2010 (6) TMI 776 - AT - Income Tax

Claimed relief u/s 80IB(1) - profits accruing from the Housing Project - method of accounting - The facts are that the assessee had executed a housing project for which the approval of the Local Authority was obtained. The Commencement Certificate was issued in the name of the assessee. The Assessee has already received the occupancy certificate in respect of Wing A,B C. on 13.9.2005 Wing F G H on 26.9,2006. As regard to the E Wing still 1 to 12 floors the appellant has applied for occupancy certificate on 18.1.2008 after having completed the building which is the last final wing of the building. The Architect has certified the completion of the building and has applied for the completion certificate on 18.1.08. In the circumstances the Assessee claimed relief u/s 80IB(1) in respect of profits accruing from the Housing Project for the year. HELD THAT - We hold that the housing project of the assessee is different and distinct from the project for building commercial area by another entity. Housing project does not include construction of the commercial establishment carried out by another entity in that area. Therefore claim of the assessee for deduction u/s 80 IB (10) for the housing project cannot be denied because the commercial project was carried out by a sister concern in the same area. Having accepted the percentage completion method of determining the profits, it will not be correct to hold that such profits before the completion of the housing project, which otherwise satisfies all the conditions of sec 80 IB(10), though assessed as profits from the housing project will not be entitled to deduction u/s 80 IB (10). the profits from the Housing project assessed on a year to year project will be entitled to deduction u/s 80 IB (10), if it otherwise does not contravene the provisions/ requirements of that section. We find that the CBDT has also clarified vide their Instruction No 4 of 2009 dated 30.6.2009 that relief u/s 80IB (10) can be allowed on a year to year basis where the assessee is showing profits on partial completion of the project. If at the end of the period the Assessee is found not to have complied with the provisions of the section- such as failure to complete the project within the permitted time, then the relief granted for earlier years can be withdrawn. In the circumstances we agree with the CIT(A) that relief u/s 80 IB(10) cannot be denied in the case of the assessee merely because completion of the project is a contingent happening in the future. In the circumstances the profits offered by the assessee for the year from the Housing projects, under percentage completion method of accounting, is the profits derived from an eligible project and is entitled to deduction u/s 80 IB. In the result the appeal filed by the Revenue is allowed for statistical purposes.

Summary

Issues Involved:
1. Eligibility for deduction under Section 80IB(10) of the Income Tax Act.
2. Completion certificate requirement.
3. Combining of adjacent flats.
4. Separation of residential and commercial projects.
5. Applicability of sub-clause (d) of Section 80IB(10) introduced by Finance Act, 2004.

Detailed Analysis:

1. Eligibility for Deduction under Section 80IB(10):
The Revenue appealed against the order allowing the assessee deduction under Section 80IB(10) for the assessment year 2005-06. The primary contention was that the assessee did not fulfill all conditions laid down in Section 80IB(10), specifically regarding the built-up area of shops and flats, and the completion certificate.

2. Completion Certificate Requirement:
The Assessing Officer (AO) argued that the assessee had not received the completion certificate by 31.3.2008, making the claim premature. However, the CIT(A) noted that the assessee had received occupancy certificates for various wings and had applied for the completion certificate before the deadline. The CIT(A) held that the AO's view was legally untenable as profits derived from partially completed projects could not await the final completion certificate.

3. Combining of Adjacent Flats:
The AO pointed out that 8 flats were combined into 4 units exceeding the 1000 sq.ft. limit, violating Section 80IB(10)(c). The CIT(A) found that each flat was sold separately and independently, and any subsequent combination by the buyers did not affect the developer's compliance with the approved plan. The CIT(A) concluded that the assessee could not be disqualified on this ground.

4. Separation of Residential and Commercial Projects:
The AO claimed that the entire project, including the commercial area, was a single project under the assessee's name, thus violating Section 80IB(10)(d). The CIT(A) found sufficient evidence that the residential and commercial projects were developed by two separate entities, with separate agreements and financial arrangements. The CIT(A) held that the assessee's housing project should be delinked from the commercial project for the purpose of deduction under Section 80IB(10).

5. Applicability of Sub-Clause (d) of Section 80IB(10):
The AO applied the amended provisions of Section 80IB(10)(d) effective from 1.4.2005, which limited the built-up area of commercial establishments. The CIT(A) noted that these provisions should not apply retrospectively to projects approved before 1.4.2005. The CIT(A) cited the principle of promissory estoppel and the decision in Saroj Sales Organization v. ITO, concluding that the amended provisions did not apply to the assessee's project.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, allowing the assessee's claim for deduction under Section 80IB(10). The Tribunal remitted the issue of the completion certificate to the AO to verify if the construction was completed before 31.3.2008. The Tribunal also held that profits from partially completed projects could be claimed on a year-to-year basis under the percentage completion method, as clarified by CBDT Instruction No. 4 of 2009. The appeal was allowed for statistical purposes, and the order was pronounced on 25th June 2010.