By TIOL News Service

PUNE, MAY 14, 2018: THE ISSUE IS - Whether a real estate firm is eligible for benefit of amended provision of Sec 80IB which allows enhancement in built up area of commercial establishments, in respect of housing projects already completed before such amendment. NO IS THE ANSWER.

Facts of the case:

The assessee, a partnership firm engaged in real estate business, had furnished its return declaring total income of Rs.57,34,420/- and the same was processed u/s 143(1). Subsequently, the return was revised at Rs.NIL, after claiming deduction u/s 80IB(10) at Rs.57,34,418/-. During the course of scrutiny assessment, it was found that assessee had shown receipts on account of sale of flats in respect of project 'Abhijeet Park' located at Pune. The total receipts shown during the year were Rs.3,47,54,073/-, on which net profit was shown at Rs.57,34,418/- after claiming depreciation and remuneration to the partners. The AO observed that the year under consideration was the third assessment year of assessee's firm and during the past two years, the assessee had not claimed any deduction u/s 80IB(10). Thus, this deduction was claimed for the first time, which also was not claimed in original return. It was explained that due to overall restriction of commercial construction component in the project, the assessee had not claimed any benefit u/s 80IB(10). However, when such restriction was removed by the amendment carried out by the Finance Act, 2010 and the project became eligible, the returns for A.Ys 2008-09 and 2009-10 were revised. The assessee also explained that its project 'Abhijit Park' comprised of six buildings, wherein the construction was made in phased manner. The AO from the perusal of the report of the Govt approved valuer, noted that the assessee had built 2732.11 sq.ft. of commercial area in the project as against maximum limit of 2000 sq.ft, and this fact was admitted by the assessee. The AO then noted that the Memorandum forming part of Finance Bill 2010 explained that the benefit of enhanced commercial built up limits would be available to the projects which were approved after Apr 01, 2005 but which were pending for completion, in respect of income relating to A.Y 2010-11 and subsequent years. He therefore held that assessee was not entitled for deduction u/s 80IB(10).

On appeal, the FAA observed that the trigger for filing revised return of income was the amendment done by the Finance Act, 2010, as per which the enhancement in the built up area of shops and commercial content, in the Housing Project was made. Earlier, upper limit was 5% of total built up area or 2000 sq.ft., whichever was less. However, this was increased to 3% or total built up area or 5000 sq.ft., whichever is higher. The FAA noted that last completion certificate to the assessee was issued on Mar 31, 2010 and amendment being applicable from assessment year 2010-11 for the projects pending as on Apr 01, 2010 was not available to the assessee. The FAA also denied prorata deduction claimed by assessee on without prejudice basis on the ground that assessee had breached clause (d) of section 80IB(10) of the Act.

Tribunal held that,

++ the issue which arises before this Tribunal is two-fold i.e. whether amended provisions of clause (d) are applicable to pending projects and the assessee is entitled to claim said deduction in respect of housing projects, which had exceeded commercial area as per pre-amended provisions of clause (d). The second aspect is that where initially the assessee had area less than one acre but subsequently, it was made good; can the assessee claim deduction u/s 80IB(10). In the present case, where the first sanctioning of plans is dated June 15, 2005, then the time period is a period of four years. Clause (b) to section 80IB(10) provides that the project should be on the size of plot having minimum area of one acre. Clause (c) talks about measurement of residential units to be constructed i.e. if situated within the cities of Delhi or Mumbai or within 25 kilometers from the municipal limits of the said cities, then maximum built up area allowed is 1000 sq.ft. and 1500 sq.ft. at any other place. Clause (d) further provides that the built up area of shops and commercial establishments included in the housing project at the relevant time should not exceed 5% of aggregate built up area of housing project or 2000 sq.ft. whichever was less. Clause (e) to section 80IB(10) provides that not more than one residential unit in the housing project was to be allowed to any person not being an individual; and clause (f) provides that in case where the residential unit is allowed to any person being an individual, no other residential unit is to be allowed to any of the specified persons in order to eligible for claiming the deduction on account of housing project. These conditions need to be fulfilled by the person claiming 80IB(10) deduction. Admittedly, housing project is not defined in the Act but conditions are laid down in this regard that the housing project should be approved by local authority. So, once the project has been approved by local authority as housing project and the assessee fulfils the other conditions laid down in the said section, then the assessee is eligible to claim the benefit of said deduction;

++ as far as minimum area of plot of land is concerned, the case of Revenue is that the assessee does not fulfill the said onus cast upon it since on the date of start of development of the project, the assessee was not in possession of plot of land having minimum area of one acre. Initially the assessee came in possession of 2322.56 sq.mtrs. of land and thereafter vide second Development Agreement, the assessee purchased 2323.42 sq.mtrs. of land. The said land was agreed to be developed vide two separate agreements but from the same piece of land and from the same set of owners. Once the assessee had consolidated to more than one acre, the question which arises is whether in such circumstances, the assessee can be said to have fulfilled the condition of clause (b) of section 80IB(10). Where the assessee has though entered into development agreements vide separate agreements but the project which was to be developed was one under the name and style of 'Abhijit Park' and both the plots of land were adjacent to each other, which have been purchased from the same landlords and hence, the assessee fulfills the condition of having acquired one acre of land for development and thus, condition clause (b) of section stands fulfilled. Now, coming to the second aspect of the issue in relation to claim of 80IB(10) deduction. The assessee has developed the housing project named 'Abhijit Park', and claims that it had commenced construction of project on June 15, 2005 and completed the same on Mar 31, 2010. As per pre-amended provisions of Section 80IB(10)(d) which were applicable on the date when the project was started by assessee, the requirement of law was that in order to be eligible to claim 80IB(10) deduction, beside other conditions, built up area of shops and other commercial establishments included in housing project should not exceed 5% of aggregate built up area of housing project or 2000 sq.ft., whichever was lesser. Since the assessee had violated such condition, it is not entitled to said deduction;

++ now, dealing with the amendment to clause (d) to section 80IB(10) by Finance Act, 2010, as is clear that the amendment of increasing aggregate built up area of commercial establishments to 5000 sq.ft. was inserted by the Finance Act, 2010 w.e.f. Apr 01, 2010. The project of assessee stands completed on Mar 31, 2010, for which the assessee has also received final completion certificate. Thus, the project has already been completed on Mar 31, 2010, the amendment brought in u/s 80IB(10)(d) was not applicable as the same was made effective from Apr 01, 2010. Coming to next plea of assessee for granting proportionate deduction i.e. equivalent to commercial area which is available to the assessee as per the Act and denying the benefit of 80IB(10) deduction on the excess commercial area. The expression used u/s 80IB(10) clause (d) is the built up area of 'shops and other commercial establishments' included in the housing project. In other words, what has to be seen in order to determine the eligibility as per clause (d) is the total built up area of shops & commercial establishments included in the housing project and limit which has been provided for such aggregate built up area is 2000 sq.ft. in the relevant year. It is undisputed that the assessee has constructed commercial area exceeding the specified limit of 2000 sq.ft. Further, there is no merit in the plea of assessee for allowing prorata deduction on account of built up area of commercial shops which falls within specified area. The language of section is clear that while considering the built up area of shops and other commercial establishments, the total area has to be considered. This Tribunal therefore uphold the orders of authorities in denying the aforesaid 80IB(10) deduction to the assessee in respect of profits arising on sale of units in the housing project named 'Abhijit Park'.

(See 2018-TIOL-698-ITAT-PUNE)