2012 (11) TMI 344 - AT - Income Tax

Assessment appeals dismissed for violating Section 80IB(10)

The Tribunal dismissed appeals by both the department and the assessee for the assessment years 2007-08 and 2008-09, upholding the CIT(A)'s order. It was ... Deduction under section 80IB(10) - Built-up area definition - Inclusion of projections and balconies in built-up area - Substance over form: survey findings v. municipal plan and separate agreements - Pro-rata deduction for eligible residential units - Applicability of post-enactment explanatory amendment to completed projectsSubstance over form: survey findings v. municipal plan and separate agreements - Deduction under section 80IB(10) - Whether adjoining flats sold by separate agreements but physically combined and offered as a single larger unit fall outside eligibility for deduction under section 80IB(10) - HELD THAT: - Tribunal upheld the conclusion of the authorities below that where physical inspection and surrounding circumstances demonstrate adjoining flats were combined and marketed/used as a single unit, the transaction must be treated on its substance rather than the apparent municipal plan or separate sale agreements. The brochure offering buyers the option to combine units, the survey measurements showing combined units exceeding the prescribed area, and admission that municipal authorities were not informed of plan changes justified treating combined flats as a single unit and denying eligibility under section 80IB(10). The Tribunal relied on direct observation of the survey team and precedents holding that apparent documents cannot mask the real transaction, and therefore sustained the finding that some units exceeded the prescribed limit and violated conditions for the deduction. [Paras 18, 19]Adjoining flats that were in substance combined into single larger units are not to be treated as separate eligible units for deduction under section 80IB(10).Built-up area definition - Inclusion of projections and balconies in built-up area - Applicability of post-enactment explanatory amendment to completed projects - Whether projections/elevations/balconies are includible in the built-up area for computing eligibility under section 80IB(10) for the assessment years in question - HELD THAT: - Tribunal agreed with the CIT(A) and AO that the extended areas (projections/elevations/balconies), which in the case at hand were only a few inches above floor level and usable, constitute part of the built-up area and are to be included in measuring the unit. Booking particulars and impounded documents showing the area sold reinforced that projections formed part of the area enjoyed exclusively by buyers. The Tribunal also held that the explanatory definition inserted by Finance (No.2) Act, 2004 w.e.f. 01-04-2005 is clarificatory and applicable to the projects completed in FY 2006-07; consequently, the assessments under consideration fall to be governed accordingly and the projections cannot be excluded. [Paras 20]Projections/elevations/balconies (as measured in the case) are includible in the built-up area for computing eligibility under section 80IB(10).Pro-rata deduction for eligible residential units - Deduction under section 80IB(10) - Whether deduction under section 80IB(10) can be allowed on a pro-rata basis where a housing project contains both eligible smaller units and larger units exceeding the prescribed built-up area - HELD THAT: - Having reviewed precedents (including ITAT decisions and a High Court order upholding such view), the Tribunal held that where a housing complex contains both units within and units exceeding the prescribed limit, the profits attributable to eligible residential units may be allowed deduction on a pro-rata basis. The Tribunal affirmed the CIT(A)'s direction to the AO to recompute the deduction proportionately in respect of flats not exceeding 1000 sq. ft., observing that several judicial decisions support allowing relief for profits attributable to the eligible units even if other units are ineligible. [Paras 21, 22]Deduction under section 80IB(10) is allowable on a pro-rata basis in respect of those residential units which do not exceed the prescribed built-up area limit.Deduction under section 80IB(10) - Applicability of post-enactment explanatory amendment to completed projects - Whether the conclusions reached for assessment year 2007-08 apply equally to assessment year 2008-09 - HELD THAT: - The Tribunal noted that the grounds and facts for 2008-09 were identical to 2007-08 and, having addressed the determinative issues (combination of flats, inclusion of projections in built-up area, and pro-rata entitlement) for 2007-08, the same reasoning and conclusions were applied to 2008-09. Therefore the CIT(A) order for 2008-09 was upheld for the same reasons as earlier set out. [Paras 24]Order of the CIT(A) for assessment year 2008-09 is upheld for the same reasons as for assessment year 2007-08.Final Conclusion: The Tribunal dismissed both appeals and upheld the CIT(A)'s orders for assessment years 2007-08 and 2008-09: (i) combined adjoining flats found to be single larger units are ineligible under section 80IB(10); (ii) projections/elevations/balconies in the facts of this case are includible in built-up area; and (iii) deduction under section 80IB(10) is allowable on a pro-rata basis for units not exceeding the prescribed built-up area, with directions to recompute accordingly. Issues Involved:1. Eligibility for deduction under Section 80IB(10) of the Income Tax Act.2. Inclusion of projections and balconies in the built-up area.3. Pro-rata deduction for units exceeding the prescribed area limit.Detailed Analysis:1. Eligibility for Deduction under Section 80IB(10):The primary issue revolves around the eligibility of the assessee for deduction under Section 80IB(10) of the Income Tax Act. The department disallowed the deduction on the grounds that some residential units exceeded the prescribed built-up area of 1000 sq. ft. The assessee argued that the units were constructed and sold separately, and any combination of units by the purchasers after possession was beyond the control of the builder. The CIT(A) held that the assessee had combined 30 1-BHK flats into larger units, violating the provisions of Section 80IB(10). The Tribunal upheld the CIT(A)'s finding, noting that the assessee's brochures offered the option to combine flats, indicating an intention to construct units exceeding 1000 sq. ft.2. Inclusion of Projections and Balconies in the Built-up Area:The next issue was whether projections and balconies should be included in the built-up area. The assessee contended that these should be excluded, especially since the definition of built-up area under Section 80IB(14)(a) was inserted effective from 1.4.2005, and the project was approved before this date. The CIT(A) disagreed, stating that the projections and balconies were part of the residential unit and used exclusively by the buyers. The Tribunal upheld this view, stating that the projections and balconies, even if slightly elevated, should be included in the built-up area calculation. The Tribunal also noted that the definition of built-up area introduced by the Finance (No.2) Act, 2004, was explanatory and applicable to the assessment year in question.3. Pro-rata Deduction for Units Exceeding the Prescribed Area Limit:The final issue was whether the assessee could claim a pro-rata deduction for units that did not exceed the 1000 sq. ft. limit, even if some units did. The CIT(A) allowed a pro-rata deduction, relying on various Tribunal decisions, including Sheth Developers (P) Ltd and Brigade Enterprises. The Tribunal upheld this decision, referring to the ITAT Kolkata's decision in Bengal Ambuja Housing Development, which allowed pro-rata deductions for eligible units despite some units exceeding the prescribed limit. The Tribunal dismissed the department's appeal against the pro-rata deduction, affirming the CIT(A)'s order.Conclusion:The Tribunal dismissed the appeals filed by both the department and the assessee for the assessment years 2007-08 and 2008-09, upholding the CIT(A)'s order. The Tribunal confirmed that the assessee violated Section 80IB(10) by combining flats into larger units, included projections and balconies in the built-up area, and allowed pro-rata deductions for eligible units.