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2015 (3) TMI 980 - AT - Income TaxEligibility for deduction u/s. 80IB(10) on profits arising from commercial building - Held that - The claim of the assessee qua decision in the case of Brahma Associates 2011 (2) TMI 373 - BOMBAY HIGH COURT is totally misplaced because in the case what the Hon ble High Court held that clause (d) was inserted to Sec. 80IB(10) w.e.f. 1.4.2005 and is prospective and not retrospective and hence could not be applied for the period prior to 1.4.2005 which means that the amendment is not applicable to the projects approved before 1.4.2005. Further it has been mentioned that since the expression Housing Project is not defined in the Act nor defined under regulation framed by the Local authorities from whether the project would qualify as a housing project has to be gathered from the rules/regulation framed by the local authority. Since the local authorities could approve a project to be a housing project with or without the commercial user it is evident that the legislature intended to allow Sec. 80IB(10) deduction to all housing projects approved by local authority without all with commercial user to the extent permitted under the rules. This is further verified by clause (d) of Sec. 80IB(10) inserted with effect from 1.4.2005. It provides that even though shops and commercial establishments are included in the housing project deduction u/s. 80IB(10) w.e.f. 1.4.2005 would be allowable where such commercial user does not exceed 5% of the aggregate built up area of the housing project or 2000 Sq.ft whichever is lower. By the Finance Act 2010 clause (d) was amended to the effect that the commercial user should not exceed 3% of the aggregate built up area of the housing project or 5000 sq.ft whichever is higher. The expression included in clause (d) makes it amply clear that commercial user is an integral part of a housing project. Applying the above ratio of the Hon ble High Court to the facts of the present case the assessee itself vide letter dt. 18.12.2007 has admitted that four buildings are approved as purely residential buildings and one is approved as commercial and the assessee has kept separate project-wise accounts in respect of Rehab Component i.e. 17 Rehab buildings 4 Residential buildings and one free sale commercial premises. Thus in assessee s own submission it is clear that the commercial building is a separate project and is not included as an integral part of the Housing project. Once again the assessee in its letter dt. 27.12.2007 have itself mentioned that as far as the Commercial Project is concerned it is totally independent project and not integrated to any of the residential project or Rehab Projects. The detailed layout plan submitted to your kind selves fully supports the factual position. The assessee in the same reply have further mentioned that the said project is a housing project and not residential cum commercial project. Thus the claim of the assessee for deduction u/s. 80IB(10) on the sale of the commercial user is declined. - Decided against assessee.
Issues Involved:
1. Eligibility for deduction under Section 80IB(10) of the Income Tax Act. 2. Allocation of maintenance expenses between residential and commercial buildings. 3. Compliance with conditions for deduction under Section 80IB(10) regarding the size of commercial shops, plot area, and built-up area of flats. 4. Timeliness and admissibility of appeals and cross objections filed by the assessee. Detailed Analysis: 1. Eligibility for Deduction Under Section 80IB(10): The core issue revolves around the eligibility of the assessee for deduction under Section 80IB(10) of the Income Tax Act. The assessee firm, engaged in building construction, undertook a project under the Slum Rehabilitation Scheme. The project included 17 Rehab Buildings, 4 Residential Buildings, and 1 Commercial Building. The Assessing Officer (AO) disallowed the deduction claim under Section 80IB(10), citing that the project included commercial shops exceeding 2000 sq. ft., thus violating the provisions of the Act. However, the Commissioner of Income Tax (Appeals) [CIT(A)] allowed the deduction, stating that the housing project was approved before 31.3.2005, making the amended provisions inapplicable. The Tribunal upheld this view, referencing the jurisdictional High Court's ruling that amendments effective from A.Y. 2005-06 do not apply to projects sanctioned before 1.4.2005. 2. Allocation of Maintenance Expenses: For A.Y. 2006-07, the AO found the allocation of maintenance expenses between residential and commercial buildings disproportionate. The AO reallocated the expenses based on the saleable area ratio. The CIT(A) disagreed, stating that separate accounts for residential and commercial buildings should not be apportioned based on assumptions. However, the Tribunal upheld the AO's reallocation, emphasizing that the maintenance expenses should be allocated in the ratio of saleable area between residential and commercial buildings. 3. Compliance with Conditions for Deduction Under Section 80IB(10): The AO identified several compliance issues: - Commercial Shops Exceeding 2000 sq. ft.: The AO argued that the inclusion of commercial shops exceeding the prescribed limit disqualified the project from Section 80IB(10) benefits. The Tribunal, however, noted that the jurisdictional High Court had ruled that amendments regarding commercial area limits do not apply to projects approved before 1.4.2005. - Plot Area Less Than One Acre: The AO contended that each of the four residential buildings was on separate plots, each less than one acre, violating Section 80IB(10)(b). The Tribunal directed the AO to verify the scheme under which the construction was made, considering a notification issued on 3rd August 2010, which applied retrospectively to projects approved between 1.4.2004 and 31.3.2008. - Built-up Area of Flats Exceeding 1000 sq. ft.: The AO found that some flats exceeded the 1000 sq. ft. limit when combined. The Tribunal observed that the flats were sold separately, and any amalgamation by buyers post-possession should not affect the builder's eligibility for deduction. 4. Timeliness and Admissibility of Appeals and Cross Objections: The assessee's appeals and cross objections were filed with significant delays (1211 days for A.Y. 2005-06 and 465 days for A.Y. 2006-07 and 2007-08). The Tribunal dismissed these appeals and cross objections as unadmitted, noting that the assessee waited for the outcome of a related Tribunal decision before filing, which was not considered a reasonable cause for delay. Conclusion: The Tribunal partly allowed the Revenue's appeals for statistical purposes, specifically directing the AO to re-verify the scheme under which the assessee claimed deduction under Section 80IB(10). The Tribunal upheld the AO's reallocation of maintenance expenses based on saleable area. However, it dismissed the assessee's delayed appeals and cross objections, maintaining that the commercial building was a separate project and not part of the housing project eligible for deduction under Section 80IB(10). The order was pronounced in the open court on 11th March 2015.
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