2015 (2) TMI 1149 - AT - Income Tax

Deduction u/s.80IB(10) - requirement to produce the completion certificate from the PM - Held that - Amendment w.e.f. 01-04-2005 requiring certificate of completion of project within 4 years of approval is not applicable to the projects approved prior to that date and therefore the assessee is entitled to deduction u/s.80IB(10) of the I.T .Act There is no dispute in this case on the fact that the architect of the assessee Shri Mangesh Bhandarkar has made an application for occupancy certificate to the PMC on 08-12-2008. As per the admitted position of law, the assessee was required to complete the housing project on or before 31-03-2009. The PMC did not issue the completion certificate for the reason that the assessee has not handed over the amenity space. In our opinion, the format in which the architect of the assessee has filed the application for getting the occupancy certificate may be the procedural default and that will not deprive the assessee from its legitimate claim u/s.80IB(10). Moreover, the PMC has not pointed out that the application is not in prescribed format. We accordingly allow the grounds taken by the assessee and direct the AO to allow the deduction. - Decided in favour of assessee

Summary

Issues Involved:
1. Eligibility for deduction under Section 80IB(10) of the Income Tax Act, 1961.
2. Requirement of completion/occupancy certificate from the local authority (Pune Municipal Corporation - PMC).
3. Validity of the completion certificate issued by the architect.
4. Applicability of amendments to Section 80IB(10) for projects approved before 01-04-2005.

Detailed Analysis:

1. Eligibility for Deduction under Section 80IB(10):
The core issue revolves around whether the assessee, a firm engaged in development and building activities, is eligible for a deduction of Rs. 86,90,893 claimed under Section 80IB(10) for the Assessment Year 2009-10. The Assessing Officer (AO) disallowed the deduction on the grounds that the assessee did not comply with the conditions stipulated under Section 80IB(10), specifically the requirement to obtain a completion certificate from the local authority.

2. Requirement of Completion/Occupancy Certificate:
The AO noted that the PMC did not issue the completion certificate because the correspondence regarding the handing over of amenity space was incomplete. The assessee argued that the architect had certified the completion and submitted the application to the PMC, but the certificate was pending due to technical procedures beyond their control. However, the AO and subsequently the Commissioner of Income Tax (Appeals) [CIT(A)] were not satisfied with this explanation, emphasizing that the completion certificate from the local authority was essential as per Section 80IB(10).

3. Validity of the Completion Certificate Issued by the Architect:
The CIT(A) questioned the validity of the completion certificate issued by the architect, noting that it was not in the prescribed format ('Appendix-J') as per PMC rules. The CIT(A) highlighted that the completion certificate should be issued by the local authority, and any deviation from this procedure casts doubt on the document's veracity. The CIT(A) also pointed out that the provision of amenity space is a crucial step in obtaining project approval, and the absence of this completion certificate was a significant lapse.

4. Applicability of Amendments to Section 80IB(10) for Projects Approved Before 01-04-2005:
The assessee contended that the project was sanctioned on 22-12-2004, and the amendment requiring a completion certificate from the local authority, introduced by the Finance Act 2004 effective from 01-04-2005, should not apply retroactively. The assessee cited precedents, including decisions from the ITAT Pune and High Courts, which held that such amendments are prospective and not applicable to projects approved before the amendment date. The Tribunal agreed with this argument, referencing the ITAT Pune decision in System Enterprises and other cases, which supported the view that the amendment does not apply to projects sanctioned before 01-04-2005.

Judgment:
The Tribunal concluded that the requirement to produce a completion certificate from the PMC, as per the amended Section 80IB(10), does not apply retrospectively to projects approved before 01-04-2005. The Tribunal also found that the procedural aspect of the architect's application format should not hinder the assessee's legitimate claim. The Tribunal directed the AO to allow the deduction under Section 80IB(10), thereby allowing the assessee's appeal.

Conclusion:
The Tribunal's judgment emphasized that amendments to tax laws should not be applied retrospectively unless explicitly stated. The requirement for a completion certificate from the local authority, introduced by the Finance Act 2004, does not affect projects approved before 01-04-2005. The Tribunal allowed the assessee's appeal, directing the AO to grant the deduction under Section 80IB(10).