2017 (5) TMI 707 - AT - Income Tax

Disallowance of deduction under section 80-IB(10) - proportionate disallowance - Held that - Merely because the same units sold or allotted during the financial year are not complied with the conditions of section 80-IB(10) of the Act the entire claim of the assessee for the entire project cannot be dismissed at the threshold. We are of the considered opinion that the claim of the assessee under section 80-IB of the Act cannot be dismissed in entirety and the proportionate disallowance in respect of units are not complied with conditions of section 80-IB(10) of the Act is quite justified and correct. Therefore we direct the Assessing Officer to restrict the disallowance proportionately in respect of allotment and sale transactions which are not complied with the conditions of section 80-IB(10) of the Act as applicable for the assessment year 2010-11 and to allow the remaining deduction as claimed by the assessee for eligible units allotted or sold to the assessee. Accordingly we confirm the conclusion of the learned Commissioner of Income-tax (Appeals) with the directions as given to the Assessing Officer in the earlier part of this paragraph. Since both the rival representatives agreed that the facts and circumstances for the assessment years 2011-12 and 2012-13 are identical therefore we further hold that our conclusion noted for the assessment years 2010-11 is applied to the assessment years 2011-12 and 2012-13 mutatis mutandis and the Assessing Officer is directed to make proportionate disallowance in respect of the units allotted and sold during this period keeping in view the amendments in section 80-IB(10) of the Act which are applicable with effect from April 1 2010. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Disallowance of deduction under section 80-IB(10) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 80-IB(10):

Background of the Case:
The appeals pertain to the assessment years 2010-11 to 2012-13. The Assessing Officer (AO) disallowed the deduction under section 80-IB(10) of the Income-tax Act, 1961, which was subsequently granted by the Commissioner of Income-tax (Appeals) for the assessment year 2010-11. The Revenue appealed against this decision, while the assessee appealed against the disallowance for the assessment years 2011-12 and 2012-13.

Revenue's Contention:
The Revenue argued that the assessee did not fulfill the conditions stipulated under sub-clauses (c), (e), and (f) of section 80-IB(10). Specifically, the built-up area of two penthouses exceeded the permissible limit, and multiple residential units were allotted to the same entity or related individuals, violating the provisions of section 80-IB(10). The AO rejected the request for proportionate deduction and contended that the entire claim should be disallowed.

Assessee's Defense:
The assessee, supporting the first appellate authority's order, argued that the disallowance was not in accordance with law. The assessee cited various judicial precedents, including the decision in CIT v. Arun Excello Foundations Pvt. Ltd. and the Special Bench ruling in Brahma Associates v. Joint CIT, which supported the notion of granting proportionate relief for units complying with the conditions of section 80-IB(10).

Tribunal's Analysis:
The Tribunal noted that the AO did not dispute the calculation or quantum of the claim except for some specific units. It agreed with the AO that non-compliance with the pre-conditions of section 80-IB(10) disqualifies those specific units from deduction. However, it held that the entire claim for the project cannot be dismissed solely due to non-compliance by some units.

Judicial Precedents:
The Tribunal referred to the Madras High Court's decision in CIT v. Arun Excello Foundations Pvt. Ltd., which supported the grant of proportionate relief to the assessee. It also cited the Income-tax Appellate Tribunal's decision in Deputy CIT v. Mandavi Builders, which held that clauses (e) and (f) of section 80-IB(10) are not applicable to allotments made before April 1, 2010.

Conclusion:
The Tribunal concluded that the claim under section 80-IB(10) should not be entirely dismissed. Instead, proportionate disallowance should be made for units not complying with the conditions. The AO was directed to restrict the disallowance proportionately for the assessment year 2010-11 and allow the remaining deduction for eligible units. This conclusion was applied mutatis mutandis to the assessment years 2011-12 and 2012-13.

Outcome:
The appeals of both the Revenue and the assessee were partly allowed, with directions to the AO to make proportionate disallowance for non-compliant units and allow the deduction for compliant units.

Pronouncement:
The judgment was pronounced in the open court on January 17, 2017.