2017 (11) TMI 1302 - HC - Income Tax

Disallowance of claim of deduction under section 80IB(10) - built up area of the villas constructed by the assessee is 1772.81 Sq. Ft. that exceeds the limit of 1500 Sq. Ft. - taking the open terrace as balcony / verandah rejecting the claim of the assessee - Held that - In the judgment of Gujarat High Court in Amaltas Associates (2016 (10) TMI 359 - GUJARAT HIGH COURT ) is very clear and in our considered opinion even after amendment the legislature has included the balcony and projection but not the Terrace . Unable to uphold the stand of the Assessing Officer to include area of terrace as a part of the builtup area in a case where such terrace is a projection attached to the residential unit and there being no room under such terrace, even if the same is available exclusively for use of the respective unit- holders In our considered opinion, the terrace is to cover the room which is available on the ground floor therefore, terrace is different then balcony which is provided in addition to the facilities whereas terrace goes with the projection of the room. - Decided in favour of the assessee and against the department.

Issues Involved:

1. Whether the ITAT was justified in upholding the order of CIT(A) in deleting the addition made by the Assessing Officer on account of disallowance of claim of deduction under section 80IB(10) of the Income Tax Act, 1961, considering the built-up area of the villas exceeded the limit specified in the Act.

Issue-wise Detailed Analysis:

1. Justification of ITAT in Upholding CIT(A) Order:

The appellant challenged the judgment and order of the tribunal which dismissed the department's appeal, confirmed the CIT(A)'s order, and reversed the AO's view. The core issue was whether the ITAT was justified in upholding the CIT(A)'s deletion of the addition made by the AO due to the built-up area of the villas exceeding the 1500 sq. ft. limit specified in section 80IB(10).

Facts of the Case:

The assessee's case was picked up for scrutiny, and the assessment was framed under section 143(3) of the Income Tax Act, 1961. The AO disallowed the claim of deduction under section 80IB(10) on the grounds that the built-up area of the villas exceeded the prescribed limit. The CIT(A) allowed the appeal of the assessee, holding that the assessee is eligible for the deduction under section 80IB(10).

Arguments by Counsel for the Appellant:

The appellant's counsel argued that the built-up area, as defined in section 80IB(14)(a), includes the inner measurements of the residential unit at the floor level, including projections and balconies but excludes common areas. They contended that terraces should be included in the built-up area, referencing the dictionary meaning of "Terrace" and relying on the Supreme Court decision in Commissioner of Income Tax-19, Mumbai vs. Sarkar Builders.

Arguments by Counsel for the Respondent:

The respondent's counsel cited various judgments, including Commissioner of Income Tax-IV vs. Amaltas Associates, Commissioner of Income Tax vs. Mahalakshmi Housing, and Commonwealth Developers vs. Assistant Commissioner of Income Tax, arguing that open terraces should not be included in the built-up area as they are not covered or enclosed spaces.

Tribunal's Observations:

The tribunal, being the last fact-finding authority, observed that the area under consideration cannot be included in the built-up area if it is uncovered, open to the sky, and without any construction on it, even if it is a private, exclusive area of the owner. The tribunal followed case laws indicating that such private, open terraces cannot be included in the built-up area of the residential unit as defined in section 80IB(14)(a).

Court's Analysis and Conclusion:

The court noted that the AO rejected the deduction claim solely on the ground that terraces are open spaces, distinct from balconies. The court agreed with the tribunal's view that terraces, being open and not supported by walls of the room underneath, should not be included in the built-up area. The court emphasized that the definition of built-up area includes inner measurements of the residential unit at the floor level, including projections and balconies, but not open terraces.

The court referenced various judgments supporting the exclusion of open terraces from the built-up area, including the decisions of the Gujarat High Court in Amaltas Associates and the Madras High Court in Mahalakshmi Housing. The court concluded that terraces differ from balconies and should not be included in the built-up area for the purposes of section 80IB(10).

Judgment:

The court answered the issue in favor of the assessee and against the department, dismissing the appeals. The ITAT's decision to uphold the CIT(A)'s order, which deleted the addition made by the AO, was justified.

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