2012 (11) TMI 466 - AT - Income Tax

Deduction u/s. 80IB(10) - denial of claim as the assessee is not a developer and only carried on the work of contractor and build the residential complex - Held that - the assessee has been engaged as a builder and not as a contractor. In the present case, the assessee having right to 60% in the constructed area and also a share in the undivided property, cannot be called a mere contractor. Thus the claim of deduction u/s. 80IB(10) is to be granted to the assessee to the extent of its share and there cannot be double deduction - in favour of assessee. Non production of completion certificate - Held that - Intention would only have been that for the project as a whole, there should be certification from the relevant authority proving the commencement and completion, and not that a completion certificate should be there in every year of the project span. Thus, the Assessing Officer need not insist on the completion certificate in this assessment year, this is the right meaning of the statute - in favour of assessee. Calculation of built up area - AO included the proportionate share of common area in the size of each flat - Held that - The Finance Act (No. 2) of 2004 inserted the definition of built up area to clarify this position, thus finding merit in the contention of the assessee that the proportionate common area should be excluded from the calculation or flat size - in favour of assessee. NIL deduction v/s full deduction v/s proportionate deduction u/s 80IB - Held that - The assessee is eligible for deduction u/s. 80IB in respect of those flats whose size is within the prescribed limits - in favour of assessee. Work-in-progress related to Maredpally Project credited to the Profit and Loss A/c - Held that - he Assessing Officer may be directed not to reduce the eligible deduction u/s. 80IB by taking into account the work-in-progress relating to Maredpally site since the quantification of the work-in-progress has not affected the deduction claimed by the assessee u/s. 80IB(10). As the CIT(A) not adjudicated this ground, this issue is remitted back to the file of the CIT(A) for fresh adjudication - in favour of assessee for statistical purposes. Chit dividend, scrap sales and discount on materials are to be considered as income from business eligible for deduction u/s. 80IB(10) as decided in CIT v. Kovur Textiles & Co. 1980 (1) TMI 8 - ANDHRA PRADESH HIGH COURT . However, the other income i.e., rent on vacant flat, interest on deposit cannot be considered as income from business and the same has to be considered as income from house property/income from other sources, respectively - partly in favour of assessee.

Issues Involved:
1. Disallowance of deduction under Section 80IB(10) of the Income-tax Act, 1961.
2. Non-adjudication of specific ground related to work-in-progress.
3. Classification of "other income" in the Profit and Loss Account.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 80IB(10):

The primary issue was the disallowance of the deduction claimed by the assessee under Section 80IB(10) due to the absence of a completion certificate for the housing project. The assessee, a builder, filed a return showing income and claimed a deduction under Section 80IB(10) for a residential complex project. The Assessing Officer (AO) noted several discrepancies, including the absence of a completion certificate, construction of more flats than sanctioned, and some flats exceeding the permissible built-up area.

The AO disallowed the deduction, citing the violation of the sanctioned plan and the absence of a completion certificate. The CIT(A) upheld this decision, stating the necessity of a completion certificate and adherence to the sanctioned plan.

The Tribunal, however, considered the broader context of the law and the purpose of Section 80IB(10), which is to promote housing projects. It noted that the assessee was indeed a developer, not just a contractor, as evidenced by the development agreement and the investment of its own funds. The Tribunal emphasized that the completion certificate requirement should not be interpreted to deny deductions to those following the Percentage Completion Method. It referenced the CBDT's Instruction No. 4 of 2009, which allows deductions on a year-to-year basis for projects showing partial completion, provided the overall project is completed within the stipulated time.

The Tribunal concluded that the assessee was entitled to the deduction under Section 80IB(10) for its share of the project, despite the absence of a completion certificate for the year in question, as long as the certificate is obtained upon the project's completion.

2. Non-adjudication of Specific Ground Related to Work-in-Progress:

The assessee contended that the work-in-progress related to the Maredpally Project, credited to the Profit and Loss Account, did not enhance the profit derived from the eligible undertaking. The AO had noted an amount credited to work-in-progress but held that the profit from this project was not eligible for the deduction under Section 80IB.

The Tribunal observed that the CIT(A) had not adjudicated this specific ground. Therefore, it remitted the issue back to the CIT(A) for fresh adjudication, allowing the ground for statistical purposes.

3. Classification of "Other Income" in the Profit and Loss Account:

The assessee's Profit and Loss Account included "other income" such as rent from a vacant flat, dividend on chits, scrap sales, discounts on materials, and interest on deposits. The CIT(A) held that these did not constitute income derived from the housing project.

The Tribunal differentiated between various components of "other income." It ruled that chit dividends, scrap sales, and discounts on materials should be considered as business income eligible for deduction under Section 80IB(10), referencing relevant case law. However, it held that rent from a vacant flat and interest on deposits should be classified as income from house property and other sources, respectively, and thus not eligible for the deduction.

Conclusion:

The Tribunal allowed the appeal partly, granting the deduction under Section 80IB(10) for the assessee's share in the housing project, remitting the issue of work-in-progress to the CIT(A) for fresh adjudication, and partly upholding the classification of "other income" as per its detailed analysis.

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