2010 (9) TMI 895 - AT - Income Tax

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

Summary

Issues:
Challenge to correctness of CIT's revision orders under section 263 for assessment years 2004-05 and 2005-06 regarding deduction under section 80-IB(10) on a residential-cum-commercial project.

Analysis:
The appeals questioned the correctness of CIT's revision orders under section 263 for assessment years 2004-05 and 2005-06, concerning the deduction under section 80-IB(10) on a residential-cum-commercial project. The CIT revised the assessment order, stating that commercial construction in a housing project was not permissible before April 1, 2005, and the order was prejudicial to revenue. The CIT directed fresh assessments, citing the Assessing Officer's failure to examine commercial construction details. The assessee argued that all conditions under section 80-IB(10) were met, relying on tribunal judgments and CBDT clarifications. However, the CIT rejected these arguments, emphasizing the inapplicability of commercial units before April 1, 2005, and the impact on revenue. The CIT's revision was based on the view that the assessment order was erroneous and prejudicial due to incorrect application of law.

The Tribunal analyzed the legal position and conflicting views on commercial construction in housing projects. A Special Bench decision clarified that commercial construction did not disqualify deduction under section 80-IB(10) as long as the project was predominantly residential. The Tribunal noted that the CIT's stance was stricter than the Special Bench's view and the Department's position. Citing the Supreme Court's precedent, the Tribunal emphasized that loss of revenue due to a permissible course of action by the Assessing Officer does not make an order prejudicial. The Tribunal concluded that the CIT's revision lacked legally sustainable merits as the assessment order was not erroneous in law. Upholding the Special Bench's decision, the Tribunal vacated the CIT's revision orders, granting relief to the assessee.

In conclusion, the Tribunal allowed the appeals, setting aside the CIT's revision orders under section 263. The judgment highlighted the importance of legally sustainable findings and upheld the view that commercial construction did not automatically disqualify deduction under section 80-IB(10) if the project was primarily residential, in line with the Special Bench decision and the Department's stance.