Saktijit Dey, Member (J) -
(1.) THIS appeal preferred by the Revenue is against the order dated 19th September, 2013 of CIT(A) -III, Hyderabad for the AY 2005 -06 wherein the department has raised the following grounds of appeal:
1. The order of CIT(A) is erroneous on facts and in law.
(2.) THE CIT(A) erred on facts and in law in granting relief to the assessee u/s. 80IB. The CIT(A) erred on facts and in law in holding that there is no necessity for filing completion certificate through the said certificate is required to be filed under the law.
(3.) THE CIT(A) erred on facts and in law in ignoring the latter decision of ITAT in the case of M/s Sainath Estates Pvt. Ltd.,, 142 ITD 370.
2. As can be culled out from the grounds raised, the department is aggrieved with the decision of the learned CIT(A) in allowing assessee's claim of deduction u/s 80IB(10) of the IT Act.
3. Briefly, the facts are, the assessee a company is engaged in the business of housing project development. For the assessment year under dispute, assessee filed its return of income on 01/11/2005 declaring NIL income after claiming 100% deduction u/s 80IB(10) of the IT Act. Initially, the return was processed u/s 143(1) by accepting the income admitted. As it appears, subsequently, during the course of scrutiny assessment proceedings for A.Y. 2006 -07 the Assessing Officer noticed that though the assessee has stated that the housing project was completed but it has not submitted completion certificate as required under Explanation - (ii) to clause (a) of section 80IB(10). The Assessing Officer therefore completed the assessment for the A.Y. 2006 -07 by rejecting assessee's claim of deduction u/s 80IB(10). On the basis of the conclusion drawn in assessment year 2006 -07, the Assessing Officer initiated action u/s 147 of the Act for the impugned assessment year by issuing a notice to the assessee u/s 148 of the Act. In course of the reassessment proceedings, the Assessing Officer called upon the assessee to explain why deduction claimed u/s 80IB(10) shall not be disallowed in absence of completion certificate. In response to the query made by the Assessing Officer, the assessee submitted that the disallowance of deduction claimed u/s 80IB(10) for the assessment year 2006 -07 was subject matter of appeal before the ITAT, Hyderabad Bench in ITA No. 216/Hyd/2010. The ITAT in order dated 21/09/2012 disposed of the appeal by allowing assessee's claim of deduction u/s 80IB(10). It was submitted that in pursuance to the order passed by the ITAT, the Assessing Officer has also passed a consequential order by allowing the deduction claimed u/s 80IB(10) for the AY 2006 -07. It was, thus, contended by the assessee that since deduction u/s 80IB(10) has been allowed for the same housing project for the AY 2006 -07, it will not be correct to disallow similar deduction in the present assessment year. Further, it was submitted by the assessee that the assessee has already submitted enough evidence in the nature of property tax assessment, notices issued by the municipal authorities in support of its claim that the project was completed within the stipulated time of four years as prescribed u/s 80IB(10) of the Act. Hence, the Assessing Officer should not insist upon furnishing of completion certificate for allowing claim of deduction u/s 80IB(10). The Assessing Officer after considering the submissions of the assessee in the light of the order passed by the Tribunal in assessee's own case for the AY 2006 -07 was of the view that while disposing of the appeal of the assessee for AY 2006 -07, the Tribunal has held that on completion of the project the assessee is required to submit a completion certificate as per Explanation - (ii) to clause (a) of section 80IB(10). Since the assessee has failed to submit a completion certificate from the local authority, the Assessing Officer held that the deduction claimed u/s 80IB(10) is not allowable. Accordingly, the Assessing Officer completed the assessment vide order dated 28/03/2013. Being aggrieved of the assessment order so passed, the assessee preferred an appeal before the CIT(A).
4. The CIT(A) taking into consideration the order passed by the ITAT in assessee's own case for the AY 2006 -07 allowed the deduction claimed u/s 80IB(10) of the Act with the following observations:
4.2 I have seen carefully the facts and evidence and I have also gone through the order of the honourable ITAT referred to supra. I find that the order of the honourable ITAT was passed on 21.09.2012 and it took into account all the facts of the case and clearly directed the assessing officer to allow the deduction in assessment year 2006 -07. It was also held by the honourable ITAT that for assessees who were following the percentage completion method, subject to the satisfaction of other conditions, deduction u/s 80IB(10) cannot be denied and has to be allowed every year. If however, the assessee is not able to complete the project within the time stability of four years, then the cases shall be reopened and all the deductions so allowed shall be withdrawn. Following is the operative part of the order of the honourable ITAT: -
26. Now the other objection of the Department is that the assessee has not produced the completion certificate. The assessee is following Percentage Completion Method. This method is recognised by the Income -tax Act for disclosing the profit in the case of a builder. The purpose of granting deduction u/s. 80IB(10) is to promote housing projects. If we accept the proposition of the Department that the deduction u/s. 80IB(10) has to be granted only a tax payer who follows only "Project Completion Method" it leads to an absolute situation as the developer who is following Percentage Completion Method is not entitled for deduction u/s. 80IB(10) of the Act though all other requirements of the section being fulfilled. It would tantamount to denial of valid exemption for which an assessee is entitled. No one can pass such a anomalous dictum while dealing with a legal problem. The Tribunal being final fact finding authority shall keep in mind an overall situation, factual as well as legal, so thereupon brings a dictum ought to be legally sustainable in the eyes of law. In the present situation, the Revenue is taxing the profit on Percentage Completion Method but suggesting to grant deduction only on completion of the project. If the stand of the Revenue is accepted then only on completion of project an assessee would be entitled for deduction u/s. 80IB(10), then undisputedly an anomaly shall arise as to how and when the tax should be charged. This is not the scheme of the Act, to first tax an income in a particular year and grant deduction on that very income in a different later year i.e., on completion of the project as was canvassed by the Department. The accepted principle is that the year of the assessment of income and connected deduction shall fall in the same assessment year. If the Revenue is taxing the profit in the year under consideration on the ground that the assessee is adopting "Percentage Completion Method" then the natural corollary should be that the connected deduction ought to be granted simultaneously in this year or the other method of computation is that the Revenue must not tax the profit of the project yearly on the basis of "Percentage Completion Method" but tax the entire profit on completion of the project by applying "Project Completion Method.
27. Further, in the present case the assessee's project is approved by local authority prior to 1.4.2004 and there is no dispute regarding this. However, one of the dispute for denying deduction u/s. 80IB(10) is that there is no completion certificate furnished by the assessee for which its claim was denied. The meaning of "date of completion" has been given in Explanation (ii) to clause (a) to section 80IB(10). Date of completion of construction would mean date on which completion certificate in respect of housing project was issued by the local authority. To grant deduction u/s. 80IB(10) it is mandatory to furnish the completion certificate of the housing project but the persistent question here is whether for giving benefit of deduction u/s. 80IB(10), where an assessee is following the percentage completion method is it necessary to obtain such completion certificate for each year of assessee's claim or it is sufficient that certificate is obtained on the completion of the housing project as a whole. Stipulation for obtaining completion certificate should not be so interpreted to mean that an assessee can claim exemption u/s. 80IB(10) only in the year of completion of whole of the housing project, even where the project stretches over a number of years and assessee returns its income based on percentage completion method. It would only mean that the assessee has to obtain such certificate on completion of the housing project, least it would lose the deduction already granted u/s. 80IB(10) for the earlier years if it is not so produced. As held by the Hon'ble Supreme Court in the case of Bajaj Tempo vs. CIT ( : 196 ITR 188) (SC) a provision in the taxing statutes granting incentives for promoting growth and development of the nation should be construed liberally. When such liberal interpretation is to be given, the restriction placed in such provision granting the incentives also has to be considered so as to advance the objectives of the provisions and not to frustrate. Clause (a) of section 80IB(10) specifies that the development and construction of the project has to start before 1.4.2004 and the project has to be completed within four years from the end of the financial year in which approval for project was received from the local authority. Thus, a project can have a span of not more than 4 years from the end of the financial year it has received approval. Explanation under clause (a) only specified how to reckon the day of approval and date of completion. It would not mean that the assessee can have the benefit of section 80IB(10) only in the year of completion of the project, especially so, for an assessee not following project completion method for accounting its income. If otherwise interpreted, it would be equivalent to forcing an assessee to follow a particular method of accounting, which would never have been the intention of legislation. Intention would only have been that for the project as a whole, there should be certification from the relevant authority proving the commencement and completion, and not that a completion certificate should be there in every year of the project span. The certifications are for ensuring that the project span does not exceed the prescribed period and nothing more. Of course if such period exceeded the prescribed limit, Revenue would be well within its rights to withdraw the claims already allowed, following the procedure prescribed under the Act. Thus, the Assessing Officer need not insist on the completion certificate in this assessment year, this is the right meaning of the statute. This view has also been taken by CBDT in its Instruction No. 4 of 2009 dt. 30.6.2009, paras 2 to 4 of which are reproduced hereunder:
2. Clarifications have been sought by various Chief CITs on the issue whether the deduction under s. 80IB(10) would be available on a year -to -year basis where an assessee is showing profit on partial completion or if it would be available only in the year of completion of the project under s. 80IB(10).
3. The above issue has been considered by the Board and it is clarified as under:
(a) The deduction can be claimed on a year -to -year basis where the assessee is showing profit from partial completion of the project in every year.
(b) In case it is late and it is found that the condition of completing the project within the specified time -limit of 4 years as stated in s. 80IB(10) has not been satisfied, the deduction granted to the assessee in the earlier years should be withdrawn.
4. The above instruction will override earlier clarification on this issue contained in Member (R.)'s O.O. Letter No. 58/Misc/2008/CIT (IT & CT), dt. 29th April, 2008 and Member (IT)'s O.O. Letter No. 279/Misc/46/2008 -IT] dt. 2nd May, 2008.
28. In view of the foregoing discussion, we direct the Assessing Officer to allow deduction u/s. 80IB(10) of the Act in the light of the order of the Tribunal in ITA Nos. 797 & 813/Hyd/06 in the case of M/s. Namaha Estates dated 29.2.2008 wherein the Tribunal held as follows:
4.3 From above, it is amply clear that for the same project with similar facts, deduction u/s 8018(10) has been allowed by the honourable ITAT in assessment year 2006 -07. Unless, the entire deduction for all the years is withdrawn, the deduction for the assessment year 2005 -06 cannot be denied on similar facts. Therefore, respectfully following the order of the honourable ITAT Hyderabad in the case of the appellant, the assessing officer is directed to allow the aforementioned deduction in the current year.;