2020 (12) TMI 88 - HC - Income Tax

Deductions u/s 80 IB (10) - AO disallowed deductions in respect of its housing project Models Legacy inter alia on the ground of breach of the provisions of Section 80IB(10)(e) in respect of 5 of the residential units in the said project, which otherwise comprised of a total of 352 residential units - Whether ITAT has erred in failing to recognise that Sub- Clause(e)to Section 80IB(10) came into effect only on 1st April, 2010 and not 19th August 2009 as presumed? - HELD THAT - The reasoning of the ITAT that the exclusion of the 5 residential units from out of the 352 residential units in the entire housing project might affect the condition about the size of the plot which is required to have a minimum area of 1 Acre deserves no acceptance. Even if the area proportionate to the 5 residential units is excluded, the size of the plot which admeasures 28,014 sq. meters. i.e. almost about 7 Acres or thereabouts, will, in no manner, stand reduced to below 1 Acre. Therefore, this could not have been a ground to deny pro-rata deduction as was granted by the Commissioner (Appeals) in his Order dated 26.08.2015. Pro-rata deductions can be granted under Section 80IB(10) - The impugned Order made by the ITAT is set aside to the extent it denies the benefit of pro-rata deductions to the assessee.

Summary

Issues:
1. Disallowance of deductions under Section 80 IB (10) for A.Y. 2010-11, 2011-12, and 2012-13.
2. Effectiveness of Sub-Clause (e) to Section 80IB(10) from April 1, 2010, and not August 19, 2009.
3. Granting pro-rata deductions under Section 80IB(10) of the Income Tax Act.

Analysis:
1. The Assessing Officer (AO) disallowed deductions for the housing project "Models Legacy" due to a breach of Section 80IB(10)(e) of the Income Tax Act in respect of 5 residential units out of 352 units. The Commissioner (Appeals) partly allowed the appeal, granting pro-rata deductions. However, the ITAT set aside the Commissioner's order, leading to the current appeal by the assessee on substantial questions of law.
2. The assessee's counsel argued for pro-rata deductions based on previous court decisions. They agreed not to contest the breach of Section 80IB(10) if pro-rata deductions were granted. The Revenue's counsel defended the ITAT's decision, stating that Section 80IB(10) does not allow pro-rata deductions and can have retroactive effect. They cited legal precedents to support their stance.
3. The High Court analyzed the ITAT's reasoning and found that the exclusion of 5 units did not affect the plot size requirement. The Court framed an additional question on the denial of pro-rata deductions, which was not raised initially. After considering connected appeals, the Court held that pro-rata deductions are permissible under Section 80IB(10) and ruled in favor of the assessee, setting aside the ITAT's decision and restoring the Commissioner's order on pro-rata deductions.
4. The Court disposed of the appeal by allowing it partly, answering the additional substantial question in favor of the assessee, and setting aside the ITAT's order. The other substantial questions were not addressed as the assessee did not press them, reserving the right to raise them in collateral proceedings. The appeal was thus concluded with no costs awarded.