2014 (1) TMI 1299 - AT - Income Tax

Disallowance of deduction u/s 80IB of the Act - Profit from the sale of developed plots requirements of Section 80IB not fulfilled Held that - The assessee has got approval for development of housing project though, during the year, the assessee has just undertaken development of plots and their sales, no construction activity was undertaken in respect of residential units proposed on such plots - Deduction u/s 80IB(10) specifically provides for deduction in respect of profit earned on development and construction of housing projects on or after 1st day of October, 1998 - Deduction u/s 80IB(10) is subject to condition of undertaking, development and building of housing project - Thus, the construction and development of housing projects is sine qua non for claim of deduction u/s 80IB(10) subject to fulfilment of other conditions - the assessee has just developed the plots and sold them - No construction activity was undertaken during the year - Thus, the assessee is not eligible for claim of deduction in respect of profit earned on sale of developed plot insofar as there was no profit on sale of residential units Decided against Assessee.

Issues Involved:
1. Disallowance of deduction claim under Section 80IB(10) of the Income-tax Act, 1961.
2. Eligibility criteria for claiming deduction under Section 80IB(10).
3. Interpretation of "housing project" and its implications for tax benefits.
4. Examination of additional evidence and its impact on the case.
5. Joint venture partners' share of profits and their tax implications.

Detailed Analysis:

1. Disallowance of Deduction Claim under Section 80IB(10):
The primary issue in the appeal concerns the disallowance of the assessee's claim for a deduction of Rs. 13,37,31,420/- under Section 80IB(10) of the Income-tax Act, 1961. The assessee, a Private Limited Company engaged in real estate development, had declared nil income after claiming this deduction. The Assessing Officer rejected the claim on the grounds that the deduction under Section 80IB(10) is available only for housing projects that include the construction of residential units, which the assessee had not undertaken during the assessment year 2008-09.

2. Eligibility Criteria for Claiming Deduction under Section 80IB(10):
The CIT(A) upheld the Assessing Officer's decision, emphasizing that Section 80IB(10) specifically provides for deductions related to housing projects that include the construction of residential units with a maximum built-up area as specified in the section. The CIT(A) noted that the assessee's project involved the sale of developed plots without constructing residential units, which does not meet the criteria for the deduction under Section 80IB(10).

3. Interpretation of "Housing Project" and Its Implications for Tax Benefits:
The CIT(A) clarified that the term "housing project" under Section 80IB(10) implies the construction of residential units and not merely the development and sale of plots. The CIT(A) referenced judicial pronouncements and explained that the incentive provision aims to address housing problems for middle and lower-income groups, which necessitates the construction of residential units. The CIT(A) concluded that the assessee's project, which primarily involved the sale of developed plots, did not qualify as a housing project eligible for the deduction under Section 80IB(10).

4. Examination of Additional Evidence and Its Impact on the Case:
During the appeal proceedings, the assessee submitted additional evidence, including amendments to collaboration agreements and completion certificates. The CIT(A) admitted these documents but found that they did not alter the fundamental issue that the project was not a housing project as defined under Section 80IB(10). The CIT(A) reiterated that the major part of the project involved the sale of developed plots without constructing residential units, thus disqualifying it from the deduction.

5. Joint Venture Partners' Share of Profits and Their Tax Implications:
The CIT(A) also addressed the joint venture partners' share of profits from the sale of developed plots, directing the Assessing Officer to ascertain whether similar deduction claims had been made by the joint venture partners, Shraddha Buildcon Pvt. Ltd. and Omaxe Limited. If such claims were allowed, the Assessing Officers were advised to take remedial action to withdraw the deductions.

Conclusion:
The Tribunal upheld the CIT(A)'s order, confirming the disallowance of the deduction claim under Section 80IB(10) for the assessee. The Tribunal emphasized that the construction and development of housing projects, including residential units, are essential for claiming the deduction. Since the assessee had only developed and sold plots without undertaking any construction of residential units, the deduction under Section 80IB(10) was not allowable. The appeal of the assessee was dismissed.

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