High Court allows appeal in favor of assessee for pro-rata deductions under Income Tax Act

The High Court allowed the appeal partly, ruling in favor of the assessee by permitting pro-rata deductions under Section 80IB(10) of the Income Tax Act for the housing project "Models Legacy." The Court set aside the ITAT's decision disallowing these deductions and restored the Commissioner's order granting pro-rata deductions. The Court also addressed an additional substantial question raised during the proceedings in favor of the assessee. Other substantial questions were not pursued by the assessee, who reserved the right to raise them in future proceedings. The appeal concluded without costs awarded.

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Issues:
1. Disallowance of deductions under Section 80 IB (10) for A.Y. 2010-11, 2011-12, and 2012-13.
2. Effectiveness of Sub-Clause (e) to Section 80IB(10) from April 1, 2010, and not August 19, 2009.
3. Granting pro-rata deductions under Section 80IB(10) of the Income Tax Act.

Analysis:
1. The Assessing Officer (AO) disallowed deductions for the housing project "Models Legacy" due to a breach of Section 80IB(10)(e) of the Income Tax Act in respect of 5 residential units out of 352 units. The Commissioner (Appeals) partly allowed the appeal, granting pro-rata deductions. However, the ITAT set aside the Commissioner's order, leading to the current appeal by the assessee on substantial questions of law.
2. The assessee's counsel argued for pro-rata deductions based on previous court decisions. They agreed not to contest the breach of Section 80IB(10) if pro-rata deductions were granted. The Revenue's counsel defended the ITAT's decision, stating that Section 80IB(10) does not allow pro-rata deductions and can have retroactive effect. They cited legal precedents to support their stance.
3. The High Court analyzed the ITAT's reasoning and found that the exclusion of 5 units did not affect the plot size requirement. The Court framed an additional question on the denial of pro-rata deductions, which was not raised initially. After considering connected appeals, the Court held that pro-rata deductions are permissible under Section 80IB(10) and ruled in favor of the assessee, setting aside the ITAT's decision and restoring the Commissioner's order on pro-rata deductions.
4. The Court disposed of the appeal by allowing it partly, answering the additional substantial question in favor of the assessee, and setting aside the ITAT's order. The other substantial questions were not addressed as the assessee did not press them, reserving the right to raise them in collateral proceedings. The appeal was thus concluded with no costs awarded.

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