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of <h1>High Court upholds ITAT decisions on Section 80IB(10) deductions for mixed-use housing projects</h1> <h3>Commissioner of Income Tax – 6, Pune Versus Makwana Brothers & Co. (HWP), M/s Suyog Shivalaya, Pune</h3> Commissioner of Income Tax – 6, Pune Versus Makwana Brothers & Co. (HWP), M/s Suyog Shivalaya, Pune - Tmi Issues Involved:1. Deduction under Section 80IB(10) of the Income Tax Act, 1961 for incomplete housing projects.2. Deduction for partial completion of housing projects.3. Deduction eligibility for housing projects with commercial establishments.4. Deduction eligibility for housing projects with residential units exceeding prescribed area limits.5. Comparison of profit margins between different housing projects.6. Justification for different construction costs in similar projects.Issue-wise Detailed Analysis:1. Deduction under Section 80IB(10) for incomplete housing projects:The Revenue questioned whether the Income Tax Appellate Tribunal (ITAT) erred in allowing deductions for the housing project 'Dayanand Gardens,' which was approved on 06.10.1999 but remained incomplete by 31.03.2008. The ITAT's decision was based on previous judgments, including Commissioner of Income Tax vs. Brahma Associates and Commissioner of Income Tax vs. Vandana Properties, which held that projects approved as housing projects by local authorities are eligible for deductions even if not completed within the stipulated timeframe.2. Deduction for partial completion of housing projects:The Revenue challenged the ITAT's allowance of deductions for partially completed projects, arguing that the entire project must be completed to qualify for deductions under Section 80IB(10). However, the ITAT's reliance on Brahma Associates and Vandana Properties supported the view that deductions could be allowed for partially completed projects if they were approved as housing projects by local authorities.3. Deduction eligibility for housing projects with commercial establishments:The Revenue contended that the presence of commercial establishments within the 'Dayanand Gardens' project violated Section 80IB(10)(d), which limits commercial space in housing projects. The ITAT, referencing Brahma Associates and Vandana Properties, concluded that housing projects with commercial elements approved by local authorities still qualify for deductions, provided the commercial use is within permissible limits.4. Deduction eligibility for housing projects with residential units exceeding prescribed area limits:The Revenue argued that the presence of two bungalows exceeding the 1500 sq. ft. limit in 'Dayanand Gardens' disqualified the project from deductions under Section 80IB(10)(c). The ITAT, however, maintained that the project as a whole should be considered, and if the majority of units comply with the area limits, the project remains eligible for deductions.5. Comparison of profit margins between different housing projects:The Revenue questioned the ITAT's decision to allow deductions despite significant differences in profit margins between 'Shivanand Garden' and 'Dayanand Garden' projects. The ITAT found that the differences in profit margins were justified based on the varying costs of construction and market conditions at the time of each project's development.6. Justification for different construction costs in similar projects:The Revenue argued that the ITAT erred in ignoring the high construction costs for the 'Shivanand Garden' project compared to the 'Dayanand Garden' project. The ITAT upheld the assessee's explanation that higher construction costs were due to different market conditions and cost structures, and found no deliberate act to manipulate costs.Conclusion:The High Court dismissed the Revenue's appeals, affirming the ITAT's decisions based on authoritative pronouncements in Brahma Associates and Vandana Properties. The Court emphasized that housing projects approved by local authorities as such, even with permissible commercial elements and partial completions, are eligible for deductions under Section 80IB(10). The Court also upheld the ITAT's factual findings on profit margins and construction costs, finding no substantial question of law warranting interference.
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