2015 (10) TMI 2384 - HC - Income Tax

Deduction u/s 80IB (10) (a) - whether the stipulation in Section 80IB(10)(a) of completion certificate issued by the Local Authority before the cut off date, cannot be applied in the case of assessee following the work in progress accounting method? - Held that - Issuance of completion certificate, after the cut off date by the Local Authority but, mentioning the date of completion of project before the cut off date, does not fulfil the condition specified in clause (a) of Section 80IB (10) read with Explanation (ii) thereunder. We reject the argument of the assessee that the effect of amended clause (a) of sub-Section 10 of Section 80IB, which has come into force with effect from 1st April, 2005, has retrospective effect or that it is unjust in any manner or incapable of compliance at all. Similarly, the requirement of securing completion certificate issued by the Local Authority before the cut off date is not directory, in view of the express provision in Section 80IB(10)(a) and the Explanation (ii) thereunder. The completion certificate granted by the Local Authority must bear the date of having been issued before the cut off date. The provision in the form of Section 80IB(10)(a), applies uniformly to all the assessees - be it following work in progress accounting method or otherwise. The benefit of deduction under this provision can be availed by the assessee following the work in progress accounting method, provided he has complied with the stipulation of having produced completion certificate issued by the Local Authority before the cut off date, as may be applicable in his case. In other words, if the housing project was approved by the Local Authority before 1st April, 2004, he must submit completion certificate issued by the Authority having been issued before the 31st March, 2008. Whereas, in the case of housing project approved on or after 1st April, 2004, the assessee can avail of the benefit provided completion certificate issued by the Local Authority is within four years from the end of the financial year in which the concerned housing project was approved by the Local Authority. If this condition is not fulfilled, the assessee who maintains work in progress accounting method and has claimed deduction under Section 80IB(10)(a) must suffer the consequence of disallowance or withdrawal of the benefit claimed by him on that count. Thus the decision of the Assessing Officer to disallow deduction under Section 80IB(10)(a) of the Income Tax Act is upheld. - Decided against assessee.

Summary

Issues Involved:
1. Eligibility for deduction under Section 80IB (10) (a) of the Income Tax Act.
2. Interpretation of the amended provisions of Section 80IB (10) (a) effective from 01.04.2005.
3. Compliance with the requirement of obtaining a completion certificate from the Local Authority before the stipulated date.
4. Applicability of the amended provision to assessees following the work-in-progress accounting method.

Detailed Analysis:

1. Eligibility for Deduction under Section 80IB (10) (a):
The assessee, a partnership firm engaged in construction and sale of houses, claimed deductions under Section 80IB (10) (a) for various assessment years. The Assessing Officer disallowed these claims on the grounds that the completion certificate was not issued before the cut-off date of 31.03.2008.

2. Interpretation of the Amended Provisions of Section 80IB (10) (a) Effective from 01.04.2005:
The court examined whether the amended provision of Section 80IB (10) (a) should be applied retrospectively or prospectively. The Department argued that the amended provision must be construed on its own and not based on logic applicable to other situations. The court noted that the amendment provided a clear time frame for the completion of housing projects, distinguishing between projects approved before 01.04.2004 and those approved between 01.04.2004 and 31.03.2007.

3. Compliance with the Requirement of Obtaining a Completion Certificate:
The court emphasized that the completion certificate must be issued by the Local Authority before the stipulated date to qualify for the deduction. The court rejected the argument that the requirement could be considered directory or that substantial compliance would suffice. The court held that the issuance of the completion certificate after the cut-off date, even if it mentioned the project was completed before the cut-off date, does not fulfill the condition specified in Section 80IB (10) (a).

4. Applicability to Assessees Following the Work-in-Progress Accounting Method:
The court clarified that the provision applies uniformly to all assessees, regardless of the accounting method followed. The benefit of deduction can be availed only if the completion certificate is issued by the Local Authority before the cut-off date. If this condition is not met, the assessee must face the disallowance or withdrawal of the benefit claimed.

Conclusion:
The appeals were allowed, and the decision of the Tribunal was set aside. The court upheld the decision of the Assessing Officer to disallow the deduction under Section 80IB (10) (a) due to non-compliance with the requirement of obtaining a completion certificate before the stipulated date. The court held that the amended provision of Section 80IB (10) (a) is prospective and mandatory, and it applies uniformly to all assessees, including those following the work-in-progress accounting method.