2016 (11) TMI 1720 - AT - Income Tax

Powers of the Commissioner (Appeals) - Deduction u/s 80IB(10) denied - income in respect of housing project namely, 'Kamdhenu Siddhi' being developed by the assessee at Kothrud, Pune - AO denied the claim of deduction on the ground that the assessee has not fulfilled the conditions prescribed in section 80IB(10) by not completing the project before the stipulated date - AO also disallowed the compensation paid to the flat owners on the ground that in the agreement done before the Sub-Registrar office it is nowhere written that if the assessee fails to give possession to the flat owners he will be liable to pay compensation - CIT(A) set aside the issue to the file of the Assessing Officer with certain directions - submission of the assessee that after the amendment by the Finance Act, 2001 to the provisions of section 251(1)(a) the CIT(A) has no power to set aside the issue to the file of the Assessing Officer for reconsideration - HELD THAT - CIT(A) should have decided the issue himself instead of setting aside the matter to the file of the Assessing Officer since he has no power to set aside the matter to the file of the Assessing Officer in view of the amendment to provisions of section 251(1)(a) by the Finance Act, 2001 w.e.f. 01-06-2001. We therefore are of the considered opinion that the matter requires re-visit to the file of the CIT(A) who shall decide the issue himself after obtaining a remand report from the Assessing Officer, if necessary. He shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. Grounds raised by the assessee as well as the revenue are accordingly allowed for statistical purposes.

Summary

Issues Involved:
1. Eligibility for deduction under Section 80IB(10) of the Income Tax Act.
2. Disallowance of compensation paid to flat owners due to delayed possession.
3. Authority of CIT(A) to set aside the assessment order post-amendment by Finance Act, 2001.

Detailed Analysis:

1. Eligibility for Deduction under Section 80IB(10):
The primary issue revolves around whether the assessee is eligible for a deduction under Section 80IB(10) for the housing project "Kamdhenu Siddhi" in Kothrud, Pune. The assessee claimed a deduction of Rs.1,47,49,415/- under this section, asserting that all conditions laid down were complied with. The project was approved on 03-04-2006, and the first completion certificate was obtained on 11-10-2010 for 46 flats, with the final completion certificate issued on 21-07-2012 for the remaining 15 flats. The Assessing Officer (AO) disallowed the deduction, stating that the final completion certificate was obtained after the stipulated date of 31-03-2012, thereby not fulfilling the condition of completion within five years from the end of the financial year in which the project was approved.

The assessee argued that the application for the final completion certificate was submitted on 27-03-2012, and as per Pune Municipal Corporation (PMC) Development Control Rules, the certificate is deemed granted if no objections are raised within 21 days. The CIT(A) directed the AO to verify whether the completion certificate was issued without any objections or queries, and if so, the deduction should be allowed as the certificate would relate back to the application date.

2. Disallowance of Compensation Paid to Flat Owners:
The AO disallowed Rs.19,56,185/- paid as compensation to flat owners for delayed possession, citing that the compensation agreement was not part of the original registered agreement and was executed on plain paper, thus lacking legal validity. The AO also argued that such compensation should be treated as a penalty for breach of contract, which is not allowable under Section 37(1) of the Income Tax Act.

The assessee contended that the compensation was a legitimate business expenditure incurred to maintain goodwill and avoid legal disputes. The CIT(A) upheld the disallowance but restored the issue to the AO to verify if the compensation could be considered for enhanced deduction under Section 80IB(10) if the project was found eligible for the deduction.

3. Authority of CIT(A) to Set Aside the Assessment Order:
The CIT(A) set aside the assessment order and directed the AO to make fresh inquiries with the local authority. The assessee argued that post-amendment by Finance Act, 2001, the CIT(A) does not have the authority to set aside the assessment order. The Tribunal agreed, citing various precedents, and held that the CIT(A) should have decided the issue himself instead of setting it aside.

Conclusion:
The Tribunal concluded that the CIT(A) should decide the issue himself after obtaining a remand report from the AO if necessary. The matter was remanded back to the CIT(A) for a fresh decision, ensuring compliance with the legal provisions and giving the assessee an opportunity to be heard. The appeals by both the assessee and the revenue were allowed for statistical purposes.