1. This is an appeal by the assessee and is directed against the order of the CIT(A)-III, Pune, dt. 14th Oct., 2003, relating to asst. yr.
2000-01.
2. The only effective ground raised by the assessee in this appeal, reads as under : "The learned CIT(A) erred in confirming the disallowance of deduction claimed under Section 80-IB(10) on the ground that development and construction of the housing project of the assessee, Nirmiti Vihar, had not started after 1st Oct., 1988. It is submitted that the decision of the learned CIT(A) is contrary to law and facts and deduction as claimed may kindly be made." 3. Briefly stated, the facts of the case are that the assessee is engaged in house building construction and had been engaged in two projects. The old project was at Adityanagar and had also started a new project styled as 'Nirmiti Vihar'. The assessee has maintained separate books of account in respect of both the projects. During the assessment year under consideration, the assessee-firm had claimed deduction under Section 80-IB(10) of the IT Act, 1961, in respect of its project known as Nirmiti Vihar. The total claim was at Rs. 4,40,049. During the course of assessment proceedings, the assessee submitted that it had fulfilled all the conditions laid down under Section 80-IB(10) of the Act in respect of total land area, constructed area, area of each residential unit and that the project has started after the specified date, i.e., 1st Oct., 1998. The assessee claimed that the project work was started after opening a separate bank account in respect of Nirmiti Vihar on 29th Oct., 1998, and the assessee had intimated the AO vide its letter dt. 11th Nov., 1999, regarding its intention to avail the deduction. It was also claimed by the assessee that various expenditures on this project were incurred after 29th Oct., 1998, i.e.
after opening separate bank account. Accordingly, it was contended by the assessee before the AO that it had fulfilled all the conditions for claiming deduction under Section 80-IB(10) of the Act. The AO observed, on scrutiny of the books of account and details gathered, that the assessee was not entitled for the deduction under Section 80-IB(10) of the Act. According to him, on verification of return of income for the asst. yr. 1999-2000, it was noticed that the expenditure on this project had already begun. He further found from the books of Nirmiti Vihar for accounting year 1998-99 that the assessee had already incurred expenditure on development of land before 1st Oct., 1998. He further noted that the assessee had debited a sum of Rs. 6,000 on 10th Aug., 1998, towards land levelling charges and Rs. 1,140 was debited on 28th Aug., 1998. According to him, the land development had started much before 1st Oct., 1998. He further observed that the assessee executed development agreement on 13th April, 1998, executed irrevocable power of attorney on 18th April, 1998, applied to municipal corporation for sanction on 6th June, 1998, and obtained preliminary sanction from Solapur Municipal Corporation on 11th Aug., 1998.
Accordingly, it was observed by the AO that activity in the form of development had commenced before 1st Oct., 1998. However, the assessee submitted that it is the date of construction which is relevant to decide the allowability of the claim and expenditure on development incurred prior to 1st Oct., 1998, has no relevancy for claiming deduction under Section 80-IB(10) of the Act.
Considering the entire facts, the AO held that the assessee was not entitled to deduction under Section 80-IA(10) of the Act, since development of Nirmiti Vihar project had already begun in August, 1998.
In that view of the matter, the AO rejected the claim of the assessee.
4. Aggrieved by the order of the AO, the assessee carried the matter in appeal before the CIT(A). Before the CIT(A), it was submitted by the assessee that the assessee was a promoter, developer and builder. It was also submitted that in the financial year 1999-2000, it commenced the development and construction work of housing project under the name 'Nirmiti Vihar'. The assessee also submitted that an amount of Rs. 6,000 was incurred for the purpose of cleaning the land and that could not be held to have been incurred for the purpose of construction of the property. As regards the amount of Rs. 1,140, it was submitted by the assessee that the same was incurred for Pooja expenses. It was also brought to the notice of the CIT(A) by the assessee that the development right agreement and irrevocable power of attorney were entered into for having the possession of the said property for developing and constructing the same in future. It was also submitted by the assessee that the said land was agricultural land and it was, therefore, necessary to convert the said land into non-agricultural land and for that purpose, it was necessary to secure preliminary sanction from the Solapur Municipal Corporation. It was also stated that the preliminary sanction was required to be given which constituted 'no objection' from Solapur Municipal Corporation for allowing the assessee to have the construction on the said property. It was also contended that on the basis of preliminary sanction, the assesses made an application for converting the said land into non-agricultural land. This application was made on 25th Nov., 1998, and the Revenue authorities converted the said agricultural land into non-agricultural land on 13th June, 1999. It was also brought to the notice of the CIT(A) by the assessee that the building plan was submitted to the Solapur Municipal Corporation and the said corporation sanctioned the building plan on 23rd July, 1999. In other words, the Solapur Municipal Corporation gave the permission of construction on 23rd July, 1999. It was also submitted by the assessee that approval of the plan, printing of project brochure, marketing for booking the residential units, availing of finance, receipt of advance booking money, etc., could not be constituted to mean commencement of development and construction of the housing project. The assessee also furnished a certificate from the architect wherein it was stated that the project of constructing the housing units started after 1st Oct., 1998. The assessee also furnished the auditor's certificate in Form No.10CB. In view of the above, it was submitted by the assessee before the CIT(A) that the development and commencement started only after 1st Oct., 1998, and, therefore, the assessee was entitled and eligible to avail the deduction provided under Section 80-IB(10) of the Act.
5. The learned CIT(A) did not accept the submissions made by the assessee before him. The CIT(A) observed that the project came into existence by the very fact that the assessee entered into a development agreement for the land way back on 13th April, 1998, and paid the full amount of Rs. 24 lakhs on the date of agreement. He further took the view that the intention for development and the acquisition of raw material for the conduct of business was already acquired on 13th April, 1998. On the same date, irrevocable power of attorney was given to the assessee to deal with the said land as a developer. He further observed that the assessee had already incurred certain expenditure towards land levelling charges and which were capitalised as part of working in progress. He also observed that for asst. yr. 1999-2000, the assessee submitted a list of assets wherein total cost of land was shown at Rs. 24,92,136. The said list of assets also included borewell motor and pump set of Rs. 40,852 and capital work in progress of Rs. 3,05,921 aggregating to Rs. 28,38,909. The said capital work in progress included the land levelling labour charges of Rs. 32,615. This amount of Rs. 32,615 includes the sum of Rs. 6,000 and Rs. 1,140 which were incurred in the month of August, 1998. The CIT(A) took the view that the above expenses were part of work in progress of Nirmiti Vihar and the work had already commenced in 1998. According to him, the development is a series of process, right from acquisition of land for development, including layout, work of architect, permission to construct, necessary permission from various authorities and then the physical activity of construction after all the paraphernalia has been gone through. He also took the view that the development invariably includes procuring the land for development, making layout of the land for development for construction, submitting the layout along with application to the municipal corporation for its approval. He further observed that provisions of Section 80-IB(10) have been introduced to attract new housing project and not which were commenced earlier.
In view of the above, the learned CIT(A) held that the development of the project had commenced before 1st Oct., 1998. According to him, the development agreement, irrevocable power of attorney, making of layout plan for the project, expenditure on land revenue charges, submission of application for sanction to the Solapur Municipal Corporation along with the layout plan and the sanction given by the Solapur Municipal Corporation before 1st Oct., 1998, show beyond doubt that the development and construction of the project, Nirmiti Vihar, had commenced prior to 1st Oct., 1998. He, therefore, held that the assessee was not eligible to deduction under Section 80-IB(10) of the Act.
6. Before us, Shri K.A. Sathe, the learned counsel for the assessee, reiterated the submissions made before the lower authorities. Shri K.A.Sathe, the learned counsel for the assessee, further submitted that the authorities below have failed to appreciate that under Section 80-IB(10) what is contemplated is commencing development and construction of the housing project on or after the first day of October, 1998. According to the learned counsel for the assessee, the development of housing project is different from development of land and steps taken by the assessee before 1st Oct., 1998, were steps for converting the agricultural land into non-agriculture without which commencement would not have taken place. He, therefore, submitted that the assessee was entitled to deduction under Section 80-IB(10) of the Act. He further submitted that in order to develop this land for housing project, it was first step to get the agricultural land converted into non-agricultural (N.A.) and N.A. permission was to be obtained from Revenue authorities, and for getting N.A. permission, preliminary sanction from the Town Planning Department of Municipal Corporation, Solapur, was necessary. Accordingly, the assessee applied for preliminary sanction on 6th June, 1998, and the preliminary sanction was accorded on 11th Aug., 1998. He also submitted that the only debits prior to 1st Oct., 1998, were in respect of land purchased and two items, viz. Rs. 6,000 towards cleaning charges on 10th Aug., 1998, and Pooja expenses of Rs. 1140 on 28th Aug., 1998. He further pointed out that the land was converted into non-agriculture on 30th Jan., 1999, and building permission was sanctioned by the Solapur Municipal Corporation on 23rd July, 1999. The assessee, vide letter dt.
23rd Nov., 1999, intimated the AO regarding commencement of development and construction of the said housing project. He further pointed out that the capital work-in-progress mentioned in the impugned order were incurred after 1st Oct., 1998, except the two items of Rs. 6,000 and Rs. 1,140 on account of labour charges and Pooja expenses, respectively. The learned counsel for the assessee also submitted that the expenditure on land revenue charges were incurred after 1st Oct., 1998, and, therefore, the CIT(A) was not justified in stating that these expenses were incurred prior to 1st Oct., 1998. Similarly, the actual sanction for construction was accorded by the Solapur Municipal Corporation after 1st Oct., 1998. However, preliminary permission given before 1st Oct., 1998, i.e., on 11th Aug., 1998, was obtained since it was required for N.A. permission.
In view of the above, Shri K.A. Sathe, the learned counsel for the assessee, submitted that the order of the CIT(A) is not based on correct appreciation of the facts and, therefore, deserves to be quashed and the claim of the assessee may be allowed.
7. Shri M.M. Srivastava, the learned Departmental Representative, heavily relied on the orders of the authorities below. He further submitted that the order of the learned CIT(A) is based on correct appreciation of the facts and, therefore, no interference is required.
8. We have carefully considered the rival submissions and have also perused the orders of the authorities below. It is an admitted fact that the assessee-firm entered into an agreement with Shri Rajendra B.Uplap and Shri Bhalchandra Uplap on 13th April, 1998, for a development scheme in the name of Nirmiti Vihar for which the assessee had paid Rs. 24 lakhs. On the same date, an irrevocable power of attorney was executed by the sellers in favour of the assessee-firm. As per the said power of attorney, the assessee was authorised to prepare the layout and to carry out the plan and to prepare building plan and to present the plan to Solapur Municipal Corporation and to Collector and other appropriate authorities. It is also an admitted position that the assessee-firm submitted an application on 6th June, 1998, to the Solapur Municipal Corporation seeking permission and for sanction of development and construction plan of the said land enclosing the layout and plan for which Solapur Municipal Corporation gave preliminary sanction on 11th Aug., 1998. It is also an admitted position that along with the application dt. 6th June, 1998, the assessee submitted a layout plan of 53,300 sq. mt. of the land and the area under plot was taken at 28,284 sq. mt. There is no dispute that during the assessment year under consideration, the assessee claimed the deduction under Section 80-IB(10) of the Act. Section 80-IB(10), as applicable to the relevant period, reads as under : "80-IB.(1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in Sub-sections (3) to (11) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section.
(10) The amount of profits in case of an undertaking developing and building housing projects approved by a local authority, shall be hundred per cent of the profits derived in any previous year relevant to any assessment year from such housing project if,-- (a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998, and completes the same before the 31st day of March, 2001; (b) the project is on the size of a plot of land which has a minimum area of one acre; and (c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twenty five kilometers from the municipal limits of these cities and one thousand and five hundred square feet at any other place." The deduction under Section 80-IB(10) was admissible to those undertakings which commenced the development and construction of housing project on or after 1st Oct., 1998. In the instant case, it is the contention of the assessee that the development and construction of housing project was commenced after 1st Oct., 1998. However, the Department took the stand that in this case the development commenced with the development agreement and acquiring irrevocable power of attorney and moreso, when layouts were furnished to the Solapur Municipal Corporation for preliminary sanction on 6th June, 1998. As per Sub-section 7 of Section 2 of the Maharashtra Regional and Town Planning Act, 1966 (1966: Man. XXXVII), the expression 'development' with its grammatical variations means the carrying out of buildings, engineering, mining or other operations in, or over, or under, land or the making of any material change, in any building or land or in the use of any building or land (and includes (reclamation), redevelopment and layout and sub-division of any land; and 'to develop' shall be construed accordingly). As per Oxford Reference Dictionary, the term 'development' means : 1. The action of developing or the state of being developed, 2. A new product or idea, 3. A new stage in a changing situation, 4. An area of land with new buildings on it. In the instant case, it is clear that the assessee had not made any material change as far as the land is concerned. Admittedly, construction work was commenced after building permission (Bandhkam Parwangi) was sanctioned by the Solapur Municipal Corporation on 23rd July, 1999. The only debits prior to 1st Oct., 1998 were in respect of land purchased and two items, viz., Rs. 6,000 and Pooja expenses of Rs. 1,140. Admittedly, the bank account in the name of housing project, Nirmiti Vihar, was opened on 20th Oct., 1998. The assessee also incurred land measurement charges of Rs. 10,350 on 25th Nov., 1998. Admittedly, non-agricultural tax was paid on 15th Jan., 1999, of Rs. 1,25,150. The assessee also informed the AO regarding commencement of the housing project on 23rd Nov., 1999. It is also admitted position that the land was converted into non-agriculture on 30th Jan., 1999. The procedure for conversion of the use of land from one purpose to another is provided in Section 44 of the Maharashtra Land Revenue Code, 1966, which reads as under : "44. Procedure, for conversion of use of land from one purpose to another : (1) If an occupant of un-alienated land or a superior holder of alienated land or a tenant of such land-- (a) which is assessed or held for the purpose of agriculture, wishes to use it for a non-agricultural purpose, or (b) if land is assessed or held for a particular non-agricultural purpose, wishes to use it for another non-agricultural purpose, or (c) desires to use it for the same non-agricultural purpose for which it is assessed but in relaxation of any of the conditions imposed at the time of grant . of land or permission for such non-agricultural purpose, such occupant or superior holder or tenant shall, with the consent of the tenant, or as the case may be, of the occupant or superior holder, apply to the Collector for permission in accordance with the form prescribed." Section 45 of the Maharashtra Land Revenue Code, 1966, provides for penalty for using the land without permission. In the instant case, the N.A. permission was obtained on 13th June, 1999. Admittedly, the application for N.A. permission was submitted to the Collector, Solapur, on 25th Nov., 1998. This fact alone shows that the assessee had commenced the development and construction after 1st Oct., 1998.
Without obtaining the permission of the Collector, the assessee could not have commenced development and construction of the housing project.
It is also admitted fact that the assessee presented the building plan to the Solapur Municipal Corporation and the said corporation sanctioned the building plan on 23rd July, 1999. It means that the Solapur Municipal Corporation granted the permission of construction on 23rd July, 1999. In our view, the activities, viz., approval of the plan, marketing for booking the residential units, availing of finance, receipt of advance booking money, etc., could not be construed to mean commencement of development and construction of housing project. As per the certificate of architect, the project of constructing housing units commenced after 1st Oct., 1998. The assessee had also opened bank account in the name of housing project, Nirmiti Vihar, on 29th Oct., 1998. All these facts indicate that development and construction commenced after 1st Oct., 1998. It is also seen that the assessee had incurred a sum of Rs. 6,000 towards the cleaning of land and also incurred an expense of Rs. 1,140 towards Pooja expense. In our considered view, these expenses do not indicate that development and construction of housing project had been commenced before 1st Oct., 1998. Rs. 6,000 was incurred for cleaning the land, so that correct measurement of the land could be done. As per the provisions of the Maharashtra Land Revenue Code, 1966, mentioned hereinabove, there is a procedure for conversion of use of land from one purpose to another and there is a provision for penalty also for violating the provisions of Section 44 of the said Code. There is no material on record to show that the assessee had made any material change on the land before 1st Oct., 1998.
From the above discussion, it would be clear that the assessee had commenced the development and construction of the housing project after 1st day of October, 1998, and completed the same before the specified date. There is no dispute that the assessee had fulfilled the remaining conditions under the law for claiming deduction under Section 80-IB(10) of the Act. Accordingly, we reverse the findings of the CIT(A) and direct the AO to allow the deduction to the assessee.