Tribunal allows deduction for housing project, reverses disallowance for work-in-progress

The Tribunal allowed the assessee's appeal, permitting the deduction under section 80-IB(10) for the housing project excluding the Sapphire Block. Additionally, the disallowance under section 40a(ia) for the work-in-progress related to the Padmavathi Block was reversed. The Tribunal held that the hiving off of the Sapphire Block did not disentitle the assessee from claiming the deduction for the remaining project, and no TDS was required for work-in-progress not crystallized as a contractual liability during the relevant assessment year. The decision was pronounced on 16/09/2011.

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Issues Involved:
1. Deduction u/s 80-IB(10) for housing project excluding Sapphire Block.
2. Disallowance u/s 40a(ia) for work-in-progress related to Padmavathi Block.

Summary:

Issue 1: Deduction u/s 80-IB(10) for housing project excluding Sapphire Block

The main challenge was against the action of the learned CIT(A) in not granting the claim of the assessee u/s 80-IB(10) as the claim was not relating to the 'Sapphire Block'. The assessee argued that the Sapphire Block was hived off to M/s. Lavens Construction Pvt. Ltd., and the construction and profits related to Sapphire Block were not included in the assessee's books. The CIT(A) denied the deduction on the ground that the approval for the project included the Sapphire Block. The Tribunal held that the housing project, excluding the Sapphire Block, complied with all conditions u/s 80-IB(10). The hiving off of the Sapphire Block did not disentitle the assessee from claiming the deduction for the remaining project. Thus, the assessee was entitled to the deduction u/s 80-IB(10) for the 4 Blocks developed by the assessee.

Issue 2: Disallowance u/s 40a(ia) for work-in-progress related to Padmavathi Block

The Assessing Officer disallowed Rs. 2,30,52,000/- credited to M/s. Balaji Builders for the construction cost of Padmavathi Block, shown as work-in-progress, due to non-deduction of TDS. The assessee contended that the amount was shown to recognize the dues and was included in the Balance Sheet under "Stock of Inventories". The Tribunal noted that the payment was made in the subsequent year with TDS deducted. Since the amount was shown as work-in-progress and not crystallized as a contractual liability, no TDS was required during the relevant assessment year. The Tribunal allowed the assessee's claim, supported by the decision of the Hon'ble Gujarat High Court in Alembic Chemical Works Ltd., and held that the disallowance u/s 40a(ia) was not justified.

Conclusion:

The appeal of the assessee was allowed, granting the deduction u/s 80-IB(10) for the housing project excluding the Sapphire Block and reversing the disallowance u/s 40a(ia) for the work-in-progress related to Padmavathi Block. The order was pronounced on 16/09/2011.

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