2007 (1) TMI 461 - AT - Income Tax

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

Issues Involved:
1. Disallowance of deduction under section 80-IB(10) for the shopping area included in the housing project.
2. Interpretation of the term "housing project" under section 80-IB(10).
3. Applicability of CBDT clarification on the definition of "housing project".
4. Verification of construction compliance with approved municipal plans.

Issue-Wise Detailed Analysis:

1. Disallowance of deduction under section 80-IB(10) for the shopping area included in the housing project:
The assessee disputed the disallowance of Rs. 44,43,100 under section 80-IB(10) on the ground that the shopping area included in the housing project is not entitled to deduction. The Assessing Officer and CIT(A) held that the purpose of section 80-IB(10) was to boost residential housing for the middle and lower middle class, and commercial premises like shops, which fetch higher prices, were not covered by the provision. The CIT(A) upheld the disallowance, stating that the projects executed by the assessee were partly commercial and partly residential, and the commercial part did not qualify as a "housing project".

2. Interpretation of the term "housing project" under section 80-IB(10):
The assessee argued that the term "housing project" should include ancillary and connected activities like construction of shops to provide amenities and facilities to the residents. The counsel for the assessee referred to a CBDT clarification which stated that any project approved by a local authority as a housing project should be considered adequate for the purpose of section 80-IB(10). The CIT(A) disagreed, interpreting the provision to apply only to residential areas, and noted that the legislation added clause (d) to section 80-IB(10) with effect from 1-4-2005, which put a restriction on the built-up area for commercial establishments.

3. Applicability of CBDT clarification on the definition of "housing project":
The CBDT clarification dated 4-5-2001, addressed to the Maharashtra Chamber of Housing Industry, stated that any project approved by a local authority as a housing project should be considered adequate for the purpose of sections 10(23G) and 80-IB(10). The assessee relied on this clarification to support their claim. The CIT(A) argued that the inclusion of section 80-IB(10) in the CBDT's response should be ignored as the query was raised with regard to section 10(23G). However, the tribunal found this argument unconvincing and held that the CBDT's inclusion of section 80-IB(10) in its clarification should be respected.

4. Verification of construction compliance with approved municipal plans:
The tribunal noted a suggestion in the CIT(A)'s order that the construction was not done as per the approved plan of the Municipal Corporation. The assessee's counsel categorically denied any violation of building plans. The tribunal directed the Assessing Officer to verify whether the construction of the shops was in accordance with the approved plans of the Municipal Corporation. Subject to this verification, the tribunal directed the Assessing Officer to allow the assessee further deduction of Rs. 44,43,100.

Conclusion:
The tribunal allowed the appeal, directing the Assessing Officer to verify the compliance of the construction with the approved municipal plans and, subject to this verification, to allow the deduction of Rs. 44,43,100 as claimed by the assessee.

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