Section 80IB deduction principles: factual expense allocation, project structure limits, and transfer by possession under part performance.

For Section 80IB deductions, the Court accepted that allocation of common project expenses need not be confined to turnover where the Tribunal's factual finding was not shown to be perverse, and the assessee's computation method was sustained. It also applied earlier precedent to uphold deduction under Section 80IB(10) despite objections based on commercial area and larger flats in the project. On transfer of land or undivided share to flat purchasers, the Court treated possession given in part performance as a transfer under Section 2(47)(v) read with Section 53A of the Transfer of Property Act, making the related profits includible for deduction purposes.

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Issues: (i) Whether common expenses were required to be allocated on the basis of turnover or whether the percentage of completion method could be adopted for computing deduction under Section 80IB of the Income-tax Act, 1961; (ii) Whether deduction under Section 80IB(10) was allowable despite the existence of commercial area exceeding the prescribed limit and flats of more than the stipulated size in the project; (iii) Whether profits arising from sale of land or undivided share in land to flat purchasers were includible in profits for deduction under Section 80IB(10) where possession had been transferred under an agreement with the sister concern.

Issue (i): Whether common expenses were required to be allocated on the basis of turnover or whether the percentage of completion method could be adopted for computing deduction under Section 80IB of the Income-tax Act, 1961

Analysis: The Tribunal had found that no definite ratio mandated allocation of common overhead expenses strictly on the basis of turnover. It treated the Revenue's reliance on other decisions as distinguishable and found that the Revenue had not produced concrete documentary evidence to justify exclusion of the allocable expenses. The question was treated as turning on the facts of the case and the factual finding recorded by the Tribunal was not shown to be perverse.

Conclusion: The issue was decided against the Revenue and in favour of the assessee.

Issue (ii): Whether deduction under Section 80IB(10) was allowable despite the existence of commercial area exceeding the prescribed limit and flats of more than the stipulated size in the project

Analysis: The issue was covered by the Court's earlier decision in Brigade Enterprises Ltd., and the same legal position was applied. On that basis, the claim for deduction under Section 80IB(10) was sustained notwithstanding the Revenue's objection based on the project structure.

Conclusion: The issue was decided against the Revenue and in favour of the assessee.

Issue (iii): Whether profits arising from sale of land or undivided share in land to flat purchasers were includible in profits for deduction under Section 80IB(10) where possession had been transferred under an agreement with the sister concern

Analysis: The Court held that where possession of immovable property is handed over in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882, the transaction falls within Section 2(47)(v) of the Income-tax Act, 1961. As the assessee had taken possession, paid consideration, and constructed residential apartments, the land was treated as transferred within the meaning of Section 2(47)(v), and the resulting profits were held to be includible for deduction purposes.

Conclusion: The issue was decided against the Revenue and in favour of the assessee.

Final Conclusion: The appeal failed, and the assessee's entitlement to the deduction was upheld on all the substantive questions considered.

Ratio Decidendi: For purposes of Section 80IB deductions, factual findings on allocation of project expenses will not be interfered with absent perversity, and a transfer for tax purposes includes possession given in part performance of a contract under Section 2(47)(v) read with Section 53A of the Transfer of Property Act, 1882.

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