Karnataka H.C : Where assessee running hotel business in his property had given operation and management of his hotels to a company and entered into revenue sharing agreement with that company in terms of which it was entitled to 20 per cent of gross operating profit, such share of profit would be assessed as business income

High Court Of Karnataka

CIT, Central Circle Vs. Anriya Project Management Services (P.) Ltd.

Assessment Years : 2005-06 And 2006-07

Section : 80-IB

Kumar And Ravi Malimath, JJ.

It Appeal Nos. 114, 128, 138 & 139 Of 2010

February  29, 2012

N. Kumar, J. – ITA Nos. 138/2010 and 139/2010 are filed by the revenue challenging the order passed by the Tribunal which has granted benefit to the assessee under Section 80113(10) of the Income Tax Act, 1961. The other two appeals ITA Nos. 114/2010 and 128/2010 are the appeals filed by the assessee to the extent relief is denied to them. Therefore, these four appeals are taken up for consideration together and disposed of by this common order.

2. The assessee is carrying on the business as promoters and builders of housing apartments and colonies. It is a private limited company which came into existence w.e.f. 2,6,2003. It filed the return of income after claiming deduction under Section 801B, A search was conducted under Section 132 of the Act in the business premises of the assessee company and also the residential premises of the Directors of the company on 80.9.2005. During the course of search certain incriminating documents/books of accounts were found and seized. After centralisation of the case, notice under Section 153A was issued on the assessee company on 7.3.2006 requiring the assessee to file the return of income within 30 the return on 13.4.2007 and also claimed deduction under Section 80IB. Subsequently, the assessee was called upon to furnish further particulars which he did. The said material disclosed that the assessee had constructed Anriya Dwellington Phase 152 flats and Anriya Dwellington Phase II – 11 flats. The material further disclosed some of the units sold to the purchasers are more than the maximum built up area prescribed under clause (c) of sub-section (10) of Section 80IB of the Act, viz., 1500 sq.ft. As the company had not complied with the condition laid down in the Act, a letter was issued asking the assessee to show cause why the deduction claimed under Section 80IB should not be treated as a wrong claim. The assessee gave clarification. He categorically stated if the balcony area is excluded, none of the residential units the built up area exceeds 1.500 sq. ft. However, the Assessing Officer relying on the definition of “built up area” inserted by Finance No. 2 Act which came into effect from 1.4.2005 by way of clause (a) In Sub-section (14) of Section 80IB held the balcony could be excluded only if it is used as a common area. He further held that the said amendment is retrospective in nature. When admittedly, if the balcony area is included the total built up area exceeds 1,500 sq. ft and therefore the assessee is not entitled to the benefit under Section 80IB. Therefore, the profit of the business was added to the income.

3. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals). The Appellate Commissioner held as per the Building Industry Practice, balcony space, if not habitable, is not excluded from the built up area. But, the explanation which came into effect from l.4.2005 includes the balcony area in the built op area. Therefore, he upheld the order of the assessing authority.

4. Aggrieved by the same, the assessee preferred an appeal to the Tribunal. They affirmed the order of the Appellate Authority but still gave relief to the assessee in respect of flats which are within 1,500 sq. ft. and excluded from the application of the said provision those flats which exceeded 1,500 sq, ft. of built up area by including the balcony. Accordingly, in respect of 12 flats the benefit was denied to the assessee. Aggrieved by the raid order, both the revenue as well as the assessee have preferred these appeals to the extent they are aggrieved.

5. The substantial questions of law framed in the appeal preferred by the assessee are as tenders :-

(a) Whether the Tribunal was correct m holding that it has no power to look into the validity of a search for the purpose of determining the jurisdiction for making an assessment pursuant to a search under Section 132 of the Act?

(b) Whether on the facts and circumstances of the case has the assessing officer assumed valid jurisdiction in law for the purpose of making an assessment pursuant to a search under Section 153A of the Act?

(c) Whether the Tribunal was justified in law in holding that, the Appellant was not eligible to claim deduction under Section 80IB in respect of certain flats that they were alleged to be not within the limit of 1500 sqft and as sanctioned, by the sanctioning authority on the facts and circumstances of the case?

(d) Whether the Tribunal was justified in law in confirming a disallowance of Rs. 8,67,450/- under Section 40A(3) of the Act, on the facts and circumstances of the case?

(e) Whether the Tribunal was justified in law in confirming the levy of interest under Section 234B of the Act and further whether the method, of computation of interest adopted by the assessing officer was in accordance with law?

6. In the case of CIT v. G.R. Developers [IT Appeal No. 355 of 2009] disposed of on the even date, we have held that the definition of “built up area” inserted by Finance No. 2 of 2004 which came into effect from 1.4.2005 is only prospective in nature. It has no application to the housing projects which were approved by the local authority prior to that date. Prior to 1.4.2005, in calculating the 1.500 sq. ft of a residential unit, the area covered by a balcony was excluded. Therefore, the definition of built up area which is now inserted has no application to constructions which were put up in accordance with the housing projects approved by the local authority prior to that date. In the instant case, admittedly if the balcony area is excluded, none of the residential units is more than 1,500 sq. ft. Therefore, the assessee is entitled to 100% benefit of Section 80IB(10), The Tribunal was not justified in giving only the proportionate benefit. In that view of the matter, the order passed by the Tribunal is set aside and it is held that the assessee is en tided to the benefit of Section 80IB(10) in respect of the 152 flats.

7. In the install case, in so far as the last flat is concerned, the purchasers have taken the last floor and the penthouse on that floor under two independent sale deeds. Therefore, the total area covered under each sale deed is less than 1,500 sq. ft. In order to prevent such transactions, law is amended preventing a person from purchasing two flats in the same project which is again prospective in nature. Therefore, seen from any angle the assessee is entitled to the benefit under Section 80IB(10) of the Act.

8. The assessing authority has taken note of the payments made in cash in excess of Rule 6DD which conies to Rs. 43,37,250/- and has disallowed 20% under Section 40A (3) amounting to Rs. 8,67,450/-. The assessee contends when he has not put forth any claim of expenditure, Section 40A (3) is not attracted and 20% disallowance was not permissible. However, the learned counsel for the revenue submits, from the material on record it is not possible to say at this stage whether the assessee has claimed any deduction at all and therefore it would be proper to remit the matter back to the assessing authority to consider the question afresh and then pass appropriate orders. Accordingly, the finding of the Tribunal in respect of the aforesaid aspect is hereby set aside and the matter is remitted to the assessing officer to consider whether 20% disallowance under Section 40A(3) is legal in the facts of the ease. Ordered accordingly.

Accordingly. ITA Nos. 114/2010 are 123/2010 are allowed in part, ITA Nos. 138/2010 and 139/2010 are dismissed.

[Citation : 353 ITR 12]

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