Tribunal upholds deduction for compliant buildings under section 80IB(10)

The Tribunal upheld the First Appellate Authority's decision to allow the deduction under section 80IB(10) on a proportionate basis for compliant buildings and units. The Tribunal also directed a fresh adjudication on the permissible size of flats in relation to the project's distance from the City of Mumbai. The Assessing Officer's appeal was dismissed, and the assessee's cross-objection was partly allowed.

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Issues Involved:
1. Justification of CIT(A) in allowing deduction u/s 80IB(10) for AY 2007-08.
2. Denial of deduction u/s 80IB(10) for profits derived from three floors of building Nilgiri.
3. Denial of deduction u/s 80IB(10) for units exceeding the permissible built-up area.

Issue-wise Detailed Analysis:

1. Justification of CIT(A) in Allowing Deduction u/s 80IB(10) for AY 2007-08:
The Assessing Officer (AO) disallowed the entire deduction claimed by the assessee under section 80IB(10) due to two main reasons: the delay in obtaining the Occupation Certificate (OC) and the size of certain flats exceeding the permissible limit. The AO noted that the project, Cosmos Hills, had its first approval on 26.12.2003 and was required to complete construction and obtain OC by 31.03.2008. However, the OC for three floors of Nilgiri was issued on 09.04.2009. Additionally, the AO found that certain flats exceeded the 1000 sq ft limit as per the report of a Government-approved valuer.

The First Appellate Authority (FAA) held that the project consisted of four buildings, and except for the three floors of Nilgiri, the OC for all buildings was obtained before 31.03.2008. The FAA relied on the decisions in Vandana Properties and Saroj Sales Organisation, concluding that each building could be considered an independent housing project. Therefore, the FAA allowed the deduction proportionately for the completed units with OC before 31.03.2008, except for the three floors of Nilgiri.

2. Denial of Deduction u/s 80IB(10) for Profits Derived from Three Floors of Building Nilgiri:
The FAA upheld the AO's decision to deny the deduction for the profits derived from the 10th, 11th, and 12th floors of Nilgiri because the OC for these floors was obtained after the deadline of 31.03.2008. The Departmental Representative (DR) argued that the OC was received late and that the valuer's report indicated flats exceeding the permissible area. The Authorised Representative (AR) contended that the deduction should be allowed for the buildings with OC obtained before the due date and that the modifications in the flats were made by the purchasers, not the assessee.

The Tribunal found that the FAA was justified in allowing the deduction for the completed buildings with OC before the due date, as the section 80IB(10) is a benevolent legislation aimed at encouraging housing development. The Tribunal upheld the FAA's decision to allow the deduction proportionately, except for the three floors of Nilgiri.

3. Denial of Deduction u/s 80IB(10) for Units Exceeding the Permissible Built-up Area:
The AO disallowed the deduction for the entire project based on the valuer's report that certain flats exceeded the 1000 sq ft limit. The FAA, however, held that the deduction should not be denied for the entire project due to a few non-compliant units. The FAA directed the AO to allow the deduction on a pro-rata basis for the compliant units.

The Tribunal agreed with the FAA, noting that the valuer's method of adding 20% to the carpet area was not in line with the definition of "built-up area" in section 80IB(14)(a). The Tribunal cited the Karnataka High Court decision in G.R. Developers, which clarified that the definition of "built-up area" should be strictly construed. The Tribunal also referred to various cases supporting proportionate disallowance, including Vandana Properties and Viswas Promoters (P) Ltd., where it was held that eligible units within a project could claim deduction proportionately.

The Tribunal concluded that the AO was not justified in denying the entire claim and upheld the FAA's decision for proportionate deduction.

Conclusion:
The Tribunal upheld the FAA's decision to allow the deduction u/s 80IB(10) on a proportionate basis for the buildings and units that met the required conditions. The Tribunal also remitted the issue of the project's distance from the City of Mumbai back to the FAA for fresh adjudication to determine if the permissible size of the flats should be 1500 sq ft instead of 1000 sq ft. The appeal by the AO was dismissed, and the cross-objection by the assessee was partly allowed.

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