2021 (1) TMI 789 - HC - Income Tax

Eligibility of Proportionate deduction u/s 80IB(10) - housing projects - satisfaction of the requirements as laid down in clauses (a) to (d) of sub-Section (1) of Section 80IB - individual units measuring less than 1500 sq.ft. one of the conditions to be fulfilled for claiming deduction is that the total built up area of the residential units in the housing project shall not exceed 1500 square feet in the city of Bangalore - HELD THAT - On close scrutiny of the judgment rendered by this Court in BRIGADE ENTERPRISES LTD. 2020 (9) TMI 1137 - KARNATAKA HIGH COURT it is evident that the first substantial question of law involved in this appeal is no longer res integra. Therefore, the first substantial question of law is answered against the revenue and in favour of the assessee. Method of accounting - percentage completion method or project completion method - Whether the assessee is entitled to the project completion method in the absence of regular books of accounts required to be maintained by the assessee? - HELD THAT - The Tribunal relied upon the decision in the case of PRESTIGE ESTATES PROJECTS LTD. 2020 (5) TMI 239 - KARNATAKA HIGH COURT rendered by it and held that for the Assessment Year 2005- 06 the Accounting Standard 7 was not applicable to the real estate developers. Therefore, percentage completion method cannot be thrust upon the assessee and the assessee was right following the project completion method of accounting as per Accounting Standard 9. Besides it, once the first substantial question law is answered in favour of the assessee, the second substantial question of law is otherwise even rendered academic. The Institute of Chartered Accountants has issued a clarification wherein it has been clarified that revised Accounting Standard 7 is not applicable to the enterprises undertaking construction activities. Therefore, the second substantial question of law is also answered against the revenue and in favour of the assessee.

Summary

Issues:
1. Eligibility for proportionate deduction under section 80IB(10) of the Income Tax Act.
2. Validity of project completion method in accounting for real estate developers.

Analysis:

Issue 1:
The appeal involved the eligibility of the assessee for a proportionate deduction under Section 80IB(10) of the Income Tax Act for the Assessment Year 2009-10. The assessee, a real estate firm, claimed the deduction based on the percentage completion method. However, the Assessing Officer rejected the claim due to the built-up area of certain flats exceeding the prescribed limit. The Commissioner of Income Tax (Appeals) allowed the appeal, stating that the assessee was entitled to the deduction for flats conforming to the limits. The Tribunal upheld this decision, citing relevant case law. The revenue contended that the assessee did not fulfill the conditions for the deduction, emphasizing the built-up area limit. The High Court, after considering submissions, concluded that the first substantial question of law had been previously settled in favor of the assessee by relevant court decisions, thereby ruling against the revenue on this issue.

Issue 2:
The second issue pertained to the validity of the project completion method of accounting adopted by the assessee. The Tribunal had ruled in favor of the assessee, stating that the Accounting Standard 7 was not applicable to real estate developers for the Assessment Year 2005-06. The High Court noted that this decision had been upheld in previous cases. Additionally, the Institute of Chartered Accountants clarified that the revised Accounting Standard 7 did not apply to construction activities. Considering the first issue resolved in favor of the assessee, the High Court deemed the second substantial question of law as academic. Consequently, the High Court ruled against the revenue on this issue as well, dismissing the appeal.

In conclusion, the High Court dismissed the appeal, upholding the decisions of the lower authorities regarding the eligibility for deduction under Section 80IB(10) and the validity of the project completion method of accounting for the real estate firm.