2012 (11) TMI 508 - AT - Income Tax

Deduction u/s 80IB - disallowance as built up area of the project did not have the approval of the local authority - CIT(A) allowed the claim - Held that - Refering to the clarification of the CBDT in a letter vide F.No.205/3/2001/ITA-II dt.4.5.2001 addressed to the Maharashtra Chamber of Housing Industry in which it has been stated that approval of any project as a housing project by the local authority would be adequate for the purposes of section 80IB of the Act. Although, the learned Departmental Representative has contended that aforesaid clarifications were given in the context of the commercial areas being constructed along with the housing project, it is viewed that the scope cannot be considered to be restricted to that circumstance alone. This is due to the fact that the definition of a housing project is not given under the Act and therefore the view of the CBDT that a housing project is one which is approved by a local authority requires to be given full effect to. Therefore, it cannot be construed that what the assessee has constructed is not a housing project. CIT(A) has rightly placed reliance on the decisions of Petron Engineering Construction Private Limited And Another Versus CBDT And Others 1988 (12) TMI 1 - SUPREME COURT to arrive at the view that the tax incentive by way of deduction 80IB is predominantly for the purpose of augmenting affordable dwelling and ought to be interpreted in that light. The fact that the assessee has obtained approval for the housing project cannot be lost sight of. As for the excess area constructed it is for the BBMP to look into the violations if any in the construction of the housing project. That however does not authorize the AO to hold that the assessee has not got approval for the housing project OR that the conditions laid down in section 80IB (10) stated violated - in favour of assessee.

Summary

Issues Involved:
1. Eligibility for deduction under section 80IB of the Income Tax Act, 1961.
2. Compliance with approved construction plans and local authority regulations.
3. Impact of non-payment of compounding fees on eligibility for tax deduction.

Detailed Analysis:

1. Eligibility for Deduction under Section 80IB of the Income Tax Act, 1961:
The assessee, a partnership firm developing residential flats, claimed a 100% deduction under section 80IB for profits from the sale of flats for the Assessment Years 2007-08 and 2008-09. The Assessing Officer (AO) denied the deduction, asserting that the project exceeded the approved built-up area, thus not meeting the local authority's approval requirements. The Commissioner of Income Tax (Appeals) [CIT(A)] reversed the AO's decision, holding that the project met all conditions under section 80IB, including the approval by the local authority as a housing project. The ITAT upheld CIT(A)'s decision, emphasizing that the approval of the local authority as a housing project is sufficient for section 80IB purposes, following the CBDT's clarification.

2. Compliance with Approved Construction Plans and Local Authority Regulations:
The AO noted a discrepancy between the sanctioned built-up area (1,83,748.40 sq. ft.) and the actual constructed area (2,26,851.60 sq. ft.), leading to the conclusion that the project did not comply with the approved plan. The CIT(A) and the ITAT found that the additional constructed area included balconies, corridors, and other common areas not covered in the sanctioned plan but did not violate the built-up area condition of 1500 sq. ft. per unit. The ITAT emphasized that the municipal authorities are responsible for addressing any plan violations, and the AO's role is to ensure compliance with section 80IB conditions, which were met by the assessee.

3. Impact of Non-Payment of Compounding Fees on Eligibility for Tax Deduction:
The AO argued that the non-payment of compounding fees for the excess constructed area disqualified the project from being considered approved. The CIT(A) and ITAT disagreed, stating that non-payment of compounding fees does not render the project unapproved or unlawful. The ITAT noted that the project had obtained the necessary approval from the local authority, and the non-payment of compounding fees was a matter for the municipal authority to address. The ITAT concluded that the non-payment did not affect the eligibility for the deduction under section 80IB, as the primary conditions of approval and built-up area were satisfied.

Conclusion:
The ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s decision to grant the assessee the deduction under section 80IB for both assessment years. The ITAT held that the project met the necessary conditions under section 80IB, including approval by the local authority, and that any additional constructed area or non-payment of compounding fees did not disqualify the project from the deduction. The ITAT emphasized a liberal interpretation of tax incentive provisions to promote affordable housing, consistent with legislative intent.