2015 (2) TMI 1279 - AT - Income Tax

Claim of deduction u/s. 80IB(10) - flats no.403 and 404 exceeded threshold limit of 1500 sq.feet as per section 80IB(10)(c) - Held that - The residential units with all rights and title stood transferred much before insertion of clause (f) in section 80 IB(10) by the Finance Act, 2009 w.e.f. 01.04.2010 having prospective effect only. The assessee has recognized the said receipts in the relevant previous year as per its system of accounting regularly followed. We find that a co-ordinate bench of the tribunal in Emgeen Holdings (P) Ltd vs. DCIT (2011 (5) TMI 958 - ITAT MUMBAI) has held that this amendment would only have prospective effect. It is an undisputed fact that the assessee s residential units stood transferred to the aforesaid vendees well before the amendment We reiterate that section 80IB(10) is a deduction provision to be liberally construed. Therefore, the assessee succeeds so far as application of clause (f) of section 80IB(10) is concerned. For flats no.403 and 404 measure more than 1500 sq.feet i.e. 1653 and 1572 sq.feet respectively. The assessee fails to rebut this factual position. Section 80IB(10)(c) prescribes measurement of a residential unit to be upto 1500 sq.feet only. The language used in this specific clause refers the residential unit. This expression does not bar a deduction claim altogether if some of the units sold exceed the specified dimensions. In such a case, the consequential disallowance has to be proportionate only. It has to be restricted to profits derived from the residential units violating section 80IB(10)(c). Case law CIT vs. ARUN EXCELLO FOUNDATIONS (P) LTD (2012 (12) TMI 415 - MADRAS HIGH COURT) is also quoted in support - Decided in favour of assessee partly.

Summary

Issues:
Assessment of section 80IB(10) deduction disallowance/addition based on violation of statutory provisions and exceeding specified dimensions.

Analysis:
1. The appeal before the Appellate Tribunal ITAT Chennai involved the assessment year 2010-2011, originating from the Commissioner of Income Tax(A)-V, Chennai's order disallowing section 80IB(10) deduction of F8,28,54,876 in proceedings under section 143(3) of the Income Tax Act, 1961.

2. The assessee, engaged in real estate development, filed a return with a claim of section 80IB(10) deduction. The Assessing Officer initiated scrutiny regarding the deduction claimed for sixty-four flats in a specific project.

3. The Assessing Officer raised concerns about the violation of statutory provisions regarding the allotment of residential units in the housing project. The action of allotting two residential units to a couple was seen as a violation, leading to the disallowance/addition in the assessment order.

4. The assessee appealed, challenging the disallowance and seeking proportionate relief under section 80IB(10). The lower appellate authority rejected both pleas, citing that the flats exceeded the threshold limit specified in the Act.

5. The Tribunal observed that the transfer of residential units to the buyers occurred before the relevant amendment, which had prospective effect. Therefore, the application of the statutory provision was not valid in this case, and the assessee's act of recognizing the receipts in subsequent years did not alter the situation.

6. Regarding the size of the flats, the Tribunal noted that the units exceeded the specified dimensions, but the disallowance should be proportionate. The disallowance should only apply to the profits derived from the residential units that violated the specified size limit.

7. Ultimately, the Tribunal partly allowed the assessee's appeal, directing the assessing authority to make a proportionate disallowance based on the violation of the specified dimensions in the Act.

This detailed analysis of the judgment highlights the issues involved, the arguments presented, and the Tribunal's decision in each aspect of the case.