2017 (4) TMI 1544 - AT - Income Tax

Deduction u/s 80IB - As per AO assessee had deviated from sanctioned plan by constructing three duplex flats exceeding the area of 1500 sq.ft. in 9th floor by combining flats in 9th and 10th floors thereby violating the provisions of clause (c) of section 80-IB(10) and assessee had sold more than one flat to two/three persons in the name of their spouse or family members thereof - assessee had paid fine for violation of the sanctioned plan at the time of obtaining occupancy certificate on 31/3/2011 - HELD THAT - As regards violation of clause (f) of sub-section (10) of section 80-IB, the submission of the appellant, that the agreements for sale were entered before insertion of clause (f) and therefore, have no substance, for the simple reason that in respect of M.Vani M Rao, the date of agreement is 15th April 2013 which is clearly after insertion of clause (f). Clause (f) was inserted into the Act by the Finance (No.2) Act, 2009 w.e.f 1/4/2010. Since the Finance (No.2) Act, 2009 became law w.e.f. 19/08/2009, restrictions regarding allotment of residential units shall not apply in respect of allotments made before 20/08/2009 Whereas in this case, allotments were made subsequent to insertion of clause (f) in the Act. The submission of the assessee that in other cases, memorandum of sale agreements were entered into on 29/06/2007, have no substance for simple reason that sale agreements were not registered and no consideration was stated to have been paid on the date of agreement and there is nothing to show that possession of the flats was handed over to the purchasers nor any right in favour of the buyer was created by virtue of entering into such sale agreement. The object behind the tax benefit for housing project is to build housing to low middle income groups. This has been ensured by limiting size of residential units to 1000 sq.ft. or 1500 sq.ft. as the case may be. However, rule is circumvented by some developers by entering into agreements to sell multiple adjacent units to single buyers. To curb this practice clause (f) has been inserted to sub-section (10) of section 80-IB. Thus restriction imposed on allotment of flats is only intended to safeguard the objects of the beneficial provision. Any ingenious method adopted to circumvent this provision cannot be permitted. Therefore, we hold that the assessee is not entitled to deduction u/s 80-IB as he has clearly violated the provisions of clause(f) to sub-section (10) of section 80-IB - Decided against assessee.

Summary

Issues Involved:
1. Disallowance of deduction under section 80-IB(10) of the Income-tax Act, 1961.
2. Alleged deviation from the sanctioned plan.
3. Alleged violation of clause (f) of sub-section (10) of section 80-IB.

Detailed Analysis:

1. Disallowance of Deduction under Section 80-IB(10):
The primary issue revolves around the disallowance of a deduction claim amounting to ?10,29,94,124/- under section 80-IB(10) of the Income-tax Act, 1961. The assessee, engaged in land development and civil contracts, filed a return declaring an income of ?6,93,890/- for the assessment year 2011-12. However, the assessment was completed at a total income of ?10,36,88,014/-, primarily due to the disallowance of the aforementioned deduction.

2. Alleged Deviation from the Sanctioned Plan:
The Assessing Officer (AO) referred the project to the District Valuation Officer (DVO) to verify the built-up area of the flats. The DVO's report indicated that certain duplex apartments exceeded the permissible area of 1500 sq.ft. The AO concluded that the assessee deviated from the sanctioned plan, as the Bangalore Development Authority had levied a penalty for these deviations. The AO held that this deviation violated clause (c) of section 80-IB(10), which stipulates that the built-up area should not exceed 1500 sq.ft.

3. Alleged Violation of Clause (f) of Sub-section (10) of Section 80-IB:
The AO also noted that the assessee sold multiple flats to related parties, which violated clause (f) of sub-section (10) of section 80-IB. This clause, effective from 01/04/2010, prohibits the allotment of more than one residential unit in a housing project to an individual or their relatives. The assessee argued that the agreements of sale were entered into before the insertion of clause (f), but the AO rejected this claim due to lack of evidence and the timing of the agreements.

Tribunal's Findings:
The Tribunal examined the relevant provisions of section 80-IB(10) and concluded that the assessee did not comply with the stipulated conditions. Specifically, the Tribunal found that:
- The assessee deviated from the sanctioned plan by constructing duplex flats exceeding the permissible area.
- The assessee violated clause (f) by allotting multiple units to related parties after the clause's insertion date.
- The Tribunal rejected the assessee's argument that subsequent alterations by buyers should not affect the deduction claim, noting the lack of evidence for such claims and the necessity of local authority permissions for such alterations.

The Tribunal also dismissed the reliance on various judicial precedents cited by the assessee, stating that these cases did not apply to the specific facts at hand. The Tribunal emphasized that the intent behind section 80-IB(10) is to promote housing for low and middle-income groups, and any attempt to circumvent this through multiple allotments to related parties cannot be permitted.

Conclusion:
The Tribunal upheld the AO's decision to disallow the deduction under section 80-IB(10), concluding that the assessee violated both the area restriction and the allotment conditions. Consequently, the appeal filed by the assessee was dismissed. The judgment underscores the importance of adhering to the specific conditions laid out in tax provisions to qualify for deductions.