Assessee wins Section 80IB(10) housing deduction case as retrospective built-up area definition rejected for pre-2005 projects

The Bombay HC ruled in favor of the assessee regarding deduction under Section 80IB(10) for housing projects. The court held that for projects approved before April 1, 2005, the built-up area definition introduced from April 1, 2005 cannot be applied retrospectively. Following SC precedent in Sarkar Builders, the court determined that assessees could legitimately claim deductions based on plans approved by Planning Authority prior to the statutory amendment. The DVO's report showing violations regarding row houses exceeding 1500 sq.ft. was not considered decisive for pre-2005 approved projects.

---

---

Issues Involved:
1. Justification of the Tribunal in granting deduction under Section 80IB (10) without considering the DVO's report indicating violation related to two row houses exceeding 1500 sq.ft.

Detailed Analysis:

Issue 1: Justification of the Tribunal in Granting Deduction Under Section 80IB (10)
1. Background of Appeals: The revenue filed three appeals challenging a common order dated 9 August 2017 by the Income-tax Appellate Tribunal, Pune Bench, which upheld the CIT(A)'s order dated 5 May 2015. The assessment years in question were 2006-07, 2007-08, and 2008-09.

2. Question of Law: The appeals were admitted on the common question of law:
- "Whether on the facts and circumstances of the case and in law, the Hon'ble Tribunal was justified in granting deduction u/s. 80IB (10) without considering the DVO's report available on record wherein violation relating to two row houses having area more than 1500 sq.ft. was shownRs."

3. Supreme Court Precedent: The court noted that the issue was covered by the Supreme Court decision in Commissioner of Income-tax vs. Sarkar Builders [2015] 375 ITR 392 (SC). The Supreme Court had held that for housing projects approved before 1 April 2005, the concept of built-up area as defined in Section 80IB (14) (a) could not be applied retrospectively. The relevant observations included:
- The built-up area definition, including projections and balconies, was introduced only from 1 April 2005.
- The conditions in clause (d) of Section 80IB (10) were linked to the approval and construction of the housing project, and compliance could not be expected for conditions not part of the statute at the time of approval.

4. Special Features Noted:
- The approval of the housing project was based on relevant DC Rules.
- The law and rights accrued prior to the Finance Act, 2004, were irreversible.
- Section 80IB (10) included dates for project approval and completion, which were crucial for developers' planning.
- The objective was to encourage housing projects for weaker sections, with specific built-up area limits for residential units.
- Interpretation should avoid absurd results.
- Clause (d) was to be applied prospectively, not retrospectively.

5. Facts of the Present Appeals: The project "Roseland Residence" was sanctioned before 1 April 2005.

6. Reference to Tinnwala Industries Case: The court referred to a co-ordinate Bench decision in The Commissioner of Income Tax-15, Mumbai vs. Tinnwala Industries, which held that the definition of 'built-up area' introduced from 1 April 2005 could not be applied retrospectively. The Supreme Court had confirmed this decision in Commissioner of Income-tax vs. Veena Developers 2015 SCC OnLine SC 1959.

7. Conclusion: Based on the Supreme Court's precedent and the facts, the court answered the question of law in favor of the assessee and against the revenue.

8. Judgment: The appeals were dismissed, and no costs were awarded.

This summary encapsulates the detailed legal reasoning and references pivotal to the judgment while preserving the critical terminology and significant phrases from the original text.

---