Nila Infrastructure Limited v. Deputy Commissioner Of Income Tax, Circle 3(1)(1

C/TAXAP/394/2019 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 394 of 2019 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALA andHONOURABLE MR.JUSTICE A.C. RAO ==========================================================1 Whether Reporters of Local Papers may be allowed to NOsee the judgment ?2 To be referred to the Reporter or not ?NO3 Whether their Lordships wish to see the fair copy of the NOjudgment ?4 Whether this case involves a substantial question of law NOas to the interpretation of the Constitution of India or any order made thereunder ? 4 Whether this case involves a substantial question of law NOas to the interpretation of the Constitution of India or any order made thereunder ?========================================================== NILA INFRASTRUCTURE LIMITED Versus DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(1) ==========================================================Appearance:MR B S SOPARKAR(6851) for the Appellant(s) No. 1MRS MAUNA M BHATT(174) for the Opponent(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALAand HONOURABLE MR.JUSTICE A.C. RAO Date : 06/08/2019 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1.This tax appeal under Section 260A of the Income Tax Act, 1961 [for short 'The Act, 1961'] is at the instance of an assessee and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad, 'B' Bench, Ahmedabad in ITA No.3050/AHD/ 2015, dated 25/09/2018 for the A.Y. 2011-12. 2.This tax appeal came to be admitted by this Court vide order dated 15/07/2019 on the following three substantial questions of law:- “1.00. This Tax Appeal at the instance of the assessee is admitted on the following substantial questions of law:- “(1). Whether, in the facts and circumstances of the case, has the Income Tax Appellate Tribunal erred in law and on facts in not confirming the deletion by CIT(A) of disallowance of deduction u/s. 80IB(10) of the Act of Rs.1,58,94,590? (2). Whether, in the facts and circumstances of the case, has the Income Tax Appellate Tribunal erred in law and on facts in remitting the matter back to the Assessing Officer for verification when all the details were on record and duly examined by lower authorities? (3). Whether, on the facts and circumstances of the case, has the Income Tax Appellate Tribunal erred in not holding that the appellant had rightly claimed deduction u/s. 80IB(10) on Rs.1,58,94,590 being the charge collected from the customers for AEC, AUDA and legal charges?” Notify this Tax Appeal for final hearing on 30/07/2019 on top of the Board.” 3.The facts giving rise to this tax appeal may be summarized as under:- 3.1The appellant-assessee is a limited company engaged in the business of Real Estate and Infrastructure Development activities. For the Assessment Year 2011-12, the appellant filed its return of income at Rs.11,99,50,930/-. The assessment was undertaken and the Assessing Officer made addition of Rs.1,61,95,404/- and assessed the total income at Rs.13,64,40,540/-. The order of assessment was challenged before the Commissioner of Income Tax (Appeals) and the same was partly allowed vide order dated 13/08/2015. The Revenue preferred an appeal against the order passed by the CIT [Appeals] before the Income Tax Appellate Tribunal . 3.2The Income Tax Appellate Tribunal partly allowed the Revenue's appeal vide order dated 25.09.2018. The Income Tax Appellate Tribunal thought fit to remit the matter to the Assessing Officer for examination of the issue afresh by calling for the details pertaining to the Asmakam Project. Commissioner of Income Tax (Appeals) and the same was partly allowed vide order dated 13/08/2015. The Revenue preferred an appeal against the order passed by the CIT [Appeals] before the Income Tax Appellate Tribunal . 3.2The Income Tax Appellate Tribunal partly allowed the Revenue's appeal vide order dated 25.09.2018. The Income Tax Appellate Tribunal thought fit to remit the matter to the Assessing Officer for examination of the issue afresh by calling for the details pertaining to the Asmakam Project. 4.Being dissatisfied with the impugned order passed by the Income Tax Appellate Tribunal, the appellant – assessee is here before this Court with the present appeal. 5.Mr. Soparkar, the learned senior counsel appearing for the appellant – assessee vehemently submitted that the tribunal committed a serious error in not confirming the deletion by the CIT [Appeals] of disallowance of the deduction under Section-80IB(10) of the Act of Rs.1,58,94,590/-. Mr. Soparkar submitted that the appellate tribunal committed serious error in remitting the matter to the Assessing Officer for verification more particularly when all the details were on record and duly examined by the lower authorities. He submitted that the appellate tribunal committed a serious error in law and on facts in not holding that the appellant had rightly claimed deduction under Section-80IB(10) on Rs.1,58,94,590/- being the charges collected from the customers towards the AEC, AUDA and other legal charges. 6.In such circumstances referred to above, the learned senior counsel prays that there being merit in his appeal, the same be allowed and the substantial questions of law may be answered in favour of the appellant – assessee. 7.On the other hand, this appeal has been vehemently opposed by Ms. Mauna Bhatt, the learned standing counsel appearing for the Revenue. Ms. Bhatt submitted that no error not to speak of any error of law could be said to have been committed by the appellate tribunal in passing the impugned order. Ms. Bhatt submitted that the reason for remitting the matter to the Assessing Officer as assigned by the appellate tribunal is for the purpose of verification of all the necessary details with regard to the payments made to the AUDA, AEC, etc., is concerned. In such circumstances referred to above, Ms. Bhatt submitted that none of the three questions referred to above could be termed as substantial questions of law. In such circumstances referred to above, Ms. Bhatt prays that there being no merit in this appeal, the same may be dismissed and the substantial questions of law framed by this Court may be answered in favour of the Revenue and against the appellant – assessee. 8.The Assessing Officer while disallowing the claim under Section 80-IB(10) of the Act, observed as under:- 5.3The reply of the assessee has been considered carefully but it was not acceptable because as per section 80-IB(10) of the Act, the assessee is eligible for the deduction only for the income which is derived from such housing project. The reason for non-acceptance are discussed below: 5.3.1 It is settled proposition that the deduction is to be allowed on the income derived from the eligible activity only. For this is important to reproduce the provisions of section 80-IB(14) wherein the definition of “built up area” is mentioned. 80-IB(10) For the purpose of this section:- (a) “built up area” means the inner measurement of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the wall but does not include the common areas shared with other residential units.” 5.3.1 It is settled proposition that the deduction is to be allowed on the income derived from the eligible activity only. For this is important to reproduce the provisions of section 80-IB(14) wherein the definition of “built up area” is mentioned. 80-IB(10) For the purpose of this section:- (a) “built up area” means the inner measurement of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the wall but does not include the common areas shared with other residential units.” 5.3.2 If we read section 80-IB(10) in conjunction with section 80-IB(14), then it is clear that the deduction u/s.80-IB(10) is available only for certain built up area of the residential unit excluding common area on the floor level. The provisions nowhere mention that the deduction will be available for other receipts also. Income from other receipts may be the “profit of the business”, but cannot be treated as income derived from the sale of residential unit at floor level. The alleged charges, on which the assessee is claiming deduction 80-IB(10) is not in the nature of receipt from the sale of residential units. 5.3.3 It is also further noted that the assessee has charged a fixed sum from the parties on the basis of area For example, the assessee has charged fixed sum of 1,62,500/- for block J and Rs.112,500/- on block K,L,M,N,O,P etc. The assessee has not been able to prove that the assessee has indeed incurred such amount (flat wise) which has been received by the assessee from purchasers. The complete one to one nexus between the fixed sum received and the expenses made for the cases is absent in the assessee case. 11.The CIT [Appeals] while allowing the appeal preferred by the appellant – assessee to the extent of deduction under Section-80IB(10) of the Act is concerned, observed as under:- 10. DECISION I have considered the observations of the A.O. with respect to disallowance of deduction u/s.80IB(10) of the I.T. Act with respect to the charges collected from the customers for Ahmedabad Electricity Company (AEC), Ahmedabad Urban Development Authority (AUDA) and legal charges. The total of such sum paid by the appellant to these three authorities was Rs.1,58,94,590/-. The AO primarily is of the view that no deduction is available on these sums as it is not linked to the project activity or such sum is not derived from the main activity i.e. the construction of housing complex namely Asmakam undertaken by the appellant. The AO is of the view that the assessee has charged a fixed sum for some specific blocks of the housing complex namely Rs.162,500/- for Block-J, Rs.1,12,500/- on Block-K, L, M, N, O, P etc. The AO observes that the assessee has not been able to prove that such amount was incurred for each flat which has been received by the appellant from the flat purchasers. The AO observes that the nexus between the fixed sum received and the expenses, in the form of payment to AEC, AUDA and legal charges, was not evident in this case. AO relied on a sample sale deed executed between the appellant and one of the flat purchaser for Flat No.52 which was reproduced in support of its contention vide para 5.34 of its order. The AO also pointed out that the relevant guidance made on accounting for real estate transaction issued by ICAI does not bind the appellant to take such charges taken from the purchasers as a part of income eligible for deduction u/s.80IB(10). 10.1The appellant has primarily relied on number of judgments indicating that of Hon'ble Supreme Court namely Liberty India and couple of other Tribunal decision to claim that deduction u/s.80IB(10) is allowed on charges paid to AUDA, AEC and the legal charges paid. 10.2The appellant is drawn my attention indicating that such charges are recovered from the customers and are integral part of the sale consideration. The appellant pointed out that AO has not noticed despite pointing out so the clause-19 of each of the sale deed which is reproduced as under:- 10.1The appellant has primarily relied on number of judgments indicating that of Hon'ble Supreme Court namely Liberty India and couple of other Tribunal decision to claim that deduction u/s.80IB(10) is allowed on charges paid to AUDA, AEC and the legal charges paid. 10.2The appellant is drawn my attention indicating that such charges are recovered from the customers and are integral part of the sale consideration. The appellant pointed out that AO has not noticed despite pointing out so the clause-19 of each of the sale deed which is reproduced as under:- “If any amount becomes payable to AUDA, AEC, the State Government or other public authority like betterment charged or development taxes or any other charges, the same shall be reimbursed by the purchaser as may be fixed by the vendor or levied by the authority and the purchaser is liable to pay the same directly.” (Emphasis supplied) 10.3In this case, the appellant has undisputedly paid these amount to AUDA, AEC and legal charges, the ledger of which have been produced before me in the Paper Book so filed. The appellant contends that such charges paid to AUDA, AMC and legal charges are essentially recovered from each of the customer as per Clause-19, crucial fact which has been omitted by the A.O. In a nutshell such amount and when received by the appellant has been received in pursuant to the sale deed, a legal document pertaining to the instant housing project and therefore it is closely related to the housing project and thus becomes eligible for deduction u/s.80IB(10) of the I.T. Act. 10.4Further, my attention was drawn to the decision by Hon'ble Kolkatta Tribunal in the case of ACIT Vs. North City Developer (ITA No.1307/Kolkata/2010 dated 14/7/2011] wherein the Hon'ble Tribunal has held that in construction of housing project the assessee was under obligation as per the agreement entered with various customers to provide common facilities including electricity supply and meters, transformers, electric sub-stations including provision for generator. It was held by the Hon'ble Tribunal that such facility undisputedly providing electricity supplied to the housing complex is part and parcel of the entire activity of developing and building a housing project. Without such electricity facilities the project developing cannot be said to be complete. It was also observed by the Hon'ble Tribunal that extra amount so charged while providing essential common facilities is part and parcel of the housing project and the amount received in respect there to is eligible for deduction u/s.80IB(10). The relevant portion of the judgment is reproduced below: essential common facilities is part and parcel of the housing project and the amount received in respect there to is eligible for deduction u/s.80IB(10). The relevant portion of the judgment is reproduced below: 24. We have carefully considered the orders of the authorities below and submissions of learned representative of the parties. We agree with ld. A/R that in the construction of a housing project, the assessee was under an obligation, as per agreement/ memorandum entered into, to provide all common facilities including electricity supply & meter, transformer & electric sub-station including provision for generator. It is a part and parcel of the entire activity of developing and building a housing project and without which the project developed could not be said to be complete. We observe that as per agreement, it is provided that each of the purchasers is required to pay an additional amount @ Rs.55/- per sq. ft. of super built-up area of the said flat by way of consideration for installation of generator for the common portions and for providing power to the said flats and also for providing electricity supply & meter etc. for common purposes. We agree that charging of extra amount for providing the above essential common facilities as per the agreement is in the capacity of developing and constructing the housing project by the assessee and not to act as a middleman/agent, as alleged by A.O. These activities, we are of the considered view, are part and parcel of the entire activity of developing and completing the housing project. Hence we hold that charging of the said additional amount, i.e.@ Rs.55/- per sq. ft. of super built-up area from flat owners/purchasers is having direct nexus with the activity of developing and building housing project. We also observe on perusal of details at page 60 of the paper book that the total receipts against CESC, electricity and generator was of Rs.45,70,703/- and whereas the expenses incurred by the assessee was of Rs.63,94,341.94 and thus there was a loss of Rs.18,23,638.94. Besides above, in respect of Rs.3,66,763/-, which is also mentioned in ground No.3 of the appeal, received by the assessee from flat owners for extra work, we observe that the said work was carried out before handing over of possession of the respective flats to the buyers and not after handing over of the possession. The department has disputed the position but there was no cogent material brought 33 on record to dislodge the fact that the said extra work was carried out by the assessee in terms of clause (c) of Section-A of Sixth Schedule of the Sale Agreements entered into with the flat buyers. Therefore, we hold that ld. C.I.T.(A) has rightly held that the said receipt of Rs.3,66,763/- has a direct nexus with the activity of undertaking developing and building housing project and is eligible to be included while computing deduction u/s. 80-IB(10) of the Act. In view of above facts, we hold that there is no reason to interfere with the order of ld. C.I.T.(A). Ground No.3 of the appeal taken by the department is also rejected. 10.5I have also considered the reliance on the judgment namely ACIT vs Vaman Estate in ITA No.7570/Mum/2011 wherein the Hon'ble Tribunal has followed the decision by a co-ordinated bench in the case of M/s. Eathare and Associates in ITA No.1211/M/2008 wherein it was pointed out that developmental charges, legal charge, water, electricity meter charges etc. are eligible for deduction u/s.80IB(10) of the I.T. Act. The relevant finding of this order is given below:- computing deduction u/s. 80-IB(10) of the Act. In view of above facts, we hold that there is no reason to interfere with the order of ld. C.I.T.(A). Ground No.3 of the appeal taken by the department is also rejected. 10.5I have also considered the reliance on the judgment namely ACIT vs Vaman Estate in ITA No.7570/Mum/2011 wherein the Hon'ble Tribunal has followed the decision by a co-ordinated bench in the case of M/s. Eathare and Associates in ITA No.1211/M/2008 wherein it was pointed out that developmental charges, legal charge, water, electricity meter charges etc. are eligible for deduction u/s.80IB(10) of the I.T. Act. The relevant finding of this order is given below:- 13. We have carefully considered the submissions of the rival parties and perused the material available on record. We find merit in the plea of the ld. Counsel for the assessee that in the case of M/s Pathare & Associates (supra) the Tribunal has upheld the order of the ld. CIT(A) in allowing the deduction u/s 80IB(10) of the Act in respect of development charges, legal charges, water/electricity/meter charges etc. However, in respect of corpus fund charges, the Tribunal has set aside the issue to the file of A.O. In the absence of any distinguishing feature brought on record by the Revenue, we respectfully following the order of the Tribunal (supra) hold that the assessee is entitled to deduction u/s 80IB(10) of the Act in respect of Development charges, legal charges, society formation charges, water, electricity & meter charges. As regards the deduction u/s 80IB(10) on corpus fund charges, in the absence of any relevant material available on record, we respectfully following the order of the Tribunal (supra) set aside the issue to the file of the A.O. to decide the same afresh in the light of the direction given by the Tribunal in the said case (supra) and according to law after providing reasonable opportunity of being heard to the assessee. Accordingly the ground taken by the Revenue is partly allowed for statistical purpose. 10.6I may hastened to add that decision given by the Hon'ble Gujarat High Court in the case of CIT vs Pratham Developers (33 Taxman.com 272) wherein the Hon'ble High Court has decided that any income arising out of the developing housing project is eligible for deduction u/s.80IB(10) of the Act. The operative part of this judgment i.e. para-7 is reproduced below for ready reference:- "6. With respect to the remaining amount covered under the discussion, balance written off out of the payments to contractors and suppliers, we notice that assessee had consistently taken a stand that: "The amounts have been generated during the course of business. In case of supplier payments sometimes the Appellant deducts some amounts and pays the bills. Since the amounts are generated during the course of business the same are eligible for deduction u/s.80-IB(10) of the Act." "6. With respect to the remaining amount covered under the discussion, balance written off out of the payments to contractors and suppliers, we notice that assessee had consistently taken a stand that: "The amounts have been generated during the course of business. In case of supplier payments sometimes the Appellant deducts some amounts and pays the bills. Since the amounts are generated during the course of business the same are eligible for deduction u/s.80-IB(10) of the Act." 7. It would thus emerge that during the course of business in developing housing project, assessee had made payments to the suppliers towards various purchases made. On such payments, the assessee would occasionally deduct some amounts and pay the bill. Difference between the bill amount and payment actually made would be the amount generated during the course of business. Assessee therefore, contended that same should form part of eligible deduction under section 80IB(10) of the Act. We have no hesitation in upholding the view of the CIT (Appeals) as well as Tribunal. Assessee following mercantile system of accounting may have debited claim in the bill amount raised by the suppliers or contractors. However, as is likely to happen in any business of similar nature, the supply of material may be found wanting at a later stage. They may either be defective or sometimes minor unintentional short supply. This could be the reason why assessee instead of making full payment, deducts a portion of the supplier's bill. There may be other reasons such as late supply of the material etc. why such eventuality, may arise. Essentially in all such cases, what would happen is that assessee would actually expend less amount than what the bill amount would be indicating. In essence, therefore, such margin would go to reduce the assessee's cost of acquisition of the supply. Such amount therefore, cannot be dissociated or divested from assessee's business. Such receipt therefore, cannot be stated to be not arising out of the assessee's business of development of housing project. 10.7Considering the above including the judgments of jurisdictional High Court I am of the view that the income arising for activities which are essential part and parcel of developing of building of a housing project is eligible for deduction/s.80IB(10) of the Act. It is not disputed that such sum was paid to the respective authorities. It is also not disputed that such sum so paid to the authorities like AUDA, AEC and Legal charges were recovered from the respective customers as per the agreement clause-9 reproduced above and it is also not disputed that payment to AUDA, AEC and Legal charges is essential for development, completion and execution of a housing project. I am not inclined to agree that for providing such activities the appellant has acted as a middleman for the customers who in turn bought flat. Speaking also in normal commercial environment of builders, on behalf of customers, interact and pay with respective authorities for development for provision of water and electricity and to complete legal formalities. 10.8Considering the discussion above, I am of the view that the appellant is eligible for deduction u/s.80IB(10) for an amount of Rs.1,58,94,590/-, the appellant thus gets the relief. The AO is directed to delete this disallowance. This ground is therefore allowed. 12.The appellate tribunal while partly allowing the appeal preferred by the Revenue observed in one paragraph as under:- legal formalities. 10.8Considering the discussion above, I am of the view that the appellant is eligible for deduction u/s.80IB(10) for an amount of Rs.1,58,94,590/-, the appellant thus gets the relief. The AO is directed to delete this disallowance. This ground is therefore allowed. 12.The appellate tribunal while partly allowing the appeal preferred by the Revenue observed in one paragraph as under:- 9.We have gone through the impugned order and duly considered the facts of the case. Whatever details have been given by the learned Counsel for the assessee with regard to AUDA charges, electricity connection charges and legal charges etc., nowhere these facts have been verified by the lower authorities and the computation of Asmakam project has not been elaborately discussed by the lower authorities. Therefore, we are of the considered view that this matter needs further examination; therefore, we remit this issue back to the file of the Assessing Officer for examination afresh and call for all details pertaining to Asmakam project and thereafter will decide the matter on merits. 13.Having heard the learned counsel appearing for the parties and having gone through the materials on record, we are of the view that the three substantial questions of law deserves to be answered in favour of the appellant – assessee and against the revenue in view of the decision of this Court in the case of CIT Vs. Pratham Developers reported in [2013] 355 ITR 507 (Gujarat). We may quote the relevant observations made by the co-ordinate bench. 7. It would thus emerge that during the course of business in developing housing project, assessee had made payments to the suppliers towards various purchases made. On such payments, the assessee would occasionally deduct some amounts and pay the bill. Difference between the bill amount and payment actually made would be the amount generated during the course of business. Assessee therefore, contended that same should form part of eligible deduction under section 80IB(10) of the Act. We have no hesitation in upholding the view of the CIT (Appeals) as well as Tribunal. Assessee following mercantile system of accounting may have debited claim in the bill amount raised by the suppliers or contractors. However, as is likely to happen in any business of similar nature, the supply of material may be found wanting at a later stage. They may either be defective or sometimes minor unintentional short supply. This could be the reason why assessee instead of making full payment, deducts a portion of the supplier's bill. There may be other reasons such as late supply of the material etc. why such eventuality, may arise. Essentially in all such cases, what would happen is that assessee would actually expend less amount than what the bill amount would be indicating. In essence, therefore, such margin would go to reduce the assessee's cost of acquisition of the supply. Such amount therefore, cannot be dissociated or divested from assessee's business. Such receipt therefore, cannot be stated to be not arising out of the assessee's business of development of housing project. 14.The only question we need to consider is whether the appellate tribunal justified in remitting the matter to the Assessing Officer, more particularly, when all the facts were on record before the appellate tribunal. If the facts are on record, then the appellate tribunal is duty bound to look into the same and decide the matter accordingly. Remitting the matter without any justifiable reason will be nothing, but sheer waste of time. 14.The only question we need to consider is whether the appellate tribunal justified in remitting the matter to the Assessing Officer, more particularly, when all the facts were on record before the appellate tribunal. If the facts are on record, then the appellate tribunal is duty bound to look into the same and decide the matter accordingly. Remitting the matter without any justifiable reason will be nothing, but sheer waste of time. 15.In such circumstances referred to above, this tax appeal succeeds and is hereby allowed. The impugned order passed by the appellate tribunal is hereby quashed and set aside and the order passed by the CIT [Appeals] to the extent of eligible deduction under Section-80IB(10) of the Act is concerned, is hereby affirmed. The three questions of law are answered accordingly in favour of the appellant – assessee and against the revenue. (J. B. PARDIWALA, J) (A. C. RAO, J)