2013 (6) TMI 690 - AT - Income Tax

Tribunal Grants Deductions for Projects, Adjusts Amounts, and Directs Recalculation

The Tribunal condoned the delay in filing the appeal for the assessment year 2006-07, granted deduction under Section 80-IB(10) for the 'Lakshdweep' ... Condonation of delay and sufficient cause - Proportionate deduction under Section 80-IB(10) - Built-up area - prospective application of amended definition - Built-up area to be computed as per local Development Control Rules for projects approved before amendment - Inclusion of disallowance under Section 40(a)(ia) in profits eligible for deduction under Section 80-IB(10)Condonation of delay and sufficient cause - Whether the delay of 114 days in filing appeal for assessment year 2006-07 should be condoned - HELD THAT: - The Tribunal applied the principle in Mst. Katiji that 'sufficient cause' must be liberally construed to advance substantial justice over technicality. The assessee explained, by affidavit, that the appellate order was handed over contemporaneously with an office shift, the file was misplaced and the omission was bona fide inadvertence; the appeal was filed immediately after the omission came to light. There was no material of mala fides or device to gain unfair advantage. On these facts the Tribunal found the explanation to be bona fide and sufficient and, in the interest of justice, condoned the delay of 114 days. [Paras 5]Delay of 114 days in filing the appeal for AY 2006-07 is condoned.Proportionate deduction under Section 80-IB(10) - Extent of denial of deduction under Section 80-IB(10) for the 'Lakshdweep' project where two adjoining units were amalgamated exceeding the prescribed built-up area - HELD THAT: - Following precedents of this Bench and allied decisions, the Tribunal held that non-compliance by certain residential units with clause (c) of Section 80-IB(10) does not mandate denial of deduction for the entire project. The proper approach is to deny the deduction only in respect of the profits attributable to the non-complying unit(s) (here the amalgamated Bunglow G1 & G2) while allowing the deduction for the remaining units that meet the statutory condition. The Assessing Officer was directed to re-compute the deduction limiting disallowance to the offending units. [Paras 10, 11, 12]Deduction under Section 80-IB(10) is to be denied only for profits attributable to the amalgamated Bunglow G1 & G2; deduction allowed for other eligible units and Assessing Officer directed to re-compute.Built-up area - prospective application of amended definition - Built-up area to be computed as per local Development Control Rules for projects approved before amendment - Whether the definition of 'built-up area' inserted w.e.f. 01.04.2005 (including projections and balconies) applies to a project approved prior to that date ('Samarth Nagari') and whether terrace/canopy areas are includible - HELD THAT: - The Tribunal held that the statutory definition of 'built-up area' introduced by the Finance (No.2) Act, 2004 w.e.f. 01.04.2005 is prospective and does not apply to projects approved before 01.04.2005. For projects approved prior to that date the built-up area must be determined having regard to the applicable local Development Control Rules; applying that approach the areas of canopy and balcony/terrace are not to be included for the assessee's 'Samarth Nagari' project approved on 20.11.2002. Consequently, the Assessing Officer's objection based on inclusion of terrace and canopy was untenable and the CIT(A)'s order was set aside with direction to re-compute the deduction accordingly. [Paras 14, 15, 16, 17]For 'Samarth Nagari' (approved 20.11.2002) built-up area must be computed as per local DCR; projections/terrace/canopy are not includible and the Assessing Officer is directed to re-compute the deduction under Section 80-IB(10).Inclusion of disallowance under Section 40(a)(ia) in profits eligible for deduction under Section 80-IB(10) - Whether an amount disallowed under Section 40(a)(ia) for non-deduction/non-deposit of TDS can form part of profits eligible for deduction under Section 80-IB(10) - HELD THAT: - Relying on the reasoning of the Gujarat High Court in Keval Construction, the Tribunal accepted that a disallowance under Section 40(a)(ia) merely increases the ultimate profits from the business and therefore such increased profit is eligible for deduction under Section 80-IB(10). In the present case the only source of profits was from the housing project; hence the disallowance representing non-deduction of TDS could not be excluded from the quantum of profits qualifying for Section 80-IB(10) deduction. The assessee's claim on this point was upheld. [Paras 19, 22, 23]Disallowance under Section 40(a)(ia) that increases business profits is includible for computing profits eligible for deduction under Section 80-IB(10); assessee succeeds on this aspect.Application of decision mutatis mutandis to subsequent assessment year - Applicability of findings in AY 2005-06 to AY 2006-07 - HELD THAT: - The Tribunal held that the disputes in AY 2006-07 are similar to those decided for AY 2005-06 and therefore the conclusions arrived at for 2005-06 apply mutatis mutandis to 2006-07. This includes the directions on proportionate denial for non-complying units, the prospective application of the built-up area definition for pre-2005 projects, and the treatment of Section 40(a)(ia) disallowance. [Paras 18]The decision on AY 2005-06 applies mutatis mutandis to AY 2006-07.Final Conclusion: Delay in filing the appeal for AY 2006-07 (114 days) is condoned. On merits, for AYs 2005-06 and 2006-07 the denial of Section 80-IB(10) deduction is restricted to profits attributable to non-complying unit(s) (amalgamated Bunglow G1 & G2); for projects approved before 01.04.2005 built-up area must be computed as per local Development Control Rules (projections/terrace/canopy not includible for 'Samarth Nagari'); disallowance under Section 40(a)(ia) is includible in profits eligible for Section 80-IB(10); Assessing Officer directed to re-compute accordingly. Issues Involved:1. Condonation of delay in filing the appeal.2. Deduction under Section 80-IB(10) of the Income Tax Act for the 'Lakshdweep' project.3. Deduction under Section 80-IB(10) of the Income Tax Act for the 'Samarth Nagari' project.4. Deduction under Section 80-IB(10) of the Income Tax Act for the amount disallowed under Section 40(a)(ia) of the Act.Issue-wise Detailed Analysis:1. Condonation of Delay in Filing the Appeal:The appeal for the assessment year 2006-07 was delayed by 114 days. The assessee's counsel argued that the delay was unintended and due to the shifting of the accounts office, which led to the misplacement of important files. The delay was explained through an affidavit by a partner of the assessee firm. The Departmental Representative opposed the condonation, citing negligence. The Tribunal, referencing the Supreme Court's judgment in the case of Collector of Land Acquisition vs. Mst. Katiji & Others, emphasized that substantial justice should be preferred over technical considerations. The Tribunal found the delay to be a bona-fide mistake without any mala-fide intention and condoned the delay in the interest of justice.2. Deduction under Section 80-IB(10) of the Income Tax Act for the 'Lakshdweep' Project:The assessee claimed a deduction under Section 80-IB(10) for the 'Lakshdweep' project, which was denied by the Assessing Officer (AO) because two units exceeded the prescribed built-up area. The AO treated the two units as one amalgamated unit, thereby exceeding the 1500 sq.ft. limit. The Tribunal, referencing the Pune Bench's decision in D.S. Kulkarni Developers Ltd. and the Madras High Court's judgment in Viswas Promoters (P) Ltd., held that the deduction should be proportionate. The denial of deduction should be limited to the profits from the non-compliant units (Bunglow G1 & G2), and the deduction should be allowed for the remaining compliant units. The AO was directed to re-compute the deduction accordingly.3. Deduction under Section 80-IB(10) of the Income Tax Act for the 'Samarth Nagari' Project:The AO denied the deduction for the 'Samarth Nagari' project, citing that the built-up area of some units exceeded the limit after including terrace and canopy areas. The assessee argued that the definition of 'built-up area' including projections and balconies, inserted by the Finance (No.2) Act, 2004 w.e.f. 01.04.2005, should not apply to projects approved before this date. The Tribunal agreed, referencing the Pune Bench's decision in D.S. Kulkarni Developers Ltd. and other precedents, and held that the built-up area should be calculated as per the relevant Development Control Rules of the local authority applicable before 01.04.2005. The AO's objection was found untenable, and the deduction was allowed.4. Deduction under Section 80-IB(10) of the Income Tax Act for the Amount Disallowed under Section 40(a)(ia) of the Act:For the assessment year 2006-07, the AO excluded a profit element of Rs. 5,22,600/- from the deduction under Section 80-IB(10), which represented disallowance under Section 40(a)(ia) due to non-payment/deduction of TDS. The Tribunal, referencing the Gujarat High Court's judgment in ITO vs. Keval Construction, held that such disallowance increases the ultimate profits from the business and qualifies for deduction under Section 80-IB(10). The assessee's claim was upheld.Conclusion:The Tribunal allowed the appeals for both assessment years 2005-06 and 2006-07, directing the AO to re-compute the deductions as per the Tribunal's findings. The order was pronounced in the open Court on 25th June 2013.