2012 (7) TMI 984 - AT - Income Tax

Claim of deduction under section 80IB - disallow deduction on the profit from the units having above 1000 sq.ft. built up area - Held that - Neither the AO nor the CIT(A) made detailed enquiry or obtained certificates from the Municipal Corporation of Greater Mumbai or the office of the PWD or from the Collectorate to understand the meaning of the expression City of Mumbai used in section 80IB(10) of the Act. In our considered opinion, the meaning of the expression City of Mumbai had to be correctly analysed as otherwise it is not possible to measure the distance from the municipal limit of the City of Mumbai . In the interests of substantial justice we, therefore, set aside the matter to the file of the Assessing Officer to reconsider the matter

Summary

Issues:
Claim of deduction under section 80IB of the Act for a residential project in A.Y. 2005-06.

Analysis:
The primary issue in this case revolves around the claim of deduction under section 80IB of the Act for a residential project constructed at Kalyan. The assessee company, a builder and developer, claimed the whole profit as exempt income under section 80IB(1) of the Act. However, the Assessing Officer (AO) contended that the assessee did not meet the stipulated conditions and hence was not eligible for the deduction. A survey revealed that the company had constructed row houses exceeding 1500 sq.ft. and joined flats sold to the same family, which raised concerns about eligibility for the deduction.

Upon appeal, the CIT(A) noted that the AO's distance verification from the Municipal Corporation limit to the project site was accurate. The CIT(A) directed the AO to allow proportionate deduction for residential units meeting section 80IB conditions. The Revenue disagreed, arguing that any deviation from the stipulations should disqualify the entire project from the deduction, not allow proportionate deduction. Consequently, the Revenue appealed the CIT(A)'s decision.

In response, the assessee filed a cross objection, asserting that the maximum permissible built-up area for residential units should be 1500 sq.ft. and not 1000 sq.ft., given Kalyan's distance from the municipal limits of Mumbai. The case involved a detailed analysis of the City of Mumbai's definition, different from the Municipal Corporation of Greater Mumbai, impacting the permissible built-up area for the deduction under section 80IB.

The Tribunal observed discrepancies in the AO's understanding of the City of Mumbai definition and directed a reconsideration. The AO was instructed to conduct a thorough analysis, considering the correct interpretation of the City of Mumbai's limits for determining eligibility under section 80IB. The Tribunal emphasized the importance of substantial justice, ensuring the assessee's right to be heard and providing relevant details for a fair assessment. Ultimately, the appeal by the Revenue and the cross objection by the assessee were treated as allowed for statistical purposes, with the matter remanded to the AO for further examination in accordance with the law.