2017 (11) TMI 116 - AT - Income Tax

Claim of deduction u/s 80IB(10) - out of the total 149 flats built by assessee, 10 flats were having area of more than 1500 sq ft. - AO had noted that the Valuer appointed by the Revenue authorities had certified that 10 flats were having an area exceeding 1500 sq. ft but the 2 Valuers / Architects appointed by the assessee had certified that the area in respect of the 10 flats were less than 1500 sq.ft - reason for the difference in the area as calculated by the Valuers was on account of the measurement of the thickness of the wall. Held that - The Valuer appointed by the Revenue had considered the thickness of the external walls at 18 at six places which was in actual a double wall taken as an architectural projection for aesthetic purpose whereas the Architects had considered the thickness of the wall at 6 which was as per the sanctioned plan. We find that CIT(A) in his order has also noted that the Valuer approved by Revenue had not given the breakup of the calculation for arriving at the area exceeding 1500 sq.ft. for 10 flats. He has also noted that that Shri Ruparel has observed that as a general trend prevalent in the industry, the architectural projections in the form of features, chajjas, hollow boxes, solid boxes for enhancing the aesthetics of the building which is also allowed by the local authorities are not counted by any Corporation in the built-up area calculations and the projections was not utilizable from inside and neither it was added to the carpet area nor it was in habitable nature. The findings namely that the projections are external projections, it is for the purpose of aesthetic beauty of the building, are not habitable and not utilizable from inside and all allowed by the Corporation and not considered by them for the purpose of calculating the area of the flat, has not been controverted by the Revenue. In such a situation, we are of the view that the deduction u/s 80IB(10) of the Act cannot be denied to the assessee. We therefore direct the AO to allow the deduction on the entire project. Thus the grounds of the assessee are allowed. As far as Revenue s grievance with respect to granting of prorata data we find that Ld.CIT(A) after considering the decisions cited in his order has noted that the various authorities have held that assessee is entitled to deduction with respect to the units which have complied with the condition laid down u/s 80IB(10) of the Act. Before us, Revenue has not brought on record any contrary binding decision in its support nor has controverted the findings of Ld.CIT(A). No reason to interfere with that portion of order of Ld.CIT(A) and thus the grounds of Revenue are dismissed.

Summary

Issues Involved:
1. Disallowance of deduction under section 80IB(10) for exceeding the built-up area limit.
2. Eligibility for deduction under section 80IB(10) on a pro-rata basis.

Detailed Analysis:

1. Disallowance of Deduction under Section 80IB(10) for Exceeding the Built-up Area Limit:

The primary issue in this case was whether the assessee's claim for deduction under section 80IB(10) should be disallowed because 10 flats in Building B of the project "Sun Orbit" exceeded the built-up area limit of 1500 sq. ft.

The Assessing Officer (AO) denied the deduction, arguing that the built-up area of these 10 flats exceeded 1500 sq. ft. The AO relied on the report of a government-approved valuer, Shri Nitin Lele, who calculated the built-up area considering the thickness of the walls at 18 inches. The assessee, however, contended that the built-up area did not exceed the limit, as per their architects' reports, which considered the wall thickness to be 6 inches as per the sanctioned plan. The assessee's architects, Shri Prakash Kulkarni and Shri Harshad Ruparel, calculated the area of each flat to be less than 1500 sq. ft.

The Commissioner of Income-Tax (Appeals) [CIT(A)] observed that the AO's valuer included architectural projections in the built-up area, which were primarily for aesthetic purposes and not utilizable or habitable. The CIT(A) noted that local authorities, such as the Pune Municipal Corporation (PMC), did not consider these projections in the built-up area calculations. The CIT(A) also found that the AO's valuer did not provide detailed calculations for his findings.

The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s observations, noting that the architectural projections should not be included in the built-up area as they are not utilizable from inside and are for aesthetic purposes. Consequently, the ITAT directed the AO to allow the deduction under section 80IB(10) for the entire project, as the built-up area of the flats did not exceed the prescribed limit when calculated correctly.

2. Eligibility for Deduction under Section 80IB(10) on a Pro-rata Basis:

The second issue was whether the assessee was eligible for a pro-rata deduction under section 80IB(10) for the units that complied with the conditions of the section, even if some units did not.

The CIT(A) granted the deduction on a pro-rata basis, citing various judicial decisions that supported the allowance of deductions for units that met the conditions of section 80IB(10). The CIT(A) referenced several cases, including DCIT vs. Brigade Enterprises Pvt. Ltd., AIR Developers, Sheh Developers Pvt. Ltd., and others, which upheld the principle of granting deductions on a pro-rata basis.

The ITAT found no reason to interfere with the CIT(A)'s decision on this matter, as the Revenue did not present any contrary binding decision or evidence to refute the CIT(A)'s findings. Consequently, the ITAT dismissed the Revenue's appeal on this issue.

Conclusion:

The ITAT allowed the assessee's appeal, granting the deduction under section 80IB(10) for the entire project, and dismissed the Revenue's appeal, upholding the pro-rata deduction for units that complied with the conditions of section 80IB(10). The order was pronounced on 27th October 2017.