2013 (11) TMI 719 - AT - Income Tax

Deduction u/s 80-IB Whether proportionate deduction be allowed - Held that - The project completed by the appellant had two units above 1500 sq. ft The conditions prescribed u/s 80-IB(10) are not fulfilled in respect these two units only - If an assessee has developed a housing project, wherein the majority of residential units have a built up area of less than 1500 sq. ft. and only a few residential units are exceeding the built up area of 1500 sq. ft.- It would be fair and reasonable to allow deduction on proportionate basis i.e. on the profit derived from construction of the residential units which have a built up area of less than 1500 sq. ft. Partly allowed in favour of assessee.

Summary

Issues Involved:
1. Entitlement to deduction under Section 80IB of the Income Tax Act.
2. Fulfillment of conditions under Clause (c) of Section 80IB.
3. Proportionate deduction for each residential unit.

Detailed Analysis:

1. Entitlement to Deduction under Section 80IB:
The assessee filed a return declaring a gross total income and claimed a deduction under Section 80IB(10) of the Income Tax Act. The Assessing Officer (AO) disallowed the claim on the grounds that the assessee did not fulfill the conditions stipulated in the provision, including ownership of the land and approval of the housing project by the local authority. The AO also noted that the assessee acted merely as a contractor and not as a developer. However, the CIT(A) allowed the claim following the decision in the case of Radhe Developers, which held that ownership of the land is not a necessary condition for claiming deduction under Section 80IB(10).

2. Fulfillment of Conditions under Clause (c) of Section 80IB:
The AO observed that the built-up area of one of the units exceeded 1500 sq. ft., which violated the conditions under Clause (c) of Section 80IB(10). The CIT(A) upheld the AO's decision, stating that the project did not fulfill the condition of having a maximum built-up area of 1500 sq. ft. for each residential unit. The CIT(A) emphasized that the conditions for eligibility under Section 80IB(10) must be fulfilled cumulatively, and failure to meet even one condition renders the entire project ineligible for the deduction.

3. Proportionate Deduction for Each Residential Unit:
The assessee argued for proportionate deduction, citing decisions from various tribunals that allowed deductions on a pro-rata basis for units that met the conditions of Section 80IB(10). The ITAT agreed with this argument, referencing several cases where proportionate deductions were allowed. The ITAT concluded that the assessee is entitled to a deduction on the profit derived from the construction of residential units with a built-up area of less than 1500 sq. ft., while units exceeding this limit would not be eligible for the deduction.

Conclusion:
The ITAT partially allowed the appeal, directing the AO to allow the claim for deduction under Section 80IB(10) on a proportionate basis for units with a built-up area of less than 1500 sq. ft. The units exceeding this limit would not be eligible for the deduction. The decision emphasized the importance of fulfilling all conditions under Section 80IB(10) and endorsed the principle of proportionate deduction for eligible units.