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2014 (12) TMI 561 - AT - Income TaxEntitlement for claim of deduction u/s 80IB(10) – Built up area of more than 1000 Sq. Ft. - Whether the CIT(A) erred in holding that 1BHK flats where-ever converted into duplex had built up areas of more than 1000 sq ft and such flats exceeded the limits u/s 80IB(10) with the knowledge and connivance of the assessee and the profits attributable to such flats did not qualify for deduction u/s 80IB(10) – Held that:- The assessee started a project named ‘Garden Estate’ with A and B Wings with 96 and 95 flats respectively - The project was approved by the local authorities to construct 1-BHK, 2-BHK and 3-BHK flats and accordingly, the built up area of each of these flats so approved does not exceed 1000 sq ft. - No duplex flats are to be envisaged in the project - assessee pleaded that the assessee merely made provision as a part of the marketing strategy for selling the 1-BHK flats and such a provision was made use of by the flat buyers after taking possession of the flats. Relevance of the discrepancies noticed during the survey action on 11/03/2008, when the profits of project are assessable to tax in AY 2009-10 based on Project C Method – Held that:- AOs who made the assessments for the AY 2005-06 to 2008-09, were under the bona fide belief that the profits of the project needs to be recognized based on the percentage completion (WIP) method in place of ‘project completion method adopted by the assessee - impounding of the brochure with details of method of merger of 1-BHK flats into a duplex, cannot be used against the assessee as it only provides the design of merger - the owners of duplex have merged the flats after taking possession of their flats using the design provisions supplied by the assessee in the brochure. Relevance of the Intention of the assessee – Held that:- The assessee got the approval for constructing 1-BHK flats from the Authorities and completed the constructed as per the approved plans - what is required to be seen should include, what are the plans, designs of the project and built up areas particulars of the residential units at the approval stage, construction stage and finally at sales point - from the approval stage till the stage of issuance of the completion certificate, there is no violation by the developer - the merger of flats if any taken place after the sale of the said 1-BHK flats by the flat buyers and, may be using the design made available by the developer, the assessee cannot be penalized and denied the claim of deduction. Ignoring the confirmation filed by the flat buyers – Held that:- The revenue authorities have decided the issue against the assessee prejudicially and ignored the evidences that are given against the revenue. Absence of any direct evidence to suggest that the assessee constructed the duplex flats – Held that:- When 1-BHK flats are otherwise built and sold as such, mere making a provision to help the flat buyers to merge them to suit their convenience during the post-sale, should not disentitle to the assessee to make claim of deduction u/s 80IB(10) - few 1-BHK flats remain so without any merger despite the provision of ‘hole’ left and others are merged into duplex during the post sale using such provision - the developer cannot be penalized by denying the deduction - claim of deduction was found allowable by the then CIT(A) who decided the issues in earlier AY. Scope of the legal pronouncements on the merger of flats by the buyers and by assessee at the instance of flat buyers – Held that:- There is iota of direct eveidence to demonstrate that it is the assessee who merged the two 1-BHK flats in to duplex one with one kitchen - there is evidence to suggest that the flat buyers have done it so to their better living in the residential units - mere making a provisions of hole and providing methods/design vide the brochure to the advantage of the flat buyers does not amount to construction of duplex flats by the developer, who is aware of the consequences in matters of claims of deduction one side as well as the obtaining the completion /occupancy certificates from the Authorities, who approved the project with 1 to 3 BHK flats only and not to the duplex flats. The discrepancy of mere providing a hole for intended stair case for flat buyers and supplying of the design to merge the flats into a duplex flat in our opinion constitutes a marketing strategy to boost the sale of the 1-BHK - there is no prohibition for sale of the more flats to the members of a family - The amendments are undisputedly inapplicable to the projects under consideration - the assessee is entitled to deduction in respect of the profits attributable to all the 1-BHK flats of the project too – thus, the order of the CIT(A) is set aside – Decided in favour of assessee.
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