ITAT disallows Section 80IB(10) deduction after finding developer allotted two flats to same person despite claiming separate buyers

ITAT Raipur reversed CIT(A)'s decision allowing deduction u/s 80IB(10) for housing project. Assessee claimed separate sales of Flat A-101 and A-102 to different entities - one to individual and another to HUF. However, tribunal found both flats were actually allotted to same individual through registered sale deed, violating clause (f) of Section 80IB(10) which restricts allotment of more than one residential unit to same person. Assessee's argument that HUF was actual purchaser rejected as individual held legal title and rights. Deduction disallowed for both flats. Decision favored revenue partially.

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Issues Involved:
1. Deletion of disallowance of Rs. 2,36,00,651/- claimed by the assessee under section 80IB(10) of the IT Act, 1961.
2. Any other ground which may be adduced at the time of hearing.

Summary:

Issue 1: Deletion of disallowance of Rs. 2,36,00,651/- claimed by the assessee under section 80IB(10) of the IT Act, 1961

The assessee, a builder, had filed his return of income for A.Y. 2013-14, declaring an income of Rs. 2,02,97,950/-. During the assessment proceedings, the Assessing Officer (A.O.) observed that the assessee had sold two flats, Flat No. "A-101" and Flat No. "A-102" to Smt. Usha Basant Sethia. The A.O. noted that despite the assessee's claim that Flat No. "A-102" was sold to Shri Mahendra Kumar Sethia, HUF, the registered sale deed indicated it was sold to Smt. Usha Basant Sethia. Consequently, the A.O. disallowed the entire claim for deduction u/s 80IB(10) amounting to Rs. 2,36,00,651/- on the grounds that more than one residential unit was allotted to an individual.

The Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, found favor with the assessee's claim that Flat No. "A-102" was initially allotted to Shri Mahendra Sethiya, HUF, and subsequently transferred to Smt. Usha Basant Sethia at the request of Shri Mahendra Sethiya, HUF. The CIT(A) concluded that Smt. Usha Basant Sethia and Mahendra Sethiya, HUF, were distinct legal entities and thus allowed the assessee's appeal.

The Revenue, aggrieved by this decision, appealed to the ITAT.

ITAT's Decision:

The ITAT examined the issue and found substance in the assessee's claim, referencing the Hon'ble Supreme Court's judgment in CIT Vs. Shreenath Buildcon (2019) and CIT Vs. Sarkar Builders (2015), which held that violation attributable to some residential units does not justify denying the entire claim for deduction u/s 80IB(10). The ITAT concurred with the CIT(A)'s decision to allow the assessee's claim for deduction, as the sale of Flat No. "A-102" to Smt. Usha Basant Sethia was a subsequent transaction and did not constitute a violation of Section 80IB(10).

However, the ITAT did not agree with the CIT(A)'s view that the sale of Flat No. "A-102" to Smt. Usha Basant Sethia did not violate the provisions of Section 80IB(10). The ITAT held that the registered sale deed executed in favor of Smt. Usha Basant Sethia vested her with the rights and title of an allottee for Flat No. "A-102", thus constituting a violation of clause (f) of sub-section (10) of Section 80IB.

Issue 2: Any other ground which may be adduced at the time of hearing

This ground was dismissed as not pressed.

Conclusion:

The appeal of the revenue was partly allowed, with the ITAT setting aside the CIT(A)'s order to the extent it vacated the disallowance u/s 80IB(10) concerning Flat No. "A-101" and "A-102" sold to Smt. Usha Basant Sethia. The order was pronounced in open court on 27th October 2023.

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