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Issues: (i) Whether the assessee was a developer entitled to deduction under section 80IB(10) of the Income-tax Act, 1961, and not a contractor excluded from such benefit; (ii) Whether deduction under section 80IB(10) could be claimed on project percentage method in the absence of actual sales during the year and on the basis of work-in-progress valuation.
Issue (i): Whether the assessee was a developer entitled to deduction under section 80IB(10) of the Income-tax Act, 1961, and not a contractor excluded from such benefit.
Analysis: The development agreement and general power of attorney showed that the assessee undertook the entire project, bore the risks and rewards, arranged approvals, executed construction, and also managed sales. Ownership of land was not a statutory condition for claiming deduction under section 80IB(10). The arrangement effectively allocated 46% of the constructed area to the landowners and the balance to the assessee, supporting the finding that the assessee was acting as a developer-cum-builder rather than a mere contractor.
Conclusion: The assessee was a developer and the denial of deduction on the ground that it was only a contractor was not sustainable.
Issue (ii): Whether deduction under section 80IB(10) could be claimed on project percentage method in the absence of actual sales during the year and on the basis of work-in-progress valuation.
Analysis: Income cannot arise in the absence of a sale agreement or some other legally sufficient basis for accrual, and the extent of accrual depends on the quantum of work completed, certainty of completion, and reliable valuation of the project. The record did not disclose the material facts necessary to justify the income booked on the project, such as the number and value of sale agreements, advances received, or the quantum of work completed. Since the facts were indeterminate, the claim for deduction on the basis of the book profit could not be accepted without fresh factual verification. The proper course was to examine accrual of income and, if income had accrued, its extent, with appropriate findings on valuation of closing work-in-progress and compliance with section 80IB(10) conditions.
Conclusion: The matter required fresh adjudication by the Assessing Officer on the accrual and extent of income, and the assessee's claim was not accepted on the existing record.
Final Conclusion: The assessee succeeded on the contractor-versus-developer issue, but the revenue's challenge to the allowance of deduction on the basis of unverified project percentage profits was accepted to the extent of remand for fresh examination of accrual and quantum of income.
Ratio Decidendi: For deduction under section 80IB(10), the assessee must be shown to be a developer on the real arrangement of the project, and income under project percentage accounting can be recognized only when accrual is supported by sale agreements, advances, completion status, and reliable valuation of work-in-progress.
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