2018 (10) TMI 1692 - AT - Income Tax

Deduction u/s 80IB - Scrutiny assessment orders u/s 143(3) - AO allowed deduction on the profits from the sale of residential units; as regards the profits from the leave and licence fees the AO held that such income is not derived from the development of a housing project but from letting thereof (though it is business income) and hence the assessee was not eligible for deduction u/s 80IB(10) on this component - CIT-A allowed claim - HELD THAT - In terms of section 80IB(10) what is relevant is the plans approved by the local authority and if the construction is as per such plans deduction under section 80IB(10) cannot be denied; even if two adjacent residential units have been merged into a bigger flat so long as the assessee satisfies all the conditions prescribed for claiming deduction u/s 80IB(10) and the assessee has constructed residential units which have BUA of less than 1, 000 sq. feet. deduction cannot be denied. In the instant case of the assessee the assessee had got the plans approved with each residential unit having a BUA of less than 1, 000 sq. feet and allotted residential units to the purchasers with a BUA of less than 1, 000 sq. feet. Accordingly there is no infirmity in the order of CIT(A) allowing assessee s claim of deduction u/s.80IB(10) of the IT Act. With regard to the AO s contention of treating income derived from leave and licence fee not in the nature of income leviable for deduction u/s.80IB(10) we observe that the ITAT in assessee s own appeals against the orders u/s 143(3) of the Act for assessment years 2005-06 to 2007-08 2014 (10) TMI 973 - ITAT MUMBAI has held such income to be eligible for deduction u/s 801B(10) of the Act. With regard to the AO s reliance on the decision of Hon ble Supreme Court in the case of Dilip Kumar and Company 2018 (7) TMI 1826 - SUPREME COURT wherein it was held by the Constitution Bench that when there is an ambiguity in an exemption notification it should be interpreted strictly we found that the applicability of this decision is only when there is an ambiguity. In a case there is no ambiguity in the language of the section the ratio of this decision is not applicable. Since the DR has not pointed out any ambiguity in the language of section 80IB(10) the ratio of this decision is not applicable in the instant case. No infirmity in the well reasoned order of CIT(A) wherein CIT(A) has dealt with the issue of assessee s eligibility u/s.80IB threadbare after recording detailed findings. The findings recorded by him are as per material on record which do not require any interference on our part. - Decided against revenue

Summary

Issues Involved:
1. Eligibility of deduction under section 80IB of the Income Tax Act.
2. Eligibility of deduction under section 80IB on lease income.
3. Alleged violation of section 80IB conditions due to merged flats exceeding 1000 sq. ft.
4. Validity of the original assessment orders allowing 80IB deduction.
5. Impact of amendments to section 80IB(10) and CBDT Circular No. 05/2010.
6. Reliance on statements and evidence found during search operations.
7. Interpretation of exemption notifications in light of Supreme Court rulings.

Issue-wise Detailed Analysis:

1. Eligibility of deduction under section 80IB of the Income Tax Act:
The assessee, a partnership firm, claimed deductions under section 80IB for a slum rehabilitation project. The project was completed as per plans approved by the Slum Rehabilitation Authority (SRA), and the built-up area (BUA) of each residential unit was less than 1000 sq. ft. The CIT(A) and ITAT upheld the eligibility for the deduction, noting compliance with all necessary conditions.

2. Eligibility of deduction under section 80IB on lease income:
The assessee claimed deductions on lease income from unsold flats held as stock-in-trade. Initially disallowed by the AO, the ITAT allowed the deduction, determining that the lease income was "derived from" the development of the housing project, thus qualifying under section 80IB.

3. Alleged violation of section 80IB conditions due to merged flats exceeding 1000 sq. ft.:
During a search, evidence suggested that some flats were merged, resulting in a combined area exceeding 1000 sq. ft. The CIT(A) and ITAT found that the construction was as per approved plans, and any merger of flats was done by the buyers post-possession. The authorities emphasized that the deduction could not be denied based on post-sale modifications by buyers.

4. Validity of the original assessment orders allowing 80IB deduction:
The original assessments for the years 2005-06 to 2007-08 allowed the 80IB deduction after detailed verification. The AO's subsequent disallowance based on search findings was overturned by CIT(A) and ITAT, which reinstated the original assessments' findings.

5. Impact of amendments to section 80IB(10) and CBDT Circular No. 05/2010:
The amendments to section 80IB(10) by the Finance Act, 2009, and the CBDT Circular No. 05/2010 were deemed prospective. The CIT(A) and ITAT noted that these amendments did not apply to transactions completed before the amendment date, thus supporting the assessee's claim for deductions for the relevant assessment years.

6. Reliance on statements and evidence found during search operations:
The AO relied on statements and documents found during a search, suggesting a pre-planned merging of flats. However, the CIT(A) and ITAT found that the evidence, including BMC approvals and occupancy certificates, supported the assessee's claim that the construction adhered to approved plans. The merging of flats by buyers did not affect the eligibility for deductions.

7. Interpretation of exemption notifications in light of Supreme Court rulings:
The AO referenced the Supreme Court's ruling in Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company, emphasizing strict interpretation of exemption notifications. However, the ITAT found no ambiguity in section 80IB's language, rendering the ruling inapplicable. The clear compliance with section 80IB's conditions warranted the allowance of deductions.

Conclusion:
The ITAT upheld the CIT(A)'s decision allowing the assessee's claim for deductions under section 80IB, including lease income, based on compliance with all statutory conditions and the prospective nature of relevant amendments. The appeals by the Revenue were dismissed, affirming the assessee's eligibility for the claimed deductions.