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2011 (8) TMI 680 - AT - Income TaxExpenditure in respect of exempt income 14A - AO applied Rule 8D - Assessee contended no interest expenditure was incurred by the assessee in relation to earning of tax free income - Held That - In view of Godrej & Boyce Mfg. (2010 -TMI - 78448 - BOMBAY HIGH COURT), case remanded back. Deduction under 80IB - two flats exceeds 1000 sq.ft area - Held that - In view of CIT v. Ambuja Housing Development Ltd, Work out the deduction u/s 80IB(10) after excluding the profit from the sale of these two flats. Deduction under 80IB - commenced or commences development and construction of housing project is separate and distinct from the approval of the housing project - Held That - No restriction for approval before 1.10.98 however the commenced development and construction on or after 1.10.98. when the assessee had commenced the development after 1st day of Oct 1998 and completed the same before the specified date, he is eligible for deduction. Subsequent use of the flats for non-residential purpose would not be considered as construction of commercial establishment by the assessee in the housing project and therefore, deduction u/s 80IB(10) cannot be declined because of these reasons. commercial area 2638 sq.ft. being less than 10% of the total built-up area of 71,56 sq.ft, the assessee is entitled to deduction/s 80IB - Held That - In view of Brahma Associatess (2011 -TMI - 205564 - BOMBAY HIGH COURT) decided in favour of assessee and is eligible for deduction.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Deduction under Section 80IB(10) for the project N G Complex, Marol. 3. Deduction under Section 80IB(10) for the project N G Estate, Mira Road (E). 4. Conditions regarding the commercial area in the housing project under Section 80IB(10). Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act: The common ground raised by the assessee for AY 2002-03 to 2006-07 was the disallowance made by the AO under Section 14A. The AO applied Rule 8D for disallowance of interest expenditure. The CIT(A) confirmed this disallowance by following the decision in ITO v. Daga Capital Management (P.) Ltd. The assessee contended that Rule 8D was not applicable and no interest expenditure was incurred in relation to earning tax-free income. The Tribunal, considering the decision of the jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT, set aside the issue to the AO for fresh adjudication. 2. Deduction under Section 80IB(10) for the project N G Complex, Marol: The assessee raised the issue that the CIT(A) erred in excluding the profit from the sale of two flats whose built-up area exceeded 1000 sq. ft. The AO held that the assessee was not entitled to deduction as the area of these flats exceeded the limit. The CIT(A) directed the AO to exclude the profit from these flats while granting the deduction. The Tribunal upheld the CIT(A)'s decision, noting that the proportionate deduction is available if only some flats violate the area condition, provided the overall project meets the minimum area requirement. 3. Deduction under Section 80IB(10) for the project N G Estate, Mira Road (E): The revenue raised the issue that the CIT(A) erred in directing the AO to allow the deduction, arguing that the project commenced before the stipulated date of 1.10.1998. The CIT(A) held that the project commenced after the receipt of the Commencement Certificate on 2.3.2001. The Tribunal upheld the CIT(A)'s decision, clarifying that the date of commencement is when actual development and construction start, not the date of project approval by the local authority. The Tribunal referred to the decision in Nirmiti Construction v. Dy. CIT, which supported this interpretation. 4. Conditions regarding the commercial area in the housing project under Section 80IB(10): The revenue contended that the presence of shops and commercial establishments made the project ineligible for deduction. The CIT(A) allowed the deduction, following the decision in Brahma Associates v. Jt. CIT, which allowed commercial use up to 10% of the total built-up area. The Tribunal upheld the CIT(A)'s decision, noting that the commercial area was less than 10% of the total built-up area, thus complying with the conditions for deduction under Section 80IB(10). Additionally, the revenue's issue regarding the sale of 32 flats to a single entity was addressed. The Tribunal noted that the prohibition on selling more than one flat to a single person was inserted prospectively from 1.4.2010 and did not apply to the assessment years in question. The Tribunal concluded that the subsequent use of flats for non-residential purposes by the end-user does not affect the eligibility for deduction if the flats were constructed as residential units as per the approved plan. Conclusion: The appeals of the revenue were dismissed, and the appeals of the assessee were partly allowed. The Tribunal's decisions were based on the interpretation of relevant sections and precedents, ensuring compliance with the conditions prescribed under the Income Tax Act.
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