2019 (7) TMI 77 - AT - Income Tax

Tribunal Upholds Deductions for Parking Profits & Capital Loss, Disallows Certain Claims

M/s. South City Projects (Kolkata) Ltd. Versus A.C.I. T/Range/Kolkata Aaykar Bhawan, Kolkata And D.C.I. T/Range/Kolkata, Kolkata Versus M/s. South City Projects (Kolkata) Ltd.

The tribunal upheld the CIT(A)'s decision allowing deduction under Section 80IB(10) for profits from the sale of car parking spaces, dismissing the ... Deduction u/s 80IB(10) on profit from sale of car parking space - HELD THAT:- CIT(A) following the judgment of Hon'ble Bombay High Court the case of Purvankara Projects Limited [2011 (7) TMI 1352 - BOMBAY HIGH COURT] and of ITAT in case of Vaman Estate [2012 (10) TMI 1208 - ITAT MUMBAI] has held that the AO was not right in law-deduction u/s 80IB(I0) on income from sale of car Parking. It was also held that car parking space forms part and parcel of the housing project, without which even approval for housing project could not have been obtained from competent authority. Therefore, the decision of the Tribunal in holding that assessee is entitled to deduction u/s.80IB in respect of housing project inclusive of the amount received on account of car parking cannot be faulted. We do not deem it necessary to interfere in the said findings of the ld. CIT(A) and the issue is also decided in favour of the assessee - ground of revenue is dismissed Allowing deduction u/s.80IB(10) on the basis of inaccurate measurement of built up area of four flats - HELD THAT:- We direct the AO to verify the workings to be given by the assessee in terms of sq.ft to ensure whether the aforesaid four flats after excluding the terrace garden area fall within the limits of 1500 sq.ft. Respectfully following the aforesaid judgement and in view of the aforesaid directions, we deem it fit to remand this issue to the file of the AO to decide the same in the light of the aforesaid decision and in light of the aforesaid directions. Accordingly, the ground raised by the assessee is allowed for statistical purposes for A.Y.2010-11. Not allowing claim of write off of sundry balances - HELD THAT:- AR merely made an oral submission that these advances were made in the course of business and the same had become irrecoverable which eventually lead to write off of the same by the assessee during the year. Apart from this oral submission, he could not substantiate his arguments by way of any evidences. Hence, we do not deem it fit to interfere in the order of the CIT(A) in this regard, accordingly, the ground No.2 raised by the assessee for the A.Y.2010-11 is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether profits from sale of car parking spaces forming part of a housing project are eligible for deduction under section 80IB(10) of the Income Tax Act when such parking is allotted only to flat purchasers and sold as part of the project. 2. Whether the assessing officer's failure to consider or discuss a claim precludes denial of carry forward of short-term capital loss and whether the appellate direction to verify entitlement was permissible. 3. Whether area of utility rooms/servant quarters, sold along with residential flats though located separately and conveyed by separate instruments, must be aggregated with the residential unit for the purpose of the 1,500 sq.ft. built-up area ceiling in section 80IB(10)(c). 4. Whether exclusive terrace/terrace-garden area (private/open terrace) is includible in 'built up area' under section 80IB(14)(a) for determining eligibility under section 80IB(10), and whether a valuation report including terrace measurements warrants denial of deduction absent proper measurement. 5. Whether write-off of sundry balances claimed as business bad debts was allowable where the assessee failed to produce documentary evidence of business nexus and steps to recover. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Deductibility of profits from sale of car parking spaces under section 80IB(10) Legal framework: Section 80IB(10) grants deduction in respect of profits from 'undertaking, developing and building housing projects' subject to specified conditions; definition of housing project and built-up area informs application. Deduction attaches to profits from the housing project as a whole. Precedent treatment: The Tribunal and the relevant High Court decisions have held that components integral to a housing project (common areas, amenities including car parking) fall within the scope of a housing project for section 80IB(10) purposes; contrary Supreme Court authority on sale of stilt parking (holding sale illegal in that State) was distinguished on facts where parking is allotted only to flat purchasers and local law/regulations differ. Interpretation and reasoning: The Court accepted that 'housing project' is wider than mere residential flats and necessarily includes common areas and facilities required for the project (e.g., car parking). Where car parking is allotted exclusively to purchasers of residential units and forms a part of the project approvals/structure, profits from its sale arise from the housing project and are eligible for deduction. The Supreme Court decision relied upon by the assessing officer was factually distinguishable (related to illegality of separate sale under particular State rules), and thus not decisive here. The substance of the transaction - parking as integral amenity sold only to flat purchasers - controls over form. Ratio vs. Obiter: Ratio - where car parking forms part of the housing project and is sold as part of the package to purchasers, profits from such sale are includible within profits of the housing project for section 80IB(10) deduction. Distinguishing of contrary Supreme Court authority is ratio to the extent based on differing statutory/local regulatory contexts; observations about state law differences are explanatory. Conclusion: The Court upheld the allowance of deduction under section 80IB(10) for profits from sale of car parking spaces on the facts where parking was integral to and sold only with residential units; revenue's ground on this point dismissed. Issue 2 - Carry forward of short-term capital loss where assessing officer made no discussion Legal framework: Carry forward of capital losses depends on statutory eligibility and proper adjudication in assessment; assessing officer's decision on quantification and admissibility is required in the assessment order. Precedent treatment: No specific precedent invoked; principle that an issue not considered in assessment cannot be impugned where appellate authority directs verification. Interpretation and reasoning: The Court observed the assessing officer's assessment order contained no discussion on the carry forward claim; appellate authority directed verification by the assessing officer and sought findings. Revenue had no valid grievance against that direction. The appellate instruction to verify entitlement was proper administrative direction rather than an acceptance or rejection of the claim. Ratio vs. Obiter: Ratio - appellate direction to the assessing officer to examine and give findings on an unaddressed claim is permissible; absence of assessment-stage discussion does not justify revenue's challenge to that direction. Conclusion: The appellate direction was sustained and the revenue's ground dismissed. Issue 3 - Aggregation of utility rooms/servant quarters with residential flats for built-up area ceiling under section 80IB(10)(c) Legal framework: Section 80IB(10)(c) prescribes a maximum built-up area (1,500 sq.ft.) for a residential unit; section 80IB(14)(a) defines 'built up area' as inner measurements at floor level including projections and balconies but excluding common areas shared with other residential units. Precedent treatment: Authorities have interpreted 'built up area' to exclude common/shared areas but to include projections/balconies and inner measurements; the substance of ownership/allotment and use is controlling. Courts and Tribunals have rejected attempts to treat separate conveyance/formal partition as determinative where the utility room is functionally a part of the residential accommodation. Interpretation and reasoning: The Court examined substance over form: where utility rooms/servant quarters are sold only together with the flat, used exclusively by the flat owner and effectively constitute a single combined residential accommodation, their area must be aggregated with the flat's inner measurements for the statutory ceiling. Separate conveyance deeds or physical separation do not alter the functional unity; inclusion follows from the definition of built-up area and legislative intent to confine benefit to units within specified size limits. The insertion of provisions limiting multiple allotments (post-relevant year) does not alter the legal position for the year in issue. Ratio vs. Obiter: Ratio - areas of utility rooms/servant quarters that are functional adjuncts to a residential unit and sold only with that unit are to be aggregated with the unit's built-up area for applying section 80IB(10)(c); separate documentation does not prevent aggregation. Observations about later statutory amendments are explanatory/obiter regarding applicability to later years. Conclusion: The assessing officer's disallowance in respect of profits attributable to units where combined area exceeded 1,500 sq.ft. was sustained; the assessee's appeal on this point dismissed. Issue 4 - Inclusion of terrace/terrace-garden area in 'built up area' and reliance on Divisional Valuation Officer's measurement Legal framework: 'Built up area' per section 80IB(14)(a) is inner measurement at floor level including projections and balconies but excluding common areas shared with other residential units. National Building Code and measurement standards bear on interpretation of terrace, balcony and plinth/covered area. Precedent treatment: Coordinated judicial and tribunal decisions (including High Court and multiple Tribunal benches) have held that open/private terrace (being open to sky and not part of the inner floor level measurements) is not part of 'built up area' for section 80IB purposes; terrace cannot be equated to balcony/projection merely because sold as a private terrace. Interpretation and reasoning: The Court followed settled precedent excluding open/terrace garden areas from built-up area calculation. However, because the assessing officer relied on a Divisional Valuation Officer (DVO) report that measured terrace areas (and where physical entry was denied so calculation was from terrace only), the Court remanded for verification: the AO was directed to re-work measurements excluding terrace/garden where appropriate and verify if the resultant built-up areas fall within the 1,500 sq.ft. limit. The DVO report's limitations (no interior measurement, inclusion of terrace garden) made it insufficiently reliable without further verification. Ratio vs. Obiter: Ratio - open/private terrace/terrace garden is not includible in 'built up area' under section 80IB(14)(a); fact-sensitive reliance on a DVO report that did not permit interior measurement requires remand for proper verification. Obiter - discussion of measurement standards and various precedents explaining terrace exclusion. Conclusion: The Court allowed the assessee's ground for statistical purposes and remanded to the assessing officer to verify computations excluding terrace area; final determination to follow that verification. Issue 5 - Allowability of write-off of sundry balances as business bad debts Legal framework: Deduction for bad debts/write-offs requires proof of nexus to business, evidence of bona fide attempts at recovery and documentary substantiation. Precedent treatment: Authorities require supporting evidence (ledgers, correspondence, recovery steps, judicial proceedings) before allowing write-offs as deductible business losses. Interpretation and reasoning: The assessee failed to produce documentary evidence demonstrating business nexus, steps taken to recover advances, or that amounts had become irrecoverable; only oral assertions were made. The Court accepted the appellate and assessing authority's refusal to allow deduction absent proof. Ratio vs. Obiter: Ratio - write-offs claimed as deductions must be substantiated with documentary evidence of business nexus and recovery efforts; absence of such evidence justifies disallowance. Observations regarding adequacy of proofs are practical application of settled principles. Conclusion: The denial of deduction for the write-off of sundry balances was upheld; assessee's ground dismissed.