High Court allows pro-rata deduction under Income Tax Act for compliant residential units

The High Court upheld the deduction claimed by the assessee under section 80IB of the Income Tax Act on a pro-rata basis for compliant residential units in two housing projects. The Court ruled in favor of the assessee, directing the assessing officer to allow the deduction as per the High Court's previous decision. As a result, the revenue's appeal was dismissed, and the order was issued on 07/01/2019.

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Issues:
- Disallowance of deduction claimed u/s 80IB of the Income Tax Act, 1961.

Analysis:
1. The appeal was filed by The Assistant Commissioner of Income Tax against the order of the Principal Commissioner of Income Tax (OSD) for assessment year 2012-13, challenging the deletion of disallowance of INR 1,98,87,408/- made on account of deduction claimed u/s 80IB. The assessing officer disallowed the claim as only a portion of residential units in the projects satisfied the conditions of section 80IB(10)(c).

2. The assessee, engaged in real estate development, claimed deduction u/s 80IB(10) in its return of income. The AO disallowed the deduction as not all residential units in the projects met the specified area criteria. Consequently, the total income was determined at INR 31,88,98,08/-. The CIT(A), relying on a coordinate bench's decision for a previous year, allowed the claim, leading to the revenue's appeal.

3. The revenue contended that the residential units exceeded the specified area eligible for deduction u/s 80IB, thus violating the conditions. The department argued that no provision in the Income Tax Act allows proportionate deduction. The authorized representative cited a decision of the Delhi High Court in the assessee's favor for a previous assessment year.

4. Upon reviewing the contentions and lower authorities' orders, it was found that the assessee had constructed two housing projects eligible for deduction u/s 80IB. The AO's disallowance was based on units exceeding the specified area. However, the CIT(A) upheld the claim, following the coordinate bench's decision and the Delhi High Court's ruling in the assessee's favor for an earlier year.

5. The High Court interpreted the provision favorably for the assessee, allowing deduction on a pro-rata basis for compliant residential units. Consequently, the order of the CIT(A) was deemed correct, directing the AO to allow the claim on a pro-rata basis as per the High Court's direction in the assessee's previous case. As a result, the revenue's appeal was dismissed.

6. In conclusion, the appeal of the revenue was dismissed, and the order was pronounced on 07/01/2019.

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