2010 (4) TMI 1110 - AT - Income Tax

Deduction u/s. 80-IB(10) - pro rata deduction - actual area of three flats was more than 1,500 sq. ft. or not. - CIT-DR contended that whatever flats were measured on sample basis were found having built-up area of more than 1,500 sq. ft. Hence, other flats were also to be considered of having built-up area of more than this limit. - HELD THAT - AO took the help of technical expert and even as per his report after taking into consideration the local by-laws, the area of certain flats measured by the Department is less than 1,500 sq. ft. and the AO has not given any cognizance to this fact which makes the approach of AO unjustified - whatever explanations/ clarifications/objections have been raised by the assessee subsequent to the measurement done by the Department, the same have been rejected in a summarily manner merely for the reason that during the course of physical measurement representatives of the assessee were present and it also signed the measurements taken by the Department As this approach of the AO, who is a judicial officer is not justified, because before making addition or rejecting a genuine claim of the assessee, it is the bounden duty of the AO to deal with the objections of the assessee. We are further unable to understand why the AO did not do the reverification exercise to find out the correct measurement. As per DR the sale consideration is different with reference to different flats and, therefore, there must be different sizes. In our opinion, this fact rather supports the claim of the assessee, because this again goes to show that sample taken by the Department is not the representative one. Thus, on the basis of above facts itself, the action of the AO is not correct in law. Having stated so, now we shall deal with other aspects. On the aspect of nature of provisions of s. 80-IB(14)(a), we find that it is a settled proposition of law that when a particular term is defined by an amendment, which results into increase/levy of civil liability, the same has to be considered as the substantive one, hence prospective. - we reject the contention of the Revenue that the provisions of s. 80-IB(14)(a) are of retrospective nature. This view leads us to another question i.e., in the absence of any specific term in the Act how that term should be interpreted. The meaning of term built-up area prior to insertion of definition clause in the Act has to be found out as per the local law i.e., rules and regulations of Bhopal Municipal Corporation as well as from M.P. Bhoomi Vikas Rules and as a consequence thereof, the built-up area of such flats is undisputedly less than the specified limit. Hence, the assessee, in our opinion, is eligible for deduction under s. 80-IB(10). In this view of the matter, there remains no question for any pro rata deduction. We consider it pertinent to state that it is beneficial provision and, therefore, it should be interpreted in a liberal manner and in case it is necessary then the assessee can be granted pro rata deduction. W e are further of the view that if the legislature did not want to give any pro rata deduction, it could have been provided by the legislature specifically that if one house was found to be having built-up area on the ground of specified limit, then the assessee would not be entitled for any deduction u/s 80-IB(10). W e dismiss all the grounds raised by the Revenue. Applicability of local rates to compute built-up area - Since we have accepted the legal contentions raised by the assessee in this regard, hence, we find no reason not to grant a deduction thereon under s. 80-IB(10). Accordingly, we accept this ground of the cross-objection filed by the assessee and direct the AO to grant deduction under s. 80-IB as claimed by the assessee.

Issues Involved:
1. Retrospective or prospective application of Section 80-IB(14)(a) of the Income Tax Act.
2. Criteria for computing built-up area if Section 80-IB(14)(a) is prospective.
3. Actual built-up area of the three flats in question.
4. Legality of granting pro rata deduction under Section 80-IB(10).

Detailed Analysis:

Issue 1: Retrospective or Prospective Application of Section 80-IB(14)(a)
The Tribunal held that the definition of "built-up area" under Section 80-IB(14)(a) is not retrospective. This conclusion aligns with the decisions in ITO vs. AIR Developers and Brahma Associates vs. Asstt. CIT, which clarified that such provisions are substantive and thus prospective. The Tribunal emphasized that the definition applies from the assessment year 2005-06 onwards, as supported by CBDT circulars and the Supreme Court decision in Govindas & Ors. vs. ITO.

Issue 2: Criteria for Computing Built-Up Area
Given the prospective nature of Section 80-IB(14)(a), the Tribunal held that the built-up area should be computed according to local laws, specifically the M.P. Bhoomi Vikas Rules, 1984, since there was no definition in the Act for the assessment year 2004-05. The Tribunal noted that the local authority's approval of the housing project implies that the local definition of built-up area should be adopted.

Issue 3: Actual Built-Up Area of the Three Flats
The Tribunal found that the physical measurements taken by the AO were flawed due to non-technical staff conducting the measurements and the lack of a representative sample. The Tribunal also noted discrepancies in the AO's measurements, including a revision by the Department itself, which indicated unscientific measurement methods. The Tribunal accepted the assessee's technical expert's report, which showed that the built-up area was within the prescribed limits when calculated according to local laws.

Issue 4: Legality of Granting Pro Rata Deduction
The Tribunal supported the CIT(A)'s decision to allow pro rata deduction, noting that the beneficial provisions of Section 80-IB(10) should be interpreted liberally. The Tribunal reasoned that if the legislature intended to disallow the entire deduction due to a single non-compliant unit, it would have explicitly stated so. The Tribunal dismissed the Revenue's appeal, affirming that the assessee was entitled to pro rata deduction for the housing project.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection, directing the AO to grant the deduction under Section 80-IB as claimed by the assessee. The decision emphasized the prospective application of Section 80-IB(14)(a), the use of local laws for defining built-up area, and supported the pro rata deduction approach for compliance with Section 80-IB(10).

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