2011 (8) TMI 1141 - AT - Income Tax

Deduction u/s 80IB(10) - Profit derived from building and developing housing projects - integrated activity or not - Construction on land registered in the name of buyers directly - The total consideration quoted by the assessee consisted of both the cost of plot and cost of building - HELD THAT - As stated by the Learned A.R, the assessee has chosen to register the plot in the name of the buyer on payment of specified amount in order to achieve cost saving and to ensure reliability. Thereafter the assessee has proceeded to construct the house as per the building plan obtained in the name of the plot owners, on payment of subsequent instalments. The assessee has also developed various public amenities within the project. In our view, all these facts should be considered cumulatively in order to ascertain the true nature of the project. On a totally of the facts, we are of the view that the assessee has undertaken developing and building housing projects as per the scheme provided in sec. 80IB(10) of the Act - Decision in favour of Assessee. Scope of Revision Proceedings u/s 263 - The AO denied deduction u/s 80IB(10) to the assessee in the assessment year 2006-07 but allowed the deduction for AYs 2004-05 2005-06 - CIT proposed to deny the decision for the AYs 2004-05 and 2005-06 also - An order erroneous but is prejudicial to the Revenue - debateble issue - HELD THAT - Scope of revision proceedings has been well explained by Hon'ble Supreme Court in the case of MALABAR INDUSTRIAL CO. LTD. VERSUS COMMISSIONER OF INCOME-TAX 2000 (2) TMI 10 - SUPREME COURT , where it was held that the Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue recourse cannot be had to section 263(1). It is clear that the issue of allowing deduction under section 80IB(10) in respect of aforementioned project in the hands of the assessee is a debatable issue on which two views are possible. There cannot be any doubt that the Assessing Officer has taken one of the possible views in the impugned two years, in which case the assessment order cannot be termed as erroneous and prejudicial to the interests of the revenue. In that case, the Learned CIT could not have jurisdiction to initiate revision proceedings under section 263 in respect of the said issue. Accordingly, we set aside the impugned orders of Learned CIT.

Summary

Issues Involved:
1. Eligibility for deduction under section 80IB(10) of the Income Tax Act.
2. Validity of the revision proceedings under section 263 of the Income Tax Act.

Detailed Analysis:

1. Eligibility for Deduction under Section 80IB(10):

The primary issue in the revenue's appeal concerns the eligibility of the assessee for deduction under section 80IB(10) of the Income Tax Act for the assessment year 2006-07. The assessee, engaged in real estate, developed a housing project named "Narayanapuram Housing Colony" and claimed a deduction of Rs. 75,92,639/- under section 80IB(10). The Assessing Officer (AO) denied this deduction, arguing that the project did not qualify as a "housing project" under section 80IB(10) for several reasons:

- The project involved the sale of plots and subsequent construction of houses as per contracts awarded by plot buyers, rather than the sale of a group of houses.
- There was no unified and integrated activity of construction and sale of houses; construction was carried out at different times based on individual contracts.
- The project lacked approval as a whole from a local authority for both the development of plots and construction of houses.
- No completion certificate from the local authority was obtained by the specified date, and the certificate provided only confirmed the completion of infrastructure development, not house construction.

The CIT(A) overruled the AO's decision, directing the AO to allow the deduction. The CIT(A) found that the assessee had complied with the conditions of section 80IB(10), including obtaining project approval from the VGTM-UDA and developing various public amenities. The CIT(A) also accepted the explanation that house tax levied by the local Panchayat indicated project completion.

The Tribunal upheld the CIT(A)'s decision, noting that the assessee had undertaken an integrated housing project, and the methodology followed (registering plots in buyers' names and then constructing houses) was to ensure reliability and cost savings. The Tribunal concluded that the assessee met the requirements of section 80IB(10).

2. Validity of Revision Proceedings under Section 263:

The assessee's appeals pertain to the revision orders under section 263 for the assessment years 2004-05 and 2005-06. The CIT initiated revision proceedings, directing the AO to disallow the deduction under section 80IB(10) for the same reasons as in the 2006-07 assessment.

The Tribunal referred to the Supreme Court's decision in Malabar Industrial Company (2000)(243 ITR 83), which established that for the CIT to exercise jurisdiction under section 263, the order must be both erroneous and prejudicial to the revenue. The Tribunal found that the issue of allowing the deduction was debatable, with two possible views. Since the AO had adopted one of these views, the assessment order could not be deemed erroneous and prejudicial to the revenue. Consequently, the CIT lacked jurisdiction to initiate revision proceedings under section 263.

Conclusion:

The Tribunal dismissed the revenue's appeal and allowed the assessee's appeals, affirming the CIT(A)'s decision to allow the deduction under section 80IB(10) and setting aside the revision orders under section 263. The judgment underscores the importance of integrated project development and adherence to procedural requirements for tax deductions under section 80IB(10).