2012 (5) TMI 640 - AT - Income Tax

Revision u/s 263 - Claim of deduction u/s 80-IB(10) - Held that - The requirement of filing the audit report along with the return was not mandatory but directory and that if the audit report was filed at any time before the framing of the assessment, the requirement of section 80-IA(7) would be met. The Tribunal was also held right in holding that the Commissioner did not even call for any explanation of the assessee and the issue of fulfillment of the conditions of section 80-IA had not been part of the show-cause notice. Therefore, it could not form the basis for revision of the assessment order under section 263. The project had started prior to 1-4-2005 the definition of built up area as given in section 80IB(14) is not applicable and the built up area as per the DC rules of PMC was less than 1500 sq.ft. The Assessing Officer has included the area covered by the terrace in the built up area. The terrace is not includible in the built up area computed as per DC rules. Accordingly, the built up area of the flat is less than 1500 sq.ft. and therefore, the CIT(A) was justified in allowing the deduction as claimed by the assessee. Deduction u/s 80-IB(10) - Held that - If the project is started prior to 1-4-2005 the limit of 2000 sq.ft. or 5% whichever is lower is not applicable and the deduction is to be allowed to the entire project. Assessing Officer was not justified to take date of commencement as 20/04/2005 which was date of revalidation. So Brahma Aangan project already commenced on 17/03/2001 i.e. prior to 01/04/2005. Similarly in respect of Brahma Majestic plan was sanctioned on 27/06/2003 i.e. much before 01/04/2005. We direct the authorities below to allow deduction u/s 80-IB(10) of the Act on account of both these projects.

Issues Involved:
1. Eligibility of the 'Brahma Aangan' project for deduction under Section 80-IB(10) of the Income Tax Act.
2. Applicability of amendments to Section 80-IB(10) regarding commercial area limits.
3. Inclusion of terrace area in the built-up area calculation.
4. Requirement of separate profit and loss account and balance sheet for the 'Brahma Aangan' project.
5. Validity of the audit report in Form No. 10CCB.

Detailed Analysis:

Issue 1: Eligibility of the 'Brahma Aangan' project for deduction under Section 80-IB(10)
The CIT disallowed the deduction under Section 80-IB(10) for the 'Brahma Aangan' project, citing that it was a residential cum commercial project with more than 2000 sq.ft. of commercial area, which was not permissible. The CIT also noted that the built-up area of certain duplex flats exceeded 1500 sq.ft., violating clause (c) of Section 80-IB(10). However, the tribunal found that the project commenced before the amendment introducing clause (d) to Section 80-IB(10) and that the commercial area was within permissible limits under the DC rules. Therefore, the project was eligible for deduction.

Issue 2: Applicability of amendments to Section 80-IB(10) regarding commercial area limits
The CIT argued that the amendment limiting commercial area to 2000 sq.ft. or 5% of the total built-up area, introduced w.e.f. 1-4-2005, was clarificatory and applied to earlier years. The tribunal disagreed, stating that the amendment was prospective and not applicable to projects commenced before 1-4-2005. This position was supported by various ITAT decisions, including the Special Bench decision in Brahma Associates and others.

Issue 3: Inclusion of terrace area in the built-up area calculation
The CIT included the terrace area in the built-up area, resulting in certain flats exceeding the 1500 sq.ft. limit. The tribunal noted that the definition of built-up area, including terrace, was introduced w.e.f. 1-4-2005 and was not applicable retrospectively. Therefore, the terrace area should not be included in the built-up area for projects commenced before this date. This view was supported by ITAT decisions in Tushar Developers and Haware Constructions (P) Ltd.

Issue 4: Requirement of separate profit and loss account and balance sheet for the 'Brahma Aangan' project
The CIT disallowed the deduction citing the absence of a separate profit and loss account and balance sheet for the 'Brahma Aangan' project, as required by Rule 18BBB(2). The tribunal found that the CIT did not provide the assessee an opportunity to address this issue, making the revision under Section 263 unjustified. The tribunal also noted that the requirement to file an audit report along with the return was directory, not mandatory, as supported by the Delhi High Court decision in Contimeters Electricals (P) Ltd.

Issue 5: Validity of the audit report in Form No. 10CCB
The CIT observed that the audit report in Form No. 10CCB was incomplete and lacked necessary details. The tribunal found that the CIT did not raise this issue in the show-cause notice under Section 263, and thus, the assessee was not given an opportunity to address it. Consequently, the tribunal held that the CIT's order was unjustified on this ground as well.

Conclusion:
The tribunal set aside the CIT's order, allowing the assessee's appeal and confirming the eligibility of the 'Brahma Aangan' project for deduction under Section 80-IB(10). The tribunal also dismissed the revenue's appeal and allowed the assessee's appeal for A.Y. 2005-06, directing the authorities to allow the deduction for both the 'Brahma Aangan' and 'Brahma Majestic' projects.

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