2016 (12) TMI 1669 - AT - Income Tax

Appeal Dismissed on Section 80IB(10) Amendment | Deduction Allowed for Assessee | Penalty Partially Restricted

The Revenue's appeal against the non-consideration of amended provisions of Section 80IB(10) was dismissed as the Tribunal held that the amendment did not ... Deduction under section 80IB(10) - Prospective application of statutory amendment - Vested rights derived from project approval - Definition of 'built-up area' and its non-retrospective effect - Allowance of deduction where project approved prior to amendment - Penalty under section 221(1) of the Act - Condonation of delay for filing cross-objectionDeduction under section 80IB(10) - Prospective application of statutory amendment - Vested rights derived from project approval - Allowability of deduction under section 80IB(10) in respect of residential units of a housing project approved on 03/07/2003 - HELD THAT: - The Tribunal held that the restriction introduced by the amendment effective 01/04/2005 (including clause (d) and the newly defined 'built-up area') is inextricably linked to the date of approval of a housing project and therefore cannot be applied to projects approved prior to 01/04/2005. Following the reasoning in Sarkar Builders and the jurisdictional decisions (including Brahma Associates), the law as it stood at the time of approval governs the entitlement; assessees who obtained approval as housing projects before the amendment acquired vested expectations which the Revenue cannot defeat by applying later amendments prospectively to earlier approvals. Consequently, the claimed deduction in respect of residential flats for the project sanctioned on 03/07/2003 was held allowable. [Paras 2]Claimed deduction under section 80IB(10) for the residential portion of the project approved on 03/07/2003 is allowed.Deduction under section 80IB(10) - Allowance of deduction where project approved prior to amendment - Treatment of deduction in respect of commercial portion/shops of the composite project - HELD THAT: - The Tribunal found factual discrepancy between areas stated in the commencement certificate and the occupancy certificate (different totals and residential/commercial split). Because of this confusion in the factual matrix, the Tribunal did not decide the allowability of deduction on the commercial portion on merits but directed the assessee to file details before the Assessing Officer. The Assessing Officer was directed to examine the claim in accordance with law (including relevant High Court and Supreme Court decisions), give the assessee a hearing, and verify the factual area calculations before concluding. [Paras 3]Issue remanded to the Assessing Officer for verification of area and fresh consideration in accordance with law; appeal allowed for statistical purposes.Penalty under section 221(1) of the Act - Validity of penalty levied under section 221(1) for default in payment of tax demand arising from disallowance of deduction - HELD THAT: - The Tribunal observed that the principal basis for the penalty-disallowance of the substantial portion of deduction under section 80IB(10)-no longer subsists because the deduction for the residential portion was allowed and the commercial portion was remanded for verification. Section 221(2) mandates cancellation and refund of penalty where, as a result of a final order, the tax in respect of which penalty was levied has been wholly reduced. Given that the substantial basis for the penalty disappeared and the remaining dispute was sent back for factual verification, the Tribunal concluded that the assessee could not be regarded as in default for penalty purposes and that the penalty did not survive. [Paras 4]Penalty imposed under section 221(1) is deleted; Revenue's appeal challenging the restriction is dismissed.Condonation of delay for filing cross-objection - Application for condonation of nine days' delay in filing cross-objection - HELD THAT: - Applying the settled principle that 'sufficient cause' should receive liberal construction to advance substantial justice and having regard to the bona fide reasons averred and precedents condoning delays in similar circumstances, the Tribunal exercised its discretion to condone the nine-day delay. The Tribunal emphasized that refusal to condone delay may bar meritorious matters and that a judicious, liberal approach is warranted where delay is bona fide and not mala fide or due to inordinate negligence. [Paras 5]Delay in filing the cross-objection is condoned and the cross-objection is allowed to the extent it sought deletion of the penalty.Final Conclusion: For Assessment Year 2006-07 the Tribunal allowed the deduction under section 80IB(10) in respect of the residential portion of the project approved on 03/07/2003, remanded the question of deduction for the commercial portion to the Assessing Officer for factual verification, set aside and directed deletion of the penalty levied under section 221(1), condoned the delay in filing the cross-objection and accordingly dismissed Revenue appeals and allowed the assessee's cross-objection as recorded in the operative order. Issues Involved:1. Non-consideration of amended provisions of Section 80IB(10) of the Income Tax Act, 1961.2. Partial denial of claim of deduction under Section 80IB(10) for the commercial portion of the housing project.3. Restriction of penalty imposed under Section 221(1) of the Act.4. Condonation of delay in filing the cross objection.Detailed Analysis:1. Non-consideration of Amended Provisions of Section 80IB(10):The Revenue appealed against the non-consideration of the amended provisions of Section 80IB(10) effective from 01/04/2005 on housing projects approved before 01/04/2004. The project in question was sanctioned in 2003 and completed in 2006. The Tribunal noted that the amendment made by the Finance Act does not apply to projects approved before 01/04/2004. The Tribunal referenced the Supreme Court decision in the case of Sarkar Builders, which established that the amendment has no retrospective effect. The Tribunal concluded that the law prevailing at the time of project approval (pre-01/04/2005) would apply, and thus, the Revenue cannot deny the benefit of Section 80IB(10) based on the amended provisions.2. Partial Denial of Claim of Deduction under Section 80IB(10):The assessee contested the partial denial of deduction amounting to Rs. 1,30,87,088/- for the commercial portion of the housing project. The Tribunal found that the project was approved as a composite project (residential and commercial) and that the First Appellate Authority's finding of separate sanction plans was factually incorrect. However, there was confusion regarding the area mentioned in different documents. The Tribunal directed the assessee to submit necessary details to the Assessing Officer and instructed the Officer to re-examine the claim in accordance with the law, considering relevant judicial precedents.3. Restriction of Penalty Imposed under Section 221(1):The Revenue challenged the restriction of penalty imposed under Section 221(1) from Rs. 43,25,013/- to Rs. 4,38,383/-. The Tribunal noted that the major dispute was regarding the allowability of deduction under Section 80IB(10), which had been decided in favor of the assessee for the residential portion. Given the confusion over the commercial area, the Tribunal found that the basis for the penalty no longer existed. The Tribunal cited Section 221(2) which states that if the tax demand is reduced as a result of a final order, the penalty should be canceled. Consequently, the Tribunal upheld the partial restriction of the penalty.4. Condonation of Delay in Filing the Cross Objection:The assessee filed a cross objection with a delay of 9 days, which the Revenue opposed. The Tribunal, referencing several Supreme Court decisions, adopted a liberal approach towards condonation of delay, emphasizing that substantial justice should prevail over technicalities. The Tribunal found the reasons for the delay bona fide and condoned the delay. On the merits, since the penalty basis no longer existed, the Tribunal directed the Assessing Officer to delete the full penalty imposed under Section 221(1).Final Orders:a. ITA No.8803/Mum/2011 (Revenue's appeal) is dismissed.b. ITA No.8750/Mum/2011 (Assessee's appeal) is allowed for statistical purposes.c. ITA No.1445/Mum/2012 (Revenue's appeal) is dismissed.d. C.O. No.60/Mum/2013 (Assessee's cross objection) is allowed.This order was pronounced in the open court on 19/12/2016.