2017 (12) TMI 304 - AT - Income Tax

Revision u/s 263 - entitled to deduction u/s 80IB - Held that - Electrical installation charges and club membership fees were received by the assessee from the flat holders of the project on account of common facilities and amenities provided to the flat holders in the housing project developed by it. In the case of CIT vs Omaxe Buildhome (P) Ltd. (2016 (9) TMI 295 - DELHI HIGH COURT) has held that housing schemes are not only consisted of built up residential building but also separate common facilities and amenities provided for residential unit of housing project. It was held that such common facilities and amenities are an integral part of the housing project and the assessee therefore would be entitled to deduction under section 80IB. Having regard to the facts of the present case which clearly show that the copy of the relevant sample agreement was filed by the assessee before the A.O. during the course of assessment proceedings to explain the nature of electrical installation charges and club membership fees received by the assessee we are of the view that that there was no error in the order of the A.O. in allowing the claim of the assessee for deduction under section 80IB in respect of electrical installation charges and club membership fees received from the flat holders of the project. As regards the other error allegedly pointed out by the Ld. CIT in the order of the A.O we find merit in the contention of the learned counsel for the assessee that the relevant amendment to section 80IB(10) having been made with effect from 01.04.2010 i.e. much after the sanction of the housing project of the assessee on30.03.2007 the same was not applicable in the case of the assessee as held in the case of CIT vs Sarkar Builders (2015 (5) TMI 555 - SUPREME COURT) and the order of the A.O. cannot be regarded as erroneous on the ground that the applicability of the said amendment in the case of the assessee was not considered by him. In our opinion there were thus no errors in the order of assessment made by the A.O. under section 143(3) as alleged by the Ld. CIT warranting revision under section 263. Thus we set aside the impugned order passed by the Ld. CIT under section 263 and restore that of the A.O. passed under section 143(3). - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility of deduction under section 80IB for club membership fees and electrical installation charges.
2. Applicability of amendments to section 80IB(10) regarding the sale of flats to the same individual or related persons.
3. Consideration of interest on borrowed capital in relation to debit balances in partners' capital accounts under section 36(1)(iii).

Issue-wise Detailed Analysis:

1. Eligibility of Deduction under Section 80IB for Club Membership Fees and Electrical Installation Charges:
The assessee, engaged in Real Estate Development and Building Construction, claimed a deduction under section 80IB for an income that included club membership fees and electrical installation charges. The Principal CIT found that these incomes were not directly related to the construction and sale of flats and thus should not be eligible for deduction under section 80IB. The assessee argued that these charges were integral to the housing project and cited the Bombay High Court's decision in CIT vs Vandana Properties, which supported the inclusion of such incomes as part of the housing project. The Tribunal agreed with the assessee, referencing the Delhi High Court's decision in Principal CIT vs Omaxe Buildhome (P) Ltd., which stated that common facilities and amenities are integral to housing projects and eligible for deductions under section 80IB. The Tribunal concluded that the AO's decision to allow the deduction was not erroneous.

2. Applicability of Amendments to Section 80IB(10) Regarding the Sale of Flats to the Same Individual or Related Persons:
The Principal CIT noted that the assessee had allotted multiple flats to the same individual or related persons, which, post-amendment from AY 2010-11, would disqualify the deduction under section 80IB. The assessee contended that the allotments were made before the amendment took effect and that the law applicable at the time of the project's commencement should prevail. The Tribunal supported this view, citing the Supreme Court's decision in CIT vs Sarkar Builders, which held that amendments to section 80IB(10) were not applicable to projects sanctioned before the amendments. Consequently, the Tribunal found no error in the AO's assessment regarding this issue.

3. Consideration of Interest on Borrowed Capital in Relation to Debit Balances in Partners' Capital Accounts under Section 36(1)(iii):
The Principal CIT pointed out that the AO failed to consider the provisions of section 36(1)(iii) regarding interest on borrowed capital despite the existence of debit balances in partners' capital accounts. The assessee argued that sufficient interest-free funds were available from partners and that no interest was stipulated in the partnership deed. The Tribunal did not specifically address this issue in detail, focusing instead on the first two points, which were the primary reasons for the Principal CIT's revision under section 263.

Conclusion:
The Tribunal found that the AO's assessment order was not erroneous or prejudicial to the interest of the revenue. The deductions under section 80IB for club membership fees and electrical installation charges were justified, and the amendments to section 80IB(10) were not applicable to the assessee's project. The Tribunal set aside the Principal CIT's order under section 263 and restored the AO's original assessment order, allowing the assessee's appeal.