2019 (6) TMI 1730 - HC - Income Tax

Deduction u/s 80IB(10) on proportionate basis - areas of some of the residential units were found to be exceeded 1000 square feet on physical verification which is violation of the Act - whether ITAT was justified in allowing deduction u/s 80IB(10) even when the project was not completed before 31st March 2008 as per provision of the section despite the fact that the local Municipal Corporation has raised an objection that NOC from the ULC Department was not obtained by the assessee firm ? HELD THAT - Assessee had completed construction of entire housing project before 31st March, 2008, which was the last date of such completion. The assessee had also applied for completion certificate before the local authorities before such date. The local authority however, took some time in issuing such certificate, primarily since the urban land ceiling certificate was not immediately available. Thus, it can be seen that there was substantial compliance on the part of the assessee. As decided in Tarnetar Corporation 2012 (10) TMI 803 - GUJARAT HIGH COURT under similar circumstances held that assessee had completed the construction well before March 31, 2008, is not in doubt. It is, of course, true that formally the BU permission was not granted by the municipal authority by such date. It is equally true that Explanation to clause (a) to section 80IB(10) links the completion of the construction to the BU permission before granted by the local authority. If substantial compliance thereof is established on record, in a given case, the court may take the view that minor deviation thereof would not vitiate the very purpose for which the deduction was being made available.

Summary

Issues:
1. Whether deduction under Section 80IB(10) can be allowed on a proportionate basis for residential units exceeding 1000 square feet?
2. Whether deduction under Section 80IB(10) can be allowed if the project was not completed before the specified date despite objections from local authorities?

Analysis:
1. The first issue revolves around the correctness of directing the AO to allow deduction under Section 80IB(10) on a proportionate basis for residential units exceeding 1000 square feet. The judgment highlights the case where some units exceeded the specified area upon physical verification, leading to a violation of the Act. The court considered the substantial compliance by the assessee, emphasizing completion of the housing project before the deadline and application for a completion certificate. It referenced a similar case from the Gujarat High Court, emphasizing completion of construction, sale of units, and application for necessary permissions as factors supporting substantial compliance.

2. The second issue concerns the justification of allowing deduction under Section 80IB(10) when the project was not completed before the deadline, despite objections from the local Municipal Corporation regarding the absence of a No Objection Certificate (NOC) from the ULC Department. The judgment referred to a previous case where the court discussed the introduction of an Explanation to fix the completion date of a project. It highlighted the importance of physical completion and the role of a completion certificate issued by a supervising architect. The court critiqued the strictness introduced by the Explanation, emphasizing the significance of the architect's certificate in determining completion. It noted a case where the architect had issued a certificate before the deadline, and the delay in the municipal authority issuing the completion certificate was not attributed to the assessee.

In conclusion, the judgment analyzed the issues concerning deduction under Section 80IB(10) in detail, emphasizing substantial compliance, completion of construction, application for necessary permissions, and the significance of completion certificates issued by architects. It highlighted the importance of physical completion over procedural delays by municipal authorities in determining eligibility for deductions under the specified section.