2013 (11) TMI 425 - AT - Income Tax

Deduction u/s 80IB of the Income Tax Act Disallowance u/s 80IB for not obtaining the OC /CC before a particular date Held that - First sanction to construct the project was received on 26.12.2003 i.e. before 1.4.2004.Therefore, amendment brought in the section was not applicable to the facts of the present case - Secondly, sub-section, nowhere stipulates that 20% area should to increased for computing the built up area of a residential unit Decided in favor of Assessee. Reliance has been placed on the decision of Karnataka High Court in the case of G.R. Developers 2012 (7) TMI 91 - KARNATAKA HIGH COURT ,wherein it was held that a valid approval is obtained and the building is constructed in all respects prior to 1-4-2005 and the substituted provision of built up area inserted in sub-section (14) of the section 80IB is held to be applicable retrospectively, the assessee would not be entitled to the benefit of tax exemption, as the assessee effects sales subsequent to 1-4-2005.Such an interpretation not only would be absurd but would have disastrous consequences so far as the assessee is concerned. Therefore, it cannot be said that such was the intention of the legislature while bringing in the substitution. So, one should keep in mind the object behind enacting this provision, namely, to bring in investments and to encourage the infrastructure development of middle income housing projects. If the aforesaid provision is held to be retrospective in nature, it would negative the object of the said provision. It is settled law that the Courts have to harmonize these provisions and interpret the same in a manner to achieve the object of the legislature than to distress the said object. In that view of the matter, the definition of built-up area as inserted in sub-section (14) of section 80-IB by Finance (No.2) Act of 2004, which came into effect from 1-4-2005, cannot be held to be retrospective; It applies only to such housing projects, which are approved subsequent to 1-4-2005 Decided against the Revenue. Disallowance of entire deduction under section 80IB of the Act because area of 10 flats was more than the area prescribed by the Act Held that - Reliance has been placed on the judgment of the Madras High Court in the case of Viswas Promoters (P) Ltd 2012 (11) TMI 1117 - MADRAS HIGH COURT , wherein it was held that within a composite housing project, where there are eligible and ineligible units, the assessee can claim deduction in respect of eligible units in the project and even within the block the assessee is entitled to claim proportionate relief in the units satisfying the extent of the built up area - Considering the above even if claim was to disallowed it should have been restricted to ten flats only Decided against the Revenue. Deduction u/s 80IB - If the size of the flats was more than 1000 Sq.ft., assessee was entitled to claim the deduction because the housing-project-in-question was 25 Kilometers away from the City of Mumbai Held that - Bombay Municipal Corporation Act defines certain words used in the Act. Similarly, Bombay General Clause Act, 1904, The Greater Bombay Laws and Bombay High Court (Declaration of limits) Act 1945, and Maharashtra Land Revenue Code 1966 have also defined the word City of Mumbai - Words City of Bombay do not convey the same meaning as the words Greater Mumbai or Greater Mumbai Municipal Corporation. If the distance between City of Mumbai and location of the project was more than 25 Kms by road, the limit of size of the residential unit will change. If the distance is held to be more than 25 Kms., permissible size of the flats would be 1500 sq ft. Therefore, in the interest of justice, matter should be remitted back to the file of the FAA for fresh adjudication.

Summary

Issues Involved:
1. Justification of CIT(A) in allowing deduction u/s 80IB(10) for AY 2007-08.
2. Denial of deduction u/s 80IB(10) for profits derived from three floors of building Nilgiri.
3. Denial of deduction u/s 80IB(10) for units exceeding the permissible built-up area.

Issue-wise Detailed Analysis:

1. Justification of CIT(A) in Allowing Deduction u/s 80IB(10) for AY 2007-08:
The Assessing Officer (AO) disallowed the entire deduction claimed by the assessee under section 80IB(10) due to two main reasons: the delay in obtaining the Occupation Certificate (OC) and the size of certain flats exceeding the permissible limit. The AO noted that the project, Cosmos Hills, had its first approval on 26.12.2003 and was required to complete construction and obtain OC by 31.03.2008. However, the OC for three floors of Nilgiri was issued on 09.04.2009. Additionally, the AO found that certain flats exceeded the 1000 sq ft limit as per the report of a Government-approved valuer.

The First Appellate Authority (FAA) held that the project consisted of four buildings, and except for the three floors of Nilgiri, the OC for all buildings was obtained before 31.03.2008. The FAA relied on the decisions in Vandana Properties and Saroj Sales Organisation, concluding that each building could be considered an independent housing project. Therefore, the FAA allowed the deduction proportionately for the completed units with OC before 31.03.2008, except for the three floors of Nilgiri.

2. Denial of Deduction u/s 80IB(10) for Profits Derived from Three Floors of Building Nilgiri:
The FAA upheld the AO's decision to deny the deduction for the profits derived from the 10th, 11th, and 12th floors of Nilgiri because the OC for these floors was obtained after the deadline of 31.03.2008. The Departmental Representative (DR) argued that the OC was received late and that the valuer's report indicated flats exceeding the permissible area. The Authorised Representative (AR) contended that the deduction should be allowed for the buildings with OC obtained before the due date and that the modifications in the flats were made by the purchasers, not the assessee.

The Tribunal found that the FAA was justified in allowing the deduction for the completed buildings with OC before the due date, as the section 80IB(10) is a benevolent legislation aimed at encouraging housing development. The Tribunal upheld the FAA's decision to allow the deduction proportionately, except for the three floors of Nilgiri.

3. Denial of Deduction u/s 80IB(10) for Units Exceeding the Permissible Built-up Area:
The AO disallowed the deduction for the entire project based on the valuer's report that certain flats exceeded the 1000 sq ft limit. The FAA, however, held that the deduction should not be denied for the entire project due to a few non-compliant units. The FAA directed the AO to allow the deduction on a pro-rata basis for the compliant units.

The Tribunal agreed with the FAA, noting that the valuer's method of adding 20% to the carpet area was not in line with the definition of "built-up area" in section 80IB(14)(a). The Tribunal cited the Karnataka High Court decision in G.R. Developers, which clarified that the definition of "built-up area" should be strictly construed. The Tribunal also referred to various cases supporting proportionate disallowance, including Vandana Properties and Viswas Promoters (P) Ltd., where it was held that eligible units within a project could claim deduction proportionately.

The Tribunal concluded that the AO was not justified in denying the entire claim and upheld the FAA's decision for proportionate deduction.

Conclusion:
The Tribunal upheld the FAA's decision to allow the deduction u/s 80IB(10) on a proportionate basis for the buildings and units that met the required conditions. The Tribunal also remitted the issue of the project's distance from the City of Mumbai back to the FAA for fresh adjudication to determine if the permissible size of the flats should be 1500 sq ft instead of 1000 sq ft. The appeal by the AO was dismissed, and the cross-objection by the assessee was partly allowed.