Ita/393/2014 Of The Commisioner Of Income-Tax v. Sjr Builders'in Ita

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE /[TH|]DAY OF JANUARY 2071PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE NATARAJ RANGASW AMYLT.A. NO.393 OF 2014 BETWEEN: 1.|THE COMMISIONER OF INCOME-TAX| C.R. BUILDING, QUEENS ROAD BANGALORE. 2 |THE ASST. COMMISSIONER OF INCOME TAX. CIRCLE-4(1) UNITY BUILDING ANNEXE. MISSION ROAD, BANGALORE-560 027. _... APPELLANTS (BY MR. K.V. ARAVIND, ADVOCATE) AND* M/S. S N BUILDERS & DEVELOPERS|SNN AGORA, RAJ LAKE VIEWNO.3761, 29TH MAIN, BIM II STAGE.N.S.PALYA MAIN ROADBANGALORE-560 0/76. (BY MR. A. SHANKAR, SR. COUNSEL FOR|MR. M. LAVA, ADV.,) .., RESPONDENT THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX|ACT 1961, ARISING OUT OF ORDER DATED 11.04.2014 PASSED IN ITA NO.487/BANG/2013 FOR THE ASSESSMENT YEAR 2009-10,PRAYING TO: |(i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW,STATED ABOVE. (ii) ALLOW THE APPEAL AND SET ASIDE THE ORDER.PASSED BY THE ITAT, BANGALORE IN ITA NO.487/BANG/2013—DATED 11/04/2014 AND CONFIRM THE ORDER OF THE APPELLATECOMMISSIONER CONFIRMING THE ORDER PASSED BY THE.ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4(1),_BANGALORE. THIS ILT.A. COMING ON FOR’ HEARING, THIS DAY, |ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT This appeal under Section 260-A of the Income TaxAct, 1961 (hereinafter referred to as ‘the Act’, for short) has|been filed by the revenue. The subject matter of the appeal pertains to the Assessment Year 2009-10. Tne appeal wasadmitted by a Bencn of this Court vide order dated|20.07.2015 on the following substantial questions of law: “1, Whetner the Hon bie Tribunal ts right in|holding that the assessee is eligible for.proportionatedeductionUndersectionSOIB(10) when according to provisions of|section 80OIB(10) of the Act, one of theconditions to be fulfilled for claiming deductionis that the total built up area of the residentialunits in the housing project shall not exceed|1500 square feet in the city of Bangalore ? 2. Whether tne Tribunal is rignt in nolaing tnat|the project completion method Is a recognizedmethod of accounting without examining as towhether the assessee is entitled to the projectcompletion method in the absence of regular|books of accounts required to be maintained|by tne assessee?’. 2. Facts leading to filing of this appeal briefly stated are.that the assessee is a firm engaged in the development ofreal estate and construction of apartments. Tne assesseefiled its return of income for the Assessment Year 2009-10and claimed deduction under Section 80IB(10) of the Act onthe profits determined by applying percentage completionmethod. A survey under Section 133A of the Act was carriedout during which it was found that the built up area of 26flats exceeded 1500 square feet. Tne Assessing Officer, byan order dated 05.12.2011, completed the assessment Dyrejecting the claim of the assessee for deduction underSection 8O0OIB(10) of the Act. Tne assessee thereuponapproached the Commissioner of Income Tax (Appeals) byfiling an appeal. Tne Commissioner of Income Tax (Appeals),by an order dated 04.02.2013,|inter allaneld tnat tne. derivation of profit based on percentage completion methodby the assessee is correct and the assessee is entitied toproportionate deduction under Section 80IB(10) of the Act inrespect of those flats wnich conform to the limits prescribedunder the relevant provisions of the Act. | derivation of profit based on percentage completion methodby the assessee is correct and the assessee is entitied toproportionate deduction under Section 80IB(10) of the Act inrespect of those flats wnich conform to the limits prescribedunder the relevant provisions of the Act. | 3. The Commissioner of Income Tax (Appeals)accordingly allowed the appeal preferred by the assessee.Being aggrieved, the assessee as well as the revenue filedappeals|beforetneIncome|TaxAppellateTripunal|(hereinafter referred to as ‘the Tribunal’ for short). Therevenue filed an appeal on the issue pertaining to|proportionate deduction under Section 801B(10) of the Act|wnereas the assessee filed an appeal before the Tribunal on the issue of project completion method instead of percentagecompletion metnod to be adopted. The Tribunal, by an orderdated 11.04.2014, dismissed the appeal filed by the revenueby placing reliance on the decision of this Court in 'CIT Vs.SJR BUILDERS'in ITA No.32/2010 dated 19.03.2012 andconfirmed the order passed by the Commissioner and heldtnat the assessee is eligidle for deduction under Section 8O0IB(10) of the Act proportionately. In the aforesaid factualbackground, the revenue has filed this appeal. — 4. Learned counsel for the revenue submitted tnat tne|Tribunal grossly erred in nolding that the assessee is entitledto the benefit of proportionate deduction under Section80IB(10) of the Act in respect of the facts which is confirmedto the limits under the relevant provision of the Act. It isfurther submitted that the assessee is not eligible forproportionate deduction under Section 801B(10) of the Act|since the provisions of Section 80IB(10) of the Act do notenvisage such deduction and one of the conditions which is required to be fulfilled for claiming deduction is that the totalDuilt Up area of the residential units in tne housing projectshall not exceed 1500 square feet, which has not beensatisfied by tne assessee. It is also urged that tne Tribunalerred in holding that the project compietion method is arecognized method of accounting without examining as towhether the assessee is entitled to project completionmethod in the absence of regular books of accounts requiredto pe maintained by the assessee. It is also pointed out that| the Tribunal nas relled on tne decision in its order In |M/S.PRESTIGE ESTATE PROJECTS PVT, LTD. Vs. DCIT|inrespect of Assessment Year 2005-06. However, the.aforesaid order of the Tribunal was the subject matter of tneappeal before this Court in ITA No.84/2010 which was\decided by a Division Bencn of this Court vide judgment|dated 05.05.7070 In which it was held that for the!Assessment Year 2005-06, the percentage completion|method is applicable and therefore, the assessee nas to.follow the percentage completion method for the Assessment|Year Z009-10 as well. 5. On the other hand, learned Senior counsel for the.assessee submitted that the first substantial question of law|invoived in this appeal is no longer.res integraand nas/§already been answered by this Court in decisions of thisCourt namely‘CIT Vs. BRIGADE ENTERPRISES LTD.’|(2020) 120 TAXMANN.COM 346 (KAR)|and~6—"“CIT Vs. SBUILDERS’,SUPIdand the decision of Madras High Court in‘CIT Vs. ARUN EXCELLO FOUNDATIONS (P) LTD.|(2013) 259 CTR 362— Learned Senior counsel has further| 5. On the other hand, learned Senior counsel for the.assessee submitted that the first substantial question of law|invoived in this appeal is no longer.res integraand nas/§already been answered by this Court in decisions of thisCourt namely‘CIT Vs. BRIGADE ENTERPRISES LTD.’|(2020) 120 TAXMANN.COM 346 (KAR)|and~6—"“CIT Vs. SBUILDERS’,SUPIdand the decision of Madras High Court in‘CIT Vs. ARUN EXCELLO FOUNDATIONS (P) LTD.|(2013) 259 CTR 362— Learned Senior counsel has further| submitted that during the course of the proceedings, the|assessee submitted that it was following project completionmethod and the Tribunal by placing reliance on the decisionOT PRESTIGEESTATE|PROJECTSfFSUPId,fortheAssessment Year 2005-06, has hneld tnat tne AccountingStandard 7 was not applicabie to real estate developers.Therefore, percentage completion method cannot be thrust|upon the assessee and the assessee was right in following|tne project completion metnod of accounting as_ perAccounting Standard 9. It is further submitted that the|aforesaid decision has been upheld by the Division Bencn of this Court In —CIT Vs. PRESTIGE ESTATE PROJECTS (P)LTD." (2020) 116 TAXMANN.COM 554 (KAR)as well astnedecisionof|tnis|Courtin1CITYs.BANJARA|DEVELOPERS & CONSTRUCTIONS P. LTD." (2020) 117|TAXMANN.COM 747 (KAR). Learned Senior counsel nas.also invited our attention with regard to the clarification|issued by the Institute of Chartered Accountants with regardto applicability of revised Accounting Standard / to|enterprises undertaking construction activities on their own|account as a venture of commercial nature and has invited| our attention to paragraph 6 as well as paragraph 11 of theaforesaid clarification in support of his submission. 6. We nave considered the SUDMISSIONS made on potn sides and have perused the record. On close scrutiny of thejuagment.renderedDYtnis|CourtinBRIGADEENTERPRISES LTDneSUDPla,it is evident that the. first.substantial question of law involved in this appeal is no|longerres integra. -Thnerefore, the first substantial questionof law is answered against the revenue and in favour of theaSS@CSSACC, 7. Now we may deal with tne second substantialquestion of law. The Tribunal relied upon the decision in the|case of—PRESTIGE ESTATES PROJECTS LTD. Vs. DCIT,,|rendered by it and held that for the Assessment Year 2005-06 the Accounting Standard 7 was not applicable to the realestate developers. Therefore, percentage completion methodcannot be thrust upon the assessee and the assessee wasright following the project completion method of accountingas per Accounting Standard 9. The aforesaid decision has been upheld by this Court in |CIT Vs. PRESTIGE ESTATES|fFSUPIa. Besides it, once the first substantial question of lawis |answered in favour of the assessee, the second substantialquestion of law is otherwise even rendered academic. TneInstitute of Chartered Accountants has issued a clarificationwnerein it has been clarified that revised Accounting|Standard 7 is not applicable to the enterprises undertakingconstruction activities. Therefore, the second substantial|question of law is also answered against the revenue and in|favour of the assessee. In the result, the appeal fails and is nereby dismissed. Sd/-JUDGE Sd/-—JUDGE