2016 (6) TMI 180 - AT - Income Tax

Eligibility of deduction u/s, 80IB(10) - whether the assessee has violated the condition that the housing units shall not exceed 1000 sq.ft area by construction of flats of more than the area prescribed? - Held that - The assessee firm has sold 10 flats whereby there is a non-compliance of provisions of clause (e) & (f) of Section 80IB (10) of the Act , which newly introduces clauses (e) & (f) of Section 80IB (10) of the Act are duly applicable for the assessment year 2010-11 under consideration in this appeal, whereby deduction u/s 80IB(10) of the Act has been been disallowed by the learned CIT(A) with respect to ten flats sold infringing the above clauses. The assessee firm, however, with respect to four flats is entitled for proportionate deduction u/s 80IB(10) of the Act in respect of four flats sold to various persons , other than the persons specified in clauses (e) and (f) of Section 80IB(10) and where area of each flat sold is less than 1000 square feet, in accordance with the terms indicated by the Tribunal in its orders 2014 (10) TMI 259 - ITAT MUMBAI as issue is squarely covered with the ratio of law laid down by the Tribunal in afore-stated decision(s) which we respectfully follow with respect to four flats as per terms indicated above , while deductions u/s 80IB(10) of the Act is disallowed with respect to ten flats as there is non-compliance of provisions of Section 80(IB) of the Act clauses (e) and (f) as applicable to the instant assessment year 2010-11.

Summary

Issues Involved:
1. Eligibility for deduction under Section 80IB(10) of the Income Tax Act, 1961.
2. Built-up area of residential units exceeding the prescribed limit.
3. Proportionate deduction for eligible and non-eligible units.
4. Compliance with newly introduced clauses (e) and (f) of Section 80IB(10).

Detailed Analysis:

1. Eligibility for Deduction under Section 80IB(10):
The primary issue revolves around the eligibility of the assessee-firm for deduction under Section 80IB(10) of the Income Tax Act, 1961. The Revenue contended that the assessee violated the condition that the housing units should not exceed 1000 sq. ft. area. The assessee-firm, engaged in the development of housing projects, claimed a deduction of ?4,07,22,231, including ?3,35,12,657 for the 'Neptune' project.

2. Built-Up Area of Residential Units Exceeding the Prescribed Limit:
During a survey conducted under Section 133A, it was observed that 47 flats in the 'Neptune' project had a built-up area of 1260 sq. ft., exceeding the prescribed limit of 1000 sq. ft. Statements recorded during the survey confirmed this. The partner of the assessee-firm admitted to withdrawing the claim of deduction for these flats, which was calculated to be ?8.26 crores.

3. Proportionate Deduction for Eligible and Non-Eligible Units:
The assessee-firm argued for proportionate deduction for the flats that complied with the 1000 sq. ft. limit. The CIT(A) allowed this proportionate deduction, stating that the issue was similar to the previous assessment year (2009-10), where proportionate deduction was granted. The CIT(A) held that the total area of the project should be considered, not just the area of the non-compliant flats. The Tribunal upheld this view, emphasizing that the project’s total plot area was 8.98 acres, and thus, the proportionate deduction was justified.

4. Compliance with Newly Introduced Clauses (e) and (f) of Section 80IB(10):
For the assessment year 2010-11, new clauses (e) and (f) were introduced, which restricted the allotment of more than one residential unit to the same person or related individuals. The AO found that multiple units were sold to the same individuals, violating these clauses. Consequently, the AO disallowed the deduction for the 'Neptune' project, except for the 'Jupiter' and 'Pluto' projects. The CIT(A) upheld the disallowance for the non-compliant flats but allowed proportionate deduction for the compliant flats.

Tribunal’s Decision:
The Tribunal, referencing its decision for the assessment year 2009-10, allowed the appeal of the assessee-firm for proportionate deduction for the eligible flats. It dismissed the Revenue’s appeal, stating that the assessee was entitled to deduction under Section 80IB(10) for the flats that met the criteria. The Tribunal emphasized that the new clauses (e) and (f) were applicable prospectively from 01.04.2010 and did not affect the earlier periods.

Conclusion:
The Tribunal dismissed the Revenue’s appeal, affirming the CIT(A)'s order to allow proportionate deduction under Section 80IB(10) for the eligible flats in the 'Neptune' project. The decision underscored the importance of adhering to the built-up area limits and compliance with the newly introduced clauses, while also recognizing the legitimacy of proportionate deductions for compliant units.