Tribunal directs balanced disallowance & deduction under section 80-IB(10) for non-compliant units.

The appeals of both the Revenue and the assessee were partly allowed by the Tribunal. The Tribunal directed the Assessing Officer to make proportionate disallowance for non-compliant units under section 80-IB(10) of the Income-tax Act, 1961, and allow the deduction for compliant units for the assessment years 2010-11 to 2012-13.

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Issues Involved:
1. Disallowance of deduction under section 80-IB(10) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

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

Background of the Case:
The appeals pertain to the assessment years 2010-11 to 2012-13. The Assessing Officer (AO) disallowed the deduction under section 80-IB(10) of the Income-tax Act, 1961, which was subsequently granted by the Commissioner of Income-tax (Appeals) for the assessment year 2010-11. The Revenue appealed against this decision, while the assessee appealed against the disallowance for the assessment years 2011-12 and 2012-13.

Revenue's Contention:
The Revenue argued that the assessee did not fulfill the conditions stipulated under sub-clauses (c), (e), and (f) of section 80-IB(10). Specifically, the built-up area of two penthouses exceeded the permissible limit, and multiple residential units were allotted to the same entity or related individuals, violating the provisions of section 80-IB(10). The AO rejected the request for proportionate deduction and contended that the entire claim should be disallowed.

Assessee's Defense:
The assessee, supporting the first appellate authority's order, argued that the disallowance was not in accordance with law. The assessee cited various judicial precedents, including the decision in CIT v. Arun Excello Foundations Pvt. Ltd. and the Special Bench ruling in Brahma Associates v. Joint CIT, which supported the notion of granting proportionate relief for units complying with the conditions of section 80-IB(10).

Tribunal's Analysis:
The Tribunal noted that the AO did not dispute the calculation or quantum of the claim except for some specific units. It agreed with the AO that non-compliance with the pre-conditions of section 80-IB(10) disqualifies those specific units from deduction. However, it held that the entire claim for the project cannot be dismissed solely due to non-compliance by some units.

Judicial Precedents:
The Tribunal referred to the Madras High Court's decision in CIT v. Arun Excello Foundations Pvt. Ltd., which supported the grant of proportionate relief to the assessee. It also cited the Income-tax Appellate Tribunal's decision in Deputy CIT v. Mandavi Builders, which held that clauses (e) and (f) of section 80-IB(10) are not applicable to allotments made before April 1, 2010.

Conclusion:
The Tribunal concluded that the claim under section 80-IB(10) should not be entirely dismissed. Instead, proportionate disallowance should be made for units not complying with the conditions. The AO was directed to restrict the disallowance proportionately for the assessment year 2010-11 and allow the remaining deduction for eligible units. This conclusion was applied mutatis mutandis to the assessment years 2011-12 and 2012-13.

Outcome:
The appeals of both the Revenue and the assessee were partly allowed, with directions to the AO to make proportionate disallowance for non-compliant units and allow the deduction for compliant units.

Pronouncement:
The judgment was pronounced in the open court on January 17, 2017.

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