2016 (8) TMI 647 - AT - Income Tax

Eligibility of deduction u/s. 80 IB (10) - date of approval - Competence of issuing authority to issue commencement certificate - Held that - The housing project in question was approved on 21/09/04 when the plan was approved by the Thane Municipal Corporation. The correspondence between the assessee and the Thane Municipal Corporation prior to the approval of the building is not relevant to decide the date of approval as per the explanation to section 80 IB (10). All the permissions with regard to construction of housing projects are given by the Commissioner of the Corporation, that there is delegation of powers by him to his officers, that delegated powers were used by his junior officers. In our opinion, what is material is the approval of the municipal authorities and not the person signing the permission letter/CC. We do not find any precondition in the Act or the Income Tax Rules, 1962 that prescribes that for availing deduction u/s. 80 IB (10) a certificate has to be signed by a particular officer only. The purpose to introduce the section was to encourage the construction of affordable houses for common man. The AO has tried to raise super/hyper technical objections to deny the deduction to the assessee. The stand taken by him is against the spirit and intent of the provision. We also agree that the issue is not arising out of the order of the FAA. However, we have decided the issue on merits. As stated earlier, effective first ground (GOA 1-7 &11-17)stands decided against the AO. Allowability of expenditure incurred prior to receipt of commencement certificate - Held that - Tribunal has decided the issue in favour of the assessee and in the subsequent AY. s. the AO himself has not disallowed the deduction in that regard. In our opinion, expenditure incurred by an assessee for developing the housing project was an integral part of the project and hence allowable.

Issues Involved:

1. Allowability of deduction claimed by assessee under Section 80IB of the Income Tax Act.
2. Competence of the issuing authority to issue the commencement certificate.
3. Expenditure incurred prior to receipt of the commencement certificate.
4. Pro-rata deduction in respect of eligible units of the housing project.
5. Size of the flat exceeding the permissible built-up area.

Detailed Analysis:

1. Allowability of Deduction Claimed by Assessee under Section 80IB of the Income Tax Act:

The assessee-firm, engaged in the business of builders and developers, claimed a deduction under Section 80IB(10) for the entire profit of ?2.69 crores from its housing project "Prakruti Park" at Thane. The Assessing Officer (AO) denied the deduction on the grounds that certain residential units exceeded the maximum permissible built-up area and that the project was situated beyond 25 km from the municipal limit of Mumbai. The Tribunal, in its order dated 27.10.2010, had directed the First Appellate Authority (FAA) to decide the two additional grounds raised by the AO. The FAA, upon verification from the Thane Municipal Corporation (TMC), held that the project was first approved on 21.09.2004, and completed by 31.03.2009, thus complying with Section 80IB(10)(a)(ii). The Tribunal upheld the FAA's decision, confirming the eligibility for deduction under Section 80IB(10).

2. Competence of the Issuing Authority to Issue the Commencement Certificate:

The AO contended that the commencement certificate (CC) issued by the Executive Engineer (EE), a subordinate officer, was invalid for the purpose of Section 80IB deduction. The FAA dismissed this issue, and the Tribunal found that all permissions were given by the Municipal Commissioner, with delegated powers to junior officers. The Tribunal emphasized that the approval of municipal authorities, not the signatory's designation, was material. The Tribunal dismissed the AO's hyper-technical objections, deciding the issue against the AO.

3. Expenditure Incurred Prior to Receipt of Commencement Certificate:

The AO disallowed ?21.86 lakhs incurred before the project started. The FAA observed that the assessee had entered into a development agreement and acquired dominion over the land, satisfying the conditions of part performance of the contract under Section 2(47)(v). The Tribunal upheld the FAA's decision, noting that the expenditure was integral to the project and allowable. The Tribunal also noted that the AO did not disallow similar deductions in subsequent years.

4. Pro-rata Deduction in Respect of Eligible Units of the Housing Project:

The AO denied deduction for certain units exceeding the permissible built-up area. The Tribunal, following its earlier decisions for AY 2005-06 and 2006-07, held that proportionate deduction should be allowed except for the ineligible units. The Tribunal dismissed the AO's appeal on this ground.

5. Size of the Flat Exceeding the Permissible Built-up Area:

The AO held that certain flats were merged to create units exceeding 1000 sq. ft. The FAA allowed proportionate deduction, denying it only for units exceeding 1000 sq. ft. The assessee argued that the project was more than 25 km from Mumbai's municipal limits, allowing for a permissible built-up area of 1500 sq. ft. The Tribunal restored the issue to the AO for fresh adjudication, following its decision in the case of Silver Land Developers.

Conclusion:

The appeals filed by the AO for all three assessment years were dismissed, and the cross objections (COs) of the assessee were partly allowed. The Tribunal's decisions were pronounced in the open court on 12th August 2016.

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