2014 (9) TMI 1145 - AT - Income Tax

Disallowance of deduction u/s 801B(10) - Gram Panchayat as competent authority for issuing completion certificate - project was not approved by Local Authority i.e. CIDCO as housing project but as residential building in shop line as there was no provision for commercial area in housing project prior to 01/04/2004 - Held that - In the present case the project was approved for commencement vide letter of CIDCO dated 05/03/2004. Thus, the project was approved for commencement before 31/3/2005 and old law will apply when it was not a condition precedent to submit completion certificate. Deduction u/s. 80 IB (10) cannot be denied to the assessee for want of completion certificate from CIDCO. In common parlance housing project would mean constructing the building or group of buildings consisting of several residential units. In fact the explanation in section 80 IB(10) supports the contention of the assessee that approval granted to housing project. Therefore, it is clear that construction of even one building with several residential units of size not exceeding 1000 sq.fts. E Building in that case would constitute a housing project under section 10 IB(10) of the Act. Project constructed by the assessee was a separate project different from the project carried out by M/s. Sai Leela Developers. Therefore, such passing observations of AO cannot be held to be a ground for rejection of assessee s claim for deduction under section 80 IB (10) of the Act. For the aforementioned reasons we set aside the order passed by Ld. CIT(A) and hold that assessee is entitled to get deduction under section 80 IB(10) and accordingly the AO is directed to allow the deduction to the assessee under section 80 IB(10). Ground No.1 to 5 are allowed in the manner aforesaid.

Issues Involved:

1. Disallowance of deduction under section 80IB(10) of the Income Tax Act, 1961.
2. Requirement and validity of the completion certificate.
3. Applicability of the condition of completion for projects approved before 01.04.2005.
4. Competence of Gram Panchayat to issue the completion certificate.
5. Commercial area in the project.
6. Charging of interest under section 234B and 234C.
7. Invocation of provisions under section 271(1)(c).

Detailed Analysis:

1. Disallowance of Deduction under Section 80IB(10):
The assessee, a builder and developer, claimed deduction under section 80IB(10) for the assessment year 2009-10, which was disallowed by the Assessing Officer (AO). The AO's primary reasons for disallowance included the failure to obtain a completion certificate from CIDCO within the stipulated period and ongoing expenditure beyond the completion date, indicating the project was not complete.

2. Requirement and Validity of the Completion Certificate:
The AO rejected the completion certificate issued by Gram Panchayat, stating that only CIDCO was the competent authority to issue such a certificate. The AO also noted that the Vasai-Virar Municipal Corporation did not issue a completion certificate and that the project was not completed within the mandatory timeline.

3. Applicability of the Condition of Completion for Projects Approved Before 01.04.2005:
The assessee argued that the requirement for a completion certificate did not apply to projects approved before 31.03.2005. The CIT(A) upheld the AO's disallowance, stating that the project was not approved as a housing project by CIDCO and that the completion certificate from Gram Panchayat was not valid. However, the Tribunal referred to several judicial precedents, including CIT vs. CHD Developers and CIT vs. Jain Housing & Construction Ltd., which held that projects approved before 01.04.2005 were not subject to the amended provisions requiring a completion certificate.

4. Competence of Gram Panchayat to Issue the Completion Certificate:
The assessee contended that Gram Panchayat was a competent local authority to issue the completion certificate, as per the Income Tax Act and the Constitution of India. The Tribunal found that the completion certificate issued by Gram Panchayat, along with other evidences like house tax payment and water connection charges, indicated the project's completion by 31.03.2008. The Tribunal concluded that the condition of obtaining a completion certificate was not applicable to the project approved before 31.03.2005.

5. Commercial Area in the Project:
The AO noted that the project included commercial areas, which could disqualify it from claiming the deduction. The assessee clarified that the project developed by them was entirely residential, and any commercial development was part of a separate project handled by another developer. The Tribunal accepted this distinction, supported by judicial precedents like CIT vs. Vandana Properties, which defined a housing project as commonly understood to include residential units.

6. Charging of Interest under Section 234B and 234C:
The assessee's ground regarding the charging of interest under sections 234B and 234C was admitted as consequential. The Tribunal directed the AO to recompute the interest after giving effect to the Tribunal's directions on the main issues.

7. Invocation of Provisions under Section 271(1)(c):
The ground related to the invocation of provisions under section 271(1)(c) was dismissed as premature by the Tribunal.

Conclusion:
The Tribunal set aside the order of the CIT(A) and directed the AO to allow the deduction under section 80IB(10) to the assessee, holding that the completion certificate requirement was not applicable to projects approved before 31.03.2005. The Tribunal also directed the AO to recompute the interest under sections 234B and 234C and dismissed the ground related to section 271(1)(c) as premature.

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