2009 (6) TMI 670 - AT - Income Tax

Deduction u/s 80-IB(10) - The common lacunae noted by the Assessing Officer on the claims were that some of the units in the respective projects namely, Aishwariya, Netpune and Jupiter had a built up area, exceeding one thousand sq. ft. thereby rendering such projects ineligible for claiming deduction under section 80-IB(10) of the Act - Whether balcony is to be construed as a part of the built-up area - Whether Finance (No. 2) Act, 2004 is retrospective or not - Even according to the Assessing Officer himself, built-up area as normally understood in common parlance means area enclosed within the external lines of the external walls - the enactment itself clearly specifies that clause will have effect from 1-4-2005 - prior to 1-4-2005, balcony would not form part of the built-up area, irrespective of the area of such balcony - Held that there is no such definition for built up area, prior the amendment which came into effect from 1-4-2005, whereby its meaning was linked to any other enactments There is much strength in the argument that any addition of wall area thickness would not take it beyond 92.25 sq.mtr. which is equivalent to 1000 sq. ft - this issue has been correctly answered by the learned CIT(A) when he has given a finding that on verification the total built up area of all the four flats of A & B Wing of Neptune Project tallied with the built-up area of the floor as per the approved BMC plan - Held that none of the units exceeded the 1000 sq.ft. limit in the Neptune project and the assessee was eligible for claiming deduction under section 80-IB(10) Regarding Jupiter project - D.V.O. Report dated 12-5-2008, though as aforesaid, it was obtained after the assessment it clearly shows that in none of the flats in Jupiter project exceeded 1000 sq. ft. - Appeal of the assessee is partly allowed

Issues Involved:
1. Methodology for determining built-up area.
2. Inclusion of balcony in built-up area.
3. Application of local laws (BMC Rules) for defining built-up area.
4. Pro rata deduction under section 80-IB(10) for units exceeding 1000 sq. ft.
5. Admission of additional evidence by CIT(A).
6. Disallowance of expenses for construction of Club House and Home for Aged.

Detailed Analysis:

1. Methodology for Determining Built-Up Area:
The primary issue was whether the Assessing Officer's (AO) method of grossing up the carpet area based on a ratio derived from floor maps was correct. The AO's method varied ratios across different projects, leading to inconsistencies. The Tribunal concluded that actual measurements should be used to determine the built-up area rather than estimates or ratios. The assessee provided measurement-based work-outs for units where carpet areas exceeded 80 sq.mtrs., which was deemed accurate.

2. Inclusion of Balcony in Built-Up Area:
The AO included balcony areas in the built-up area calculations, arguing that balconies should be included based on BMC rules and the Finance (No. 2) Act, 2004. However, the Tribunal found that the definition of built-up area, which includes projections and balconies, was introduced with effect from 1-4-2005 and should not be applied retrospectively. Therefore, prior to this date, balconies should not be included in the built-up area calculations.

3. Application of Local Laws (BMC Rules) for Defining Built-Up Area:
The AO used BMC rules to define built-up area, which included balconies exceeding 10% of the carpet area. The Tribunal rejected this approach, stating that the Income-tax Act does not adopt definitions from local laws unless explicitly stated. The built-up area should be understood in common parlance, excluding balconies, prior to the amendment effective from 1-4-2005.

4. Pro Rata Deduction Under Section 80-IB(10) for Units Exceeding 1000 sq. ft.:
For the Aishwariya project, some units exceeded 1000 sq. ft., leading to a denial of deduction under section 80-IB(10). The Tribunal referred to precedents where pro rata deductions were allowed for units within the prescribed limit, even if some units exceeded it. The Tribunal directed the AO to allow pro rata deductions for units under 1000 sq. ft., aligning with decisions from other Tribunal benches.

5. Admission of Additional Evidence by CIT(A):
The revenue argued that CIT(A) admitted new evidence in violation of rule 46A. The Tribunal found that CIT(A) relied on the same plans and work-outs submitted to the AO, not new evidence. Therefore, this grievance was dismissed as it lacked merit.

6. Disallowance of Expenses for Construction of Club House and Home for Aged:
The AO disallowed expenses for the Club House and Home for Aged in the Vasant Leela project, arguing the project was incomplete. The Tribunal noted that more than 95% of the project was completed and sold. The expenses were for the benefit of the entire project and were correctly debited in the profit & loss account. The Tribunal upheld CIT(A)'s decision to allow these expenses as business expenditure.

Conclusion:
The Tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal. The AO was directed to verify and allow pro rata deductions for the Aishwariya project and accept the assessee's methodology for determining built-up area without including balconies prior to 1-4-2005. The disallowance of expenses for the Club House and Home for Aged was also overturned.

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