Tribunal grants deduction under Section 80IB(10) for housing project with minimal commercial area

The Tribunal allowed the assessee's appeal, granting the deduction under Section 80IB(10) for the housing project, citing the negligible size of the commercial area and applying the legislative amendment allowing commercial areas up to 5% retrospectively. The Tribunal's decision was influenced by the Supreme Court's ruling in CIT vs. Sarkar Builders, which clarified that housing projects with permissible commercial use are eligible for the deduction. Consequently, the Revenue's appeal was dismissed as academic and infructuous.

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Issues Involved:
1. Entitlement to claim deduction under Section 80IB(10) of the Income Tax Act, 1961, for a housing project with a nominal commercial area.
2. Validity of the rectification order passed by CIT(A).
3. Impact of the Supreme Court decision in CIT vs. Sarkar Builders on the case.

Issue-wise Detailed Analysis:

1. Entitlement to Claim Deduction under Section 80IB(10):
The core issue is whether the assessee is entitled to claim deduction under Section 80IB(10) for a housing project that includes a nominal commercial area. The assessee initially claimed a deduction of Rs. 28,32,048/- under Section 80IB(10) for its project "Marvel Apoorva and Wood Creek Country" and later revised the claim to Rs. 68,79,782/- for "Marvel Apoorva" alone. The Assessing Officer (AO) disallowed the claim, arguing that the project included a commercial area and thus did not qualify as a housing project under Section 80IB(10). The AO noted that the commercial area was 226.72 sq.m., which included a departmental store and a committee room.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that the commercial area exceeded the permissible limit under the Development Control Rules and that there was no provision in Section 80IB(10) for commercial areas in housing projects for the relevant assessment year.

The Tribunal, however, found that the commercial area was negligible (98.46 sq.m.) and that the legislative amendment allowing commercial areas up to 5% of the aggregate built-up area, effective from 01.04.2005, could be applied retrospectively. This view was supported by the Supreme Court's decision in CIT vs. Sarkar Builders, which held that housing projects could include commercial establishments and that the amendment should be read prospectively.

2. Validity of the Rectification Order Passed by CIT(A):
The AO challenged the rectification order passed by CIT(A), which had rectified the earlier order. The Tribunal noted the history of appeals and rectifications, including the various dates and events leading up to the current appeal. The High Court had remitted the matter back to the Tribunal with specific directions to pass appropriate orders on merits.

3. Impact of the Supreme Court Decision in CIT vs. Sarkar Builders:
The Supreme Court's decision in CIT vs. Sarkar Builders was pivotal. It clarified that housing projects approved with permissible commercial use are eligible for deduction under Section 80IB(10). The Court held that the amendment restricting commercial areas, effective from 01.04.2005, should be applied prospectively. The Tribunal applied this ruling to the assessee's case, noting that the project was approved before 31.03.2005 and thus qualified for the deduction despite the commercial area.

Conclusion:
The Tribunal allowed the assessee's appeal, granting the deduction under Section 80IB(10) for the housing project, and dismissed the Revenue's appeal as academic and infructuous. The decision was pronounced on 29th June 2022.

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