2013 (9) TMI 115 - AT - Income Tax

Deduction u/s 80IB - Deduction allowed on pro-rata basis - Held that - The appellant s claim is supported by the decision of Hon ble Mumbai ITAT in case of M/s. Saroj Sales Organisation 2008 (1) TMI 420 - ITAT BOMBAY-E , wherein on identical facts the Hon ble ITAT following the Hon ble Supreme Court decision in the case of Bajaj Tempo Ltd. reported in 1992 (4) TMI 4 - SUPREME Court has observed that the provisions should be interpreted liberally. even if the units constructed are both smaller and larger units with reference to the stipulated area, the profit derived from the construction of the smaller units i.e., within the stipulated area of 1,000 sq.ft. built-up area ought to be allowed as deduction under section 80IB(10) of the Act. The theory of pro-rata deduction is approved and held the deduction under section 80IB on pro-rata basis meets the objectives of the provisions of section 80IB. The Hon ble ITAT Bangalore Bench in the case of DCIT v/s Brigade Enterprises Pvt. Ltd. 2008 (8) TMI 453 - ITAT BANGALORE-A has held that the disallowance if any will have to be restricted to the extent of noncompliance of the provisions. This rule of proportionately is well founded in the income tax law and is recognized under various provisions of the Act. The Hon ble ITAT Chennai in the case of Arun Excello Foundation Pvt. Ltd. v/s ACIT (2007 (2) TMI 264 - ITAT MADRAS-A) has also upheld the pro-rata deduction on eligible residential units. Thus, respectfully following the above judgments of the various ITAT and Courts and particularly the jurisdictional ITAT in the case of Saroj Sales Organisation (supra), Assessee is entitled for deduction under section 80IB on pro-rata basis. The A.O. is therefore, directed to allow the deduction under section 80IB(10) on pro-rata basis as discussed above - Decided against Revenue.

Summary

Issues Involved:
1. Eligibility for deduction under section 80IB(10) of the Income Tax Act.
2. Pro-rata deduction under section 80IB(10) when some residential units exceed the prescribed built-up area.
3. Interpretation and application of section 80IB(10) conditions.
4. Impact of survey findings on eligibility for deduction.

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 80IB(10):
The primary issue is whether the assessee is eligible for deduction under section 80IB(10) for the housing project. The assessment was completed determining the total income and allowing deduction under section 80IB(10) for the Ekta Wood Project. However, a subsequent survey revealed that some flats exceeded the 1000 sq.ft. built-up area limit, violating section 80IB(10) conditions. The Assessing Officer (A.O.) issued a notice under section 148 r.w.s. 147, reopening the assessment on grounds of concealed material facts and wrongful deduction claims.

2. Pro-rata Deduction under Section 80IB(10):
The assessee argued for a pro-rata deduction, claiming that even though some flats exceeded the 1000 sq.ft. limit, the remaining units complied with section 80IB(10). The Commissioner (Appeals) supported this view, relying on the Kolkata ITAT decision in Bengal Ambuja Housing Development Ltd. v/s DCIT, which allowed pro-rata deductions for qualifying units. The A.O. rejected this plea, stating that section 80IB(10) does not permit proportionate deduction if any condition is violated.

3. Interpretation and Application of Section 80IB(10) Conditions:
The Revenue contended that section 80IB(10) conditions are cumulative, and violation of any condition disqualifies the entire project from deduction. The Departmental Representative cited the Hon'ble Bombay High Court judgment in Brahma Associates, arguing against proportionate disallowance. However, the assessee's counsel presented multiple Tribunal decisions supporting pro-rata deductions when only some units violated the built-up area condition. The Tribunal examined these precedents and found consistent support for pro-rata deductions.

4. Impact of Survey Findings on Eligibility for Deduction:
The survey findings revealed that certain flats were sold by separate agreements to the same family members, effectively creating larger units exceeding the 1000 sq.ft. limit. The Departmental Representative argued that this demonstrated a violation of section 80IB(10) conditions, warranting denial of the entire deduction. The Tribunal considered whether these findings should impact the eligibility for deduction and concluded that proportionate deduction should be allowed for compliant units.

Conclusion:
The Tribunal upheld the Commissioner (Appeals)'s decision, allowing deduction under section 80IB(10) on a pro-rata basis for qualifying units. The Tribunal found that the Hon'ble Bombay High Court's judgment in Brahma Associates did not specifically address the issue of proportionate deduction for units exceeding the built-up area limit. The Tribunal relied on multiple precedents supporting pro-rata deductions and directed the A.O. to allow the deduction accordingly. The Revenue's appeal was dismissed, affirming the assessee's entitlement to proportionate deduction under section 80IB(10).