AO To Workout Pro Rata Deduction In Regard To Eligible Residential Units: Bombay High Court

The division bench of Justice Dhiraj Singh Thakur and Justice Abhay Ahuja has observed that Section 80IB(10) nowhere even remotely aims to deny the benefit of deduction in regard to a residential unit, which otherwise confirms the requirement of size at the cost of an ineligible residential unit with a built-up area of more than 1500 sq. ft.

The respondent/assessee is a firm engaged in the business of developing residential projects in Pune. The returns of income for the assessment year 2011-12 were filed on September 30, 2011, declaring a total income after claiming deductions under Section 80IB(10). The deduction claimed was in respect of two projects, namely Kumar Shantiniketan and Kumar Kruti.

During the assessment proceedings, the AO noted that two flats in the project Kumar Shantiniketan had an area in excess of the prescribed limit of 1500 sq. ft., which was a mandatory requirement for claiming deduction under Section 80IB(10).

Regarding the project Kumar Kruti, the A.O. noted that eight fats had an area greater than the permissible 1500 sq.ft.Besides this, the A.O. also noted that the assessee had failed to complete the project by March 31st, 2008. It held that the project Kumar Kruti was part of a larger project, Kumar City, which was sanctioned on August 8, 2003. The AO, accordingly, disallowed the claim of deduction under Section 80IB(10) of the Income Tax Act, 1961.

The order of the AO was challenged before the CIT (A) by the assessee. The appeal was allowed, directing the AO to allow the pro rata deduction in respect of eligible fats not exceeding the prescribed limit of a covered area of 1500 sq. ft.

The order of CIT (A) was challenged by the department before the ITAT, Pune. The ITAT dismissed the appeal.

The question was whether the ITAT was justified in allowing the assessee's claim for deduction under Section 80IB(10) on a pro rata basis, given that the assessee did not meet the limit on built-up area prescribed by Section 80IB(10)(c) in respect of eligible fats in the projects "Kumar Kruti" and "Kumar Shantiniketan."

Section 80IB(10) allows an undertaking, developing and building housing projects, to claim a 100% deduction of the profits derived from housing projects subject to the fulfilment of the timeline as regards approval of the project, its commencement, and completion as prescribed in Sub-clause (a) of Section 80IB(10). The fulfilment of the condition as regards the size of the plot of land in terms of Sub-clause (b) of Section 80IB(10) of the Act, 1961, or the compliance as regards the built-up area of the residential unit being not more than 1500 sq. ft. in any place other than the city of Delhi or Mumbai in terms of Sub-clause (c) of Section 80IB(10) of the Act, 1961.

As per clause (c) of Section 80IB(10) the residential unit has a maximum built-up area of 1000 square feet where the residential unit is situated within the city of Delhi or Mumbai or within 25 kilometres from the municipal limits of these cities and 1,500 square feet at any other place.

The appellant contended that Section 80IB(10) does not at all envisage a pro rata deduction in respect of eligible flats. In other words, it is suggested that even if a single flat in a housing project is found to exceed the permissible maximum built-up area of 1500 sq. ft., the assessee would lose its right to claim the benefit of deduction in respect of the entire housing project under Section 80IB(10).

The court dismissed the appeal.

Case Title: The Pr. Commissioner of Income Tax- 4 Versus Kumar Builders Consortium

Case No: Income Tax Appeal No. 82 Of 2018

Dated: 18.07.2022

Counsel For Appellant: Advocate Suresh Kumar

Counsel For Respondent: Advocate Jitendra Jain

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