2012 (8) TMI 232 - AT - Income Tax

Deduction u/s 80IB - Housing project - denial of deduction on ground that since assessee has sold plot of land to the customers and no residential unit was sold and only after transferring the plot, the assessee has constructed the building as a contractor, hence deduction is available to builder and not contractor - Held that - Merely because the assessee had entered into agreement for sale of plot so as to enable the customer to have a loan facility from bank and other financial institutions will not go to prove that the assessee has not undertaken any construction. Not only as per project approval letter but also as per the certificate issued by the Office of Sub Divisional Officer, the assessee has not only conceived the entire housing scheme but also executed the work as per approved plan. Further, assessee had entered into comprehensive sale agreement with the customers for the purpose of sale of complete residential units. As per the agreement, the possession of residential unit remained with the assessee till final instalment is paid. In view of these facts, we do not find any merit on the part of AO s action for treating the assessee merely as a contractor rather than a Developer. However, since revenue alleged that said project allowed commercial complex, we restore this aspect to the file of the AO to physically verify the project and if he finds that no commercial unit is constructed, he should allow the claim of deduction u/s 80IB(10) - Decided in favor of assessee for statistical purposes.

Summary

Issues: Disallowance of claim of deduction u/s 80IB(10) of Rs. 6,47,250.

Analysis:
1. The appellant, a partnership firm engaged in construction and development of housing projects, appealed against the disallowance of deduction u/s 80IB(10) amounting to Rs. 6,47,250 for the assessment year 2007-08.
2. The Assessing Officer contended that the appellant had sold land plots to customers without selling residential units, thus not fulfilling the conditions of Section 80IB(10) as only a commercial project exceeding 2000 sq.ft. was allowed.
3. The CIT(A) upheld the disallowance, leading to the appellant's appeal before the ITAT.
4. The ITAT found that the appellant had developed a residential project named "Vijay Vilas" consisting of 31 Duplex Houses, complying with all Section 80IB(10) conditions.
5. The Assessing Officer's argument that the appellant was a contractor, not a builder, was refuted with evidence showing the appellant's development activities including infrastructure work and comprehensive sale agreements with customers.
6. The ITAT emphasized that the possession of residential units remained with the appellant until final payment, indicating the appellant's role as a developer, not merely a contractor.
7. Regarding the commercial area approval issue, the ITAT directed the Assessing Officer to physically verify the project to confirm that no commercial unit was constructed, as evidenced by the completed building plan submitted.
8. Ultimately, the ITAT allowed the appeal for statistical purposes, emphasizing the appellant's compliance with Section 80IB(10) conditions and the misinterpretation by the lower authorities regarding the commercial unit construction.

This detailed analysis covers the issues involved in the legal judgment comprehensively, outlining the arguments, evidence, and decisions made by the ITAT regarding the disallowance of the deduction u/s 80IB(10) in the case.