2022 (2) TMI 989 - HC - Income Tax

Deduction u/s 80IB(10) - lack of ownership of land on which the project was constructed - HELD THAT - ITAT has given a finding of fact which is not disputed inasmuch as the ITAT has observed that respondent through, its partner one Liaq Ahmed, has been involved in the project right from the beginning with the signing of the Principal Agreement and primary acquisition of the development rights for the land in question. AO has not even disputed that Intimation of Disapproval ( IOD ) issued by the Municipal Corporation was in the name of assessee. So also the Commencement Certificate (CC). All tax related to the land in question were paid by the assessee from 1998 onwards. It is also noted that assessee has even made payment for the development rights. What the AO has missed out is unless respondent had any role in the development of the project, the joint venture partner would not agree to share 50% profit in the project with the assessee. Therefore, on this issue, we are in agreement with ITAT. Project was approved and commenced before the stipulated date of 01.10.1998 - ITAT has once again come to a finding of fact that the project, as completed, was different from the project for which initial approval had been obtained. It is true that the original Plan which was submitted and for which IOD was granted, was in 1997. The life of the IOD once granted as per the Maharashtra Regional Town Planning Act, 1966 is four years. This finding has not been disputed by Mr.Walve or appellant. The original Lay-out Plan became invalid after 7.01.2001. The assessee applied for IOD for the second time on 22.11.2001 and was granted permission on 21.07.2002. The ITAT has come to a conclusion on facts, which is also not disputed, that the second project proposal was for only three buildings as against the four for which the permission was sought earlier and IOD for different building was granted on different dates. The ITAT has concluded that therefore the project for which permission was granted on 24.07.2002 was not the same as that, for which the IOD has lapsed in 2001. In our view, we do not find that the ITAT has committed any perversity or applied incorrect principles to the given facts

Summary

Issues: Disallowability of claim of deduction under section 80IB(10) of the Income Tax Act.

Ownership of Land Issue:
The appellant claimed deduction under section 80IB(10) for a residential project developed in Mumbai. The Assessing Officer (AO) found that the land was not owned by the appellant but by a society. The AO concluded that the appellant, not being the landowner, could not claim the deduction. However, this issue was not raised in the present appeal, as a similar controversy was settled in favor of the assessee by the Gujarat High Court in a previous case. Therefore, the ownership of the land was not a point of contention in the current appeal.

Developer Status Issue:
The AO further contended that the appellant, despite being labeled as a developer, did not invest in the construction activity and was merely a facilitator in a Joint Venture Agreement with another entity. The AO argued that the appellant did not undertake any construction work and did not bear any associated risks, hence not qualifying for the deduction under section 80IB(10). However, the ITAT found that the appellant had a significant role in the project from the beginning, including acquiring development rights, obtaining necessary approvals, and making payments related to the project. The ITAT concluded that the appellant's involvement warranted eligibility for the deduction as a developer, disagreeing with the AO's characterization of the appellant as a mere facilitator.

Commencement Date Issue:
Lastly, the AO contended that the project had commenced before the statutory date of 01.10.1998, rendering the appellant ineligible for the deduction. The appellant argued that the initial plan was submitted in 1996, and subsequent approvals did not change the operative date of approval. However, the ITAT found that the project as completed differed from the initial plan approved in 1997. The ITAT highlighted discrepancies in the subsequent approvals and concluded that the project for which final approval was granted did not align with the original plan. The ITAT's factual findings were upheld, dismissing the appellant's argument regarding the project's commencement date.

In conclusion, the High Court dismissed the appeal, upholding the ITAT's findings on the developer status and commencement date issues. The Court found no substantial question of law in the appeal and deemed it devoid of merit, resulting in the rejection of the appellant's claim for deduction under section 80IB(10) of the Income Tax Act.