ITAT limits Section 80-IB(10) disallowance to 1.9%, reviews Section 40(a)(ia) for ADDA registration

The ITAT allowed the assessee's appeal in part, directing the AO to limit the disallowance under Section 80-IB(10) to 1.9% of the claim. Additionally, the ITAT instructed the AO to review the disallowance under Section 40(a)(ia) in light of the registration of ADDA under Section 12A, setting aside the issue for fresh consideration.

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Issues Involved:
1. Deduction under Section 80-IB(10) of the Income Tax Act.
2. Disallowance under Section 40(a)(ia) of the Income Tax Act.

Detailed Analysis:

1. Deduction under Section 80-IB(10) of the Income Tax Act:

Background:
The assessee, a company in the business of infrastructure development, claimed a deduction under Section 80-IB(10) for profits earned from two housing projects, "Poorvi" and "Triveni." The Assessing Officer (AO) denied this claim on multiple grounds, including the integrated nature of the project, lack of evidence for flat sizes, and maintenance of separate accounts.

Appellate Proceedings:
The assessee submitted all required documents and evidence before the CIT(A), who called for a remand report. The AO, in his remand report, focused on three main objections:
a) The project was part of an integrated township with commercial facilities.
b) No separate signed profit and loss account was furnished.
c) More than one residential unit was allotted to the same individual or relatives.

ITAT Findings:
- Separate Housing Projects:
The ITAT held that "Poorvi" and "Triveni" should be considered separate housing projects as they had independent plan approvals and occupancy certificates from the municipal authorities. The ITAT relied on the Bombay High Court's decision in CIT vs. Vandana Properties and the Madras High Court's decision in Viswas Promoters Pvt. Ltd., which supported the notion of treating each block in a larger project as an independent housing project.

- Maintenance of Separate Accounts:
The ITAT noted that there is no statutory requirement for maintaining separate books of accounts for each housing project. The assessee had filed separate profit and loss accounts for each project, and no deficiencies were pointed out by the AO.

- Allotment to Same Individual or Relatives:
The ITAT found that only 8 out of the total 458 flats were sold to the same individual or relatives. Citing the principle of proportional disallowance, the ITAT held that the AO could disallow only 1.9% of the claim under Section 80-IB(10).

- Consistency Principle:
The ITAT emphasized the principle of consistency, noting that the assessee's claims for deduction under Section 80-IB(10) were allowed in previous assessment years under similar facts.

Conclusion:
The ITAT directed the AO to restrict the disallowance to 1.9% of the claim made by the assessee under Section 80-IB(10).

2. Disallowance under Section 40(a)(ia) of the Income Tax Act:

Background:
The AO disallowed interest paid to ADDA under Section 40(a)(ia) on the ground that TDS was not deducted. The CIT(A) upheld the disallowance, stating that ADDA was not registered under Section 12A and hence not entitled to benefits under Section 11.

ITAT Findings:
The ITAT noted that ADDA was granted registration under Section 12A by the Kolkata 'C' Bench of the Tribunal. This fact was not before the CIT(A).

Conclusion:
The ITAT set aside this issue to the file of the AO for fresh consideration in light of the second proviso to Section 40(a)(ia), directing the AO to re-examine the matter in accordance with the law.

Final Decision:
The appeal of the assessee was allowed in part. The ITAT directed the AO to restrict the disallowance under Section 80-IB(10) to 1.9% and to reconsider the disallowance under Section 40(a)(ia) afresh.

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