2010 (2) TMI 1307 - AT - Income Tax

Summary

Issues involved:
The judgment involves the issue of deduction u/s 80IB(10) on the proportionate profit earned on construction and sale of residential units, eligibility for deduction u/s 80IB (10) on proportionate profit from commercial area, violation of conditions u/s 80IB(10), eligibility for deduction prior to amendment in Finance Act 2004, and the impact of a search on the premises of the assessee on the deduction granted.

Details of the Judgment:

Deduction u/s 80IB(10) on proportionate profit:
The assessee, a builder and developer, claimed deduction under section 80IB on its project Ostwal Nagri. The CIT(A) allowed proportionate deduction on the residential area of the project excluding profits earned on the commercial area, as the entire project was approved as a residential project by the Municipal Corporation. The Revenue challenged this decision, arguing that the assessee is not eligible for deduction under section 80IB due to commercial premises exceeding 2,000 sq.ft. in the project.

Eligibility for deduction u/s 80IB (10) on commercial area:
The Revenue contended that there were violations of provisions due to the commercial area exceeding 10% in some units. However, the assessee argued that the commercial area of the entire project was only 6.15%. The CIT(A) granted proportionate deduction based on the analysis that the commercial area was less than 10% of the project, citing relevant ITAT decisions and the interpretation of section 80IB(10).

Impact of search on premises on deduction granted:
The assessee further mentioned that a search on the premises led to the disallowance of the entire 80IB deduction in reassessment proceedings under section 153A. Despite this, the CIT(A) had previously granted the deduction, which was supported by the order in another case.

Conclusion:
The Tribunal confirmed the CIT(A)'s decision, stating that since the commercial area constituted less than 6.15% of the total constructed area, the assessee was eligible for deduction under section 80IB. The decision in the case of M/s. Laukik Developers, relied upon by the Revenue, was overruled by the decision of the Special Bench in the case of Brahma Associates. Consequently, the Revenue's appeals were dismissed, and the cross objections in support of the CIT(A)'s order were treated as dismissed as well.

Final Outcome:
The appeals of the Revenue and the cross objections of the assessee were both dismissed, and the order was pronounced in the open court on 17th February 2010.