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2021 (1) TMI 362 - AT - Income TaxDeduction u/s 80IB(10) - whether the deduction under section 80IB(10) can be allowed on proportionate basis in respect of residential units having a built up area of 1500 sq.ft. or less? - HELD THAT - The factual background was that the assessee was engaged in the business of real estate development. The assessee deduction under Section 80IB(10) of the Act to the extent of ₹ 25,08,21,669/- in respect of profits of two projects viz., Brigade Gateway and Brigade Metropolis. Commissioner of Income Tax (Appeals) who by an order dated 14.11.2012 allowed the claim of the assessee for deduction under Section 80IB(10) of the Act. On further appeal by the revenue the Income Tax Appellate Tribunal upheld the order of the CIT(A). On further appeal by the Revenue, the Hon ble Karnataka High Court answered the question of law in favour of the Assessee by following order in the case of Commissioner of Income Tax vs. Brigade Enterprises Ltd 2020 (9) TMI 1137 - KARNATAKA HIGH COURT .On plain reading of clause (c) of Section 80IB(10) of the Act, it is evident that the same does not exclude the principle of proportionality in any manner. Therefore, we hold that the Commissioner of Income Tax (Appeals) as well as the Tribunal have rightly found that the assessee has complied with the requirement contained in clause (c) of Section 80IB(10) of the Act. Submissions of the assessee before CIT(A) that the DVO has not considered the units in County I project and therefore the report of the DVO cannot be said to be final in the matter - We do not find any merit in the ground No.3 raised by the Revenue. In any event, the physical measurement has to be taken by the AO and the AO is at liberty to take physical measurement in an appropriate manner and therefore there cannot be any grievance to the Revenue. For the reasons given above, we find no merit in the appeal by the Revenue.
Issues Involved:
1. Whether the CIT(A) was justified in allowing the appeal on a proportionate basis for units with a built-up area of 1500 sq. ft. or less. 2. Whether the CIT(A) was justified in rejecting the District Valuation Officer's (DVO) report and directing the AO to take physical measurements of individual units. 3. Whether the benefit of section 80IB(10) can be extended to the entire project if some units exceed the prescribed limit of 1500 sq. ft. 4. Whether the assessee qualifies as a developer or merely a contractor, impacting eligibility for deduction under section 80IB(10). Detailed Analysis: 1. Proportionate Deduction for Units with Built-up Area of 1500 sq. ft. or Less: The CIT(A) allowed the deduction under section 80IB(10) on a proportionate basis for units with a built-up area of 1500 sq. ft. or less. This decision was based on the principle of proportionality, which has been upheld by the Hon'ble Karnataka High Court in CIT Vs. Brigade Enterprises Ltd. The High Court ruled that the deduction under section 80IB(10) can be allowed proportionately for units that meet the size requirement, even if some units exceed 1500 sq. ft. This principle was reaffirmed in several cases, establishing that the term "residential unit" in section 80IB(10) does not exclude proportionality. Therefore, the Tribunal found no merit in the Revenue's appeal against this finding. 2. Rejection of DVO's Report and Direction for Physical Measurements: The CIT(A) rejected the DVO's report, which had found that some units exceeded the 1500 sq. ft. limit, and directed the AO to take physical measurements of individual units. The assessee argued that the DVO had not clearly depicted the method of calculating the built-up area and might have included open areas not contemplated under section 80IB(10). The Tribunal upheld the CIT(A)'s decision, noting that the DVO's report was not final and that the AO should take physical measurements in an appropriate manner. The Tribunal found no merit in the Revenue's grievance regarding this issue. 3. Benefit of Section 80IB(10) for the Entire Project: The AO had disallowed the deduction under section 80IB(10) because some units exceeded the 1500 sq. ft. limit. However, the CIT(A) allowed the deduction on a proportionate basis, which was upheld by the Tribunal. The Tribunal referenced the Karnataka High Court's decision in CIT Vs. Brigade Enterprises Ltd., which supported the principle of proportionality for units that meet the size requirement. Therefore, the Tribunal found no merit in the Revenue's argument that the benefit of section 80IB(10) cannot be extended to the entire project if some units exceed the prescribed limit. 4. Developer vs. Contractor Classification: The AO argued that the assessee was merely a contractor and not a developer, as it did not own the land or sell the units but only received construction receipts. The CIT(A) found that the assessee was a developer, having taken the risks and rewards of developing and constructing the housing project. This finding was not challenged by the Revenue in the appeal. The Tribunal did not address this issue further, as it was not contested by the Revenue. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow the deduction under section 80IB(10) on a proportionate basis for units with a built-up area of 1500 sq. ft. or less and directing the AO to take physical measurements of individual units. The Tribunal found no merit in the Revenue's arguments and affirmed the CIT(A)'s findings in light of the Karnataka High Court's rulings.
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