Tribunal allows full deduction under Section 80IB(10) for residential project

The Tribunal upheld the CIT(A)'s decision to allow proportionate deduction for the residential portion of the project. It ruled in favor of the assessee, allowing the full claim of deduction under Section 80IB(10) for the residential project. The Tribunal directed the Assessing Officer to permit the entire deduction for the residential project, stating that conditions regarding commercial area limits introduced later were not applicable to projects approved before 1-4-2005.

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Issues Involved:
1. Disallowance of claim of deduction under Section 80IB(10) of the Income Tax Act, 1961.

Detailed Analysis:

1. Disallowance of Deduction under Section 80IB(10):

Background:
The assessee, engaged in the development and construction of housing projects, filed returns claiming deductions under Section 80IB(10) for a residential project named U.K. Residential. The project included both residential and commercial areas. The Assessing Officer (A.O.) disallowed the deduction based on several grounds, including the mixed-use approval and non-compliance with specific conditions of Section 80IB(10).

Assessee's Submissions:
- The project was approved as a residential project on a plot exceeding one acre.
- The residential units did not exceed the prescribed built-up area of 1500 sq. ft.
- The project was approved before the amendment specifying limits on commercial areas.
- Separate books of accounts were maintained for the residential and commercial projects.
- The assessee claimed that the commercial area was within permissible limits as per local authority regulations.

Assessing Officer's Disallowance Reasons:
- The project was approved as a mixed-use project (residential and commercial).
- The project was not completed within the specified time, and the completion certificate was not obtained from the competent authority.
- The commercial area exceeded the prescribed limit of 5% of the total built-up area or 2000 sq. ft., whichever is lower.
- Built-up area of three residential row houses exceeded 1500 sq. ft.
- The project was not completed before the specified date due to ongoing construction in the commercial area.
- The conditions of Section 80IB(10) were not satisfied, thus denying even proportionate deduction.

CIT(A) Observations and Decision:
- The CIT(A) allowed proportionate deduction for the residential portion, holding that the project was approved as a residential project before the amendment specifying commercial area limits.
- The completion certificates from local authorities and applications for the same before the specified date were considered sufficient.
- Proportionate deduction was allowed where the commercial area exceeded the prescribed limit, following judicial precedents.
- The built-up area of three row houses was within limits as per Development Control (DC) rules, excluding open terrace areas.
- The CIT(A) treated U.K. Residential and U.K. Commercial as separate projects, allowing deduction for the residential project.

Tribunal's Decision:
- The Tribunal upheld the CIT(A)'s decision to allow proportionate deduction for the residential portion of the project.
- For projects approved before 1-4-2005, the conditions regarding commercial area limits introduced later were not applicable.
- The Tribunal directed the A.O. to allow the full claim of deduction under Section 80IB(10) for the entire residential project.
- The Tribunal also confirmed that the completion certificate requirement was not applicable for projects approved before 1-4-2005.
- The built-up area of row houses was correctly calculated as per DC rules, excluding open terrace areas.
- The Tribunal affirmed that U.K. Residential and U.K. Commercial were separate projects, and the deduction for the residential project was valid.

Conclusion:
The Tribunal ruled in favor of the assessee, allowing the full claim of deduction under Section 80IB(10) for the residential project. The appeals of the Revenue were dismissed, and the order was pronounced on 20th February 2015.

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