2021 (1) TMI 362 - AT - Income Tax

Tribunal Upholds Deduction for Small Units under Section 80IB(10)

The Assistant Commissioner of Income Tax Circle -7 (2) (1), Bangalore. Versus M/s. Eagleton Property Holdings

The Assistant Commissioner of Income Tax Circle -7 (2) (1), Bangalore. Versus M/s. Eagleton Property Holdings - TMI Issues Involved:1. Whether the CIT(A) was justified in allowing the appeal on a proportionate basis for units with a built-up area of 1500 sq. ft. or less.2. Whether the CIT(A) was justified in rejecting the District Valuation Officer's (DVO) report and directing the AO to take physical measurements of individual units.3. Whether the benefit of section 80IB(10) can be extended to the entire project if some units exceed the prescribed limit of 1500 sq. ft.4. Whether the assessee qualifies as a developer or merely a contractor, impacting eligibility for deduction under section 80IB(10).Detailed Analysis:1. Proportionate Deduction for Units with Built-up Area of 1500 sq. ft. or Less:The CIT(A) allowed the deduction under section 80IB(10) on a proportionate basis for units with a built-up area of 1500 sq. ft. or less. This decision was based on the principle of proportionality, which has been upheld by the Hon'ble Karnataka High Court in CIT Vs. Brigade Enterprises Ltd. The High Court ruled that the deduction under section 80IB(10) can be allowed proportionately for units that meet the size requirement, even if some units exceed 1500 sq. ft. This principle was reaffirmed in several cases, establishing that the term 'residential unit' in section 80IB(10) does not exclude proportionality. Therefore, the Tribunal found no merit in the Revenue's appeal against this finding.2. Rejection of DVO's Report and Direction for Physical Measurements:The CIT(A) rejected the DVO's report, which had found that some units exceeded the 1500 sq. ft. limit, and directed the AO to take physical measurements of individual units. The assessee argued that the DVO had not clearly depicted the method of calculating the built-up area and might have included open areas not contemplated under section 80IB(10). The Tribunal upheld the CIT(A)'s decision, noting that the DVO's report was not final and that the AO should take physical measurements in an appropriate manner. The Tribunal found no merit in the Revenue's grievance regarding this issue.3. Benefit of Section 80IB(10) for the Entire Project:The AO had disallowed the deduction under section 80IB(10) because some units exceeded the 1500 sq. ft. limit. However, the CIT(A) allowed the deduction on a proportionate basis, which was upheld by the Tribunal. The Tribunal referenced the Karnataka High Court's decision in CIT Vs. Brigade Enterprises Ltd., which supported the principle of proportionality for units that meet the size requirement. Therefore, the Tribunal found no merit in the Revenue's argument that the benefit of section 80IB(10) cannot be extended to the entire project if some units exceed the prescribed limit.4. Developer vs. Contractor Classification:The AO argued that the assessee was merely a contractor and not a developer, as it did not own the land or sell the units but only received construction receipts. The CIT(A) found that the assessee was a developer, having taken the risks and rewards of developing and constructing the housing project. This finding was not challenged by the Revenue in the appeal. The Tribunal did not address this issue further, as it was not contested by the Revenue.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow the deduction under section 80IB(10) on a proportionate basis for units with a built-up area of 1500 sq. ft. or less and directing the AO to take physical measurements of individual units. The Tribunal found no merit in the Revenue's arguments and affirmed the CIT(A)'s findings in light of the Karnataka High Court's rulings.