2009 (8) TMI 953 - AT - Income Tax

Tribunal Endorses Proportional Deductions for Compliant Units, Excludes Mezzanines in 1500 sqft Limit Interpretation.

The Tribunal partially allowed the appeal, instructing the AO to grant deductions for units complying with the 1500 sqft limit, excluding mezzanine floors ... Deduction under section 80IB(10) - built-up area definition for residential unit - exclusion of common areas and mezzanine in measurement of built-up area - unit-wise / proportionate allowance of deduction where some units exceed prescribed size - treatment of pent houses exceeding prescribed built up areaBuilt-up area definition for residential unit - exclusion of common areas and mezzanine in measurement of built-up area - Meaning and measurement of 'built-up area' for the purposes of section 80IB(10) and whether common areas and mezzanine floors are to be included. - HELD THAT: - The Tribunal accepted the assessee's submission that for computing the built-up area under section 80IB(10) the relevant measurement is the inner measurement of the residential unit at the floor level (including projections, balconies and wall thickness) and excludes common areas shared with other residential units. The Tribunal further held, with reference to the building regulations and the interpretation adopted in earlier decisions, that mezzanine and similar incidental areas are not to be treated as part of the floor level area for this purpose. Accordingly, measurements that aggregate common areas or mezzanine portions so as to inflate the floor level built up area are incorrect and such areas should be excluded when determining compliance with the 1500 sft limit. [Paras 12]Built-up area for section 80IB(10) is to be measured at the floor level excluding common areas and mezzanine; assessments must be re-determined excluding such areas.Deduction under section 80IB(10) - unit-wise / proportionate allowance of deduction where some units exceed prescribed size - treatment of pent houses exceeding prescribed built up area - Whether the entire deduction under section 80IB(10) is to be denied if some residential units in a project exceed the prescribed maximum built-up area, or whether deduction is allowable in respect of units complying with the limit. - HELD THAT: - The Tribunal disagreed with the view that a single breach by certain units mandates denial of the entire deduction. Applying the reasoning of precedents and recognising the social/objective context of section 80IB(10), the Tribunal held that the exemption must be allowed in respect of those flats whose built up area (properly measured) does not exceed 1500 sft. Units (including pent houses) whose built up area, correctly measured, exceeds the prescribed limit may be excluded from the benefit, but their existence does not defeat the assessee's entitlement qua compliant units. The Assessing Officer was directed to exclude pent houses or other units exceeding 1500 sft from the deduction and allow the deduction in respect of qualifying units. [Paras 12, 13]Deduction under section 80IB(10) is allowable unit wise; units exceeding 1500 sft are to be excluded, but their presence does not forfeit the deduction for compliant units.Final Conclusion: Appeal allowed in part: built-up area must be measured excluding common areas and mezzanine; deduction under section 80IB(10) is to be allowed in respect of residential units whose built-up area (so measured) does not exceed 1500 sft, while units (including pent houses) exceeding the limit are to be excluded from the benefit. Issues Involved:1. Rejection of benefit under Section 80IB(10) due to flats exceeding 1500 sqft.2. Interpretation of 'built-up area' under Section 80IB(10).3. Proportional deduction for compliant units.4. Impact of unauthorized constructions on eligibility for deduction.5. Change in method of accounting and its implications.Issue-wise Detailed Analysis:1. Rejection of Benefit Under Section 80IB(10) Due to Flats Exceeding 1500 Sqft:The primary issue is the rejection of the assessee's claim for deduction under Section 80IB(10) due to some residential flats in the 'SJR Redwoods' project exceeding the maximum permissible built-up area of 1500 sqft. The Assessing Officer (AO) noted that certain flats, including penthouses, exceeded this limit, thereby disqualifying the entire project from the deduction. The Commissioner of Income-tax(A) upheld this decision, emphasizing that the project should strictly conform to the conditions prescribed in the statute without any fragmentary compliance.2. Interpretation of 'Built-up Area' Under Section 80IB(10):The assessee argued that the built-up area should exclude common areas shared with other residential units, as defined in Section 80IB(14)(a). The AO and the Commissioner of Income-tax(A) included super-built-up areas and common areas in their calculations, which the assessee contended was incorrect. The Tribunal agreed with the assessee, stating that the mezzanine floor and common areas should be excluded while calculating the built-up area.3. Proportional Deduction for Compliant Units:The assessee contended that even if some units exceeded the 1500 sqft limit, the deduction should be allowed proportionally for the units that complied with the conditions. The Tribunal supported this view, referencing decisions from the ITAT Kolkata Bench and the ITAT Chennai Bench, which allowed proportional deductions in similar cases. The Tribunal concluded that the assessee should receive deductions for the units that met the criteria, excluding those that did not.4. Impact of Unauthorized Constructions on Eligibility for Deduction:The AO noted unauthorized constructions, such as penthouses, which were later regularized by the BDA. The Commissioner of Income-tax(A) argued that these unauthorized constructions indicated that the project was not intended to address the housing needs of the common man but aimed at luxury units. The Tribunal, however, focused on the built-up area compliance and did not consider the unauthorized constructions a disqualifying factor for the entire project.5. Change in Method of Accounting and Its Implications:The assessee switched from the project completion method to the percentage completion method for accounting during the assessment year. The Commissioner of Income-tax(A) suggested that this change indicated the project was not conceived as a housing project within the scope of Section 80IB(10). The Tribunal did not find this change significant enough to deny the deduction, focusing instead on the built-up area compliance.Conclusion:The Tribunal allowed the appeal in part, directing the AO to grant deductions for the units that complied with the 1500 sqft limit, excluding mezzanine floors and common areas. The decision emphasized a liberal interpretation of beneficial provisions and proportional deductions for compliant units, aligning with the legislative intent of Section 80IB(10).