THE issue before the Bench is - Whether when developer sells one-BHK flats and buyers merge them into one after purchase, developer would lose Sec 80IB(10) benefits merely because merged flats exceed the limit of 1000 sq feet. And, NO is the answer of the Tribunal.
Facts of the case
The AO denied the deduction claimed u/s 80IB (10) because, as per the AO, 1 BHK flats do not conform to the conditions for the claim of deduction u/s 80IB(10), as the majority of the flats have been joined together and exceeded the limit of 1000 sq.ft. Assessee contended that it was the purchasers who joined the flats. But the explanation was not accepted by the AO.
Assessee contended that in the preceding year, the ITAT allowed the appeal of assessee observing that impounding of the brochure with details of method of merger of 1-BHK flats into a duplex, cannot be used against the assessee as it only provides the design of merger. It is not case of the revenue that the developer constructed the duplex flats by merger of two 1-BHK flats with it own money and then sold as such to the buyers. The owners of duplex have merged the flats after taking possession of their flats using the design provisions supplied by the assessee in the brochure. There is evidence contrary to the same. Assessee completed the construction as per the approved plans. Assessee obtained 'completion certificate' too from the concerned authorities about which there is no dispute.
After hearing both the parties, the ITAT held that,
++ the ground of appeal of assessee is allowed following the decision of ITAT in the assessee’s own case in preceding year in which it was held that there is no evidence to suggest that it is the developer who planned and generated duplex flats out of the 1- BHK flats and then sold as such to the buyers. In fact there is evidence to indicate that it is the flat buyers who merged the flats into duplex flats during the post sales period. Meaning thereby, the merger of flats if any taken place after the sale of the said 1-BHK flats by the flat buyers and, may be using the design made available by the developer, the assessee cannot be penalized and denied the claim of deduction. As such, the relevant legal provisions do not authorize the AO to deny deduction based on the intention. The discrepancy of mere providing a hole for intended stair case for flat buyers and supplying of the design to merge the flats into a duplex flat in our opinion constitutes a marketing strategy to boost the sale of the 1-BHK. Otherwise, the assessee constructed the flats in accordance with the plan approved by the authorities and sold them as such to the buyers. So long as the permanent structure like pillars of flat are constructed as per the approved plan of a residential unit with built up are of less than looks like small and minor deviation made for marketing reasons must not come on the way of granting deduction. As such there is no prohibition for sale of the more flats to the members of a family. The amendments are undisputedly inapplicable to the projects under consideration. Therefore, the assessee is entitled to deduction in respect of the profits attributable to all the 1-BHK flats of the project too.
Assessee contended that in the preceding year, the ITAT allowed the appeal of assessee observing that impounding of the brochure with details of method of merger of 1-BHK flats into a duplex, cannot be used against the assessee as it only provides the design of merger. It is not case of the revenue that the developer constructed the duplex flats by merger of two 1-BHK flats with it own money and then sold as such to the buyers. The owners of duplex have merged the flats after taking possession of their flats using the design provisions supplied by the assessee in the brochure. There is evidence contrary to the same. Assessee completed the construction as per the approved plans. Assessee obtained 'completion certificate' too from the concerned authorities about which there is no dispute.
After hearing both the parties, the ITAT held that,
++ the ground of appeal of assessee is allowed following the decision of ITAT in the assessee’s own case in preceding year in which it was held that there is no evidence to suggest that it is the developer who planned and generated duplex flats out of the 1- BHK flats and then sold as such to the buyers. In fact there is evidence to indicate that it is the flat buyers who merged the flats into duplex flats during the post sales period. Meaning thereby, the merger of flats if any taken place after the sale of the said 1-BHK flats by the flat buyers and, may be using the design made available by the developer, the assessee cannot be penalized and denied the claim of deduction. As such, the relevant legal provisions do not authorize the AO to deny deduction based on the intention. The discrepancy of mere providing a hole for intended stair case for flat buyers and supplying of the design to merge the flats into a duplex flat in our opinion constitutes a marketing strategy to boost the sale of the 1-BHK. Otherwise, the assessee constructed the flats in accordance with the plan approved by the authorities and sold them as such to the buyers. So long as the permanent structure like pillars of flat are constructed as per the approved plan of a residential unit with built up are of less than looks like small and minor deviation made for marketing reasons must not come on the way of granting deduction. As such there is no prohibition for sale of the more flats to the members of a family. The amendments are undisputedly inapplicable to the projects under consideration. Therefore, the assessee is entitled to deduction in respect of the profits attributable to all the 1-BHK flats of the project too.
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