2020 (9) TMI 293 - HC - Income Tax

Eligibility for deduction u/s 80IB(10) - large scale violations and deviations to the sanctioned plan of the local authority by the assessee firm in carrying out the Housing Project - Whether the appellate authorities were correct in construing that deviations and violations committed by the assessee while undertaking the housing project and yet to be paid compounding fee for regularizing the default is fairly enough to claim the deduction under Section 80IB(10)? - ITAT allowed the deduction as confirmed by CIT- A stating that authorities of the BBMP inspected the building for issue of occupancy certificate and it was observed that there was a deviation in construction with reference to the modified building plan which is well within the permissible limit of regularization as per the revised Master Plan 2015 with levy of compounding fee which was accordingly paid HELD THAT - Findings of fact are based on meticulous appreciation of evidence on record. The Bangalore Development Authority Act Karnataka Municipal Corporation Act and Karnataka Municipalities Act do not contain any provision to obtain completion certificate and therefore it was not necessary for the assessee to obtain any completion certificate in the absence of any provisions in the aforesaid Acts. From the findings recorded by the Commissioner of Income Tax (Appeals) as well as the Tribunal it is evident that the project undertaken by the assessee was approved by the local authority and therefore it had complied with the conditions mentioned in Section 80IB(10)(a) of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility for deduction under Section 80IB(10) of the Income-Tax Act despite deviations from the sanctioned plan.
2. Construction deviations and compounding fee implications on Section 80IB(10) deduction.

Issue-wise Detailed Analysis:

Issue 1: Eligibility for deduction under Section 80IB(10) despite deviations from the sanctioned plan
The primary issue was whether the assessee firm was eligible for a deduction under Section 80IB(10) of the Income-Tax Act, 1961, despite having deviations from the sanctioned plan approved by the local authority. The Assessing Officer disallowed the deduction, citing that the built-up area exceeded the approved plan by 70.50%, thus violating the conditions of Section 80IB(10)(a). However, the Commissioner of Income Tax (Appeals) found that the modified building plan was approved by the Bruhat Bengaluru Mahanagara Palike (BBMP) and that the deviations were within permissible limits as per the revised master plan. The Tribunal upheld this view, noting that the project was approved by the local authority and that the assessee had paid the compounding fee for the deviations, thus fulfilling the conditions of Section 80IB(10). The court concluded that the project undertaken by the assessee complied with the conditions mentioned in Section 80IB(10)(a) and was therefore eligible for the deduction.

Issue 2: Construction deviations and compounding fee implications on Section 80IB(10) deduction
The second issue was whether the deviations in the construction and the subsequent payment of the compounding fee were sufficient to claim the deduction under Section 80IB(10). The revenue argued that the project was not completed as per the sanctioned plan and that the completion certificate was not obtained, thus disqualifying the project from the deduction. The assessee countered that the modified plan was approved, the compounding fee was paid, and the occupancy certificate was issued by BBMP. The court noted that the Bangalore Development Authority Act, Karnataka Municipal Corporation Act, and Karnataka Municipalities Act did not require a completion certificate. Therefore, the assessee was not obligated to obtain one. The court upheld the findings of the Commissioner of Income Tax (Appeals) and the Tribunal, affirming that the project complied with the local authority's approval and the conditions of Section 80IB(10).

Conclusion:
The court answered the substantial questions of law against the revenue and in favor of the assessee, dismissing the appeal. The assessee was found eligible for the deduction under Section 80IB(10) despite the deviations, as the project was approved by the local authority, and the necessary compounding fee was paid. The requirement for a completion certificate was deemed unnecessary in the context of the applicable local laws.