Ita/383/2010 Of The Commissioner Of Income Tax v. M/S Shobha Developers Ltd

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 5 DAY OF APRIL 20271 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE M.G.S. KAMAL|LT.A. NCO.383 OF 2010 BETWEEN: 1.|THE COMMISSIONER OF INCOME-TA® LTU, JSS TOWERS BSK III STAGE, BANGALORE. 2.|THE ADDITIONAL COMMISSIONER OF INCOME-TAX LTU, JSS TOWERS BSK III STAGE, BANGALORE. .., APPELLANTS~ (BY SRI. K.V. ARAVIND, ADV.,) AND* M/S. SHOBHA DEVELOPERS LITD., 43 , 2ND FLOORDICKENSON ROADBANGALORE - 560 O58. ~. RESPONDENT (BY SRI. A. SHANKAR SR. ADV. FOR SRI. M. LAVA, ADV.) THIS I.T.A. IS FILED UNDER SEC. J6O0-A OF INCOME TAXACT 1961, ARISING OUT OF ORDER DATED 31.05.2010 PASSEDIN ITA NO.965/BANG/2009, FOR THE ASSESSMENT YEAR 2005-06, PRAYING THAT THIS HON BLE COURT MAY BE PLEASED TO (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW,STATED THEREIN. | (ii) ALLOW THE APPEAL AND SET ASIDE THE ORDERS.PASSED BY THE ITAT, BANGALORE IN ITA NO.965/BANG/2009°DATED 31.05.20L0 AND CONFIRM THE ORDER PASSED BY THE.APPELLATE COMMISSIONER BY CONFIRMING THE ORDER PASSED.BY THE ADDITIONAL COMMISSIONER OF INCOME TAX, LIU,BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. THIS I.7T.A. COMING ON FOR’ HEARING, THIS’ DAY, | ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (nereinafter referred to as the Act for short)nas been preferred by the revenue. The subject matterof the appeal pertains to the Assessment year 2005-06. The appeal was admitted by a bencn of this Court on thefollowing substantial questions of law: “(1)Whether the Tribunal is correct.in holding that the allocation of commonexpenses in the ratio of turnover of a|project should not be adopted but|percentage of completion method shouldbe aaopted when computing tne total|turnover of the assessee for the purposeof computation of deduction u/s. 80IB ofthe Act? (11) Whether the Tribunal ts correct:in holding that the assessee would be|entitled to claim deduction u/s.80IB(10)of the Act, despite the project “Zircon”|Naving commercial shop establishmentof more than 2000 sq. ft. and this|project being part of the farger project|“Ultima”,wherenumber.offlatsmeasuring more than 1500 sq. ft. hadbeen constructed contrary to section|8OIB(10) of the Act? (11)hether|theTribunalWascorrectIn|holdingthattheprofitsderived by the assessee on the sale of|land/undivided share to the purchasers|of flats is to be included in the profits for|computing deduction u/s.80IB(10) of theAct when the land was owned by the|sister concern’ transferring undividedshare in favour of the purchasers offlats?" . 2 |Facts leading to filing of this appeal brieflystated are that assessee is a company incorporated under the Companies Act, 1956 and is engaged in the|business of construction of real estate projects and in.executing construction contracts. The assessee for the|Assessment Year 2005-06 filed the return of income on|31.10.7005|anddeclared|atotal.income.ofRs.33,33,36,600/-. The case of the assessee was.selected for scrutiny and notice under Section 143(2) of.the Act was issued on 01.06.2006 to the assessee. The|Assessing Officer by an order dated 31.12.2007 passedunder Section 143(3) of the Act completed the assesseeand disallowed a portion of deduction claimed under.Section8SOIBoftheAct.tO|theeXxTenyofRs.8,54,05,964/-. Tne Assessing Officer determined the.total income of the assessee at Rs.41,8/7,42,566/-. 3The assessee thereupon preferred an appealbefore the Commissioner of Income Tax (Appeals) who.by an order dated 31.07.2009 upheld the order passedpy the Assessing Officer and the appeal preferred by theassessee was dismissed. The assessee thereupon filed. 3The assessee thereupon preferred an appealbefore the Commissioner of Income Tax (Appeals) who.by an order dated 31.07.2009 upheld the order passedpy the Assessing Officer and the appeal preferred by theassessee was dismissed. The assessee thereupon filed. an appeal before the Income Tax Appellate Tribunal(hereinafter referred to as the tribunal’ for short). Thetribunal by an order dated 31.05.2010 allowed the claim.of the assessee with regard to disallowance of a portionof deduction claimed under Section 80IB of the Act.|Accordingly, the appeal preferred by the assessee was|partly allowed. In the aforesaid factual background, this|appeal has been filed by the revenue. 4Learned|counsel|for.therevenuewhileinviting our attention to orders passed by the Assessing|Officer, Commissioner of Income Tax (Appeals) and thetribunal submitted that the tribunal ougnt to haveappreciated that different methods of computing profitsand overnead expenses. It is further submitted thatonce percentage completion method was adopted, the|Same has to be applied for computing the overhead|expenses and sucn expenses should be in proportion tothe percentage of turnover. It is also submitted that thetribunal ought to nave appreciated that assessee was. not the owner of the land and burden was on the.assessee to prove the factum of transfer of land. It is.contended that unregistered agreement for sale cannot|be held to be transfer in law within the meaning of either Section 2(47) of the Act or under Section 54 of.the Transfer of Property Act, 1882. | 5.|On the other hand, learned Senior counsel forthe assessee submitted that assessee has considered|the cost as the basis for allocation of common overheadsamongst various units of the assessee. It is further|submitted that basis for allocation of expenses depends.on the nature of Dusiness and may vary from case tocase Dasis and what mignt be the basis for one nature ofbusiness may not be ideal for another nature ofbusiness. It Is also submitted that in the construction of.real estateDUSINESS,|theperiod|ofactivityfor.construction of project may vary from 1 to 3 years and 5.years depending upon the size of project and grant ofapproval by various authorities. It is argued that issue. whether expenditure allocated on the basis of cost orturnover is a question of fact and not the question of law.and no perversity has been averred by the revenue with.regard to the aforesaid finding even in the memo of|appeal. It is also contended that in view of Section.2(47)(v) of the Act, the assessee is the owner of theland in question and if the Assessing Officer was of the|opinion that the land did not belong to the assessee the|profits could not nave been inciuded in the income itselfin the first place. It is also argued that the Assessing|Officer has conveniently excluded the profit on the sale.of land for the purpose of deduction under Section 80IB—of the Act, whereas, the same is included in the totalincome of the assessee. In support of aforesaidsubmissions, reliance has been placed on decisions in.CIT|VS,BRIGADEENTERPRISESLTD. , 170TAXMANN.COM 346 (KAR), ‘CIT VS. VANDANA_PROPERTIES’, 19 TAXMANN.COM 316 (BOMBAY),"JIVRATTEALID.VS,ACIT,(2017)80 TAXMANN.COM 108 (GUJ.), ‘PCIT VS. GREENASSOCIATES’, (2019) 105 TAXMANN.COM 80 (SC),'CITVS.RADHEDEVELOPERS,,(2012)17TAXMANN.COM 16 (GUJ.), ‘CIT VS. SAHAJANANDASSOCIATES’, (2014) 44 TAXMANN.COM 458, ‘CITVS, SHRAVANEECONSTRUCTIONS’,(2012)2)|TAXMANN.COM 259 (KAR.), ‘CIT VS. ANRIYA.PROJECT MANAGEMENT SERVICES (P) LTD, 353ITR 12 (KAR), CIT VS. SARKAR BUILDERS, (2015)375ITR39)(SC)and|'CITVS.S.T,. MICRELECTRONICS PVT. LTD. IN ITA NO.928/2010DATED 25.05.2011. 6.|We have considered the SUDMISSIONS made.by learned counsel for the parties and nave perused therecord. The tribunal has recorded the finding on first|substantial question of law in para 20.6 and para 20./,whicn reads as under: 20.6|On a careful consideration of the TAXMANN.COM 108 (GUJ.), ‘PCIT VS. GREENASSOCIATES’, (2019) 105 TAXMANN.COM 80 (SC),'CITVS.RADHEDEVELOPERS,,(2012)17TAXMANN.COM 16 (GUJ.), ‘CIT VS. SAHAJANANDASSOCIATES’, (2014) 44 TAXMANN.COM 458, ‘CITVS, SHRAVANEECONSTRUCTIONS’,(2012)2)|TAXMANN.COM 259 (KAR.), ‘CIT VS. ANRIYA.PROJECT MANAGEMENT SERVICES (P) LTD, 353ITR 12 (KAR), CIT VS. SARKAR BUILDERS, (2015)375ITR39)(SC)and|'CITVS.S.T,. MICRELECTRONICS PVT. LTD. IN ITA NO.928/2010DATED 25.05.2011. 6.|We have considered the SUDMISSIONS made.by learned counsel for the parties and nave perused therecord. The tribunal has recorded the finding on first|substantial question of law in para 20.6 and para 20./,whicn reads as under: 20.6|On a careful consideration of the observations of the Hon'ble Tribunal cited supra,we find, there was no definite ratio laid down by the Hon'ble Tribunal that the common overheadexpenses have to be allocated on the basis of|turnover as contested by the revenue. With dueregards, we are of the firm view that the case|law relied on by the Revenue to drive home itspoint is rather distinguishable and not directlyapplicable to the facts of the case on hand. 70.7 In an overall consideration of the factsand circumstances of the issue, the RevenueNas not brought out any concrete documentaryevidence to justify its stand in excluding thedifference in_ allocable expenses. We _ artherefore, of the considered view that theexclusion of the difference in allocable expensesfrom the deduction as claimed by the assesseeWasMISCONCeIVEZdand|thus,exclusionofdifference in allowable expenses is unjustified.It is ordered accordingly. Thus, it is evident that the substantial question oflaw does not arise for our consideration which is evident.from the findings recorded by the tribunal. J.So far as second substantial question of lawis concerned, the aforesaid substantial question of law.Nas been answered by this court in'COMMISSTONEROFINCOMETAX,BANGALORE,VS.BRIGADEENTERPRISES LTD.', (2020) 120 TAXMANN.COM346 (KARNATAKA).For the reasons assigned in the|aforesaid decision, the second substantial question of.law is answered against the revenue and in favour of the|aSS@eESSECC, 8 _Now we may advert to the third substantialquestion of law. Section 2(47)(v) of the Act reads asunder:| ‘any transaction involving the allowing ofthe possession of any immovable property to|be taken or retained in part performance of a.contract of the nature referred to in Section53A of the Transfer of Property Act, 1882.” Thus, from perusal of Section 2(47)(v) of the Acct,it is evident that if the possession of any immovable property is handed over in part performance of thecontract referred to in Section 53A of the Transfer otfProperty Act, 1882 the same would be a transfer within.the meaning of Section 2(47) of the Act. oiIn the instant case, the assessee has takenpossession of the land in pursuance of an agreement|executed between it and its sister concern and Nas paidconsideration to its sister concern for purchase of theland. The assessee thereafter has constructed residential.apartments on it and therefore, the land shall bedeemed to have been transferred within the meaning of Section 2(47)(v) of the Act and is entitled to claim.deduction under Section 80IB of the Act. In this'connection, reference may be made to decision of theSupreme Court In/'PCIT VS. GREEN ASSOCIATES|SUPRA.The substantial question of law No.3 is|answered against the revenue and in favour of theaSSeSSA2E. .����������������������������������������������������������������������������������������������� ����������� ��� �����������