2017 (3) TMI 1790 - AT - Income Tax

Tribunal grants deduction under section 80IB(10) for compliant units, emphasizes verification for accurate assessment.

M/s. Parmar Properties Pvt. Ltd. Versus DCIT, Circle 4, Income Tax Officer (Tech) -II, Pune

The Tribunal partly allowed the appeals, directing the AO to verify the built-up areas of the tenements and grant a proportionate deduction under section ... Deduction u/s 80IB(10) - proof of construction - permission given by the PMC for construction of proposed building at the site of the assessee - whether assessee had received the permission to construct the building prior to 01.10.1998 ? - HELD THAT:- Where the assessee has got permission on 19.12.1998 to construct the building, then the assessee has fulfilled the basic conditions laid down in section 80IB(10) of the Act in order to avail the benefits of the said section; since the deduction under the said section is available to such projects which commenced construction on or after 01.10.1998. The previous commencement certificates were in respect of layout plan of the said project and are at variance with the commencement certificate issued for construction of building and in such circumstances, it could not be held that the assessee had received the permission to construct the building prior to 01.10.1998 and hence, was not eligible for claiming the deduction under section 80IB(10). We find no merit in the orders of authorities below in this regard. We hold that where the permission has been granted to the assessee for the first time for constructing the building vide commencement certificate No.2098, dated 19.12.1998, the assessee fulfills the basic conditions of starting the project on or after 01.10.1998 and hence, is eligible to claim the deduction u/s 80IB(10) Assessee had incurred certain expenses which are on account of several activities including payment of land development charges, Architect fees, MSEB, bore well drilling charges, designing and development of press advertisements and the advertisement charges, designing of brochures and also purchase of GI sheets, bricks, water storage tanks, etc and also invitation cards for Bhoomi Puja - Activity to construct would only happen once the permission is received by the assessee i.e. building plan commencement certificate. The authorities below have also referred to certain communication of the Architect that the development had started prior to 1998 and the site visits on 01.08.1997 and 25.08.1997 which as per authorities below is the factum of commencement in addition to excavation and construction of roads prior to 01.04.1998. The above said stand of authorities below gets demolished by the revised layout plan issued by the PMC on 24.06.1998 which admittedly, is an approval for layout of the land. The said commencement certificate clearly mentions that it is valid for a period of one year, under which all the terms and conditions mentioned in the commencement certificate have to be complied with by the assessee. It also mentions that earlier sanction granted if any, is cancelled meaning thereby that even if certain sanction was given by the PMC, the same stands cancelled by the revised layout commencement certificate issued on 24.06.1998. Accordingly, the stand of authorities below in respect of activities carried on prior to that date does not stand. We have already held in the paras hereinabove that there is distinction between the layout sanction and the building sanctioned plan and in the case of assessee, commencement certificate dated 19.12.1998 is the sanction granted by the local authority to construct the building and the date of start of project is dated 19.12.1998, which falls within pre-conditions laid down in section 80IB(10) of the Act and hence, the assessee is eligible to claim the deduction. Whether the assessee has deviated from the sanctioned building plans and had constructed the flats having area more than 1500 sq.ft. or change the usage of sanctioned flats from the residential to commercial? - Assessee is entitled to claim the deduction in respect of such flats which fulfill the conditions laid down in section 80IB(10) of the Act i.e. having residential use and having total area of 1500 sq.ft. within boundaries of the flats. Merely because the assessee has merged flats but in case the area of merged flats is within prescribed limit of 1500 sq.ft., then such flats are eligible for deduction under section 80IB(10) of the Act and in this regard of merger of flats, there is mechanism provided by the municipal authorities, wherein suitable fines and fees are levied after the assessee submits the record plans. Even if the assessee has made extra construction than the approval received from the local authority, then such extra construction has to be looked into by the municipal authorities and the Income Tax authorities are to ensure that the conditions laid down under section 80IB(10) of the Act are fulfilled in respect of such flats for which the said deduction is to be allowed. Where the area of flat is more than 1500 sq.ft., the assessee is not entitled to the deduction, having not fulfilled the conditions of said section. In this regard, we place reliance on the ratio laid down in Bangalore Bench of Tribunal in ITO Vs. Mahaveer Calyx [2012 (11) TMI 508 - ITAT BANGALORE] Usage i.e. extra commercial usage as against sanctioned commercial usage - Again this facet is to be looked into by State Authorities. The assessee before us has not claimed deduction on account of units of commercial usage. Area of flat - As per the provisions of the Statute in the relevant years, it is the area within four boundaries which has to be taken into consideration and if the same is up to 1500 sq.ft., then the assessee is entitled to avail the deduction, in case it exceeds 1500 sq.ft., then the deduction to such units can be denied. The denial of deduction under section 80IB(10) of the Act is unit-wise. In other words, the assessee is entitled to prorata deduction under section 80IB(10) of the Act in respect of all those residential units which fulfill the conditions laid down in the section of having built up area of 1500 sq.ft. Accordingly, the Assessing Officer is directed to verify the claim of assessee through the DVO and after affording reasonable opportunity of hearing to the assessee. The Assessing Officer is also directed to allow prorata deduction under section 80IB(10) of the Act to the assessee in respect of such units which fulfill the conditions. All the other units which do not fulfill the conditions of area of 1500 sq.ft. are not entitled to the said deduction. We hold so. The tenements in B1 and C3 building admittedly, have not fulfilled the conditions and are not eligible for deduction. Accordingly, grounds of appeal raised by the assessee vis-à-vis deduction claimed under section 80IB(10) of the Act are partly allowed. Issues Involved:1. Disallowance of deduction under section 80IB(10) of the Income-tax Act, 1961.2. Commencement of the housing project before 01/10/1998.3. Built-up area of tenements exceeding 1500 square feet.4. Construction of tenements not fulfilling conditions laid down in section 80IB(10).5. Denial of opportunity for cross-verification of parties/customers.6. Proportionate deduction under section 80IB(10) for compliant tenements.Detailed Analysis:1. Disallowance of Deduction under Section 80IB(10):The core issue in both appeals is the disallowance of the deduction claimed under section 80IB(10) of the Act. The assessee had claimed a deduction of Rs. 4,09,79,023/- for the project 'Parmar Garden'. The Assessing Officer (AO) disallowed the deduction, noting that certain tenements exceeded the built-up area of 1500 square feet, and that the project commenced before the stipulated date of 01/10/1998.2. Commencement of the Housing Project Before 01/10/1998:The AO noted that the commencement certificate from Pune Municipal Corporation (PMC) was received on 01/08/1996, and various activities related to the project had started before 01/10/1998. These activities included demolition, road construction, and other developmental works. The CIT(A) upheld this view, stating that the land was fully developed and ready for construction by March 1997. However, the Tribunal found that the first valid building commencement certificate was dated 19/12/1998, which falls within the permissible period for claiming the deduction under section 80IB(10).3. Built-up Area of Tenements Exceeding 1500 Square Feet:The AO found that several tenements in buildings B-1, C-1, C-2, C-3, and A-1 exceeded the built-up area of 1500 square feet, which violated the conditions of section 80IB(10). The CIT(A) agreed, noting that the combination of flats resulted in built-up areas exceeding the permissible limit. The Tribunal, however, directed the AO to verify the actual built-up area of each flat through a physical verification exercise and to allow the deduction proportionately for those units that complied with the area restrictions.4. Construction of Tenements Not Fulfilling Conditions Laid Down in Section 80IB(10):The AO and CIT(A) noted that the construction of certain tenements did not conform to the approved building plans, and some residential units were converted into commercial spaces. The Tribunal held that the role of the Income Tax authorities is to ensure compliance with the conditions laid down in section 80IB(10), and any violations of building plans should be addressed by the municipal authorities. The Tribunal directed that the deduction should be allowed proportionately for units that met the conditions.5. Denial of Opportunity for Cross-verification of Parties/Customers:The assessee contended that it was denied the opportunity to cross-verify the statements of parties/customers. The Tribunal did not specifically address this issue but focused on the verification of the built-up area and compliance with section 80IB(10) conditions.6. Proportionate Deduction under Section 80IB(10) for Compliant Tenements:The Tribunal directed the AO to allow a proportionate deduction under section 80IB(10) for those tenements that satisfied the conditions of the section. The AO was instructed to carry out a physical verification of the built-up areas and grant the deduction accordingly.Conclusion:The Tribunal partly allowed the appeals, directing the AO to verify the built-up areas of the tenements and grant a proportionate deduction under section 80IB(10) for those units that complied with the conditions. The Tribunal emphasized the distinction between layout plan approval and building plan approval, and held that the project commenced on 19/12/1998, making the assessee eligible for the deduction.