2016 (2) TMI 698 - AT - Income Tax

Revision u/s 263 - Deduction u/s 80IB(10) to be disallowed - Held that - Cl. (d) of s. 80-IB(10) inserted w.e.f. 1st April, 2005 which provides that deduction under s. 80-IB(10) would be allowable where the commercial user does not exceed five per cent of the aggregate built-up area of the housing project or two thousand square feet, whichever is less. In the absence of any restriction under the Act, it was not open to the Tribunal to hold that the projects approved by the local authorities having residential buildings with commercial user upto 10 per cent of the plot area are alone entitled to deduction under s. 80-IB(10). Restriction regarding commercial user has been imposed for the first time by inserting cl. (d) in s. 80-IB(10) w.e.f. 1st April, 2005. The argument of the Revenue that s. 80-IB(10) as amended by inserting cl. (d) should be applied retrospectively has no merit as cl. (d) has been specifically inserted w.e.f. 1st April, 2005 and, therefore, it cannot be applied for the period prior to 1st April, 2005. In the present case, the plan for construction of the Housing Project at 1/1, R.R.L.Mitra Road, Kolkata 700085 was sanctioned by the Kolkata Municipal Corporation 09.12.1999, i.e., prior to 1-4-2005. In view of the aforesaid decision on the point, we do not find that any useful purpose will be served by examining this issue again by the AO, as admittedly the plan sanction in the case of the Assessee was prior to the statutory amendment. In the given facts and circumstances we are of the view that jurisdiction u/s 263 of the Act has not been properly exercised by C.I.T. as the condition precedent for exercise of such power viz., that the order of the AO was erroneous and prejudicial to the interest of revenue for failure on the part of the AO to make proper enquiries before completion of assessment. The jurisdiction u/s.263 of the Act could not have also been exercised for the reason that the AO did not enquire or examine as to whether commercial area in the project exceeded to statutory limits laid down in Sec.80IB(10)(d) of the Act. We, therefore, quash the order u/s 263 of the Act and allow the appeal of the assessee.

Summary

Issues Involved:
1. Eligibility for deduction under section 80IB(10) of the Income Tax Act.
2. Reconstruction of the Assessee Association of Persons (AOP).
3. The commencement date of the business of development and construction.
4. Built-up area exceeding prescribed limits under section 80IB(10)(c) and (d).

Detailed Analysis:

1. Eligibility for Deduction under Section 80IB(10):
The Assessee, an AOP formed for construction work, claimed a deduction of Rs. 1,62,09,343/- under section 80IB(10) for the A.Y. 2007-08. The Assessing Officer (AO) disallowed the claim as the housing project was completed on 30.03.2005, beyond the stipulated four years from the end of the financial year in which the original plan was sanctioned (09.12.1999). Additionally, the AO noted that some flats exceeded the 1500 sq. ft. limit. However, the CIT(A) later allowed the deduction, affirming that the assessee met all conditions for the deduction under section 80IB(10).

2. Reconstruction of the Assessee AOP:
The CIT, using powers under section 263, argued that the AOP underwent reconstruction, thus making it ineligible for deduction under section 80IB(10). The AO had failed to investigate this aspect during the assessment, which the CIT deemed erroneous and prejudicial to the revenue's interest. The Tribunal, however, noted that this issue had already been considered and decided by the CIT(A), and thus, the CIT could not re-examine it under section 263.

3. Commencement Date of Business:
The CIT also contended that the AOP's business of development and construction existed before 01-10-1998, making it ineligible for the deduction. The Tribunal found that this issue was previously addressed by the AO and CIT(A), and thus, the CIT lacked jurisdiction to revisit it under section 263.

4. Built-up Area Exceeding Limits:
The CIT raised concerns about the built-up area of some flats exceeding 1500 sq. ft. and the commercial area exceeding 2000 sq. ft., violating section 80IB(10)(c) and (d). The Tribunal noted that the assessee had constructed the project as per the sanctioned plan and obtained the completion certificate from the local authorities. The Tribunal referenced the Bombay High Court's decision in Brahma Associates, which held that restrictions on commercial area introduced w.e.f. 1st April 2005 do not apply retrospectively. Since the project's plan was sanctioned before this date, the Tribunal concluded that re-examining this issue would serve no purpose.

Conclusion:
The Tribunal found that the CIT improperly exercised jurisdiction under section 263, as the AO's order was neither erroneous nor prejudicial to the revenue's interest. The issues raised by the CIT had already been considered and decided by the CIT(A), and the commercial area restriction was not applicable retrospectively. Consequently, the Tribunal quashed the CIT's order and allowed the assessee's appeal.

Order Pronounced:
The appeal of the assessee was allowed, and the order was pronounced on 15.01.2016.