The Commissioner Of Income-Tax vs M/S S N Builders & Developers
2021 Latest Caselaw 379 Kant

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     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

        DATED THIS THE 7TH DAY OF JANUARY 2021

                        PRESENT

         THE HON'BLE MR. JUSTICE ALOK ARADHE

                          AND

     THE HON'BLE MR. JUSTICE NATARAJ RANGASWAMY

                 I.T.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 VIEW
NO.3761, 29TH MAIN, BTM II STAGE
N.S.PALYA MAIN ROAD
BANGALORE-560 076.
                                          ... RESPONDENT
(BY MR. A. SHANKAR, SR. COUNSEL FOR
    MR. M. LAVA, ADV.,)
                           ---

     THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX
ACT 1961, ARISING OUT OF ORDER DATED 11.04.2014 PASSED
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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 APPELLATE
COMMISSIONER CONFIRMING THE ORDER PASSED BY THE
ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4(1),
BANGALORE.

     THIS I.T.A. COMING ON FOR HEARING,                THIS      DAY,
ALOK ARADHE J., DELIVERED THE FOLLOWING:

                          JUDGMENT

This appeal under Section 260-A of the Income Tax

Act, 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. The appeal was

admitted by a Bench of this Court vide order dated

20.07.2015 on the following substantial questions of law:

"1. Whether the Hon'ble Tribunal is right in holding that the assessee is eligible for proportionate deduction under section 80IB(10) when according to provisions of section 80IB(10) of the Act, one of the conditions to be fulfilled for claiming deduction is that the total built up area of the residential units in the housing project shall not exceed 1500 square feet in the city of Bangalore ?

2. Whether the Tribunal is right in holding that the project completion method is a recognized method of accounting without examining as to whether the assessee is entitled to the project completion method in the absence of regular books of accounts required to be maintained by the assessee?".

2. Facts leading to filing of this appeal briefly stated are

that the assessee is a firm engaged in the development of

real estate and construction of apartments. The assessee

filed its return of income for the Assessment Year 2009-10

and claimed deduction under Section 80IB(10) of the Act on

the profits determined by applying percentage completion

method. A survey under Section 133A of the Act was carried

out during which it was found that the built up area of 26

flats exceeded 1500 square feet. The Assessing Officer, by

an order dated 05.12.2011, completed the assessment by

rejecting the claim of the assessee for deduction under

Section 80IB(10) of the Act. The assessee thereupon

approached the Commissioner of Income Tax (Appeals) by

filing an appeal. The Commissioner of Income Tax (Appeals),

by an order dated 04.02.2013, inter alia held that the

derivation of profit based on percentage completion method

by the assessee is correct and the assessee is entitled to

proportionate deduction under Section 80IB(10) of the Act in

respect of those flats which conform to the limits prescribed

under 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 filed

appeals before the Income Tax Appellate Tribunal

(hereinafter referred to as 'the Tribunal' for short). The

revenue filed an appeal on the issue pertaining to

proportionate deduction under Section 80IB(10) of the Act

whereas the assessee filed an appeal before the Tribunal on

the issue of project completion method instead of percentage

completion method to be adopted. The Tribunal, by an order

dated 11.04.2014, dismissed the appeal filed by the revenue

by placing reliance on the decision of this Court in 'CIT Vs.

SJR BUILDERS' in ITA No.32/2010 dated 19.03.2012 and

confirmed the order passed by the Commissioner and held

that the assessee is eligible for deduction under Section

80IB(10) of the Act proportionately. In the aforesaid factual

background, the revenue has filed this appeal.

4. Learned counsel for the revenue submitted that the

Tribunal grossly erred in holding that the assessee is entitled

to the benefit of proportionate deduction under Section

80IB(10) of the Act in respect of the facts which is confirmed

to the limits under the relevant provision of the Act. It is

further submitted that the assessee is not eligible for

proportionate deduction under Section 80IB(10) of the Act

since the provisions of Section 80IB(10) of the Act do not

envisage such deduction and one of the conditions which is

required to be fulfilled for claiming deduction is that the total

built up area of the residential units in the housing project

shall not exceed 1500 square feet, which has not been

satisfied by the assessee. It is also urged that the Tribunal

erred in holding that the project completion method is a

recognized method of accounting without examining as to

whether the assessee is entitled to project completion

method in the absence of regular books of accounts required

to be maintained by the assessee. It is also pointed out that

the Tribunal has relied on the decision in its order in 'M/S.

PRESTIGE ESTATE PROJECTS PVT. LTD. Vs. DCIT' in

respect of Assessment Year 2005-06. However, the

aforesaid order of the Tribunal was the subject matter of the

appeal before this Court in ITA No.84/2010 which was

decided by a Division Bench of this Court vide judgment

dated 05.05.2020 in which it was held that for the

Assessment Year 2005-06, the percentage completion

method is applicable and therefore, the assessee has to

follow the percentage completion method for the Assessment

Year 2009-10 as well.

5. On the other hand, learned Senior counsel for the

assessee submitted that the first substantial question of law

involved in this appeal is no longer res integra and has

already been answered by this Court in decisions of this

Court namely 'CIT Vs. BRIGADE ENTERPRISES LTD.'

(2020) 120 TAXMANN.COM 346 (KAR) and 'CIT Vs. SJR

BUILDERS', supra and 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 completion

method and the Tribunal by placing reliance on the decision

of PRESTIGE ESTATE PROJECTS, supra, for the

Assessment Year 2005-06, has held that the Accounting

Standard 7 was not applicable to real estate developers.

Therefore, percentage completion method cannot be thrust

upon the assessee and the assessee was right in following

the project completion method of accounting as per

Accounting Standard 9. It is further submitted that the

aforesaid decision has been upheld by the Division Bench of

this Court in 'CIT Vs. PRESTIGE ESTATE PROJECTS (P)

LTD.' (2020) 116 TAXMANN.COM 554 (KAR) as well as

the decision of this Court in 'CIT Vs. BANJARA

DEVELOPERS & CONSTRUCTIONS P. LTD.' (2020) 117

TAXMANN.COM 747 (KAR). Learned Senior counsel has

also invited our attention with regard to the clarification

issued by the Institute of Chartered Accountants with regard

to applicability of revised Accounting Standard 7 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 the

aforesaid clarification in support of his submission.

6. We have considered the submissions made on both

sides and have perused the record. On close scrutiny of the

judgment rendered by this Court in BRIGADE

ENTERPRISES LTD., supra, it is evident that the first

substantial question of law involved in this appeal is no

longer res integra. Therefore, the first substantial question

of law is answered against the revenue and in favour of the

assessee.

7. Now we may deal with the second substantial

question 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 real

estate developers. Therefore, percentage completion method

cannot be thrust upon the assessee and the assessee was

right following the project completion method of accounting

as per Accounting Standard 9. The aforesaid decision has

been upheld by this Court in 'CIT Vs. PRESTIGE ESTATES',

supra. Besides it, once the first substantial question of law is

answered in favour of the assessee, the second substantial

question of law is otherwise even rendered academic. The

Institute of Chartered Accountants has issued a clarification

wherein it has been clarified that revised Accounting

Standard 7 is not applicable to the enterprises undertaking

construction 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 hereby dismissed.

Sd/-

JUDGE

Sd/-

JUDGE

RV