2022 (12) TMI 251 - AT - Income Tax

Disallowance of deduction u/s 80IB (10) - AO noted that certain residential units of C wing of the housing project exceeded the limit of 1000 Sq. ft. as per definition of built up area given in section 80IB (14)(a) - whether the areas of the flats in some of the floors were not more than 1000Sq. ft.? - main contention of the assessee before the AO was that the project is not situated within 25 kms of outer limit of city of Mumbai and therefore, the benefit of eligible/allowable maximum built up area of 1500 Sq. ft. is not available to the assessee - AO had noted that certain flats measured slightly more than 1000 sq. ft. but less than 1100 Sq. ft. and therefore according to him, assessee was not eligible for any deduction u/s 80IB(10) - HELD THAT - Statue has used the words within 25 kms from the municipal limits of city of Delhi or Mumbai. The section uses the words limits of the city with the prefix of municipal limit . The municipal limit refers to municipality and municipality of Mumbai is known as Brihanmumbai Muncipal Corporation which is the governing civic body of the city known as BMC . Further, the statue has provided in clause (c) the residential unit must be of maximum built up area of 1000 Sq. ft. if such residential unit is situated within the municipal limit of city of Delhi or Mumbai. It is only when the residential unit is outside 25 Kms from the municipal limits of Delhi or Mumbai, the maximum built up area eligible for deduction is 1500 Sq. ft. The enactments which has been referred by the learned counsel before us mainly envisages about the area of city of Mumbai which extend from Colaba in the South, Mahim on the western side and Sion on the eastern side. And Mumbai Suburban extends from Kurla to Dahisar on western side and Mulund on the eastern side. These are two administrative districts but it does not refer that this is the municipal limit and these are two Municipal Corporation or there are two municipal limits, one for city of Mumbai and one for Mumbai Suburban district. Though, in colloquial terms the Mumbai is divided into town area is referred as Mumbai city and suburban area as suburbs . However, there is only one municipal corporation known as BMC and the entire Mumbai is covered under BMC and within its municipal limit lies both the administrative zones, city and suburban. What the statue has provided is the municipal limit of the city and not the limit of any administrative limit. In Mumbai there is only one Municipal Corporation and therefore the limit has to be seen from the municipal limit of BMC and not city of Mumbai as understood under the various enactments for the purpose of district division. Thus, we agree with the contention of the learned DR as incorporated above and we are tandem with his reasoning given by him. Moreover, this issue is also squarely covered by the decision of Laukik Developers 2006 (7) TMI 534 - ITAT MUMBAI as incorporated in the submissions of the DR - Thus, this issue is resided against the assessee. Whether the terrace is part of the built up area or the flower bed area is to be excluded from the built up floor area? - Even the learned counsel at the time of hearing has not rebutted the findings of the Assessing Officer as described by him in detail in the assessment order. Though, it is bit harsh an interpretation that if this flower bed and terrace is included the built up area marginally crosses the 1000 Sq. ft. limit and may not be used for the purpose of internal flat, however, Assessing Officer has analyzed the designs and has measured the entire exact built up area, therefore, we don t find any reason to deviate from such a finding of the AO and accordingly same is confirmed. We hold that deduction of 80IB (10) will not be allowed on the units/flats which have exceeded 1000 Sq. ft. even marginally. Accordingly, appeal of the assessee is dismissed. Deduction 80IB (10) on pro-rata basis on the units which are less than 1000 sq. ft. - We find that it is undisputed fact in so far as the units in wing A wing B are concerned they are undisputedly below 1000 Sq. ft. and therefore learned CIT(A) has rightly allowed the deduction for claim made u/s 80IB(10) which is in conformity with the various judgment of Hon ble Bombay High Court and series of ITAT order as incorporated in the earlier part of order dealing with the submissions of the learned counsel for the assessee. It is not borne out from the record, whether there is any flat or unit in wing C which is slightly less than 1000 Sq. ft.; and incase if there is any such unit, then AO is directed to allow the proportionate deduction on pro-rata basis and allow the deduction of u/s 80IB(10). Thus, the revenue appeal is dismissed.

Summary

Issues Involved:
1. Eligibility for deduction under Section 80IB(10) concerning the built-up area of residential units.
2. Pro-rata deduction under Section 80IB(10) for units complying with the permissible built-up area.
3. Definition and interpretation of "municipal limits" of the city of Mumbai.
4. Inclusion of terrace and flower bed areas in the built-up area calculation.

Detailed Analysis:

Issue 1: Eligibility for Deduction under Section 80IB(10) Concerning Built-Up Area
The main issue is the disallowance of deduction under Section 80IB(10) due to certain residential units exceeding the permissible built-up area of 1000 sq. ft. The assessee argued that the project is situated beyond 25 km from the municipal limits of the city of Mumbai, thus qualifying for a higher permissible built-up area of 1500 sq. ft. The Assessing Officer (AO) and CIT(A) held that the project is within 25 km of the BMC limits, thus restricting the permissible built-up area to 1000 sq. ft. The Tribunal upheld this view, stating that the municipal limits refer to the BMC limits, not the city of Mumbai as defined in various enactments. Therefore, the project did not qualify for the higher permissible built-up area, and units exceeding 1000 sq. ft. were not eligible for the deduction.

Issue 2: Pro-Rata Deduction under Section 80IB(10)
The assessee contended that even if certain units exceeded the permissible built-up area, a pro-rata deduction should be allowed for units that complied with the 1000 sq. ft. limit. The CIT(A) agreed and directed the AO to allow deduction on a pro-rata basis for units within the permissible limit. The Tribunal upheld this decision, citing various judicial pronouncements supporting pro-rata deductions. It was directed that the AO should allow deductions for units in Wings A and B, which were below 1000 sq. ft., and for any such units in Wing C.

Issue 3: Definition and Interpretation of "Municipal Limits"
The assessee argued that the municipal limits of the city of Mumbai should be considered up to Chunabhatti near Sion, as per various enactments. The AO and CIT(A) disagreed, stating that the municipal limits refer to the BMC limits. The Tribunal supported this interpretation, emphasizing that the statute uses the term "municipal limits," which pertains to the BMC, the governing civic body of Mumbai. The Tribunal referenced the ITAT decision in Laukik Developers vs. DCIT, which held that the distance should be measured from the outer limits of the BMC.

Issue 4: Inclusion of Terrace and Flower Bed Areas in Built-Up Area Calculation
The AO included the terrace and flower bed areas in the built-up area calculation, leading to certain units exceeding the 1000 sq. ft. limit. The assessee argued that these areas should not be included. The Tribunal upheld the AO's detailed analysis and inclusion of these areas, stating that the flower bed and terrace are part of the built-up area as per the architectural design and should be considered in the calculation.

Conclusion:
The Tribunal concluded that the assessee was not eligible for the deduction under Section 80IB(10) for units exceeding the 1000 sq. ft. limit. However, it upheld the CIT(A)'s decision to allow pro-rata deductions for units within the permissible limit. The appeals of the assessee were dismissed, and the revenue's appeals were also dismissed, affirming the CIT(A)'s directions. The additional ground on the issue of Section 147 was not argued and thus not adjudicated.