Case Law Details
Brief of the case:
ITAT Hyderabad in the case of Smt. Cherkuri vs. DCIT concluded that development of commercial complex by the buyer of plot area even if it is approved by the concerned authorities as the part of the project, could not be said to have been developed by the assessee as a part & parcel of the project.
Facts of the case:
The assessee is engaged in the business of real estate development and claimed deduction of Rs. 3,29,78,844/- u/s Sec 80IB(10) in respect of profit derived from housing project developed by her.
The Assessing Officer during the course of scrutiny assessment proceedings examined the claim and disallowed the deduction by concluding that the assessee violated the three conditions as stipulated u/s 80IB (10).As per the AO , the violated conditions were-
i) Non-completion of project within the specified time limit,
ii) Built up area in excess of 1500 sq feet of 2 flats
iii) Construction of commercial property as a part of project with the built area exceeding 5% of the remaining project built area.
The disallowance made by the AO was confirmed by the CIT (A) , who upheld the violations of two conditions (except that of non-completion within time limit).Aggrieved by the order of CIT(A) the assessee preferred an appeal before the tribunal.
Contention of the Assessee:
The learned counsel for the assessee submitted that none of the conditions were violated. He argued that CIT (A) was wrong in upholding that the maximum built up area conditions (1500sq feet) in respect of two residential units have been violated because one residential unit was sold with the built up area of 1475 sq. feet on which the buyer has done additional construction (first floor) which made the built up area more than 1500sq. feet . As regards, the other residential unit the same was even though duplex building but its area was 1364 sq . feet which is confirmed by the sale deed placed by the assessee on the record.
In addition to that, CIT (A) has also wrongly backed the findings of the AO that the maximum commercial area crossed more than 5% of aggregate residential area because the commercial area was not developed by the assessee. The commercial area was developed by the buyers (Md. Zaheeruddin and Md. Zamiluddin) of the plot sold by the assessee. Thus, the commercial property was not a part of the project executed by the assessee as the assessee was not the owner of the plot area where the commercial property developed.
Contention of the Revenue:
The learned counsel for the Revenue submitted that as evaluation report of DVO , it is clear that in respect of two flats the built up area exceeded 1500 sq. feet and the sale deed put on record by the assessee do not establish that the built area not exceeded in the absence of confirmation of the same by the purchaser.
Further, the condition of developing maximum commercial area was also violated and to cover up the violation assessee introduced the concept of third party development whereas the completion certificate issued to the assessee by the authorities indicate that the commercial complex is the part and parcel of the project undertaken by the assessee.
Thus , the assessee is not entitled to deduction u/s 80IB(10) as the norms of maximum built up area of individual housing units and maximum commercial area as permissible in the project were violated by the assessee.
Decision of the Tribunal:
The tribunal observed that as regards the allegation of exceeding maximum built up area in respect of two residential units the assessee has placed on record the sale deeds executed wherein the built up area was within the limit of 1500 sq. feet. In one case the area exceeded due to the subsequent construction by the buyer of the residential unit.
As regards, the allegation of violation of maximum permissible commercial area the relevant plot of land on which the commercial complex was built had already been sold by the assessee (and she did not undertake nay construction on that area) for which sale deed has also been placed on the record and the capital gain arising on the sale was offered to tax in the year of sale. Further, the assessee did not claim any deduction under Sec 80IB(10) in respect of that gain.
The tribunal relied on the decision of ITAT, Chennai in the case of Lavanya Property Developers Pvt. Ltd. V/s. ACIT (ITA No.148/2010) wherein the tribunal held that just because the assessee hived off one block in the project and hived off block had violated the condition prescribed under S.80IB(10), it would not disentitle the complete project from the deduction under S.80IB(10) especially when the hived off block was not in any way connected with the assessee’s balance project and the balance project.
Relying on the above decision, the tribunal allowed assessee’s appeal.
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