2009 (12) TMI 662 - AT - Income Tax

Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings

Issues Involved:

1. Whether the provisions of section 80-IB(2) apply to the assessee claiming deduction under section 80-IB(10).
2. Whether the assessee's business was formed by the reconstruction or splitting up of existing businesses.
3. Whether each residential unit in the housing project exceeded the built-up area of 1,000 sq.ft.
4. Whether the assessment was erroneous and prejudicial to the interest of the revenue due to the status of the assessee being taken as AOP instead of a firm.

Issue-wise Detailed Analysis:

1. Applicability of Section 80-IB(2) to Section 80-IB(10):
The Tribunal examined whether the provisions of section 80-IB(2) apply to the assessee claiming deduction under section 80-IB(10). It was contended by the assessee that section 80-IB(2) does not govern the provisions of section 80-IB(10). The Tribunal agreed, citing previous decisions in Parth Corpn. v. ITO and Shreejee Ratna Corpn. v. ITO, which held that the conditions in section 80-IB(2) are not applicable to undertakings developing housing projects under section 80-IB(10). The Tribunal emphasized that section 80-IB(10) should be interpreted independently and not be subjected to the conditions of section 80-IB(2).

2. Reconstruction or Splitting Up of Existing Businesses:
The CIT argued that the assessee's business was formed by the reconstruction or splitting up of existing businesses, namely M/s. Gautam Enterprises and M/s. V.M. Corporation. However, the assessee contended that the AOP was a fresh venture, formed to construct a housing project on a plot of land introduced by Gautam Enterprises. The Tribunal found that the assessee had provided sufficient evidence to show that the AOP was not formed by the reconstruction or splitting up of existing businesses. The land was barren and introduced as capital into the AOP, and no construction activity had commenced on it before the formation of the AOP.

3. Built-up Area of Residential Units:
The CIT held that the assessee did not prove that each residential unit in the housing project was less than 1,000 sq.ft. of built-up area. The Tribunal noted that the assessee had provided detailed information to the Assessing Officer, including the layout plan and built-up area of each flat. The Assessing Officer had conducted inquiries under section 131 and found that some flats were joined by purchasers, resulting in a built-up area exceeding 1,000 sq.ft. However, the Tribunal held that joining flats by purchasers did not constitute a violation by the assessee. The Tribunal also referred to the Special Bench decision in Brahma Associates v. Jt. CIT, which allowed proportionate deduction even if there was minimal commercial use or violation of built-up area conditions.

4. Status of the Assessee:
The CIT argued that the status of the assessee was wrongly taken as AOP instead of a firm. The Tribunal found that the assessee had claimed the status of AOP during the assessment proceedings, supported by agreements between M/s. Gautam Enterprises and M/s. V.M. Corporation. There was no partnership deed, and the agreements did not give rise to a partnership. The Tribunal concluded that the Assessing Officer did not err in accepting the status of AOP claimed by the assessee.

Conclusion:
The Tribunal held that the CIT was not right in law and on facts in concluding that the assessment was erroneous and prejudicial to the interest of the revenue. The order under section 263 of the Act was set aside, and the appeal was allowed.

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