2013 (12) TMI 1570 - AT - Income Tax

Tribunal grants Section 80IB(10) deduction to partnership firm, amenities building not commercial space

M/s. Shroff Developers Versus Income Tax Officer,

The Tribunal allowed the appeal, directing the AO to grant the deduction under Section 80IB(10) to the partnership firm, treating the amenities building ... Disallowance of the claim u/s. 80IB(10) - Held that:- The assessee has not violated any of the conditions of Sec. 80IB(10) to gain eligibility for claiming the deduction and hence both the authorities below erred by denying the deduction to the assessee. We, accordingly, allow the assessee’s claim of deduction on the above reason and direct the Assessing Officer to allow the deduction u/s. 80IB(10). We also make it clear that as the amenity building is treated as an independent project, the assessee is not entitled to include the profit earned from the sale of any of the unit in the said building for claiming the deduction u/s. 80IB(10). Issues Involved:1. Disallowance of the claim under Section 80IB(10) of the Income-tax Act.2. Admission of additional ground for pro-rata claim with reference to the eligible portion of the housing project.3. Determination of whether the amenities space constitutes commercial space and its impact on eligibility for deduction under Section 80IB(10).Detailed Analysis:1. Disallowance of the claim under Section 80IB(10) of the Income-tax Act:The assessee, a partnership firm engaged in the business of building and development, claimed a deduction of Rs. 11,618,359 under Section 80IB(10) for the Assessment Year (A.Y.) 2007-08. The Assessing Officer (AO) disallowed this claim, observing that the assessee violated Section 80IB(10)(d) by having a commercial area exceeding 2000 sq. ft. in the housing project. The AO noted that the total plot area was 4100 sq. mtrs., with 15% reserved for amenities space, which was used for constructing commercial buildings such as a bakery, consumer store, and others, thereby exceeding the permissible limit for commercial space. The AO concluded that the commercial establishments were an integral part of the housing project and disallowed the deduction.2. Admission of additional ground for pro-rata claim with reference to the eligible portion of the housing project:The Tribunal admitted the additional ground raised by the assessee, which sought a pro-rata deduction for the eligible portion of the housing project. The Tribunal followed the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. CIT, 229 ITR 283, stating that the additional ground raised a purely legal issue that could be adjudicated based on the facts available on record.3. Determination of whether the amenities space constitutes commercial space and its impact on eligibility for deduction under Section 80IB(10):The AO and the Commissioner of Income Tax (Appeals) [CIT(A)] both held that the amenities space constituted commercial space, thus disqualifying the assessee from claiming the deduction under Section 80IB(10). The CIT(A) noted that the commercial area approved in the 15% amenities space exceeded the limit provided under Section 80IB(10)(d), and the assessee's reliance on various tribunal decisions was misplaced as they were distinguishable on facts.The Tribunal, however, found merit in the assessee's argument that the amenities space was an independent project. The Tribunal noted that the original layout and building plan were sanctioned on 14-06-2004, before the amendment to Section 80IB(10) effective from 01-04-2005. It was observed that the subsequent acquisition of additional land and the revised plan sanctioned on 05-08-2006 constituted a new plan. The Tribunal concluded that the amenities building, constructed on a separately demarcated area of 1230 sq. mtrs., was an independent project, and the assessee had not sold any units in the amenities space. The Tribunal held that the assessee did not violate any conditions of Section 80IB(10) and was eligible for the deduction.Conclusion:The Tribunal allowed the assessee's appeal, directing the AO to allow the deduction under Section 80IB(10), treating the amenities building as an independent project. The Tribunal also clarified that the profit from the sale of any units in the amenities building should not be included in the eligible profit for claiming the deduction under Section 80IB(10).Pronouncement:The judgment was pronounced in the open Court on 16-12-2013.