Retro-amendment in Sec. 80-IB won’t enable AO to reopen assessment

JUDGMENT

Akil Kureshi, J. – Petitioner has challenged a notice dated 01.03.2011 issued by the respondent Assessing Officer, reopening the petitioner’s assessment for the assessment year 2004-05. The petition arises in following background.

2. Petitioner is a company registered under the Companies Act and is engaged in the business of construction and development of housing project. For the assessment year 2004-05, the petitioner had filed the return of income declaring total loss of Rs. 28.43 lakhs (rounded off). One of the major claims raised by the assessee in the return was of deduction under section 80IB(10) of the Income Tax Act, 1961 (‘the Act’ for short). Such return was taken in scrutiny by the Assessing Officer, during which, he raised several queries and the petitioner replied to the same. The Assessing Officer passed order of assessment under section 143(3) of the Act on 15.11.2006 determining the total income of assessee at Rs. 1.71 lakhs. In such assessment order, the Assessing Officer considered and granted the deduction under section 80IB(10) of the Act as claimed. However, by applying the MAT provision of section 115JB of the Act, the said assessment was framed.

3. In order to reopen such assessment, the Assessing Officer issued notice, which as can be seen, was done beyond the period of four years from the end of relevant assessment year. For issuing the notice, the Assessing Officer had recorded the following reasons:

‘In this case, the assessee company filed the return of income for the A.Y. 2004-05 on 31/10/2004 declaring total loss of Rs. 28,43,830/-. The assessee company is engaged in the business of civil construction. In the return of income, the assessee company had claimed deduction u/s. 80IB(10) of the Act of Rs. 10,12,56,034/-. The return filed was processed u/s. 143(1) of the Act on 07.02.2005 on the returned income. The assessment was finalized u/s. 143(3) of the Act on 15/11/2006 determining the total income at Rs. 1,71,566/- and the claim of the assessee company for deduction u/s. 80IB(10) of the Act of Rs. 10,12,56,034/- was fully granted. The book profit of the assessee company was computed at Rs. 9,91,52,822/- and since the income determined u/s. 115IB of the Act was higher than the assessed income, tax was calculated on the book profit determined u/s. 115IB of the Act.

As per Explanation inserted below Section 80-IB(10) by the Finance Act (No. 2), Act, 2009 with retrospective effect from 01.04.2000 deduction u/s. 80IB(10) shall not be admissible to a contractor in respect of works contract awarded by any person. For the sake of clarity, same is re-produced hereunder :-

“Explanation – For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any person including the Central or State Government.”

In this case, perusal of records revealed that

In view of the above, it has become quite clear that in the Development Permission issued by AMC in respect of Maniratnam-II Project, the assessee’s name was not even mentioned as Developer. Further, the construction permission/Raja Chity issued by AMC in respect of Maniratnam-II also does not mentioned the name of the assessee as a developer. There was failure on the part of the assessee to disregard these facts in Form No. 10CCB while claiming deduction u/s. 80IB(1) of the Act. The Assessing Officer in the assessment proceedings u/s. 143(3) did not give any opinion regarding the allowability or otherwise of deduction u/s. 80IB(10) of the Act. If an issue has not been examined in correct perspective in the initial assessment proceedings, nothing prevents the assessing officer to take a suitable remedial action by way of re-opening the assessment. As seen in Point No. (iii) above, the assessee received the payment from housing societies having ownership of land as contract payment. This is clear from the fact that the societies deducted TDS at the rates applicable to Contractor/Sub contractor.

Accordingly, the assessee company is not eligible to for claim u/s. 80IB(10) of the Act. More so, in the light of the Explanation inserted below Section 80-IB(10) by the Finance Act (No. 2), Act, 2009 with retrospective effect from 01.04.2000, deduction u/s. 80IB(10) shall not be admissible to a contractor in respect of works contract awarded by any person.

In view of the above, I have reasons to believe that the income chargeable to tax to the extent of Rs. 10,12,56,034/- has escaped assessment.

Issue notice u/s. 148 of the I.T. Act, 1961.’

4. The petitioner raised objections against the notice for reopening of assessment, under a communication dated 17.08.2011. Such objections were however, rejected by the order dated 19.08.2011 by the Assessing Officer. Hence, the petition.

5. From the materials on record and in particular, the reasons recorded by the Assessing Officer, it can be seen that the claim of the assessee for deduction under section 80IB(10) of the Act was the principle claim in the return which the Assessing Officer had accepted after scrutiny. The reason for reopening was that according to the Assessing Officer, such claim was not allowable. In background of such facts, counsel for the petitioner raised following contentions:

6. Counsel has relied on several decisions of this Court, to which, reference would be made at appropriate stage.

7. On the other hand, counsel for the Revenue opposed the petition contending that certain vital aspects were not disclosed by the assessee in the return and during the scrutiny assessment. The deduction of tax at source by the societies would indicate that the assessee was acting as a contractor and not as a developer. This aspect was not examined during the original assessment.

8. For multiple reasons, the notice for reopening cannot be sustained. Our reasons for this conclusion are as follows.

9. In the original assessment, the Assessing Officer had occasion to examine the petitioner’s claim for deduction under section 80IB(10) of the Act. In fact, this was the principle claim of the assessee, since bulk of its income was derived from housing projects, with respect to which, the assessee had claimed deduction under section 80IB(10) of the Act. The Assessing Officer raised multiple queries under a letter dated 03.08.2006, one of them calling upon the assessee to substantiate the claim under section 80IB(10) of the Act, amounting to Rs. 10.12 crores alongwith necessary documentary evidence. In reply to such query, the assessee under communication dated 15.09.2006, gave a detailed reply and produced number of documents. These documents contained the development permission and construction permission granted by the authorities and such other documents. It was only after such scrutiny, the Assessing Officer in the order of assessment, made no disallowance on the assessee’s claim of deduction under section 80IB(10) of the Act, except for limiting it to the extent of profit, making following observations.

‘3. On perusal of the return of income filed by the assessee, it is seen that the assessee company is engaged in the field of construction activities i.e. building and developing housing projects. In the return of income the assessee has declared total loss of Rs. 27,84,881/-. The assessee has shown income from undertaking, building and developing housing projects of Rs. 10,12,56,034/-, which has been claimed as deduction of profits of an undertaking developing and building housing projects “Maniratnam” and “Maniratnam-II” u/s. 80IB(10) resulting to total income at Rs. NIL. But the assessee has further claimed loss of Rs. 27,84,880/- and the same cannot be allowed, as the deduction u/s. 80IB is to be allowed only upto the total income available and hence, the assessee was asked to state as to why deduction u/s. 80IB should not be restricted upto the total income. In response to this, the assessee has, vide its letter dated 16.10.2006, submitted as under:

. . . . . . . . . .

. . . . . . . . . . .

4. The reply filed by the assessee company has carefully been considered, but in view of assessee’s own admission and the specific provision of section 80A(2) of the Act, which mentions that the aggregate amount of deduction under chapter VIA should not exceed the gross total income of the assessee, the loss claimed by the assessee is hereby disallowed. Accordingly the returned income is treated as Nil.’

10. Thus, the entire claim of deduction came up for consideration at the hands of the Assessing Officer in the original assessment. The claim was minutely examined and only thereafter accepted. It would therefore not be permissible to the Assessing Officer to disturb such claim in exercise of powers under section 147 of the Act that by issuing the notice beyond the period of four years beyond the period of relevant assessment year. Here again, the Assessing Officer had not recorded, in what manner the assessee failed in its duty to disclose truly and fully all material facts. In fact, the thirst of the contention of the Assessing Officer appears to be that the assessee had not developed housing project, but was acting as a contractor. In this respect, the Assessing Officer has placed reliance on the retrospective explanation added to section 80IB(10) of the Act. It is well settled by the series of judgments of this Court that retrospective amendment in statute would not enable the Assessing Officer to reopen an assessment beyond a period of four years.

11. The stand of the Assessing Officer that in one of the projects in the development permission, the name of the assessee was not mentioned as a developer. The petitioner has explained this in the objections raised to the reasons recorded by pointing out that after development of Phase-I of the project, when permission was granted for Phase-II, the same was done in computerized format, which did not contain an entry for showing of the name of the developer. Quite apart from this explanation, on this ground, it would not be open for the Assessing Officer to reexamine the claim, which was originally accepted after scrutiny. If there was an error in view of the Assessing Officer in granting the claim, the options of the Revenue lay elsewhere. Likewise, the contention that the societies had deducted tax at source, indicating that the relationship between the petitioner and the society was one of the contractor and the employer of a contract, also would not permit the Assessing Officer to reopen the assessment. Firstly, in a claim which is scrutinized, the objection of this nature would be an additional element, which if at all ought to have been examined by the Assessing Officer originally and surely cannot provide a ground for reopening the assessment beyond a period of four years. Secondly, the deduction of tax at source principally is in the hands of the payer of an account. For whatever reason if the tax is deducted at a higher rate or deducted when no such deduction was warranted, it would be for the payee for taking up the issue before the department and claim adjustment or refund, as the case may be. Mere factum of deduction of tax at source or the rate at which it was deducted would not be conclusive proof of the relationship between the parties.

12. Several issues concerning the deduction under section 80IB(10) of the Act came up for consideration before this Court in case of CIT v. Radhe Developers [2012] 341 ITR 403, in which, following observations were made:—

“30. The essence of sub-Section (10) of Section 80IB, therefore, requires involvement of an undertaking in developing and building housing projects approved by the local authority. Apparently, such provision would be aimed at giving encouragement to providing housing units in the urban and semi-urban areas, where there is perennial and acute shortage of housing, particularly, for the middle income group citizens. To ensure that the benefit reaches the people, certain conditions were provided in sub-Section(10) such as specifying date by which the undertaking must commence the developing and construction work as also providing for the minimum area of plot of land on which such project would be put up as well as maximum built up area of each of the residential units to be located thereon. The provisions nowhere required that only those developers who themselves own the land would receive the deduction under Section 80IB(10) of the Act.

31. Neither the provisions of Section 80IB nor any other provisions contained in other related statutes were brought to our notice to demonstrate that ownership of the land would be a condition precedent for developing the housing project. It was perhaps not even the case of the Revenue that under the other laws governing construction in urban and semi-urban areas, there was any such restriction. It is, however, the thrust of the argument of the Revenue that in order to receive benefit under Section 80IB(10) of the Act, such requirement must be read into the statute. We cannot accept such a contention. Firstly, as already noted, there is nothing under Section 80IB (10) of the Act requiring that ownership of the land must vest in the developer to be able to qualify for such deduction. Secondly, term developer has been understood in common parlance as well as in legal sense carrying a much wider connotation. The Tribunal itself in the impugned order has traced different meanings of term developer explained in different dictionaries, which read as under:-

“a. The Webster’s Encyclopedia unabridged of the English Language gives Following meaning of the term ‘developer’ as:

“1. One who or that which develops;

2. A person who invests in and develops the Urban or Suburban potentialities of real estate.

b. Oxford Advanced Learners Dictionary of Current English Fourth Indian Edition gives meaning of the term ‘developer’ as persons or company that develops land.

c. Random House Dictionary of the English Language, the following can be found.

Develop:

a. To bring out the capabilities or possibilities of; bring to a more advanced or effective state.

b. To cause to grow or expand.

Developer:

a. The act or process of developing; progress.

b. Synonym: Expansion, elaboration, growth, evolution, unfolding, maturing, maturation.

c. Webster Dictionary, the following definitions emerge:

a. To realize the potential of;

b. To aid in the growth of Strength, develop the biceps,

c. To bring into being: make active (develop a business)

d. To convert ( a tract of land) for specific purpose, as by building extensively.

e. Law lexicon Dictionary: The following definitions could be seen:

Development

a. To act, process or result of development or growing or causing to grow; the state of being developed.

b. Happening.”

32. Section 80IB(10) of the Act thus provides for deductions to an undertaking engaged in the business of developing and constructing housing projects under certain circumstances noted above. It does not provide that the land must be owned by the assessee seeking such deductions.

33. It is well settled that while interpreting the statute, particularly, the taxing statute, nothing can be read into the provisions which has not been provided by the Legislature. The condition which is not made part of Section 80IB(10) of the Act, namely that of owning the land, which the assessee develops, cannot be supplied by any purported legislative intent.

34. We have reproduced relevant terms of development agreements in both the sets of cases. It can be seen from the terms and conditions that the assessee had taken full responsibilities for execution of the development projects. Under the agreements, the assessee had full authority to develop the land as per his discretion. The assessee could engage professional help for designing and architectural work. Assessee would enroll members and collect charges. Profit or loss which may result from execution of the project belonged entirely to the assessee. It can thus be seen that the assessee had developed the housing project. The fact that the assessee may not have owned the land would be of no consequence.”

13. In case of Sadbhav Engg. Ltd. v. Dy. CIT [2011] 333 ITR 483 (Guj.), the Division Bench of this Court held that retrospective amendment cannot be a ground for reopening assessment beyond a period of four years from the end of relevant assessment year. This was reiterated in case of Aayojan Developers v. ITO [2011] 335 ITR 234  (Guj.).

14. For such reasons, impugned notice dated 01.03.2011 is set aside. Petition is allowed and disposed of.