2018 (5) TMI 497 - AT - Income Tax

Disallowance of the claim of deduction u/s 80IB(10) - Held that - In the case before us, the assessee had admittedly completed four buildings i.e. G, H, I & K and has also furnished the occupancy certificate dated 29.3.2012. Therefore, the assessee is clearly eligible for deduction u/s 80IB(10) on the profits earned from these buildings. Entitlment to deduction u/s 80IB(10) on the profits from blocks F, K & L for which the assessee has not obtained the occupancy certificate from GHMC, Hyderabad as on 30.03.2013 but has already submitted an application for the same - Held that - Where the assessee has applied for issuance of occupancy certificate and the Municipal Authorities do not refuse to issue the certificate within 21 days from the date of receipt of such application, then the occupancy certificate has to be presumed to have been issued. In the present case, the assessee has made an application on 30.03.2008 and within 21 days thereafter, the Municipal Authorities did not refuse the occupancy certificate and therefore, it is clear that the assessee s claim has not been denied and hence has to be deemed to have been issued. It is another fact that the assessee itself made a fresh application again for issuance of completion certificate on 28.05.2013, in reply to which, the Municipal Corporation vide letter dated 13.06.2013 pointed out certain defects, which, in our opinion are not substantial and essential for considering the blocks to be incomplete. They are only peripheral works, which may be part of the housing project but are not essential. Therefore, the assessee is entitled to the deduction u/s 80IB(10) even for the Blocks of F, K and L. Denying the claim of deduction u/s 80IB is that the area in some of the flats exceeded 1500 sft. As held by the Hon ble Madras High Court in the case of Viswas Promoters (2012 (11) TMI 1117 - MADRAS HIGH COURT), the assessee is entitled to deduction in respect of the flats which do not exceed the area of 1500 sft on pro-rata basis. The AO is accordingly directed to allow the deduction. As regards the claim of interest income, as a deduction u/s 80IB(10) of the Act, the learned Counsel for the assessee has placed reliance upon the decision in the case of CIT vs. Indo Aquatics Ltd reported in (2014 (10) TMI 974 - TELANGANA AND ANDHRA PRADESH HIGH COURT) wherein held that the interest earned on deposits for opening letters of credit is entitled to exemption and that it is an essential activity for undertaking exports as the deposit of amounts for that purpose is a condition precedent. In present case the assessee was required to keep the deposits as margin money with the Banks for completion of the project and hence is attributable to the project and the assessee is eligible for deduction u/s 80IB(10) on such interest income. The AO is accordingly directed to allow the same.- Decided in favour of assessee

Summary

Issues Involved:
1. Denial of exemption under section 80IB(10) of the IT Act.
2. Interpretation of CBDT Circular No. 4/2009.
3. Eligibility of partial completion for deduction.
4. Interpretation of section 80IB(10) as an incentive provision.
5. Pro-rata deduction for completed portions of a housing project.
6. Deduction on interest received from deposits of margin money in banks.

Detailed Analysis:

1. Denial of Exemption under Section 80IB(10) of the IT Act:
The primary issue in these appeals is the disallowance of the claim of deduction under section 80IB(10) of the IT Act by the CIT (A). The assessee firm, engaged in the construction of flats, claimed deductions for the assessment years 2010-11, 2011-12, and 2012-13. The Assessing Officer (AO) denied the deduction on the grounds that the project was not completed in its entirety by the stipulated date, and some flats exceeded the 1500 sq ft limit.

2. Interpretation of CBDT Circular No. 4/2009:
The assessee argued that the CBDT Circular No. 4/2009 allows for deductions on a year-to-year basis for partially completed projects. The AO, however, contended that the entire project must be completed by the deadline to qualify for the deduction.

3. Eligibility of Partial Completion for Deduction:
The assessee claimed that since it had completed four blocks and obtained partial occupancy certificates, it should be eligible for deductions on the profits from these blocks. The AO, supported by the DVO's report, found that the project was not fully completed, and some blocks were still in the skeleton stage.

4. Interpretation of Section 80IB(10) as an Incentive Provision:
The assessee emphasized that section 80IB(10) should be interpreted liberally as an incentive provision to advance the purpose of the legislation. The AO, however, maintained that the provision should be interpreted strictly according to its wording.

5. Pro-rata Deduction for Completed Portions of a Housing Project:
The Tribunal considered whether the deduction should be denied in toto if the project was not completed in its entirety. It referred to several judicial precedents, including the Hon'ble Bombay High Court's decision in CIT vs. Vandana Properties, which held that each block can be considered an independent housing project. The Tribunal concluded that the assessee is eligible for pro-rata deduction for the completed blocks, even if the entire project was not completed by the deadline.

6. Deduction on Interest Received from Deposits of Margin Money in Banks:
The assessee claimed deductions on interest received from deposits of margin money in banks, arguing that these deposits were inextricably linked to the project. The AO denied this claim, but the Tribunal, referencing the Hon'ble Telangana & A.P. High Court's decisions in Indo Aquatics and Godavari Drugs Ltd, held that the interest income is attributable to the project and eligible for deduction under section 80IB(10).

Conclusion:
The Tribunal allowed the appeals, granting the assessee deductions for the profits from the completed blocks and the interest income from margin money deposits. The decision was based on the interpretation of section 80IB(10) as an incentive provision, the applicability of CBDT Circular No. 4/2009, and judicial precedents supporting pro-rata deductions for partially completed projects.