2017 (11) TMI 1590 - AT - Income Tax

Claim for deduction under section 80-IB - assessee company is engaged in the business of developing and building housing projects - date of commencement of the project - dispute regarding the built up area - Held that - FAA has recorded a finding that no development activity was carried on by the assessee prior to the appointed date, that is, 01/10/1998. A perusal of the assessment order shows that the AO has treated the date of approval of the project by the Noida authority, i.e., 03/09/1998 as the date of commencement of project. However, this reasoning of the AO seems illogical as grant of approval does not necessarily mean commencement of development and building activities. The AO has not demonstrated with concrete evidence that the assessee had in fact commenced operations relating to development and construction prior to 01/10/1998. Even in the proceedings before us, the Department could not demonstrate that the assessee had commenced the development and construction before the appointed date. In such a circumstance we are unable to concur with the interpretation of the AO on this issue. the basis for calculation of built up area has been inserted in the Act w.e.f. 01/04/2005 and prior to this the built up area was to be considered as per the general terms of the agreements and certificates issued by the architects. It is undisputed that the project was completed in the year 2001 and at that point of time, the definition of built up area was not in the Act. The assessee had furnished sale deeds before the AO where in the built up area was less than 1000 ft. . These sale deeds were not found to be incorrect or fabricated. The sale deeds have been signed both by the buyers as well as by the seller and have been duly witnessed. The assessee has also submitted certificates from the architects regarding the two projects Kingston and Monarch with respect to the built up area. It is also a fact on record that the assessee has been granted deduction under section 80-IB (10) of the Act for assessment years 2000 01 to 2005 06 and assessment year 2007 08. There has been no change in facts and circumstances in the year under consideration and there being no evidence to the contrary, the rule of consistency requires that the settled position should not be disturbed. The Hon ble High Court of Allahabad in the case of CIT versus Arif industries Ltd (2017 (4) TMI 530 - ALLAHABAD HIGH COURT) has also held that the insertion of the definition of built up area was prospective in nature. While doing so, the Hon ble High Court of Allahabad referred to the judgment in CIT versus Sarkar Builders (2015 (5) TMI 555 - SUPREME COURT)wherein considering the applicability of section 80-IB (14) in respect of projects which were approved before 01/04/2005. - Decided against revenue

Summary

Issues Involved:
1. Eligibility for deduction under section 80-IB of the Income Tax Act, 1961.
2. Commencement date of the housing project.
3. Compliance with the built-up area requirement.
4. Retrospective application of the definition of built-up area.
5. Consistency in granting deductions under section 80-IB.
6. Disallowance of deduction in previous assessment years.

Issue 1: Eligibility for Deduction under Section 80-IB:
The Department challenged the Ld. CIT (Appeals) order allowing the deduction under section 80-IB to the assessee. The AO contended that the assessee did not fulfill the conditions for the deduction, citing the project's commencement date and built-up area exceeding the prescribed limit. The Ld. CIT (Appeals) directed the AO to grant the deduction, leading to the Department's appeal to the ITAT. The Department argued that the project started before the specified date, thus disqualifying the assessee. However, the ITAT found the AO's reasoning flawed, noting that project approval does not equate to actual commencement. Citing relevant case law, the ITAT upheld the Ld. CIT (Appeals) decision, dismissing the Department's challenge.

Issue 2: Compliance with Commencement Date:
The AO contended that the project commenced before the prescribed date, rendering the assessee ineligible for the deduction. However, the ITAT found no concrete evidence of development activities before the appointed date. Relying on case law, the ITAT held that activities like plan approval do not signify project commencement. Consequently, the ITAT dismissed the Department's challenge on this issue.

Issue 3: Built-Up Area Compliance:
The AO argued that the project's built-up area exceeded the specified limit, disqualifying the assessee. However, the Ld. CIT (Appeals) accepted the assessee's claim based on sales deeds showing compliance. The ITAT noted that the definition of built-up area was introduced later and applied prospectively. Considering the consistent deduction granted in previous years and lack of contrary evidence, the ITAT upheld the Ld. CIT (Appeals) decision on this issue.

Issue 4: Retrospective Application of Built-Up Area Definition:
The ITAT clarified that the definition of built-up area was introduced in 2005 and did not apply retroactively. Relying on case law, the ITAT emphasized the prospective nature of the amendment and upheld the deduction based on pre-amendment calculations, as supported by genuine certificates and sales deeds.

Issue 5: Consistency in Deduction Granting:
The Department alleged disallowance of the deduction in prior years, but the ITAT found this assertion factually incorrect and dismissed it as invalid, maintaining consistency in granting the deduction to the assessee.

In conclusion, the ITAT dismissed the Department's appeal, upholding the Ld. CIT (Appeals) decision to allow the deduction under section 80-IB to the assessee for the assessment year in question. The judgment emphasized the importance of factual findings, legal interpretations, and the prospective application of statutory amendments in determining tax deductions.