2013 (11) TMI 202 - AT - Income Tax

Deduction u/s. 80IB(10) - Held that - If a portion of the plot area was earmarked for roads after the assessee entered into development agreement and the plan was duly sanctioned by the competent authority - we cannot find fault with the assessee to deny the deduction u/s. 80IB(10) of the Act - Accordingly, we are of the opinion that the area of the plot available to the assessee for housing project is more than 1 acre - Accordingly, the claim of the assessee cannot be denied on this ground if it was available at the time of entering into development agreement and deduction u/s. 80IB(10) was to be given to the assessee. As per provisions of section 80IB(10) of the Act, the housing project should be on the size of a plot of minimum one acre. If the building project was sanctioned by the Municipal Corporation for developing the project in the area of one acre land or more, the assessee is entitled for deduction u/s. 80IB(10) of the Act. Non-production of Completion Certificate - The Assessing Officer was directed to consider the claim of the assessee - The project was approved by the Municipal Corporation of Hyderabad - As per certificate of assessee s architect the project was completed - The learned AR submitted before us that the assessee has completed the project by this date and the assessee is following contract completion method - The claim for deduction u/s. 80IB(10) was made by the assessee for the first time which was denied by the authorities on the reason that there was no completion certificate. The meaning of date of completion has been given in Explanation (ii) to clause (a) to section 80IB(10) - Date of completion of construction would mean date on which completion certificate in respect of housing project was issued by the local authority - To grant deduction u/s. 80IB(10) it was mandatory to furnish the completion certificate of the housing project - The year of the assessment of income and connected deduction shall fall in the same assessment year - If the Revenue was taxing the profit in the year under consideration on the ground that the assessee was adopting Percentage Completion Method then the natural corollary should be that the connected deduction ought to be granted simultaneously in this year or the other method of computation is that the Revenue must not tax the profit of the project yearly on the basis of Percentage Completion Method but tax the entire profit on completion of the project by applying Project Completion Method - Decided in favour of Assessee.

Issues Involved:
1. Non-granting of deduction under Section 80IB(10) of the Income-tax Act, 1961.
2. Whether the project was executed on a plot area of less than one acre.
3. Non-production of the completion certificate.

Issue-wise Detailed Analysis:

1. Non-granting of Deduction under Section 80IB(10):
The primary grievance of the assessee was the denial of deduction under Section 80IB(10) of the Income-tax Act, 1961, amounting to Rs. 62,85,119. The assessee claimed this deduction on the basis that it had undertaken the construction of a residential complex, 'Sri Niketan,' on a plot of 5130 sq. yards. However, the Assessing Officer (AO) disallowed the deduction, concluding that the project did not meet the minimum plot size requirement of one acre as stipulated under Section 80IB(10)(b).

2. Whether the Project Was Executed on a Plot Area of Less Than One Acre:
The AO's investigation revealed that the actual plot size was 3871 sq. yards, considering 1373 sq. yards were earmarked for road widening, thus reducing the effective plot size to 3575 sq. yards. The AO argued that the project did not meet the minimum one-acre requirement. The assessee contended that the entire 5130 sq. yards were still in their possession and used for the project, arguing that the FSI (Floor Space Index) granted was based on the total plot area.

The CIT(A) upheld the AO's decision, stating that the plot size, after excluding the road-widening area, was indeed less than one acre. The Tribunal, however, noted that the approved building plan indicated a total project area exceeding one acre and emphasized that the area earmarked for roads should not be excluded from the plot size calculation. The Tribunal referenced previous cases (Vidhi Builders, Mumbai vs. ITO and Umiya Enterprises vs. ITO) where similar interpretations were made, supporting the assessee's claim.

3. Non-production of the Completion Certificate:
The AO also denied the deduction on the grounds that the assessee had not furnished a completion certificate from the Municipal Corporation of Hyderabad (MCH). The assessee argued that they had applied for the certificate, which was acknowledged by MCH, and individual certificates for completed flats were issued, indicating project completion.

The Tribunal highlighted that the assessee followed the Percentage Completion Method, a recognized method under the Income-tax Act, and that the requirement for a completion certificate should be interpreted liberally. The Tribunal cited the Gujarat High Court's judgment in Manan Corporation vs. ACIT, which held that strict interpretation of Section 80IB(10) was unnecessary for beneficial provisions. The Tribunal also referenced the CBDT's Instruction No. 4 of 2009, clarifying that deductions could be claimed on a year-to-year basis under the Percentage Completion Method and that the completion certificate could be obtained upon the project's total completion.

Conclusion:
The Tribunal concluded that the assessee's project met the minimum plot size requirement, considering the entire plot area, including the earmarked road-widening area. Additionally, the Tribunal held that the non-production of the completion certificate did not invalidate the deduction claim, given the project was completed and the assessee followed the Percentage Completion Method. Consequently, the Tribunal directed the AO to allow the deduction under Section 80IB(10) and ruled in favor of the assessee, allowing the appeal.

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