Relief to Skyline Builders: ITAT Allows Deduction u/s 80IB(10), Holds Firm as Builder/Developer, Not Works Contractor [Read Order]

The Cochin Bench of Income Tax Appellate Tribunal ( ITAT ) granted relief to Skyline Builders by allowing deduction under section 80IB(10) of Income Tax Act,1961, holding that the firm acted as a builder/developer and not as a works contractor.

The Revenue-appellant appealed against the order dated 30.07.2024 passed by Commissioner of Income Tax(Appeals)[CIT(A)] for the AY 2009-2010. In this case, Skyline Builders,respondent-assessee, was a partnership firm doing building and development work in Ernakulam District. It filed its income return on 29th September 2009, showing income of Rs. 41,03,170. The case was selected for scrutiny.

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The Assessing Officer (AO) denied the deduction under section 80IB(10), stating that the firm was not a contractor as per section 80IB(1) but had done a work contract, so it was not eligible for the deduction.

The assessee challenged the disallowance of deduction under section 80IB(10) and filed an appeal before the CIT(A). The CIT(A) allowed the claim after finding that the construction was completed before the due date and supported by a completion certificate from the local authority.

On the issue of land size, the CIT(A) noted that both Aster and Lavender projects were developed on a combined plot of over two acres. The law required the minimum area to be one acre for the entire project, and not for each individual block. Hence, the AO’s interpretation was held to be incorrect.

Regarding the AO’s observation that deduction was claimed on interest, rent, and other income, the CIT(A) found no merit, as the audit report showed only construction income was considered. The AO had not specified or quantified any ineligible income.

Read More: ITAT Grants Section 80IA Deduction, Recognizes Infrastructure Development Role

The CIT(A) also disagreed with the AO’s view that the assessee was a works contractor. Citing ITAT decisions in Desai Homes and Kalpaka Builders, it was held that since the assessee owned the land, obtained approvals, and developed and sold flats, it acted as a builder/developer. The fact that there were separate agreements for land and construction did not change the nature of the activity.

Based on these findings, the CIT(A) allowed the deduction under section 80IB(10) and deleted the disallowance.

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The Revenue, aggrieved by the order, filed an appeal before the tribunal and relied on the AO’s findings and the Supreme Court ruling in K. Raheja Development Corporation, arguing that the assessee was a works contractor.

The two member bench comprising Prakash Chand Yadav (Judicial Member) and Inturi Rama Rao(Accountant Member) held that the CIT(A)’s decision was correct and found no error in it. It rejected the Revenue’s reliance on the Supreme Court’s ruling in K. Raheja Development Corporation, noting that the Gujarat High Court in CIT v. Vishal Developers had already clarified that the Raheja judgment did not apply to cases under the Income Tax Act.

The High Court had explained that even if an owner carried out construction for payment, it could be considered a works contract in certain contexts, but that interpretation didn’t affect eligibility for deduction under the Income Tax Act.

Following the Gujarat High Court’s view, the ITAT dismissed the Revenue’s appeal.

To Read the full text of the Order CLICK HERE

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