2015 (9) TMI 606 - AT - Income Tax

Eligibility of deduction u/s 80IB(10) - CIT(A) confirmed the action of the AO by observing that the society, Punit (Motera) Cooperative Hsg. Society Ltd., Ahmedabad was the sole owner of the land and the assessee has not incurred expenses on purchases of cement, steel etc. and that the assessee constructed and sold shops in the scheme, the built up area of which exceeds limit of 2000 sq.ft prescribed in clause (d) of section 80IB(10) with respect to shops constructed - Held that - Facts in the present appeal are similar as were in the case of M/s.Skyland Developers (2014 (6) TMI 704 - ITAT AHMEDABAD) except that in the instant case, it has also been alleged by the Revenue that the assessee has not debited purchase of cement, steel etc. in the profit & loss account. Thus, we find that it is not in dispute that the assessee has actually made purchases of cement, steel etc. Actually, the AR of the assessee explained that as per the terms of agreement, the assessee was entitled to receive all the expenditure incurred for materials and 25% above that amount, apart from labour charges at ₹ 700/- per square feet. Thus, the agreement for development was cost-plus-method. The assessee instead of debiting the cost of material in the profit & loss account and crediting the profit & account with cost, and 25% thereof has credited the profit & loss account with only 25% of the cost of material and set off the expenses incurred for cost of material with corresponding receipts. In our considered view, simply because of the above presentation of account, which may not be fully correct, the assessee cannot be denied deduction under section 80IB, if the assessee is otherwise eligible for the same. As we find that apart from the above, other facts involved in the instant case is similar to the facts in the case of M/s.Skyland Developers (supra), the said decision is squarely applicable in the instant case. In the instant case, the project was approved by the Ahmedabad Urban Development Authority vide permission dated 11.6.1999, which was before the date of amendment to section 80IB(10) w.e.f. 1.4.2005. Therefore, this amendment is not applicable to the project under consideration, in view of the above quoted decision of the Hon ble Gujarat High Court. Therefore, we hold that for the above cited reasons, the AO was not justified in not allowing deduction under section 80IB(10) to the assessee for the assessment years 2000-01, 2001-02, 2002-03 and Asstt.Year 2006-07 of ₹ 11,24,990/- each and for the Asstt.Year 2003-04 & 2004-05 of ₹ 21,86,870/- each. - Decided in favour of assessee.

Summary

Issues Involved:

1. Determination of eligibility for deduction under Section 80IB(10) of the Income Tax Act.
2. Evaluation of whether the assessee engaged in the development and construction of housing projects or acted as a contractor/agent.
3. Consideration of the amendment to Section 80IB(10) by the Finance (No.2) Act, 2004 and its applicability.

Issue-wise Detailed Analysis:

1. Determination of eligibility for deduction under Section 80IB(10) of the Income Tax Act:

The assessee filed six appeals against the orders of the CIT(A)-XV, Ahmedabad, which disallowed the deduction under Section 80IB(10) for various assessment years. The AO disallowed the deduction on the ground that the assessee received development charges and labor charges but did not incur expenses on construction materials. The CIT(A) upheld the AO's decision, stating that the assessee did not purchase cement, steel, etc., and constructed shops exceeding the prescribed limit. The Tribunal referenced a similar case involving the sister concern, M/s. Skyland Developers, where the deduction was allowed, and the facts and development agreement were identical. The Tribunal concluded that the assessee was entitled to the deduction under Section 80IB(10) as the project and agreements were the same as in the earlier years.

2. Evaluation of whether the assessee engaged in the development and construction of housing projects or acted as a contractor/agent:

The AO argued that the assessee acted as a contractor/agent rather than engaging in the development and construction of housing projects. However, the Tribunal found that the assessee had provided funds for land acquisition, obtained necessary approvals, and carried out construction work as per the plan. The Tribunal noted that the assessee's role was that of a full-fledged contractor/builder, as evidenced by the development agreement and the activities carried out, including purchasing building materials and appointing contractors. The Tribunal concluded that the assessee was involved in the development and construction of housing projects and was entitled to the deduction under Section 80IB(10).

3. Consideration of the amendment to Section 80IB(10) by the Finance (No.2) Act, 2004 and its applicability:

The amendment to Section 80IB(10) introduced a clause limiting the built-up area of commercial establishments in housing projects. The Tribunal referenced the Hon'ble Gujarat High Court's decision in the case of Manan Corporation, which held that the amendment was not retrospective and did not apply to projects approved before the amendment date. In the present case, the project was approved before the amendment, and the Tribunal concluded that the amendment did not apply. Therefore, the assessee was entitled to the deduction under Section 80IB(10) for the assessment years in question.

Conclusion:

The Tribunal set aside the orders of the lower authorities and directed the AO to allow the deduction under Section 80IB(10) to the assessee for the relevant assessment years. The appeals of the assessee were allowed, and the order was pronounced in the court on 19.6.2015.