2015 (1) TMI 690 - AT - Income Tax

Deduction u/s 80IB(10) - as per the AO, 1 BHK flats do not conform to the conditions for the claim of deduction u/s 80IB(10), as the majority of the flats have been joined together and exceeded the limit of 1000 sq.ft. - Held that - It is not case of the revenue that the developer constructed the duplex flats by merger of two 1-BHK flats with it own money and then sold as such to the buyers. It is on the records that the owners of duplex have merged the flats after taking possession of their flats using the design provisions supplied by the assessee in the brochure. There is evidence contrary to the same. Thus set aside the order of the CIT(A) on the impugned issue and direct the AO to allow the deduction u/s 80IB(10) as claimed by it. - Decided in favour of assessee.the merger of flats if any taken place after the sale of the said 1-BHK flats by the flat buyers and, may be using the design made available by the developer, the assessee cannot be penalized and denied the claim of deduction. As such, the relevant legal provisions do not authorize the AO to deny deduction based on the intention. What is required to be seen is if the 1-BHK flats are planned, designed, approved for construction, constructed and finally obtained the completion certificate or not. If the answer is affirmative, the claims cannot be denied based on the intention of the assessee.the revenue authorities have decided the issue against the assessee prejudicially and ignored the evidences that are given against the revenue. In such case, the orders of the revenue cannot be held judicious ones. It is undisputed fact that few 1-BHK flats remain so without any merger despite the provision of hole left and others are merged into duplex during the post sale using such provision. In our opinion, the developer cannot be penalized by denying the deduction. As such claim of deduction was found allowable by the then CIT(A) who decided the issues in earlier asst years. Of course, these orders are not relevant now considering the order of the Tribunal. Mere making a provision of a hole for future use by the flat buyers for erecting the stair case or so, should not come on the way of the assessee to claim deduction. Thus set aside the order of the CIT(A) on the impugned issue and direct the AO to allow the deduction u/s 80IB(10) as claimed by it. - Decided in favour of assessee.

Summary

Issues Involved:
1. Denial of deduction under section 80IB(10) of the Income Tax Act, 1961.
2. Compliance with the conditions specified in clause (c) of Explanation to section 80IB(10).
3. Relevance of discrepancies noted during a survey action.
4. Interpretation of the intention of the assessee.
5. Ignoring the confirmation filed by the flat buyers.
6. Absence of direct evidence to suggest that the assessee constructed duplex flats.
7. Scope of legal pronouncements on the merger of flats by the buyers.

Detailed Analysis:

1. Denial of Deduction under Section 80IB(10):
The core issue in the appeal was the denial of deduction under section 80IB(10) by the Assessing Officer (AO). The AO denied the deduction because the majority of the 1 BHK flats were joined together by the purchasers, resulting in a combined area exceeding 1000 sq. ft., which violated the conditions for the claim of deduction.

2. Compliance with Conditions Specified in Clause (c) of Explanation to Section 80IB(10):
The AO's decision was based on the interpretation that the joining of flats exceeded the prescribed built-up area limit of 1000 sq. ft. The assessee argued that the flats were registered as 1-BHK units and the joining was done by the purchasers post-sale. The Tribunal found that the assessee had complied with the approved plans and obtained the necessary completion certificates, indicating no violation of the conditions specified in clause (c).

3. Relevance of Discrepancies Noted During a Survey Action:
Discrepancies noted during the survey action, such as provisions for a staircase and a brochure showing the design for merging flats, were used by the AO to deny the deduction. The Tribunal held that these discrepancies were irrelevant as the project was completed as per the approved plans, and the discrepancies did not affect the compliance with section 80IB(10).

4. Interpretation of the Intention of the Assessee:
The AO and CIT(A) interpreted the discrepancies to infer that the assessee intended to construct duplex flats from the beginning. The Tribunal disagreed, stating that the intention should be assessed based on the approved plans and the completion certificate. The Tribunal found no evidence that the assessee constructed duplex flats and concluded that the intention inferred by the AO was not justified.

5. Ignoring the Confirmation Filed by the Flat Buyers:
The AO ignored the confirmations from flat buyers stating that they merged the flats post-sale. The Tribunal criticized this approach, emphasizing that the flat buyers' confirmations should have been considered, and the revenue authorities acted prejudicially by ignoring this evidence.

6. Absence of Direct Evidence to Suggest that the Assessee Constructed Duplex Flats:
The Tribunal found no direct evidence that the assessee constructed duplex flats. The provision of a hole for a staircase and a brochure with a design for merging flats were seen as marketing strategies, not evidence of actual construction of duplex flats by the assessee.

7. Scope of Legal Pronouncements on the Merger of Flats by the Buyers:
The Tribunal referred to various legal precedents, including decisions in the cases of Baba Promoters and Developers and G.V. Corporation, which supported the view that the assessee cannot be faulted if the flats were merged by the buyers post-sale. The Tribunal concluded that the assessee is entitled to the deduction under section 80IB(10) as the flats were constructed as per the approved plans and any post-sale modifications by buyers do not affect the eligibility for the deduction.

Conclusion:
The Tribunal set aside the order of the CIT(A) and directed the AO to allow the deduction under section 80IB(10) as claimed by the assessee. The appeal filed by the assessee was allowed, and the order was pronounced in the open court on 2nd January 2015.