2014 (2) TMI 740 - AT - Income Tax

Deduction of business income Claim u/s 80IB(10) of the Act Held that - The decision in M/s FORTALEZA DEVELOPERS Versus THE COMMISSIONER OF INCOME TAX 15, MUMBAI 2012 (12) TMI 693 - ITAT MUMBAI followed - The assessment order is neither erroneous nor prejudicial to the interest of revenue on account of allocation of profit between members as per accounts of the assessee as allocation of profit in the accounts of the assessee is in accordance with clause-7 of the agreement and manner of allocation of profit in the account cannot alter the quantum of deduction available to AOP under section 80IB(10) - The quantum of deduction under section 80 IB (10) will depend on the income earned from eligible project - The quantum of deduction will not depend upon the mode of distribution of shares amongst the members of AOP as income of AOP is taxable at maximum marginal rate - thus, the manner in which the AOP distribute its project has no bearing over eligible quantum of deduction u/s 80IB (10) as the eligible quantum will be gross receipts from the project reduced by expenses incurred on the project Decided in favour of Assessee. Deduction u/s. 80IB(10) of the Act allowed in contravention - Area of the flats exceeds the area qualified for exemption - Held that - The decision in M/s FORTALEZA DEVELOPERS Versus THE COMMISSIONER OF INCOME TAX 15, MUMBAI 2012 (12) TMI 693 - ITAT MUMBAI followed - The project has been sanctioned and the completion certificate has been issued as per the sanctioned plant which is for the residential flats having less than 1500 sq.ft, then even if the assessee has received the consideration for more than 1500 sq.ft in some of the flats, which would not constitute violation of conditions as prescribed u/s 80IB(10)(c) because the built up area is less than 1500 sq.ft. - each of the flats have been constructed as per the building plan duly approved by the local authorities and also completed as per the completion certificate, wherein the built up area of each flats has been shown less than 1500 sq.ft, then receiving the consideration by the assessee for more than 1500 sq.ft showing as saleable area of the flats would not enhance the built up area of the flats/residential units as per the sanctioned plant and completion certificate there was no error in the order of the CIT(A). Disallowance of deduction u/s 80IB(10) of the Act - Commercial project in contravention of provisions of sec. 80IB(10)(d) Held that - As per the pre- amended provisions of sec. 80IB(10), there is no such condition of commercial area in the project; therefore, once a project has been approved prior to 1.4.2005 by the Municipal Authorities, then in the absence of any such condition in the provisions of sec. 80IB(10) as exits at the relevant point of time, the subsequent amendment w.e.f 1.4.2005 cannot be applied with retrospective effect - When the amendment itself takes effect from 1.4.2005, then it cannot be presumed to be applied from retrospective effect - Relying upon Saroj Sales Organisation vs ITO 2008 (1) TMI 420 - ITAT BOMBAY-E - the build up area of each flat was less than 1500 square feet and further the commercial project was found a separate project - the issue of deduction u/s 80IB in favour of the assessee and against the revenue.

Summary

Issues Involved:
1. Reduction of business income by Rs. 14,64,64,961/-.
2. Deduction under section 80IB(10) of the Income Tax Act, 1961.
3. Area of some flats exceeding 1500 sq.ft.
4. Combined project approval and division into separate residential and commercial projects.

Detailed Analysis:

1. Reduction of Business Income:
The assessee challenged the reduction of business income by Rs. 14,64,64,961/-, arguing that the agreement between the members of the AOP was for sharing net profit, not revenue. The Tribunal noted that an identical issue had been decided in favor of the assessee in the previous assessment year 2007-08. The Tribunal held that the distribution of revenue was in accordance with clause-7 of the agreement, which entitled SPPL to 35% of the gross sale proceeds. The Tribunal rejected the CIT's interpretation that the agreement was for revenue sharing, affirming that the AOP is a distinct entity eligible for deductions under section 80IB(10). The Tribunal concluded that the assessment order was neither erroneous nor prejudicial to the revenue's interest.

2. Deduction under Section 80IB(10):
The Revenue disputed the CIT(A)'s direction to grant deduction under section 80IB(10), arguing that some flats exceeded 1500 sq.ft., and the project was divided into separate residential and commercial projects to circumvent the provisions of section 80IB(10). The Tribunal noted that the issue had been decided in favor of the assessee for the assessment year 2007-08, where the Special Bench's decision in Brahma Associates was followed. The Tribunal found that the built-up area of each flat was less than 1500 sq.ft., and the commercial project was separate. The Tribunal upheld the CIT(A)'s decision, allowing the deduction under section 80IB(10).

3. Area of Some Flats Exceeding 1500 sq.ft.:
The Assessing Officer disallowed the deduction under section 80IB(10) because some flats exceeded the permissible limit of 1500 sq.ft. The Tribunal found that the built-up area of the flats was less than 1500 sq.ft., and the assessee had received consideration for more than 1500 sq.ft. due to the inclusion of common areas. The Tribunal held that receiving consideration for more than 1500 sq.ft. did not violate section 80IB(10)(c) as the built-up area was within the limit. The Tribunal upheld the CIT(A)'s decision, allowing the deduction under section 80IB(10).

4. Combined Project Approval and Division into Separate Residential and Commercial Projects:
The Revenue argued that the project was divided into separate residential and commercial projects to claim deductions under section 80IB(10). The Tribunal found that the layout plan was approved by the Pune Municipal Corporation (PMC) as one project, but two separate projects were subsequently sanctioned. The Tribunal held that as per the pre-amended provisions of section 80IB(10), there was no condition regarding commercial area. The Tribunal followed the decision in Brahma Associates, holding that the amendment effective from 1.4.2005 could not be applied retrospectively. The Tribunal upheld the CIT(A)'s decision, allowing the deduction under section 80IB(10).

Conclusion:
The appeals of the assessee were allowed, and the appeals of the Revenue were dismissed. The Tribunal upheld the CIT(A)'s decisions, affirming the eligibility for deductions under section 80IB(10) and rejecting the Revenue's arguments regarding the area of flats and the division of the project. The Tribunal's decisions were based on the facts and previous rulings, including the Special Bench's decision in Brahma Associates.