2021 (5) TMI 554 - HC - Income Tax

Deduction u/s 80IB - as per revenue project was approved with a sanctioned built-up area and the assessee has eventually constructed the area far in excess of what was approved? - Whether assessee is eligible to claim deduction under section 80IB that the assessee has violated the plan approved and that the assessee did not get any further approval for Floor Area Ratio (FAR) by the authorities? - tribunal allowed deduction - whether the Tribunal is erred in allowing deduction under Section 80IB(10) of the Act when the project was approved with a sanctioned built up area and the assessee has eventually constructed the area far in excess of what was approved and prayed for allowing of this appeal? - HELD THAT - On close scrutiny of the judgment rendered by this court in Brigade Enterprises Ltd. 2020 (10) TMI 1168 - KARNATAKA HIGH COURT , wherein held has held that accounting Standard 7 was not applicable to the real estate developers. Therefore, he submitted that percentage of completion method cannot be thrashed upon assessee and assessee was right in following the project completion method as per accounting standard 9 and the facts involved in the said case, we are of the considered opinion that the substantial question of law involved in this appeal is squarely answered in the said case. Following the dictum in Brigade Enterprises, the substantial questions of law raised in this appeal are answered against the Revenue and in favour of the assessee.

Summary

Issues:
1. Deduction under Section 80IB for excess construction area.
2. Eligibility for deduction under Section 80IB due to plan violation.

Analysis:
1. The appeal involved the issue of deduction under Section 80IB of the Income Tax Act for the assessment year 2011-12. The appellant contended that the assessee had constructed an area far in excess of the approved plan, violating the law under which the sanction was granted. The assessing authority disallowed the claim under Section 80IB(10) of the Act, leading to an appeal by the assessee before the CIT(A)-iv, which was allowed. The revenue challenged this decision, arguing that the Tribunal erred in allowing the deduction when the project exceeded the approved built-up area. The Tribunal relied on previous decisions, but the revenue sought to set aside the allowance of the deduction.

2. The second issue revolved around the eligibility of the assessee to claim deduction under Section 80IB despite violating the approved plan and lacking further approval for Floor Area Ratio (FAR). The senior counsel for the assessee cited precedents to argue that accounting Standard 7 did not apply to real estate developers, supporting the assessee's use of the project completion method under accounting standard 9. The co-ordinate bench in Brigade Enterprises raised substantial questions of law related to disallowances under different sections, emphasizing the applicability of rules and precedents in determining deductions and disallowances. The Division Bench referred to specific legal provisions and held that the substantial questions of law raised in the present appeal were answered in favor of the assessee based on the precedent set in Brigade Enterprises.

3. The judgment analyzed the application of Section 14A(2) and Rule 8D(2) concerning the determination of expenditure not forming part of total income. The court examined previous decisions and concurrent findings of fact to support the assessee's position regarding interest-free funds and business advances. The clarification issued by Chartered Accountants regarding the revised accounting Standard 7 for construction enterprises was also considered. Ultimately, the court concluded that the substantial questions of law in the appeal were addressed by previous judgments, leading to the dismissal of the appeal in favor of the assessee based on the principles established in Brigade Enterprises.

By thoroughly analyzing the issues related to deduction under Section 80IB and the eligibility criteria for claiming such deductions, the judgment provided a comprehensive legal interpretation based on relevant legal provisions, precedents, and factual considerations.