ACIT Vs Cosmos Constructions (ITAT Mumbai)
One Incomplete Building Need Not Cost Deduction for the Entire Project: ITAT Upholds Proportionate Section 80-IB(10) Relief
If only part of a housing project satisfies the conditions for deduction under section 80-IB(10), must the developer lose the deduction for the entire project? The Mumbai Tribunal answered that question in favour of proportionate relief in the case of Cosmos Constructions. Following decisions of the jurisdictional Bombay High Court, it rejected the Revenue’s objection to allowing deduction on profits from the eligible portion of the project.
The order has an important factual qualification: the Tribunal did not find that any of the project’s three buildings was actually incomplete. The Assessing Officer had recorded that construction of all three was completed before the deadline. The Commissioner (Appeals)’s direction for proportionate deduction was a fallback, dependent on verification of the completion certificates.
Three buildings and a 31 March deadline
The assessee claimed section 80-IB(10) deduction on profits from “Cosmos Lounge”, a housing project at Thane comprising Orchid, Angelica and Hollyhock. The claim for the same three buildings had been accepted by the Assessing Officer in a scrutiny assessment for the immediately preceding assessment year, 2011–12.
For AY 2012–13, the question concerned the project completion condition under section 80-IB(10)(a). The project had been approved on 11 June 2006, making 31 March 2012 the relevant completion deadline. Significantly, the Assessing Officer recorded in his assessment order that construction of all three buildings was completed before 31 March 2012.
The Commissioner (Appeals), however, noted that the completion certificates had not been produced before the Assessing Officer. He therefore directed the assessee to furnish proof concerning the date of application and the certificates during proceedings to give effect to his order. If the certificates established completion of all the buildings before 31 March 2012, the entire deduction was to be granted. If only some buildings qualified, deduction was to be allowed on a proportionate basis for the buildings completed within time.
Revenue objects to splitting the deduction
The Revenue appealed against the fallback direction. Its case was that section 80-IB(10) did not expressly provide for a pro-rata deduction and that a breach of the project completion condition should prevent proportionate relief. The assessee maintained that profits attributable to compliant buildings could qualify even if another portion of a project did not.
The Tribunal framed the dispute narrowly. It was deciding whether the Commissioner (Appeals) could direct the Assessing Officer to allow deduction for an eligible portion of the project. It was not determining the actual completion dates from certificates that remained to be verified.
Bombay High Court decisions govern the issue
The Tribunal relied principally on Pr. CIT v. Kumar Builders Consortium, 447 ITR 44, in which the Bombay High Court had upheld the principle of proportionate section 80-IB(10) deduction for an eligible portion of a housing project. It also referred to the Bombay High Court’s decision in Models Construction (P.) Ltd. v. DCIT, 124 taxmann.com 513, concerning proportionate relief where non-compliance was confined to certain units. The Madras High Court’s ruling in Viswas Promoters (P.) Ltd. v. ACIT, 29 taxmann.com 19 was cited as recognising the same approach for eligible blocks or units.
In light of these decisions, the Tribunal rejected the Revenue’s argument that the absence of an express provision for proportionate deduction barred the relief. It found no error in the Commissioner (Appeals)’s direction and dismissed the Revenue’s appeal.
The practical effect is that the Assessing Officer must carry out the verification directed by the Commissioner (Appeals). Full deduction depends on proof that all three buildings satisfied the completion requirement. The proportionate direction becomes relevant only if the evidence establishes that some, but not all, of the buildings qualified.
Author’s comment
The strength of this ruling lies in its distinction between eligibility of the project as a whole and profits attributable to a qualifying part. The Bombay High Court authorities relied on by the Tribunal prevent an otherwise eligible portion from automatically losing the deduction because another portion fails a condition.
At the same time, this order should not be described as a finding that Cosmos Lounge had an incomplete building. The Assessing Officer’s recorded observation was that construction of all three buildings had finished before the deadline; what remained was verification through the relevant certificates and application records. For developers relying on the decision, building-wise completion evidence and profit attribution remain central to determining whether the eventual deduction is full or proportionate.
Cases Discussed
- Pr. CIT v. Kumar Builders Consortium, 447 ITR 44 (Bombay High Court) — The Tribunal held that the issue was squarely covered by this jurisdictional High Court decision, which upheld the principle of allowing deduction under section 80-IB(10) proportionately in respect of the eligible portion of a housing project.
- Models Construction (P.) Ltd. v. DCIT, 124 taxmann.com 513 (Bombay High Court) — Relied upon for the proposition that proportionate deduction can be granted where non-compliance with section 80-IB(10) is confined to certain units of the housing project.
- Viswas Promoters (P.) Ltd. v. ACIT, 29 taxmann.com 19 (Madras High Court) — Relied upon for the principle that the benefit of section 80-IB(10) cannot be denied in respect of eligible blocks or units merely because the prescribed conditions are not satisfied in respect of other portions of the project.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by the Revenue is directed against the order dated 17.09.2025 passed by the learned Commissioner of Income-tax (Appeals) for the assessment year 2012-13. The dispute in the present appeal relates to the assessee’s claim of deduction under section 80IB(10) of the Income-tax Act, 1961, in respect of the profits derived from the housing project “Cosmos Lounge” at Thane, comprising three buildings, namely, Orchid, Angelica and Hollyhock.
2. The assessee had claimed deduction under section 80IB(10) in respect of the aforesaid three buildings. It is also relevant to note that the claim of deduction under section 80IB(10) in respect of the same three buildings had been accepted by the Assessing Officer in the immediately preceding assessment year, i.e. assessment year 2011-12, in an assessment completed under section 143(3) of the Act dated 31.03.2014.
3. In the assessment proceedings for the year under consideration, the Assessing Officer examined the assessee’s claim, inter alia, with reference to the condition prescribed under section 80IB(10)(a) regarding completion of the housing project within the stipulated period. The project was approved on 11.06.2006 and, accordingly, the prescribed date for completion was 31.03.2012. In paragraph 7.3 of the assessment order, the Assessing Officer has categorically recorded that the construction of all the three buildings was completed before 31.03.2012. The learned CIT(A), while dealing with the issue, noted that the completion certificates had not been produced before the Assessing Officer and, therefore, directed the assessee to furnish proof of the date of application and the completion certificates in the proceedings for giving effect to the appellate order. The learned CIT(A) directed that the entire deduction under section 80IB(10) should be granted if the completion certificates established completion before 31.03.2012 and, otherwise, deduction should be granted on pro-rata basis in respect of the buildings completed before the prescribed date.
4. Aggrieved with the order of the Commissioner (Appeals), the Revenue has raised the following two grounds of appeal before the Tribunal.
1. Whether, on the facts and in the circumstances of the case, the learned CIT(A) is justified in directing the AO to compute the deduction u/s 80IB(10) on pro-rata basis without appreciating that there is no such provision for proportionately allowing the deduction.
2. Whether, on the facts and in the circumstances of the case, the learned CIT(A) is justified in directing the AO to compute the deduction u/s 80IB(10) on pro-rata basis in respect of profit earned from those buildings which were completed before 31.03.2012, without appreciating that the assessee has violated the provisions of clause (a) of section 80IB(10) of the Act.”
5. The learned Departmental Representative (ld.DR) relied upon the grounds of appeal and supported the action of the Assessing Officer. The learned Authorised Representative (ld.AR), on the other hand, supported the order of the learned CIT(A) and submitted that the issue of pro-rata deduction is no longer res integra. He relied upon the decisions of the Hon’ble Bombay High Court in Pr. CIT v. Kumar Builders Consortium, 447 ITR 44 and Models Construction (P.) Ltd. v. DCIT, 124 taxmann.com 513, and the decision of the Hon’ble Madras High Court in Viswas Promoters (P.) Ltd. v. ACIT, 29 taxmann.com 19, in support of the proposition that deduction under section 80IB(10) can be allowed proportionately in respect of the eligible portion of a housing project.
6. We have considered the rival submissions and perused the material available on record. The limited issue before us is whether the learned CIT(A) was justified in directing the Assessing Officer to allow deduction under section 80IB(10) on a pro-rata basis in respect of the eligible portion of the housing project.
7. The issue is squarely covered by the decision of the Hon’ble Bombay High Court in Pr. CIT v. Kumar Builders Consortium, 447 ITR 44, wherein the principle of allowing deduction under section 80IB(10) proportionately in respect of the eligible portion of a housing project has been upheld. The Hon’ble Bombay High Court in Models Construction (P.) Ltd. v. DCIT, 124 taxmann.com 513, has also upheld the grant of proportionate deduction where the non-compliance was confined to certain units of the housing project. The same principle has been recognised by the Hon’ble Madras High Court in Viswas Promoters (P.) Ltd. v. ACIT, 29 taxmann.com 19, holding that the benefit of section 80IB(10) cannot be denied in respect of eligible blocks or units merely because the conditions are not satisfied in respect of other portions of the project.
8. Respectfully following the aforesaid judicial precedents, we find no infirmity in the direction issued by the learned CIT(A) to allow deduction under section 80IB(10) on a pro-rata basis in respect of the eligible portion of the housing project. The contention of the Revenue that there is no provision for allowing such proportionate deduction is, therefore, untenable in view of the binding decision of the Hon’ble jurisdictional High Court in Kumar Builders Consortium (supra) and Models Construction (P.) Ltd. (supra).
9. Since both the grounds raised by the Revenue arise from the same issue and challenge the grant of deduction under section 80IB(10) on a pro-rata basis, and the issue stands covered in favour of the assessee by the aforesaid decisions, we find no reason to interfere with the order of the learned CIT(A). Accordingly, both the grounds raised by the Revenue are dismissed.
10. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open Court on 21.09.2026.
