2016 (3) TMI 84 - AT - Income Tax

Deduction u/s 80IB(10) - exclusion terrace area - Built up area exceeding 1500 sq.ft including terrace area - Held that - The terrace area needs to be excluded from the built up area and if the same is excluded, then the resultant built up area is well within the 1500 sq.ft limit prescribed in the statute and hence rejection of deduction u/s 80IB(10) of the Act on this ground by the Learned AO is not in order. It could be safely concluded that the commercial project was handled by an independent partnership firm styled as Ashiana Amar Infrastructure for construction of commercial complex along with the approved plan, and both residential and commercial properties being independent untis and belong to two independent entities. We find that the assessee firm had considered 58 bighas of land for construction of residential units and adjacent land of 11 bighas belongs to another firm which constructed commercial project separately. Hence the deduction u/s 80IB(10) of the Act should be claimed unit wise and hence rejection of deduction u/s 80IB(10) of the Act on this ground by the Learned AO is not in order. - Decided in favour of assessee.

Issues Involved:
1. Deduction under Section 80IB(10) of the Income Tax Act.
2. Completion certificate not obtained from the local authority.
3. Built-up area exceeding 1500 sq.ft including terrace area.
4. Commercial area in the project exceeding 3%.

Detailed Analysis:

1. Deduction under Section 80IB(10) of the Income Tax Act:
The primary issue in this appeal was whether the assessee was entitled to a deduction under Section 80IB(10) of the Income Tax Act, 1961, for the assessment year 2010-11. The assessee, engaged in the business of construction and sale of flats, claimed this deduction for profits derived from a housing project. The Assessing Officer (AO) disallowed the deduction on three grounds: lack of a completion certificate from the local authority, built-up area exceeding the prescribed limit, and commercial area exceeding the permissible limit.

2. Completion certificate not obtained from the local authority:
The AO disallowed the deduction because the completion certificate was obtained from an architect rather than the local authority, as required by Section 80IB(10)(a). The assessee argued that they had applied for the certificate from the Jodhpur Development Authority, which informed them that such certificates are only issued for buildings over 15 meters in height. Consequently, the assessee obtained a certificate from a registered architect. The tribunal found that insisting on a certificate from the local authority would result in "impossibility of performance," citing the legal maxim "LEX NON COGIT AD IMPOSSIBLIA" and relevant judicial precedents, including the Supreme Court's decision in Krishnaswamy S. Pd. & Anr. vs Union of India & Ors and the Gujarat High Court's decision in CIT vs Tarnetar Corporation. Therefore, the rejection of the deduction on this ground was deemed inappropriate.

3. Built-up area exceeding 1500 sq.ft including terrace area:
The AO included the terrace area in the built-up area calculation, which resulted in exceeding the 1500 sq.ft limit prescribed in Section 80IB(10)(c). The tribunal referred to the definition of "built-up area" in Section 80IB(14)(a), which excludes common areas shared with other residential units. It was argued that terraces, being open spaces, should not be included in the built-up area. Judicial precedents, including decisions from the Mumbai Tribunal in ACIT vs Sheth Developers and the Ahmedabad Tribunal in Amaltas Associates vs ITO, supported this view. The tribunal also cited the Madras High Court's decision in CIT vs M/s Mahalakshmi Housing, which held that open terrace areas should not be included in the built-up area. Consequently, the tribunal concluded that the terrace area should be excluded from the built-up area calculation, making the built-up area within the prescribed limit, and thus, the rejection of the deduction on this ground was inappropriate.

4. Commercial area in the project exceeding 3%:
The AO disallowed the deduction on the ground that the built-up area of commercial establishments exceeded the 3% limit specified in Section 80IB(10)(d). The assessee argued that the commercial area was part of a separate project handled by a different partnership firm, Ashiana Amar Infrastructure, and that the residential project did not include commercial establishments. The tribunal examined the partnership deeds and found that the residential and commercial projects were indeed separate and handled by different entities. Judicial precedents, including the Bangalore Tribunal's decision in DCIT vs Brigade Enterprises (P) Ltd and the Karnataka High Court's decision in CIT vs Raghavendra Constructions, supported the view that the deduction should be allowed on each residential unit separately if the projects were approved separately. Therefore, the tribunal concluded that the rejection of the deduction on this ground was also inappropriate.

Conclusion:
The tribunal held that the assessee was entitled to the deduction under Section 80IB(10) of the Income Tax Act. The grounds raised by the assessee were allowed, and the appeal was decided in favor of the assessee. The tribunal emphasized the importance of judicial precedents and the principle of "impossibility of performance" in its decision.

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