 11969 square meter from M/s CIPL only. Accordingly the revised plan of the project got approved vide sanction letter dated 12-11-2009. The assessee company declared profit on the project completed up to specified percentage during the year and claimed deduction under section 80IB(10) of the Act on proportionate basis. The Learned AO denied the deduction on the following reasons:-

The land has been acquired by the assessee from M/s CIPL vide two separate agreements and not as a whole.

Approval from the local authority as well as permission to develop the project has been obtained on 27-12-2007 and 12-11-2009.

The approval letters are in the name of CIPL and not in the name of the assessee company.

Commercial area in the project exceeds the prescribed limit.

The assessee has constructed commercial establishments in violation of terms of agreement between CIPL and the assessee.

The project was not exclusively for units with built up area less than 1000 square feet.

The Learned AO resorted to make this disallowance under section 80IB(10) of the Act on the ground that similar disallowance was made in assessee’s own case in assessment year 2009-10. But we find that in assessment year 2009-10, the assessee had preferred an appeal before the Learned CIT(A) and the Learned CIT(A) had granted deduction to the assessee under section 80IB(10) of the Act on proportionate basis. Against the said order of Learned CIT(A) for assessment year 2009-10, the revenue preferred an appeal before this tribunal which stood dismissed on the technical aspect of mechanical approval granted under section 153 D of the Act. Hence, it could be seen that the tribunal had not decided this issue on merits in assessment year 2009-10. Hence, we proceed to adjudicate this issue now for the year under consideration on merits.

The above primary facts are not in dispute. We find on perusal of the provisions of section 80IB(10) of the Act, the crux of the said section requires involvement of an undertaking in construction and development of housing projects approved by the local authority. Apparently, such provision would be aimed at giving incentive to providing housing units in the urban and semi-urban areas where there is perennial and acute shortage of housing, particularly for the middle income group citizens. Certain conditions were provided in section 80IB(10) of the Act such as specifying the date by which the undertaking must commence the developing and construction work as also providing for the minimum area of plot of land on which such project would be put up as well as maximum built up area of each of the residential units to be located there on, among others. There is absolutely no condition prescribed in section 80IB(10) of the Act that assessee has to acquire the entire piece of land in one go. It only provides that the project should come up on the land having measurement of more than one acre. In the instant case, as the land acquired by the assessee at the first instance itself was 40716 square meter which exceeds the prescribed limit of more than one acre, the deduction cannot be disturbed on that count.

The observation of the learned AO about approval of the project from the competent authority in piecemeal manner has got absolutely no merit, as initial approval had already been obtained on 27-12-2007 which is before 31-03-2008. The explanation appended to section 80IB(10) of the Act itself clarifies that if there are two or more approvals, then the date of first approval shall be treated as the date of approval for the purpose of this section. Further, the approval in the name of the previous owner of land in both the instances will also not controvert the provisions of the law as the assessee had bought the land from CIPL along with the approval on 27-12-2007.

As regards the view of the Learned AO regarding excessive commercial area in the project, the Learned AO had not quantified the alleged commercial area in the project. He has only made a casual remark in this regard. On verification of the sanction plan filed by the assessee, it is noticed that the so-called commercial area which is in fact ‘convenient shopping’ for the inhabitants of the projects is only 150 square meter in the original plan. As per the approved sanction plan, there is no such commercial area in the captioned project as stated. Hence, a ‘convenient shopping’ in a housing project cannot be equated with the commercial area in the true sense. Further, the provisions of section 80IB(10) of the Act as amended by Finance No. (2) Act 2009 with effect from 1-4-2010 provided for enhancement of such limits up to the extent of 3% of aggregate built up area of the housing project or 5000 square feet whichever is higher. Such amendment cannot be read in isolation as if it is applicable with effect from 1-4-2010. Such amendment in the Act is in a way clarificatory in nature which has retrospective effect keeping in view of the fact that such deduction is available to the housing projects which were approved on or before 31-3-2008. Hence, in our considered opinion that the amendment need to be held retrospective in operation and would be applicable for projects which were approved before 31-3-2008. Therefore, even if the commercial area in the approved projects before 31-3-2008 which were under construction as on the date of amendment exceed the specified limit of 2000 square feet or 5% of the project, whichever is lower, but remain in the enhanced limit of 3% of built up area or 5000 square feet, whichever is higher after the amendment, shall also be eligible for claim under section 80IB(1) of the Act.

As regards the project having units area more than the prescribed limit i.e. 1000 square feet, it was submitted that out of 1115 housing units, 636 units were having built up area of more than 1000 square feet. If the total area of units having built up area of more than 1000 square feet is excluded from the total built up area of the project, even then the project area would be more than 1 acre as required under clause (b) of section 80IB(10) of the Act. Therefore, by excluding the residential units having more than 1000 square feet area, the remaining project comprising of the units having less than 1000 square feet built up area still fulfils all the requirements and conditions prescribed under section 80IB(10) of the Act and subserves the object and scheme of the statute. The built up area restriction is provided under the provision to achieve the object of houses available within the financial capacity of the general public at affordable prices. Therefore, if the units having built up area of more than 1000 square feet are excluded from the project, the remaining project still fulfils the objects of the legislature and thus entitles for the claim under section 80IB(10) of the Act on proportionate basis. This view of ours is further fortified by the following decisions of Hon’ble High Courts:-

CIT vs Arun Excello Foundations P Ltd reported in 212 taxman 342 (Mad)

CIT vs Elegant Estates reported in 383 ITR 49 (Mad)

CIT vs Brigade Enterprises Ltd reported in 429 ITR 511 (Kar)

Devashri Nirman LLP vs ACIT reported in 429 ITR 597 (Bom)

In view of the aforesaid observations and respectfully following the aforesaid decisions, we hold that the assessee would be entitled for proportionate deduction under section 80IB(10) of the Act for the year under consideration. Accordingly, the Ground No.2 raised by the assessee is partly allowed.

We have heard the rival submissions and perused the materials available on record. It is not in dispute that there is no exempt income derived by the assessee during the year under consideration. It is well settled that the provisions of Section 14A of the Act could not be pressed into service when there is no exempt income. Reliance in this regard has been rightly placed on the decision of Hon’ble Jurisdictional Delhi High Court in the case of PCIT vs Era Infrastructure India Ltd reported in 448 ITR 674 (Del). Respectfully following the same, the Ground No. 3 raised by the assessee is allowed.

We have heard the rival submissions and perused the materials available on record. The assessee has debited Rs 15,78,498 and Rs 38,64,909 on account of repairs and maintenance expenses and depreciation on motor cars respectively. The Learned AO noticed from the income tax returns of Shri Dhiraj Jain and Mrs. Divya Jain, directors of the company, that both the directors neither own any personal vehicle nor they had offered any amount for revenue as perquisite in their hands on account of personal use of vehicles owned by the assessee company. Accordingly, the Learned AO proceeded to disallow 10% on an ad-hoc basis on account of vehicle repairs and maintenance expense and depreciation on motor car for personal usage of the directors. This action of the Learned AO was upheld by the Learned CIT(A). The Hon'ble Gujarat High Court in the case of Sayaji Iron and Engineering Co. vs CIT reported in 253 ITR 749 (Guj) had held that there could not be any disallowance of personal expenses in the case of company. Respectively following the same, we delete the ad-hoc disallowance of vehicle maintenance and repairs and depreciation on motor car made by the Learned AO. Accordingly, the Ground No. 4 raised by the assessee is allowed.

We have heard the rival submissions and perused the materials available on record. A search and seizure operation under section 132 of the Act was carried out on 3-8-2016 in different business and residential premises of Mahagun group of companies. The assessee company was also covered in the said search. The learned AO noted that assessee has taken bogus purchase invoices from certain parties. Shri Amit Jain, director of the company in his statement recorded under section 132(4) of the Act had admitted that he had made purchases of cement and steel outside the books and in the post search enquiry, the search team made enquiries under section 133(6) of the Act and observed that the notice sent to various parties either remained by and large unserved or uncomplied with. Even during the assessment proceedings, again notices under section 133(6) of the Act were issued to all the parties once again. However, few parties responded to the notices issued under section 133(6) of the Act. Consequently, a show-cause notice dated 10-12-2018 was issued to the assessee company along with Annexure A and B comprising party-wise details to whom notices were sent but remained unserved and the party-wise details where the notices were served but could not be complied with by the parties respectively. In response to the show-cause notice, the assessee vide its letter dated 16-12-2018 furnished that the notices as sent by the department were on incorrect address and the assessee further stated that the parties those who have not complied with the department, should take necessary action against them as per law. From the side of the assessee, the assessee furnished confirmation from these parties as per Annexure A and as far as the parties with Annexure B are concerned, the assessee submitted that the concerned suppliers had already submitted their confirmation in response to notice under section 133(6) of the Act. The Learned AO however disregarded the entire contentions of the assessee and proceeded to make an addition of Rs. 32,38,51,506 comprising of 44 parties on account of bogus purchases and treated the same as undisclosed income of the assessee.

As stated earlier, the search took place on 3.8.2016. Hence as on the date of search, the assessment year under consideration is an unabated assessment. Hence the said year could be disturbed only in the event of existence of incriminating material found during the course of search. The Learned CIT(A) categorically held that there was no incriminating material found during the course of search representing any undisclosed income for the year under consideration. The Learned CIT(A) also noted that assessee had even surrendered income of Rs 30,11,00,000 at the time of search and the Learned AO had considered the said surrendered income as pertaining to assessment year 2017-18 as the incriminating documents pertain only to assessment year 2017-18 and no incriminating materials were found for the year under consideration. The Learned CIT(A) by placing reliance on the decision of Hon’ble Supreme Court in the case of PCIT vs Abhisar Buildwell Pvt. Ltd. reported in 454 ITR 212 (SC) noted that the unabated assessment completed either under section 143(1) or 147 or 153A of the Act could be disturbed only when there is an incriminating material found during the course of search qua the addition on account of bogus purchases qua the assessment year under consideration. Accordingly, the addition made by the Learned AO was deleted by the Learned CIT(A). This factual finding of the learned CIT(A) could not be controverted by the revenue before us by bringing on record contrary evidences. Hence, we do not find any infirmity in the order of the Learned CIT(A). Accordingly, the Ground Nos. 1 to 6 raised by the revenue are hereby dismissed.

We have heard the rival submissions and perused the materials available on record. On perusal of the balance sheet and profit loss account of the assessee company, the Learned AO noticed that assessee has shown unsold completed constructions / stock under the inventory column of Rs. 3,21,56,575. It was noted that assessee has not shown any rental income on the stocks held by the company . The Learned AO by placing reliance on the decision of Hon’ble Jurisdictional Delhi High Court in the case of CIT vs Ansal Housing Finance and Leasing Limited reported in 354 ITR 180 (Del) proceeded to add the deemed rental income on the basis of deemed annual lettable value on such unsold stocks at the rate of 5 percent of stock of Rs. 3,21,56,575 and made an addition of Rs. 11,25,480 under the head income from house property.

This addition was also deleted by the learned CIT(A) on the ground that there was no incriminating material found during the course of search qua this issue and qua the assessment year under consideration. This finding could not be controverted by the revenue before us by bringing on record contrary evidences. Hence, we do not find any infirmity in the order of the Learned CIT(A). Accordingly, the Ground No. 7 raised by the revenue is hereby dismissed.