Denial of deduction u/s. 80IB(10) unjustified as separate building planning permission obtained for each block

Takshashila Realities Pvt Ltd Vs ACIT (ITAT Ahmedabad)

ITAT Ahmedabad held that denial of deduction u/s. 80IB(10) of the Income Tax Act alleging non-completion of some blocks unjustified as separate building planning permission were obtained by assessee from Local Authority namely AMC for each Block as a separate housing project.

Facts- The assessee developed 11 Blocks of residential housing projects under the scheme of Takshashila Colonial starting with Block Nos. C to Q. The assessee obtained separate planning permission for construction of residential building from the local authority namely Ahmedabad Municipal Corporation (AMC) and the date of commencement of the project and also completion of construction Building Usage permission obtained from AMC for the 8 Blocks (except) 3 Blocks.

AO held that as per Section 80IB(10), the housing project shout have been completed within five years from the end of the financial year in which the housing project is approved by the Local Authority. The assessee obtained housing project for Blok Nos. C to Q from the Local Authority on 01-03-2007, therefore the entire housing projects should have been completed on or before 31-03-2012. But no construction was started in Block Nos. E, F & G by the assessee. Therefore the A.O. issued a show cause notice, asking why the entire deduction claimed u/s. 80IB(10) should not be disallowed.

AO rejecting the explanation of the assessee denied the claim of deduction u/s. 80IB(10) of the Act and added the same as the total income of the assessee. CIT(A) confirmed the addition. Being aggrieved, the present appeal is filed.

Conclusion- It is an admitted fact that separate building planning permission were obtained by assessee from Local Authority namely AMC for each Block as a separate housing project. Further Building Usage permission was also obtained by the assessee from the Local Authorities namely Ahmedabad Municipal Corporation well within the period of 2 to 5 years. The Lower Authorities without appreciating the above facts denied the claim of deduction u/s. 80IB(10), solely on the ground that the assessee has not started the building project relating to Block Nos. E, F & G and thereby wrongly held that the assessee has not completed the housing projects.

Co-ordinate Bench of Hyderabad Tribunal in the case of Vertex Homes (P.) Ltd. held that the assessee, a builder, had not completed construction of all blocks of housing project, within stipulated period, would not deprive assessee from availing of deduction u/s. 80IB(10) in respect of each of completed block on stand alone basis.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

These two appeal are filed by the Assessee as against separate appellate orders both dated 09.07.2019 passed by the Commissioner of Income Tax (Appeals)-8, Ahmedabad arising out of the reassessment order passed u/s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2009-10.

2. The Grounds of Appeal raised by the Assessee in ITA No. 1401/Ahd/2019 in M/s. Takshashila Realities Pvt. Ltd. (The Successor of M/s. Youngstar Infrastructure) reads as follows:

1. The Ld. CIT(A) has erred in law and on facts to disallow the labour expenses of Rs. 25,68,507/-.

3. The Grounds of Appeal raised by the Assessee in ITA No. 1400/Ahd/2019 in M/s. Takshashila Realities Pvt. Ltd. (The Successor of M/s. Takshashila Gruh Nirman) reads as follows:

1. The Learned CIT(A) has erred in law and on facts to confirm the addition of Rs. 31,64,266/- on account of deduction u/s 80IB(10) of the Act.

2. The Learned CIT(A) has failed to appreciate that out of the Fifteen blocks. Twelve blocks [ C to Q except E, F and G ] were completed within five years as per completion certificate issued by the competent authority and for remaining three blocks [block E, F and G], not claimed any deductions u/s 801B(10) of the Act. Therefore, there is no reason to disallow deduction u/s 80IB(10) of the Act.

3. The Learned CIT(A) ought to consider the Provision u/s 80IB(10) being beneficial in nature, too technical approach would defeat the purpose for which provision had been brought in to the statute.

4. We find that the Grounds of Appeal raised by the assessee in the above two appeals are interchanged because of the name of the resultant company and assessment year remains the same, which is an inadvertent mistake, hence we proceed to adjudicate the appeals with correct grounds.

5. Ld. Counsel Mr. Sudhir Mehta appearing on behalf of the assessee submitted before us that the assessee is not pressing the solitary ground of labour expenses of Rs. 25,68,507/- in ITA No. 1400/Ahd/2019.

6. Recording the above statement of the Ld. Counsel, the appeal filed by the Assessee in ITA No. 1400/Ahd/2019 is dismissed.

ITA No. 1401/Ahd/2019 M/s. Takshashila Realities Pvt. Ltd. (The Successor of M/s. Takshashila Gruh Nirman) for A.Y. 2009-10.

7. The solitary issue in this appeal is confirmation of addition of Rs. 31,64,266/- on account of denying deduction u/s. 80IB(10) of the Act on the ground that the housing projects were not completed by the assessee within five years period.

7.1. The Brief facts of the case is that the assessee developed 11 Blocks of residential housing projects under the scheme of Takshashila Colonial starting with Block Nos. C to Q. The assessee obtained separate planning permission for construction of residential building from the local authority namely Ahmedabad Municipal Corporation (AMC) and the date of commencement of the project and also completion of construction Building Usage permission obtained from AMC for the 8 Blocks (except) 3 Blocks namely E, F & G are as follows:

8. The Assessing Officer held that as per Section 80IB(10), the housing project should have been completed within five years from the end of the financial year in which the housing project is approved by the Local Authority. The assessee obtained housing project for Blok Nos. C to Q from the Local Authority on 01-03­2007, therefore the entire housing projects should have been completed on or before 31-03-2012. But no construction was started in Block Nos. E, F & G by the assessee. Therefore the A.O. issued a show cause notice, why the entire deduction claimed u/s. 80IB(10) should not be disallowed.

8.1. The assessee replied that the Block Nos. E, F & G of the housing project was not started by the assessee, but however other 8 Blocks namely, C, D, L, M, N, O, P & Q were completed within five years period. Further for every Block, the assessee obtained separate planning permission from AMC. Thus the assessee claimed deduction u/s. 80IB(10) only to the 8 blocks. However the above explanation of the assessee was rejected by the Assessing Officer and thereby denied the claim of deduction u/s. 80IB(10) of the Act of Rs. 31,64,266/- and added as the total income of the assessee.

9. Aggrieved against the same, the assessee filed an appeal before Ld. CIT(A). The Ld. CIT(A) after considering the submissions of the assessee held that the assessee has not fulfilled the conditions laid down in section 80IB(10) of the Act and thereby upheld the addition made by the Assessing Officer.

10. Aggrieved against the same, the assessee is in appeal before us. Ld. Counsel Mr. Sudhir Mehta submitted before us a Paper Book running to 36 pages, wherein from Page Nos. 7 to 22 placed copies of the Commencement Letter (Rajachitthi) issued by Ahmedabad Municipal Corporation (AMC) and Building Usage permission certificate issued by the AMC for Block Nos. C, D, L, M, N, O, P & Q. Thus the Ld. Counsel for the assessee submitted the Lower Authorities failed to consider that separate building planning permission obtained by the assessee for each Block as separate housing project and completed the same less than five years period and therefore eligible for claim of deduction u/s. 80IB(10) of the Act. The Ld. Counsel further submitted that the assessee has not claimed deduction u/s. 80IB(10) for Block Nos. E, F & G and the Lower Authorities are not correct in denying the deduction u/s. 80IB(10) of the Act for the remaining Blocks of the housing project.

10.1. In this connection, the Ld. Counsel relied upon Hon’ble Madras High Court Judgment in the case of Viswas Promoters (P.) Ltd. Vs. ACIT [2013] 29 taxmann.com 19 (Madras) and Hyderabad Tribunal decision in the case of Vertex Homes (P.) Ltd. Vs. DCIT [2015] 62 taxmann.com 285 (Hyderabad-Trib.)

10.2. Per contra, the Ld. D.R. appearing for the Revenue supported the order passed by the Lower Authorities and pleaded to uphold the same.

11. We have given our thoughtful consideration and perused the materials available on record. It is an admitted fact that separate building planning permission were obtained by assessee from Local Authority namely AMC for each Block as a separate housing project. Further Building Usage permission was also obtained by the assessee from the Local Authorities namely Ahmedabad Municipal Corporation well within the period of 2 to 5 years. This is evidence from the table extracted at Para 7.1 of this order. The Lower Authorities without appreciating the above facts denied the claim of deduction u/s. 80IB(10), solely on the ground that the assessee has not started the building project relating to Block Nos. E, F & G and thereby wrongly held that the assessee has not completed the housing projects.

11.1. The Hon’ble High Court of Madras in the case of Viswas Promoters (P.) Ltd. (cited supra) held that each residential block is a ‘housing project’ in itself for the purpose of claiming deduction u/s. 80IB(10) of the Act and thereby given the claim of deduction to the assessee observing as follows:

“…11. It is an admitted fact that each one of blocks had separate sanction from the competent authority. Even though the larger area comprised in the name and style of “Agrini” and “Vajra” is stated to be the master plan of the project, it is not denied by the Revenue that each block in each of the projects has its own specification; hence, had gone for planning approval by the competent planning authority. In the background of this, the question that arises for consideration is as to whether the assessee would lose its claim for deduction in respect of those blocks which satisfied the conditions under Section 80IB(10) of the Act by reason of some of the stocks not satisfying the condition under Section 80IB(10) of the Act.

12. It is not denied by the Revenue that there is no definition of the expression “Housing project” under Section 80IB of the Act. The said expression is defined under Explanation to Section 80HHBA of the Income Tax Act, which reads as under:

“Section 80HHBA. – Deduction in respect of profits and gains from housing projects in certain cases.

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Explanation: For the purposes of this section, – (a) “Housing project” means a project for – (1) The construction of any building, road, bridge or other structure in any part of India”

13. Section 80IA of the Act is a specific provision which deals with deduction in respect of profits and gains from industrial undertakings or enterprises engaged in the development of infrastructural facilities such as roads, bridges and other structure as regards the grant of deduction in respect of development and construction of a housing project. Section 80IB is a specific provision in respect of profits and gains from undertakings engaged in developing and constructing housing projects other than infrastructure development undertakings. Thus, housing projects considered herein under Section 80IB refers to any building other than road, bridge or other structure. Thus, going by the definition of “housing project” to mean the construction of “any building” and the deduction under Section 80IB of the Act is hundred per cent of the profits derived in the previous year relevant to the assessment year from such housing project complying with the condition, each block in the larger project by name “Agrini” and “Vajra”, has to be taken as an independent building and hence a housing project, for the purpose of considering a claim of deduction. Section 80IB(10) begins by stating:

“(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 2007 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project if,

(a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction, Thus the undertaking qualifying for deduction under Section 80IB of the Act is an “undertaking developing and building housing projects” and the deduction is in respect of “profits and gains derived from” such housing project, satisfying the conditions stipulated in the clause therein. Thus, within a composite housing project, where there are eligible and ineligible units, the assessee can claim deduction in respect of eligible units in the project and even within the block, the assessee is entitled to claim proportionate relief in the units satisfying the extent of the built-up area.”

11.2. Similarly Co-ordinate Bench of Hyderabad Tribunal in the case of Vertex Homes (P.) Ltd. (cited supra) held that the assessee, a builder, had not completed construction of all blocks of housing project, within stipulated period, would not deprive assessee from availing of deduction u/s. 80IB(10) in respect of each of completed block on stand alone basis as follows:

“….8.1 Thus, the principle which emerges from the aforesaid judicial precedents is, even a single building consisting of a number of residential units can be considered to be a housing project by itself, hence, will be eligible for deduction u/s 80IB(10), if it otherwise fulfills the conditions of section 80IB(10). Applying the aforesaid principles to the facts of the present case, it is very much evident that blocks A, B & F in respect of which assessee has claimed deduction u/s 80IB(10) are fulfilling all the conditions of the said provision. It is also a fact that municipal authorities have also issued completion certificate certifying that the buildings are complete in all respects. In the aforesaid view of the matter, assessee, since has fulfilled all conditions of section 80IB(10) in respect of blocks A, B & F, it is eligible for deduction u/s 80IB(1 0). Provisions of section 80IB(10) being beneficial in nature, too technical an approach, would defeat the purpose for which provision has been brought into the statute. Moreover, as far as Ld. CIT(A)’s observation that the housing project should have been completed by 31/03/2011, we do not find the same to be acceptable. As assessee’s housing project has been approved after 1st April, 2005, the stipulated period within which assessee has to complete the project is five years. Assessee having completed blocks A, B & F within five years from the date of approval, in our view, it is eligible to claim deduction u/s 80IB(10) in respect of blocks A, B & F.”

11.3. Respectfully following the above judicial precedents and separate planning permission obtained by the assessee for each Block separately and after construction obtained separate Building Usage permission from the Local Authority within 5 years period, therefore the assessee cannot be denied the claim of exemption u/s. 80IB(10) of the Act. Thus the order passed by the Lower Authorities on this issue is hereby set aside and the Assessing Officer is directed to allow the claim of deduction u/s. 80IB(10) of the Act amounting to Rs. 31,64,266/-. Thus the ground raised by the Assessee is hereby allowed.

12. In the result, the appeal filed by the Assessee in ITA No. 1401/Ahd/2019 is allowed.

Order pronounced in the open court on 23-08-2023