Appeal partially allowed for section 80-IB(10) deduction, violation in some units doesn't disqualify entire project

The Tribunal allowed the appeal partially, directing the Assessing Officer to allow the deduction under section 80-IB(10) proportionately for residential units that complied with the prescribed built-up area limit, despite the violation in certain units. The order denying the deduction was set aside, emphasizing that the violation in a few units should not disqualify the entire project from receiving the deduction.

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Issues Involved:
1. Denial of deduction under section 80-IB(10) of the Income-tax Act, 1961.
2. Completion date of the housing project.
3. Built-up area of residential units exceeding the prescribed limit.

Detailed Analysis:

1. Denial of Deduction under Section 80-IB(10):
The primary issue in this appeal is the denial of the assessee's claim for deduction under section 80-IB(10) of the Income-tax Act, 1961, amounting to Rs. 14,28,01,695/-. The assessee, a partnership firm engaged in the business of promoters, builders, and developers, claimed this deduction for profits derived from a housing project named 'Rohan Tapovan' in Pune for the assessment year 2007-08. The Assessing Officer denied this claim on two grounds: non-completion of the project by the stipulated date and violation of the built-up area limit for certain residential units.

2. Completion Date of the Housing Project:
The Assessing Officer contended that the project was not completed by 31-3-2008 as required under section 80-IB(10)(a)(i). However, the Commissioner of Income-tax (Appeals) [CIT(A)] accepted the assessee's plea that the applicable completion date was under clause (ii) of section 80-IB(10)(a), which was met. Thus, this objection was resolved in favor of the assessee.

3. Built-up Area Exceeding the Prescribed Limit:
The second ground for denial was that the built-up area of certain residential units exceeded 1500 sq.ft., violating clause (c) of section 80-IB(10). The Revenue argued that the built-up area of 3 flats in Building 'A' and 14 flats in Building 'B' exceeded the limit. The assessee contended that these units exceeded the limit only after combining two flats at the buyers' request, and each unit was sold separately. Despite this, the Assessing Officer and CIT(A) held that the combination occurred during the construction phase, thus violating the condition.

Proportionate Deduction:
The assessee argued that even if the violation for 17 flats was upheld, the deduction should be allowed proportionately for the remaining units that complied with the limit. The assessee cited several decisions supporting this view, including those from M/s. Ekta Housing Pvt. Ltd., Sanghavi & Doshi Enterprises, Bengal Housing Development Ltd., and D.S. Kulkarni Developers Ltd.

Revenue's Stand:
The Revenue maintained that any violation in a single unit disqualifies the entire project from the deduction, citing the Chennai Bench decision in ACIT Vs. Vishwas Promoters P. Ltd. and the implied support from the Hon'ble High Court of Madras.

Tribunal's Analysis:
The Tribunal examined the precedents and found that the Hon'ble High Court of Madras did not substantively uphold the Chennai Bench's view. The Tribunal also noted that the Hon'ble Bombay High Court's decision in Vandana Properties did not address the issue of proportionate deduction. The Tribunal relied on the Calcutta Bench's decision in Bengal Ambuja Housing Development Ltd., which allowed pro-rata deduction for qualifying units, a view upheld by the Calcutta High Court.

Conclusion:
The Tribunal concluded that the assessee should not be denied the entire deduction due to the violation concerning 17 flats. The deduction under section 80-IB(10) should be allowed proportionately for the units that complied with the prescribed built-up area limit. The order of the CIT(A) was set aside, and the Assessing Officer was directed to re-work and allow the deduction proportionately.

Decision:
The appeal was partly allowed, and the decision was pronounced in the open court on 31st January 2013.

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