Bhavya Construction Co. Vs ACIT (ITAT Mumbai)
The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has ruled in favor of Bhavya Construction Co., allowing their claim for deduction under Section 80IB(10) of the Income-tax Act, 1961, for profits derived from a Slum Rehabilitation Authority (SRA) housing project. The ITAT held that the deduction is permissible even if the project approval was granted before April 1, 2004, and the commencement certificate was issued after that date. This decision came in response to appeals for Assessment Years 2006-07 and 2007-08, marking the third round of litigation between the assessee and the tax authorities.
The core dispute revolved around the applicability of a Central Board of Direct Taxes (CBDT) notification No. 1/2011 dated January 5, 2011. This notification restricted the eligibility for Section 80IB(10) deduction to SRA projects approved on or after April 1, 2004, and before March 31, 2008. The tax assessing officer had disallowed Bhavya Construction’s claim, citing that the project’s initial approval predated April 1, 2004. However, the ITAT sided with the assessee, emphasizing that such notifications and circulars cannot override the substantive provisions of the Income-tax Act.
The Tribunal referred to a proviso inserted in Section 80IB(10) by the Finance (No. 2) Act, 2004, which relaxed the conditions stipulated in clauses (a) and (b) of the section for housing projects carried out under government-approved slum rehabilitation schemes that are notified by the CBDT. This proviso exempted such projects from the requirement of project approval within a specific timeframe and the minimum plot size of one acre, particularly relevant for land-constrained cities like Mumbai. The Maharashtra government’s SRA scheme was notified by the CBDT on August 3, 2010, and further clarified in the January 2011 notification.
The ITAT relied on a precedent set by a coordinate Mumbai bench in the case of Ramesh Gunshi Dedhia Vs. Income Tax Officer, where a similar issue was considered. In that case, the Tribunal held that once a slum rehabilitation scheme is notified by the CBDT, all projects carried out in accordance with that scheme are entitled to the benefit of the proviso, irrespective of the initial approval date. The ITAT in Bhavya Construction’s case concurred with this view, stating that the CBDT notification’s attempt to restrict eligibility based on the approval date was inconsistent with the intent and scope of the proviso in Section 80IB(10).
The Tribunal asserted that the purpose of the amendment introducing the proviso was to encourage the redevelopment of slum areas by relaxing stringent conditions. Imposing a cut-off date for project approvals through a notification would run contrary to this objective and the legislative intent. The ITAT concluded that Bhavya Construction’s project, being an SRA project duly approved by the state government and falling under a notified scheme, was eligible for the deduction under Section 80IB(10), provided other conditions of the section were met. Consequently, the appeals of Bhavya Construction were allowed, and the assessing officer was directed to permit the claimed deductions for both assessment years.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
