S. 80IB(10) -Canopy/ Porch cannot be treated as part of Built up Area as it is not habitable

Brief Facts and Question of Law:

Brief Facts of the Assessee:

The Assessee is engaged in the business of construction and had undertaken a residential cum commercial project in Nanded. In assessment year 2008-09, the assessee had claimed deduction under section 80IB(10) of the Act at Rs.45,40,947/-. The Assessing officer (herewith “AO”) rejected the Assessee’s claim of deduction on the ground that the project included residential as well as commercial units. Also the project was not completed within the time limit specified in the provisions of section 80IB(10) of the Act. The area of some of the residential units exceeded 1500 sq. ft. Since the assessee had failed to comply with the provisions of section 80IB(10) of the Act, the claim of deduction was denied to the assessee.

Held by CIT (A):

The CIT(A) accepted the Assessee’s contentions and allowed the deduction u/s 80IB(10) of the Act.

Question of Law:

Whether, Canopy/porch area can be included in the definition of Built up Area u/s 80IB(10)(14)(a) of the Act?

Contention of the Revenue:

• The Revenue contented that as per Survey reports, the assessee was conducting the construction activity on a single project which was a commercial cum residential project. Such project was not eligible for deduction u/s 80IB(10) of the Act.
• It was also contented that as per the audit report submitted by the assessee, the project had commenced construction on 21.03.2004 while the Certificate for the project was given on 15.05.2004. Since the assessee had already started incurring expenses for development the commencement date was considered as 21.03.2004 and hence, the project was supposed to be completed before 31.03.2008. However, during the course of Survey some units were not completed as on 09.12.2008.
• Also some of the units exceeded the specified limit of 1500 sq ft. after including the canopy/porch area which was a part of built up area of the unit. Hence, the Assessee violated the provisions of section 80IB(10) and hence no deduction was allowed.

Contention of the Assessee:

• The Assesee contended that there were two different projects one being residential and another commercial cum residential and the deduction u/s 80IB(10) was claimed for only one project i.e. residential. However, the AO denied the deduction by treating both the projects as one. The Assessee had also maintained separate books of accounts, bank accounts, offices, shops and establishment licenses for two projects.
• Secondly the local authority had sanctioned the plan on 15-5-2004 and, therefore, the appellant was under obligation to complete the project before 31-3-2009 as contemplated u/s 80IB(10), however, the project was completed 31-3-2008 itself. The pending work was related to renewal and replacement such as glass & door & windows work etc. and the major construction work was completed by 31-3-2008.
• Also the Assessee argued that the area of canopy cannot be included in the built up area. For this he relied upon the certificates submitted by the Architect certifying that built up area of none of the units exceeded 1500 sq.ft. It was further contented that ‘canopy’ was allowed by all local authorities within the open space around housing unit and the canopy is a “Means of access” and to protect the person from sun and rain while getting down from the vehicle and entering the premises, thus it is a weather shed without any side wall and not a habitable room.

Held by the ITAT:

• The ITAT noticed that the Assessee had received separate permission from Local Authority for the sanction of two projects and even for their completion. The assessee had maintained separate books of account under two proprietary concerns, one for the construction of row houses and the second for the construction of commercial area. Hence, the residential project was an eligible project for deduction.
• Further ITAT held that the project was completed well within the time specified as was confirmed from the completion certificate received from Grampanchayat. And the pending work related to renewal and replacement.
• For the contention of inclusion of Canopy area in total built area, the ITAT held that “built up area” means the inner measurement of the residential unit at the floor level, including the projection and balconies, as increased by the thickness of the walls but does not include the common area shared with other residential units. The canopy is not a habitable area. It could not be considered a part of built-up area and it does not come under the ambit of the terms ‘Projections’ and ‘Balconies’ as contemplated u/s 80IB(10)(14)(a). The canopy can more be equated with a portico which is provided in the houses or bungalows for the purpose of shade from sun and rain. Thus the area of the residential bungalows without the area of canopy being considered in arriving at the built up area remains below 1500 sq.ft and, therefore, no violation of the conditions of Sec. 80lB(10).