2017 (11) TMI 684 - HC - Income Tax

Deduction under section 80IB - A, B, C, D and E buildings are constructed on a plot admeasuring 2.36 acres and if 2.36 acres of land is proportionately divided between five buildings, the land pertaining to the E building would be less than one acre and, hence, deduction under section 80IB( 10) cannot be allowed - Does the respondent assessee satisfy the condition (b) of Section 80IB(10) of the Act which requires the project claiming the deduction to be on size of a plot of land which has a minimum area of one acre? - Held that - The issues raised herein namely non-satisfaction of condition (b) of Section provided in Section 80IB(10)(b) of the Act stood satisfied and concluded against the Revenue by the decision of this Court in Commissioner of Income Tax Vs. Bramha Associates 2011 (2) TMI 373 - BOMBAY HIGH COURT Does respondent assessee satisfy condition (c) of Section 80IB of the Act which requires the project claiming deduction must have residential units in it, not in excess of minimum builtup area of 1000 sq.ft.? - Held that - Both the CIT(A) as well as the Tribunal have on facts concluded the issue in favour of the respondent assessee. This concurrent finding of fact is duly supported by the remand report of the Assessing Officer accepting the fact that even when flats are joined, the combined area is less than 1000 sq.ft.. The Revenue has not shown the concurrent finding of fact leading to satisfaction of clause (c) of Section 80IB(10) of the Act to be perverse in any manner. No substantial question of law

Issues Involved:
1. Deduction under Section 80IB(10) of the Income Tax Act, 1961 for incomplete housing projects.
2. Deduction for partial completion of housing projects.
3. Deduction eligibility for housing projects with commercial establishments.
4. Deduction eligibility for housing projects with residential units exceeding prescribed area limits.
5. Comparison of profit margins between different housing projects.
6. Justification for different construction costs in similar projects.

Issue-wise Detailed Analysis:

1. Deduction under Section 80IB(10) for incomplete housing projects:
The Revenue questioned whether the Income Tax Appellate Tribunal (ITAT) erred in allowing deductions for the housing project "Dayanand Gardens," which was approved on 06.10.1999 but remained incomplete by 31.03.2008. The ITAT's decision was based on previous judgments, including Commissioner of Income Tax vs. Brahma Associates and Commissioner of Income Tax vs. Vandana Properties, which held that projects approved as housing projects by local authorities are eligible for deductions even if not completed within the stipulated timeframe.

2. Deduction for partial completion of housing projects:
The Revenue challenged the ITAT's allowance of deductions for partially completed projects, arguing that the entire project must be completed to qualify for deductions under Section 80IB(10). However, the ITAT's reliance on Brahma Associates and Vandana Properties supported the view that deductions could be allowed for partially completed projects if they were approved as housing projects by local authorities.

3. Deduction eligibility for housing projects with commercial establishments:
The Revenue contended that the presence of commercial establishments within the "Dayanand Gardens" project violated Section 80IB(10)(d), which limits commercial space in housing projects. The ITAT, referencing Brahma Associates and Vandana Properties, concluded that housing projects with commercial elements approved by local authorities still qualify for deductions, provided the commercial use is within permissible limits.

4. Deduction eligibility for housing projects with residential units exceeding prescribed area limits:
The Revenue argued that the presence of two bungalows exceeding the 1500 sq. ft. limit in "Dayanand Gardens" disqualified the project from deductions under Section 80IB(10)(c). The ITAT, however, maintained that the project as a whole should be considered, and if the majority of units comply with the area limits, the project remains eligible for deductions.

5. Comparison of profit margins between different housing projects:
The Revenue questioned the ITAT's decision to allow deductions despite significant differences in profit margins between "Shivanand Garden" and "Dayanand Garden" projects. The ITAT found that the differences in profit margins were justified based on the varying costs of construction and market conditions at the time of each project's development.

6. Justification for different construction costs in similar projects:
The Revenue argued that the ITAT erred in ignoring the high construction costs for the "Shivanand Garden" project compared to the "Dayanand Garden" project. The ITAT upheld the assessee's explanation that higher construction costs were due to different market conditions and cost structures, and found no deliberate act to manipulate costs.

Conclusion:
The High Court dismissed the Revenue's appeals, affirming the ITAT's decisions based on authoritative pronouncements in Brahma Associates and Vandana Properties. The Court emphasized that housing projects approved by local authorities as such, even with permissible commercial elements and partial completions, are eligible for deductions under Section 80IB(10). The Court also upheld the ITAT's factual findings on profit margins and construction costs, finding no substantial question of law warranting interference.

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