Tribunal grants full deduction under Section 80IB(10) for housing project, buyers' modifications don't affect eligibility.

The Tribunal granted the full deduction under Section 80IB(10) to the assessee for the entire housing project, dismissing the revenue's appeal for pro-rata deduction. Post-sale modifications by buyers did not impact the eligibility for deduction as long as the original construction adhered to approved plans and statutory conditions.

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Issues Involved:
1. Eligibility for deduction under Section 80IB(10) of the Income Tax Act.
2. Interpretation of the built-up area condition under Section 80IB(10).
3. Impact of post-sale modifications by buyers on eligibility for deduction.
4. Pro-rata deduction for eligible parts of the project.

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 80IB(10):
The primary issue was whether the assessee was eligible for the deduction under Section 80IB(10) of the Income Tax Act. The assessee, an AOP, developed a housing project named "Garden Estate" with two wings, A and B, each consisting of 1-BHK to 3-BHK flats, all approved with built-up areas of less than 1000 sq. ft. The project was approved in A.Y. 2005-06 and completed before March 2009. During a survey, it was found that some 1-BHK flats were constructed in a manner that allowed them to be combined into duplex flats, potentially exceeding the 1000 sq. ft. limit. The Assessing Officer (AO) interpreted this as a violation of Section 80IB(10) and denied the deduction.

2. Interpretation of the Built-up Area Condition:
The AO argued that the provision of a "square-shaped hole" between two 1-BHK flats and the impounded brochure indicating a duplex floor plan suggested the intention to sell duplex flats, thus violating the built-up area condition. The assessee contended that each 1-BHK flat was constructed and sold independently, and any post-sale modifications by buyers to combine flats into duplexes should not affect the eligibility for deduction. The CIT(A) partially accepted the assessee's contention but denied the deduction for profits attributable to the 18 flats that were converted into duplexes.

3. Impact of Post-sale Modifications by Buyers:
The assessee argued that the modifications to combine flats into duplexes were made by buyers after taking possession and were not part of the original construction plan. The AO's investigation confirmed that some flats were not combined, and others were combined at the buyers' request after possession. The Tribunal found that the assessee's provision for a hole and a single kitchen was a marketing strategy and not a violation of Section 80IB(10). The Tribunal emphasized that the assessee constructed and sold the flats as per the approved plan, and any post-sale modifications by buyers should not affect the deduction eligibility.

4. Pro-rata Deduction for Eligible Parts of the Project:
The AO, without prejudice, suggested that if the assessee was found ineligible for the entire deduction, a pro-rata deduction should be allowed for the portion of the project that complied with Section 80IB(10). The CIT(A) upheld this view, allowing a pro-rata deduction for 92.75% of the project. However, the Tribunal, considering the binding judicial precedents, concluded that the assessee was entitled to the full deduction under Section 80IB(10) for the entire project, as the original construction complied with the approved plans.

Conclusion:
The Tribunal allowed the appeal of the assessee, granting the full deduction under Section 80IB(10) for the entire project, and dismissed the revenue's appeal for pro-rata deduction. The Tribunal emphasized that post-sale modifications by buyers should not affect the eligibility for deduction if the original construction complied with the approved plans and conditions of Section 80IB(10).

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