2017 (1) TMI 1794 - AT - Income Tax

ITAT affirms CIT(A)'s decision on Section 80IB(10) deduction, excludes terrace area.

The ITAT upheld the CIT(A)'s decision, allowing the deduction under Section 80IB(10) on a proportionate basis for the eligible units and excluding the ... Deduction under section 80IB(10) for housing project - proportionate deduction for eligible units/blocks - built-up area as criterion for section 80IB(10) - open terrace / courtyard exclusion from built-up area - non-completion due to lack of sanctioned FSI beyond assessee's controlDeduction under section 80IB(10) for housing project - proportionate deduction for eligible units/blocks - non-completion due to lack of sanctioned FSI beyond assessee's control - Claim for deduction under section 80IB(10) where part of the sanctioned project (Building C) remained unconstructed as on 31-03-2012 because required FSI was not sanctioned by the local authority. - HELD THAT: - The Tribunal upheld the CIT(A)'s finding that the construction of Building C could not commence or be completed because the required FSI was not sanctioned by the PMC and that no pending compliance remained on the part of the assessee. Relying on earlier Tribunal precedents, the CIT(A) applied the principle that where completion within the statutory period becomes impossible due to reasons beyond the assessee's control, the assessee should not be denied the entire benefit; rather a proportionate deduction is permissible in respect of those buildings/units which satisfy the conditions of section 80IB(10). The Tribunal noted that the sanctioned and revised plans for the remaining portions were completed and relevant completion/occupancy certificates for other wings were obtained before the specified date. On this basis the Tribunal found no reason to interfere with the allowance of deduction on a pro rata basis for parts of the project meeting the statutory conditions. [Paras 3, 8]Proportionate deduction under section 80IB(10) allowed for those buildings/units of the project that satisfied the statutory conditions; denial of entire deduction for non-completion of Building C (due to lack of sanctioned FSI) was not sustained.Built-up area as criterion for section 80IB(10) - open terrace / courtyard exclusion from built-up area - Whether terrace areas open to sky and certain external measurements can be included in the 'built-up area' for applying the 1,500 sq.ft. limit under section 80IB(10)(c). - HELD THAT: - The Tribunal agreed with the CIT(A)'s finding that the government-approved valuer had used outer measurements and included terraces, car porches and open-to-sky terrace areas in computing the area of the row houses, contrary to the definition of built-up area in section 80IB(14)(a). Applying authority of High Courts and Tribunals cited by the assessee, the Tribunal accepted that open terraces/courtyards (open to sky) are not part of the inner measurement forming 'built-up area' and that projections and balconies (as distinct items) are treated differently under the statutory definition. On the material before it, three of the five row houses clearly fell below 1,500 sq.ft. on correct (inner) measurement and the other two were only marginally over when outer measurements were used; consequently the CIT(A)'s approach to exclude open terraces and allow deduction in respect of qualifying units was upheld. [Paras 3]Terraces open to sky and areas taken on outer measurements are to be excluded from 'built-up area' for section 80IB(10)(c); on that basis several units qualified and proportionate deduction was allowable.Final Conclusion: The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s allowance of deduction under section 80IB(10) on a proportionate basis: (i) completion delay attributable to non-sanction of required FSI by the local authority did not disentitle the assessee to pro rata relief for completed portions, and (ii) open-to-sky terraces/outer measurements cannot be included in 'built-up area' so as to disqualify units marginally measured over the statutory limit. Issues Involved:1. Deduction under Section 80IB(10) of the Income Tax Act.2. Completion of the housing project by the stipulated date.3. Interpretation of 'housing project' under Section 80IB(10).4. Pro-rata deduction for eligible units.5. Inclusion of terrace area in the built-up area.Detailed Analysis:1. Deduction under Section 80IB(10) of the Income Tax Act:The primary issue revolves around the eligibility of the assessee for the deduction under Section 80IB(10) for the housing project 'Parkland.' The AO denied the deduction due to non-completion of the project by the stipulated date and the area of certain units exceeding the prescribed limit. The CIT(A) allowed the deduction, which was contested by the Revenue.2. Completion of the housing project by the stipulated date:The AO observed that the project commenced on 18.11.2006 and was supposed to be completed by 31.03.2012. However, the 'C Wing' of the project was not constructed, and the completion certificate for other buildings was obtained on 28.03.2012. The AO concluded that the project was incomplete as of 31.03.2012. The CIT(A) noted that the construction of 'C Wing' could not commence due to the unavailability of FSI, which was beyond the control of the assessee. The CIT(A) relied on the decision in Ramsukh Properties Vs. DCIT, which held that if compliance of the provision becomes impossible due to reasons beyond the assessee's control, the deduction should not be denied.3. Interpretation of 'housing project' under Section 80IB(10):The AO argued that the entire project must be considered as a single unit, and non-completion of any part would disqualify the entire project from deduction. The CIT(A) and ITAT, however, supported a liberal interpretation, allowing proportionate deduction for the completed parts of the project. This interpretation aligns with the decisions in cases like Johar Hassan Zojwalla and Satyanarayan Ramswaroop Agarwal, where the courts allowed deductions for completed portions of the project when non-completion was due to external factors.4. Pro-rata deduction for eligible units:The AO denied the deduction on the grounds that some units exceeded the 1500 sq.ft. limit. The CIT(A) allowed pro-rata deduction for units that met the criteria, citing various judicial precedents, including Brigade Enterprises (P) Ltd., AIR Developers, and Sheth Developers, which upheld the principle of granting deductions on a proportionate basis for eligible units.5. Inclusion of terrace area in the built-up area:The AO included the terrace area in the built-up area calculation, leading to some units exceeding the 1500 sq.ft. limit. The CIT(A) excluded the terrace area, referencing the definition in Section 80IB(14)(a) and judicial decisions in Commonwealth Developers CD Fountain Head Vs. ACIT and CIT Vs. Mahalakshmi Housing, which held that open terrace areas should not be included in the built-up area.Conclusion:The ITAT upheld the CIT(A)'s decision, allowing the deduction under Section 80IB(10) on a proportionate basis for the eligible units and excluding the terrace area from the built-up area calculation. The appeal of the Revenue was dismissed, affirming the assessee's entitlement to the deduction.