2019 (4) TMI 976 - HC - Income Tax

Deduction u/s 80IB - proportionate deduction - as per AO the assessee had breached certain conditions of the said section and therefore, deduction was denied - CIT (Appeals) allowed the appeal in part as held disallowance can only be proportionate to the units with respect to which such breach was committed - two appeals before the Tribunal - Tribunal allowed the assessee's appeal holding that the conditions of which the revenue was alleging breach of, were inserted in the legislation after the allotments were made. HELD THAT - Tribunal held that the revenue's appeal against the proportionate disallowance would become infructuous. The Tribunal, therefore, allowed the assessee's appeal and dismissed the revenue's appeal. Against this judgment the revenue had filed the present appeal. Firstly, in our opinion the revenue should have filed two appeals when the Tribunal was deciding two separate appeals before itself, may be by common judgment. Tribunal has come to a factual finding that the assessee had already made allotments of certain residential units in favour of the same person/family long before the condition of nonallotment of more than one unit was inserted by the legislature in the said section. That being the position, we do not find that the Tribunal had committed any error in holding that the disallowance cannot be made. Through series of judgments this Court has held that such condition which was inserted by the Parliament with prospective effect cannot be applied to deny the benefit of deduction pointing out that in allotment which was made earlier, there was breach of this condition. Under the circumstances, the question of proportionate disallowance would become irrelevant. - Decided against revenue.

Summary

Issues:
1. Eligibility of the assessee to claim deduction under Section 80IB(10) on the entire project.
2. Justification of allowing prorata deduction in respect of eligible units of the housing project.

Eligibility of Deduction under Section 80IB(10):
The respondent-assessee, engaged in Housing Development, claimed income exemption under Section 80IB for the assessment year 2010-11. The Assessing Officer denied the deduction, alleging breach of section conditions. The CIT (Appeals) partially allowed the appeal, stating that disallowance should be proportionate to the units breaching conditions. This decision led to two appeals before the Tribunal, one by the assessee and the other by the revenue. The Tribunal ruled in favor of the assessee, noting that alleged breaches were inserted after allotments were made. The Tribunal found that the revenue's appeal against proportionate disallowance was now irrelevant. The High Court concurred with the Tribunal, emphasizing that conditions inserted prospectively cannot be applied retroactively to deny deductions when breaches occurred before the conditions were introduced. Consequently, the High Court dismissed the revenue's appeal.

Prorata Deduction in Housing Project:
The second issue revolved around whether prorata deduction for eligible units of a housing project could be allowed when no specific provision existed in the Act. The CIT (Appeals) had allowed prorata deduction, leading to appeals before the Tribunal. The Tribunal's decision in favor of the assessee rendered the revenue's appeal on proportionate disallowance moot. The High Court upheld the Tribunal's decision, emphasizing that the conditions introduced after the allotments were made could not be retroactively applied to deny deductions. Consequently, the High Court dismissed the revenue's appeal, highlighting that the question of proportionate disallowance became irrelevant in this context.

In conclusion, the High Court affirmed the Tribunal's decision in favor of the assessee, emphasizing that conditions introduced prospectively cannot be retroactively applied to deny deductions when breaches occurred before the conditions were enacted. The Court dismissed the revenue's appeal, underscoring that the question of proportionate disallowance was irrelevant in light of the factual findings and legal principles discussed.