2016 (5) TMI 319 - AT - Income Tax

Appellant's Right Upheld for Deduction Without Completion Certificate

The ITAT Hyderabad allowed the appellant's appeal, emphasizing the absence of a statutory requirement for a completion certificate under the Karnataka ... Deduction under section 80IB(10) - completion certificate requirement - built-up area limit of 1500 sq. feet - remand for verification of built-up area and common areaDeduction under section 80IB(10) - completion certificate requirement - Validity of denying deduction under section 80IB(10) for failure to produce a completion certificate where the local municipal law does not provide for issuance of such a certificate. - HELD THAT: - The Tribunal found that the project was located in Hubli, Karnataka, where under the Karnataka municipal enactments there is no provision for issuance of a completion certificate. Relying on the reasoning of the Hon'ble Karnataka High Court in Ittina Properties P. Ltd., the Tribunal held that an assessee cannot be compelled to perform an impossible act by producing a completion certificate which the local law does not provide for, and that insistence on such a certificate would be improper. The Tribunal distinguished authorities from jurisdictions where local law does provide for a completion certificate (such as the Madhya Pradesh decision) and confined its decision to the factual and statutory position applicable in Karnataka. Accordingly, the A.O. was directed not to insist on a completion certificate issued by local authorities for allowing deduction under section 80IB(10). [Paras 6]Deduction under section 80IB(10) cannot be denied for want of a completion certificate where the local municipal law does not provide for issuance of such a certificate; the A.O. shall not insist upon that certificate.Built-up area limit of 1500 sq. feet - remand for verification of built-up area and common area - Whether any flats exceed the permissible built-up area limit and consequent adjustment of deduction under section 80IB(10). - HELD THAT: - The Tribunal noted that the assessment record contained municipal property assessments suggesting that some properties may show areas exceeding 1500 sq. feet. Although the A.O. had not disallowed the claim on this ground, the Tribunal, as final fact-finding authority, observed it was incumbent to require proper verification where such discrepancies are brought to its notice. Citing the duty of the Tribunal to direct further enquiries, the Tribunal remanded the matter to the A.O. with directions to examine whether the plinth/area declared by individual owners includes common area and to determine whether the built-up area of any flat exceeds 1500 sq. feet. If any flat is found to exceed the limit, the deduction under section 80IB(10) was to be computed proportionately. [Paras 6]Issue remanded to the A.O. to verify built-up areas and common area inclusion; if any flat exceeds 1500 sq. feet, deduction to be proportionately computed.Final Conclusion: Assessee's appeal allowed insofar as non-production of a local authority completion certificate (in Karnataka where no such certificate is provided for) cannot be a ground to deny deduction under section 80IB(10); however, the question of flats exceeding the 1500 sq. feet limit is remanded to the A.O. for verification and proportionate computation if required. Issues:Disallowance of deduction under section 80IB(10) of the Income Tax Act, 1961 for failure to provide completion certificate by the local authority. Compliance with the requirement of completion certificate for claiming deduction under section 80IB(10). Assessment of built-up area exceeding 1500 sq. feet in some flats and its impact on eligibility for deduction under section 80IB(10).Issue 1: Disallowance of deduction under section 80IB(10)The appellant, engaged in construction business, claimed deduction under section 80IB(10) for a residential complex project. The Assessing Officer (A.O.) disallowed the claim due to the absence of a completion certificate issued by the local authority, despite the appellant submitting other relevant documents. The A.O. insisted on the completion certificate as per the statutory requirement. The Commissioner of Income Tax (Appeals) upheld the A.O.'s decision, leading to the appellant's appeal before the ITAT Hyderabad.Issue 2: Compliance with completion certificate requirementThe appellant argued that the Karnataka Municipal Corporation Act does not provide for a completion certificate, citing a judgment by the Karnataka High Court in a similar context. The High Court held that if the statute does not mandate a completion certificate, the assessee cannot be expected to obtain one. The appellant contended that the municipal property assessments and other documents substantiated project completion, making the deduction under section 80IB(10) legitimate.Issue 3: Assessment of built-up area exceeding 1500 sq. feetThe Departmental Representative (D.R.) highlighted discrepancies in the property assessments, indicating some flats exceeded the 1500 sq. feet limit specified under section 80IB(10). The appellant argued that the common areas might have been included in the calculations, and the A.O. did not raise any objections during the assessment. The ITAT Hyderabad directed the A.O. to verify the built-up areas and adjust the deduction proportionately if any flat exceeded the limit.JudgmentThe ITAT Hyderabad allowed the appellant's appeal, emphasizing the absence of a statutory requirement for a completion certificate under the Karnataka Municipal Corporation Act. The judgment distinguished the Karnataka High Court's decision from that of the Madhya Pradesh High Court, underscoring the relevance of local statutes in determining compliance. While directing a reexamination of built-up areas exceeding the limit, the ITAT upheld the appellant's right to claim the deduction under section 80IB(10) without a completion certificate. The judgment underscored the ITAT's authority as a final fact-finding body and aligned with the Karnataka High Court's stance on completion certificates in similar cases.This detailed analysis covers the issues of disallowance of deduction, compliance with completion certificate requirements, and assessment of built-up areas exceeding the limit, culminating in the ITAT Hyderabad's judgment in favor of the appellant.