2021 (2) TMI 997 - HC - Income Tax

Proportionate deduction u/s 80IB(10) - flats measuring less than 1500 square feet - whether the benefit under section 80IB(10) is in respect of the entire housing project and not in respect of the flats/units specific independently? - HELD THAT - All substantial question of law has already been answered in favour of the assessee by judgment of this court in (i) CIT VS. BRIGADE ENTERPRISES LTD', 2020 (9) TMI 1137 - KARNATAKA HIGH COURT (ii) CIT VS. SJR BUILDERS 2012 (3) TMI 615 - KARNATAKA HIGH COURT and (iii) CIT VS. S.N.BUILDERS DEVELOPERS 2021 (1) TMI 789 - KARNATAKA HIGH COURT Tribunal held that the assessee would be entitled to deduction under section 80IB(10) in respect of 12th and 13th floor flats, when the flats were combined and were measuring more than 1500 square feet - Second substantial question of law has been answered in favour of the assessee in (i) UCO BANK VS. CIT 1999 (5) TMI 3 - SUPREME COURT (ii) STATE OF KERALA AND OTHERS VS. KURIAN ABRAHAM PRIVATE LIMITED AND ANOTHER 2008 (2) TMI 289 - SUPREME COURT (iii) NAVNITLAL ZAVERI VS. K.K.SEN 1964 (10) TMI 16 - SUPREME COURT and (iv) AZADI BACHAO ANDOLAN 2003 (10) TMI 5 - SUPREME COURT Whether assessee was entitled to deduction of the flats at the 12th and 13th floor when the assessee has not claimed benefit in the return of income filed, without revising the original return of income? - Third substantial question of law is covered by NATIONAL THERMAL POWER CO. LTD. VS. COMMISSIONER OF INCOME TAX 1996 (12) TMI 7 - SUPREME COURT Computation of income - ITAT held that income of the assessee from project Mantri Sarovar has to be computed for the Assessment year 2006 07 on the basis of Project computation method - as per AS7 and AS9, the assessee has to follow percentage completion method as the assessee is a builder and developer - HELD THAT - As under Section 145(1) of the Act, the income chargeable under the head 'Profits and Gains of Business' shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. The general provision is subject to accounting standards that the Central Government may notify. The assessee is a builder and developer and not a construction contractor simplicitor. Accounting Standard- 7, titled construction contracts is applicable only in case of contractors and does not apply to the case of developers and builders which is evident from opinion rendered by expert advisory committee of ICAI. It is pertinent to note that the assessee had offered the income for Assessment Year 2007-08 and no income from the project was offered for the Assessment Year 2007-08 on the basis of project completion method and that either method of accounting finally lead to the same results in terms of profits and therefore, revenue neutral. - Decided in favour of assessee.

Summary

Issues:
1. Entitlement to deduction under section 80IB(10) of the Income Tax Act on a proportionate basis for flats measuring less than 1500 square feet within a housing project.
2. Entitlement to deduction under section 80IB(10) for combined flats on the 12th and 13th floors measuring more than 1500 square feet.
3. Entitlement to deduction for flats on the 12th and 13th floors when not claimed in the original income tax return.
4. Computation of income for the Assessment year 2006-07 using the "Project computation method" for a builder and developer.

Analysis:

1. The first three substantial questions of law were answered in favor of the assessee based on previous judgments. The Tribunal's decision was supported by legal precedents, and the entitlement to deduction under section 80IB(10) was upheld.

2. The fourth substantial question of law focused on the computation of income for the Assessment year 2006-07 using the "Project computation method" for a builder and developer. The court analyzed the applicability of Accounting Standard-7, which pertains to construction contracts and does not directly apply to developers and builders. The court noted that the assessee had offered income for a subsequent year based on the project completion method, leading to revenue-neutral results. Consequently, the fourth substantial question of law was also decided in favor of the assessee.

3. The judgment highlighted that the general provision under Section 145(1) of the Act allows the computation of income under the head 'Profits and Gains of Business' based on the cash or mercantile system of accounting regularly employed by the assessee. The decision emphasized that the accounting standards notified by the Central Government must be considered. The distinction between builders and construction contractors in terms of accounting standards was crucial in determining the appropriate method for income computation.

4. Ultimately, the court dismissed the appeal, affirming the decisions made in favor of the assessee regarding the entitlement to deductions under section 80IB(10) and the computation of income for the Assessment year 2006-07. The judgment provided a detailed analysis of the legal provisions and precedents to support the conclusions reached in each substantial question of law, ensuring a comprehensive and thorough examination of the issues involved in the case.