Ita/307/2015 Of The Commissioner Of Income-Tax v. M/S. Mandavi Builders

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 22 DAY OF SEPTEMBER 2020. PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A NO.307/2015 BETWEEN: 1.THE COMMISSIONER OF INCOME-TAXCENTRAL CIRCLE, C.R. BUILDINGCENTRAL CIRCLE, C.R. BUILDING QUEENS ROAD, MANGALORE-5/75001. 2.THE DEPUTY COMMISSIONER OF INCOME-TAXCENTRAL CIRCLE, C.R. BUILDINGATTAVARA, MANGALORE-575001.CENTRAL CIRCLE, C.R. BUILDINGATTAVARA, MANGALORE-575001. .., APPELLANTS. (BY SRI. K.V. ARAVIND, ADV.,) AND: M/S. MANDAVI BUILDERSMANDAVI PALACEEND POINT ROAD, MANIPAL|UDUPI-5 7/610PAN: AAOFM Q540P._ .. RESPONDENT (BY SRI. A. SHANKAR, SR. COUNSEL A/WSRI. M. LAVA, ADV.) | THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,196L ARISING OUT OF ORDER DATED 20.02.2015 PASSED IN ITA]NO.1786/BANG/2013 FOR THE ASSESSMENT YEAR 2010-11,|PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED ABOVE. (1) ALLOW THE APPEAL AND SET ASIDE THE ORDERS)PASSED BY THE ITAT, BANGALORE IN ITA NO.1786/BANG/2015|DATED 20-O2-201L5 AND CONFIRM THE ORDER OF THE APPELLATECOMMISSIONER CONFIRMING THE ORDER PASSED BY THE|DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE,|MANGALORE, THIS ITA COMING ON FOR FURTHER HEARING, THIS DAY,ALOK ARADHE J.,DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax|Act, 1961 (hereinafter referred to as the Act for short)Nas been preferred by the revenue. Tne subject matter of the appeal pertains to the Assessment year 2010-11.The appeal was admitted by a bench of this Court videorder dated 01.03.2017 on the following substantialquestions of law:| (I)Whether, on the facts and in_ thecircumstances of the case, the Tribunalwas right in holding that, unaccounted|MONney,foundduring thesearchproceedings and explained as on money|received, are eligible for deduction under|Section 80IB(10) of the Act?circumstances of the case, the Tribunalwas right in holding that, unaccounted|MONney,foundduring thesearchproceedings and explained as on money|received, are eligible for deduction under|Section 80IB(10) of the Act? (iI)Whether, on the facts and in_ thecircumstances of the case, that the|Tribunal was right in holding — thattransactionsentered|into,with thebuyersofflats,are—eligiblefordeduction, even though there Is violationof the sub-Sections(e) and (f) of Section80IB(10), on the ground that these|transactions were entered into before|the amendments to sub-Section (3) and|(f) of Section 80IB(10)?|circumstances of the case, that the|Tribunal was right in holding — thattransactionsentered|into,with thebuyersofflats,are—eligiblefordeduction, even though there Is violationof the sub-Sections(e) and (f) of Section80IB(10), on the ground that these|transactions were entered into before|the amendments to sub-Section (3) and|(f) of Section 80IB(10)?| 2 |Facts leading to filing of this appeal brieflystated are that the assessee Is involved in the businessof building and developing housing projects. A searchUnder Section 1527 of the Act was conducted in thebusiness premises of the assessee on 04.02.2011.During the course of the search, various documentswere seized. The assessee filed the return of incomedeclaring.QFoOssincomeofRs.12,26,80,417/-.for.Assessment Year 2010-11 and Rs.6,49,29,278/- forAssessment Year 2011-1272 and claimed deduction unde 2 |Facts leading to filing of this appeal brieflystated are that the assessee Is involved in the businessof building and developing housing projects. A searchUnder Section 1527 of the Act was conducted in thebusiness premises of the assessee on 04.02.2011.During the course of the search, various documentswere seized. The assessee filed the return of incomedeclaring.QFoOssincomeofRs.12,26,80,417/-.for.Assessment Year 2010-11 and Rs.6,49,29,278/- forAssessment Year 2011-1272 and claimed deduction unde Section 80IB(10) of the Act, on its entire income. Duringthe course of assessment proceeding under Section153(c) read with Section 143(3), on verification of thededuction claimed under Section 80IB(10) the AssessingOfficer by an order dated 28.12.2010 inter alia held thatthe housing project consist of 195 flats and someowners Nave joined two flats, reducing the number offlats to 186. It was also held that some residential unitswere having a floor area of more than 1,500 square feetand some of the flats were sold to single or relatedpersons or a single person. The transactions accordingto the Assessing Officer constituted violation of Section80IB(10) of the Act. He therefore disallowed the claim inrespect of potn the assessment years. IJIne assesseethereupon filed an appeal before the Commissioner ofIncome Tax (Appeals). The Commissioner of Income Tax(Appeals) Dy an order dated 20.09.2013 inter alia neldthat the assessee is entitled to benefit of deductionunder Section 80IB(10) of the Act only to the proportionate profit earned from the residential unitwhich comply with provisions of Section 80IB(10) of theAct in both assessment years. The Commissioner ofIncome Tax (Appeals), however, disallowed the claim ofthe assessee for Assessment Year 2010-11 in respect ofreceipt of on money amounting to Rs.42,03,280/- forsale of flats by placing reliance on Section 80A(5) of theAct and held that the profits were not routed throughbooks of account but constituted undisclosed income.The Commissioner of Income Tax (Appeals) held that nodeduction under Section 80IB(10) of the Act wasallowable on the income / profit which neither form thepart of the assessee’s account nor were additional cashamounts earned and credited to cash book or form cashbalance of the business. Being aggrieved, the assesseeas well as the revenue filed appeals before the IncomeTax Appellate Tribunal (hereinafter referred to as ‘theTribunal’ for short). The Tribunal by an order dated2).02.27015 inter alia held that transactions entered into by the assessee were prior to introduction of clauses (e)and (f) to Section 80IB(10) of the Act and the aforesaidclauses are prospective in nature and can only beappliedIn|respect.oftransactionsentered after01.04.2010. The Tribunal therefore, upneld the order ofthe Commissioner of Income Tax (Appeals) with regardto proportionate disallowance to be made in respect oftransactions.whichweremadesubsequent|CO.introduction of clauses (e) and (Tf) of Section 801B(10) ofthe Act as well as the residential units where there wasa violation of condition (c) of Section 80IB(10) of theAct potn tne Assessment Years. Tne Tribunal furtnerheld that the assessee is eligible for deduction underSection 80IB(10) of the Act on additional income also. —In the aforesaid factual background, thiS appeal nasbeen filed. 3.Learned counsel for the revenue submittedthat the Tribunal erred in holding that unaccountedmoney is eligible for deduction under Section 80IB(10) 3.Learned counsel for the revenue submittedthat the Tribunal erred in holding that unaccountedmoney is eligible for deduction under Section 80IB(10) of the Act. It ts further submitted that the Tribunal!grossly erred in extending the benefit of proportionateallowance on the flats which comply with the conditionslaid down under Section 80IB(10)(e) and (f) of the Act.It is further submitted that clauses (e) and (f) can beapplied in respect of transactions, which are enteredinto after 01.04.2010. On the other hand, Learned|Senior counsel of the assessee has submitted that entireflats of the assessee were sold prior to 25.05.2009 andthe Assessing Officer himself has treated the incomefound during the search proceedings as business fromincome. It is also submitted that assessee has rightlybee held entitled for deduction under Section 80IB(10)of the Act on the additional income as the assessee hadmade the claim in the return of income. 4We have considered the submissions madeby learned counsel for the parties and have perused therecord. Clauses (e) and (f) to Section 80IB(10) of theAct have been inserted by Finance Act (No.2), 2009 with effect from 01.04.2010, which provides that not more.than one residential unit in the housing project isallotted to any person not being an individual and incase, a residential unit in a housing project is allotted toa person being an individual, no other residential unit insuch housing complex shall be allotted to the individual,the spouse or the minor children of such individual, theHindu Undivided Family (HUF) in such individual is KartaOr any person representing such individual, spouse orminor children of such individual of HUF In which suchindividual is Karta. It is also pertinent to note that inclause (e) of Section 80IB(10) of the Act, the Legislaturehas used the expression ‘allotted’. In other words, incase, a residential unit is allotted prior to 01.04.2010,the conveyance in such a residential unit can beregistered subsequently also and in such a case also theassessee will be entitled to the benefit of deductionunder Section 80IB(10) of the Act. Clauses (e) and (f) ofSection 80IB(10) of the Act are prospective in nature and apply in respect of transactions entered on or after01.04.2010, which is evident from Circular No.5/2010dated 03.06.2010. From perusal of the order passed bythe Assessing Officer, it is evident that unaccountedmoney during the search proceedings has been treatedto be business income by the Assessing Officer. | 5.|The Tribunal itself has found that all thetransactions except in respect of two flats have beenentered into by the assessee in the year 2007-08 and.therefore,|theprovisions.cannotbe|appliedCO transactions entered into by the assessee prior tointroduction of clauses (e) and (f) to Section 80IB(10) ofthe Act. In view of preceding analysis, the substantial|questions of law framed by this court are answeredagainst the revenue and in favour of the assessee. �5�9-2�72/439 �9-2�011203�;0.3/�056�./�-272>?� 6./<.//26�� ����������������������//�