2012 (11) TMI 467 - AT - Income Tax

Deduction u/s. 80IB(10) - denial of claim for for want of completion certificate - Held that - There is no dispute that the assessee has been following percentage completion method and also the assessee furnished the evidence in the form of property assessment document, water connection documents, pollution control permission etc. On an examination of the notices issued by the Bangalore Mahanagar Palike (Municipal Corporation) in respect of 141 flat owners in the assessee s housing project, it is seen that in the notices dated 17.1.2007 in response to the flat owners applications dated 1.12.2006 requesting for assessment and allotment of municipal numbers, the Municipal Corporation had issued notices for payment of the required taxes for the initial assessment. The proof of payment of taxes in certain cases has also been produced. Thus it would appear that the applicants, being flat owners, had individually filed application before the Municipal Corporation for allotment of municipal numbers and assessment. The notice, as above, clearly indicates that the municipal numbers were being allotted in respect of newly constructed residential apartments. The assessee is following Percentage Completion Method. This method is recognised by the Income-tax Act for disclosing the profit in the case of a builder. The purpose of granting deduction u/s. 80IB(10) is to promote housing projects. If we accept the proposition of the Department that the deduction u/s. 80IB(10) has to be granted only a tax payer who follows only Project Completion Method it leads to an absurd situation as the developer who is following Percentage Completion Method is not entitled for deduction u/s. 80IB(10) though all other requirements of the section being fulfilled - If the Revenue is taxing the profit in the year under consideration on the ground that the assessee is adopting Percentage Completion Method then the natural corollary should be that the connected deduction ought to be granted simultaneously in this year or the other method of computation is that the Revenue must not tax the profit of the project yearly on the basis of Percentage Completion Method but tax the entire profit on completion of the project by applying Project Completion Method - direct the AO to allow deduction u/s. 80IB(10) - in favour of assessee.

Summary

Issues Involved:
1. Denial of deduction under section 80IB(10) of the Income-tax Act, 1961.
2. Requirement of completion certificate for claiming deduction.
3. Interpretation of beneficial provisions in tax statutes.

Detailed Analysis:

1. Denial of Deduction under Section 80IB(10):
The primary grievance of the assessee pertains to the denial of deduction under section 80IB(10) of the Income-tax Act, 1961, amounting to Rs. 1,99,35,869. The lower authorities denied this deduction due to the non-production of a completion certificate for the housing project.

2. Requirement of Completion Certificate:
The assessee argued that the project was completed within the stipulated time, evidenced by property assessment tax, water connection documents, and pollution control permissions. The Municipal Corporation of Bangalore had given distinctive numbers for each flat, and all flats were assessed to municipal tax. The assessee contended that the non-production of the completion certificate, a technical requirement, should not be a reason for denying the deduction. The assessee relied on several judgments, including the Supreme Court's decision in Guru Charan Singh v. Kamla Singh and Bajaj Tempo Ltd. v. CIT, which emphasized liberal interpretation of beneficial provisions in tax statutes.

3. Interpretation of Beneficial Provisions:
The Department's representative (DR) argued that the condition prescribed under section 80IB(10) was not fulfilled due to the non-furnishing of the completion certificate. The DR maintained that the assessee had not initiated steps to obtain the completion certificate and could not rely on indirect evidence. However, the Tribunal noted that the assessee had followed the percentage completion method and produced substantial evidence of project completion, such as property assessment documents and municipal notices.

Tribunal's Findings:
The Tribunal observed that section 80IB(10) requires an undertaking to develop and build housing projects approved before 31.3.2007 by a local authority, with specific conditions regarding completion time, plot area, residential unit size, and commercial space limits. The Tribunal emphasized that the completion certificate is mandatory for claiming the deduction but clarified that it should be obtained on the completion of the housing project as a whole, not necessarily for each year of the project span.

The Tribunal referred to CBDT's Instruction No. 4 of 2009, which allows deduction on a year-to-year basis for partial completion, provided the project is completed within the specified time. The Tribunal concluded that denying the deduction based on the non-availability of the completion certificate in the impugned year would lead to an absurd situation, especially when the assessee follows the percentage completion method.

Conclusion:
The Tribunal directed the Assessing Officer to allow the deduction under section 80IB(10) in light of the Tribunal's order in Hiranandani Akruti JV, emphasizing that the purpose of granting the deduction is to promote housing projects. The assessee's appeal was allowed, ensuring that the deduction is granted in the year the profit is taxed, aligning with the scheme of the Act.

Result:
Assessee's appeal allowed.