2014 (9) TMI 122 - AT - Income Tax

Tribunal grants deductions for separate project under Section 80IB(10)

The Tribunal allowed the assessee's appeals for A.Ys. 2003-04, 2004-05, 2005-06, and 2007-08, recognizing buildings 'A to F' as a separate project ... Deduction u/s 80IB(10) – Profits arising from construction of buildings – Held that:- The completion certificate was applied for before 31-3-2008 i.e. on 12-3-2008 - the application of the assessee has been approved by the local authority without raising any amendment or objection, as has been asserted by the assessee all along and the delayed issuance of the completion certificate by the local authority on 5-5-2008, albeit after the mandated date of 31- 3-2008 cannot be attributed to the assessee - the assessee has complied with the condition of completing the construction of the project within the mandated date of 31-3-2008 even with regard to building 'E' - the order of the CIT(A) denying the benefit of deduction u/s.80IB(10) for non-receipt of completion certificate is set-aside – Decided in favour of Assessee. Deduction u/s 80IB(10) - Building Nos. B and F not constructed – Held that:- The buildings A, C, D, E and the 17 row houses are constructed on a plot area of more than 1 acre, none of the flats/row houses is beyond 1500 sq.ft. and the completion thereof has been over before 31-03-2008 – relying upon M/s. Rahul construction Co. Vs. ITO [2012 (6) TMI 319 - ITAT PUNE] - whatever portion completed by the assessee which satisfies the conditions prescribed u/s.80IB(10) is eligible for deduction - the assessee is eligible for deduction u/s.80IB(10) in respect of building No. A,C,D, E and the 17 row houses – Decided in favour of assessee. Once it has been held that the assessee is entitled to claim deduction u/s.80IB(10) of the Act with regard to buildings 'A to F' which were completed before prescribed limit of time and complied all conditions laid down under the provisions of section 80IB(10) of the Act - The assessee's claim for deduction will not be effected even if the assessee has not constructed buildings G & I because the assessee claim u/s.80IB(10) of the Act is justified in respect of Buildings 'A to F' on standalone basis. The buildings J & H were retained by partners of the assessee and no question of claim u/s.80IB(10) of the Act arises - The claim of the assessee in respect of building cannot be denied in respect of buildings 'A to F' irrespective of the fact that area of buildings / Bungalows J & H exceeded 1500 sq. ft. in respect to which, no claim has been made - the assessee is entitled for deduction u/s 80IB(10) of the Act in respect of profits arising from construction of buildings 'A to F' for A.Y. 2006-07 which constituted separate independent project – Decided in favour of assessee. Comparability of profitability between different projects – Held that:- It was only in this assessment year that the gross profit rate appears to be much different, but it has been explained by various factors by the assessee - The indirect expenses which have been allocated in the Shivanand Garden Project is now reduced - The reallocation, which results in a reduction in expenditure in the Shivanand Garden Project, has resulted in enhancement of the profit – thus, the addition in respect of the profits of the Shivanand Garden Project is sustained and the remaining was deleted – Decided against Revenue. Issues Involved:1. Rejection of deduction claim under Section 80IB(10) for profits from construction.2. Determination of whether buildings 'A to F' constituted a separate project.3. Completion status of the entire project by the stipulated time.4. Proportionate deduction for partially completed projects.5. Allocation of indirect costs between two projects.Detailed Analysis:1. Rejection of Deduction Claim under Section 80IB(10):The assessee, a firm engaged in residential project development, claimed a deduction of Rs. 1,45,90,939/- under Section 80IB(10) for profits from constructing buildings 'A to F'. The Assessing Officer (AO) disallowed this claim, stating that the project, including buildings 'A to J', was not completed by the stipulated date of 31.03.2008. The CIT(A) upheld this decision, noting that the project approval was dated 17.03.2004, and the completion certificate for building 'G' was not available, while buildings 'H' and 'J' exceeded the permissible built-up area limits.2. Determination of Separate Project Status:The assessee argued that buildings 'A to F' constituted a separate project and met all Section 80IB(10) conditions. It was highlighted that buildings 'G' and 'I' were not constructed, and 'J' and 'H' were retained by partners, thus not part of the project for deduction purposes. The presence of a road separating buildings 'A to F' from 'J' and 'H' further supported this segregation. The Tribunal referenced similar cases, such as Runwal Multihousing Pvt. Ltd. vs. ACIT, where separate projects within a larger development were recognized for deductions.3. Completion Status of the Entire Project:The AO's rejection was partly based on the non-completion of building 'G' and the excess built-up area of buildings 'H' and 'J'. The Tribunal noted that buildings 'A to F' were completed before the deadline, and the non-completion of 'G' and 'I' or the excess area of 'H' and 'J' should not affect the deduction eligibility for 'A to F'. The Tribunal cited precedents where delays in completion certificates, not attributable to the assessee, did not bar deductions.4. Proportionate Deduction for Partially Completed Projects:The Tribunal acknowledged that buildings 'A to F' were completed on time and should be considered for proportionate deduction. The decision in Runwal Multihousing Pvt. Ltd. supported this view, allowing deductions for completed sections of a project even if other sections were incomplete or not constructed.5. Allocation of Indirect Costs:For A.Y. 2005-06, the CIT(A) addressed the allocation of indirect costs between the Shivanand Garden and Dayanand Garden projects. The AO had reallocated indirect costs in a 40:60 ratio based on turnover, instead of the 70:30 ratio used by the assessee. The CIT(A) upheld this reallocation, resulting in an addition of Rs. 8,92,604/- to the Shivanand Garden project's profits. The Tribunal found this reallocation justified and upheld the CIT(A)'s decision.Conclusion:The Tribunal allowed the assessee's appeals for A.Ys. 2003-04, 2004-05, 2005-06, and 2007-08, recognizing buildings 'A to F' as a separate project eligible for deductions under Section 80IB(10). The Tribunal dismissed the revenue's appeal for A.Y. 2005-06, upholding the CIT(A)'s reallocation of indirect costs.