2009 (8) TMI 953 - AT - Income Tax

Proportionate deduction u/s.80IB - built-up area of some of the flats were more than 1500 sft i.e., the maximum prescribed, to avail the benefit u/s.80IB(10)(c) for the Metros other than Delhi and Mumbai - HELD THAT - The fact that the occupancy certificate was issued in the month of June, 2006 indicates that the assessee had adhered to the plan. A perusal of the occupancy certificate shows that it relates to 152 residential apartments of which 38 are duplex units. The total area of the duplex units may exceed 1500 sft. The total area of each of the duplex apartment may exceed 1500 sft but the area of such apartment when viewed within the meaning of the definition of built- up area within the ambit of section 80IB(14)(A) do not exceed 1500 sft. Actually the DVO has not physically measured any of the apartment discussed in the assessment order. The DVO's conclusion that each of the unit exceeds 1500 sft is based on the assumption that they are pend houses and hence must have exceeded the prescribed area of 1500 sft. The only unit measured by the DVO in the Redwood project does not fit into the definition of built-up area as defined in the section. He argued that it is pertinent to note that the inspection was made only after the passing of the assessment order. The DVO has considered the total area of the duplex apartment and not at the floor level which is required to be considered for the purposes of section 80-IB(14)(a). We are of the view that the appeal by the assessee is to be allowed to the extent of the flats the ITA.1192/B/08 built-up area of the flat is not more than 1500 sft. We agree with the submission of the learned representative for the assessee that while considering the built up area of 1500 sft for the purpose of exemption u/s.80IB(10), the mezzanine floor and common areas are to be excluded. The AO is directed accordingly. We hold that in respect of the pent houses the built-up area of which is more than 1500 sft, they may be excluded for exemption. However, in the light of the decision of the Special Bench in the case of Brahma Associates 2009 (4) TMI 215 - ITAT PUNE , merely because some flats are larger than 1500 sft, the assessee will not lost the benefit in its entirety. Only with reference to the flats which has more than the prescribed, the assessee will lose the benefit. In the result, appeal by the assessee is allowed in part, as indicated above.

Issues Involved:
1. Rejection of benefit under Section 80IB(10) due to flats exceeding 1500 sqft.
2. Interpretation of "built-up area" under Section 80IB(10).
3. Proportional deduction for compliant units.
4. Impact of unauthorized constructions on eligibility for deduction.
5. Change in method of accounting and its implications.

Issue-wise Detailed Analysis:

1. Rejection of Benefit Under Section 80IB(10) Due to Flats Exceeding 1500 Sqft:
The primary issue is the rejection of the assessee's claim for deduction under Section 80IB(10) due to some residential flats in the "SJR Redwoods" project exceeding the maximum permissible built-up area of 1500 sqft. The Assessing Officer (AO) noted that certain flats, including penthouses, exceeded this limit, thereby disqualifying the entire project from the deduction. The Commissioner of Income-tax(A) upheld this decision, emphasizing that the project should strictly conform to the conditions prescribed in the statute without any fragmentary compliance.

2. Interpretation of "Built-up Area" Under Section 80IB(10):
The assessee argued that the built-up area should exclude common areas shared with other residential units, as defined in Section 80IB(14)(a). The AO and the Commissioner of Income-tax(A) included super-built-up areas and common areas in their calculations, which the assessee contended was incorrect. The Tribunal agreed with the assessee, stating that the mezzanine floor and common areas should be excluded while calculating the built-up area.

3. Proportional Deduction for Compliant Units:
The assessee contended that even if some units exceeded the 1500 sqft limit, the deduction should be allowed proportionally for the units that complied with the conditions. The Tribunal supported this view, referencing decisions from the ITAT Kolkata Bench and the ITAT Chennai Bench, which allowed proportional deductions in similar cases. The Tribunal concluded that the assessee should receive deductions for the units that met the criteria, excluding those that did not.

4. Impact of Unauthorized Constructions on Eligibility for Deduction:
The AO noted unauthorized constructions, such as penthouses, which were later regularized by the BDA. The Commissioner of Income-tax(A) argued that these unauthorized constructions indicated that the project was not intended to address the housing needs of the common man but aimed at luxury units. The Tribunal, however, focused on the built-up area compliance and did not consider the unauthorized constructions a disqualifying factor for the entire project.

5. Change in Method of Accounting and Its Implications:
The assessee switched from the project completion method to the percentage completion method for accounting during the assessment year. The Commissioner of Income-tax(A) suggested that this change indicated the project was not conceived as a housing project within the scope of Section 80IB(10). The Tribunal did not find this change significant enough to deny the deduction, focusing instead on the built-up area compliance.

Conclusion:
The Tribunal allowed the appeal in part, directing the AO to grant deductions for the units that complied with the 1500 sqft limit, excluding mezzanine floors and common areas. The decision emphasized a liberal interpretation of beneficial provisions and proportional deductions for compliant units, aligning with the legislative intent of Section 80IB(10).

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