ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 2(4), MUMBAI, MUMBAI vs. ATUL PROJECTS INDIA PRIVATE LIMITED, MUMBAI

The brief facts of the case are that the assessee, Atul Projects India Private Limited, is a company engaged in the business of real estate development and derives income from sale of flats and units. The assessee filed its return of income for A.Y. 2022-23 on 20.10.2022 declaring total income of ₹9,04,29,770/-.

During the course of assessment proceedings, the Assessing Officer examined the assessee’s claim of deduction of ₹2,23,76,246/- under section 80- IB(10)of the Act in respect of its housing project known as “SRA Project-Blue Mountain”. The project had commenced on 27.04.2006 and the assessee had started claiming deduction from A.Y. 2013-14. The Assessing Officer referred to section 80-IB(10)(c), which, in the case of a residential unit situated in Mumbai, prescribed a maximum built-up area of 1,000 sq. ft. The Assessing Officer also referred to section 80-IB(14)(a), under which the expression “built- up area” includes the inner measurements of the residential unit at floor level, projections and balconies and thickness of walls, but excludes common areas shared with other residential units.

The Assessing Officer noticed that in the earlier assessment years the Department had denied the deduction on the ground that certain units in the same project exceeded the prescribed area of 1,000 sq. ft. The Assessing Officer issued a show-cause notice dated 20.03.2024 and asked the assessee to explain why the deduction should not be also denied for the year under consideration. The Assessing Officer held that the size of the residential units exceeded 1,000 sq. ft. after taking into account projections and balconies in accordance with section 80-IB(14)(a) of the Act. The Assessing Officer also relied upon the position taken by the Department in the earlier assessment years. Although the assessee relied upon the order of the Tribunal in its own case for the earlier years, the Assessing Officer observed that the Department had not accepted that order and had filed an appeal before the Hon’ble Bombay High Court. The Assessing Officer accordingly disallowed the claim of ₹2,23,76,246/- under section 80-IB(10)of the Act.

The assessee carried the matter in appeal before the learned CIT(A). The learned CIT(A) examined the decision of the Mumbai Bench of the Tribunal in the assessee’s own case for A.Ys. 2014-15 to 2019-20 in ITA Nos. 1940, 1876, 1877, 1879 and 1880/Mum/2023, order dated 27.09.2023. The learned CIT(A) found that the Tribunal had already considered the issue relating to the built-up area of residential units in the same “Blue Mountain” project and had held that the entire deduction could not be denied merely because some units exceeded the prescribed area. The Tribunal had directed the Assessing Officer to allow proportionate deduction in respect of those flats sold during the relevant year whose built-up area was less than 1,000 sq. ft.

The learned CIT(A) further found that the Assessing Officer had not brought any fresh material on record for A.Y. 2022-23 to distinguish the facts from the earlier years. The learned CIT(A) noticed that the Assessing Officer had denied the deduction mainly because the Department had challenged the earlier Tribunal order before the Hon’ble Bombay High Court. The learned CIT(A) held that the earlier Tribunal order continued to govern the issue and that there was no specific finding in the assessment order that the particular flats in respect of which the assessee claimed deduction during the year under consideration exceeded the prescribed built-up area of 1,000 sq. ft.

The learned CIT(A) accordingly followed the earlier order of the Tribunal and directed the Assessing Officer to allow deduction under section 80-IB(10) of the Act on a proportionate basis.

The Department is in appeal before us against the order passed by CIT(Appeals) allowing the appeal of the assessee.

We have considered the material available on record. The dispute relates to the assessee’s entitlement to deduction under section 80-IB(10) of the Act in respect of the “Blue Mountain” housing project. The Assessing Officer denied the deduction on the basis that the built-up area of the residential units exceeded the maximum area prescribed under section 80-IB(10)(c) of the Act, whereas the learned CIT(A), following the order of the Tribunal in the assessee’s own case for the earlier years, directed the Assessing Officer to allow the deduction proportionately.

Before examining the facts of the present assessment year, it would be appropriate to first analyze the legal position. Section 80-IB(10)(c) of the Act, as applicable to the project under consideration, requires that a residential unit situated in Mumbai should have a maximum built-up area of 1,000 sq. ft. Section 80-IB(14)(a) defines “built-up area” to mean the inner measurements of the residential unit at the floor level, including projections and balconies and increased by the thickness of the walls, but excluding common areas shared with other residential units. Thus, for applying the condition contained in section 80- IB(10)(c) of the Act, the actual built-up area of the particular residential unit has to be computed in accordance with this statutory definition.

The next question is whether the existence of one or more residential units exceeding the prescribed area results in denial of deduction in respect of the entire project. This issue is covered by the judgment of the Hon’ble jurisdictional High Court in Principal Commissioner of Income-tax v. Kumar Builders Consortium [2022] 447 ITR 44 (Bom); [2022] 144 taxmann.com 67 (Bom), ITA No. 82 of 2018, dated 18.07.2022. The Hon’ble Bombay High Court held that section 80-IB(10) does not mandate denial of deduction relating to residential units which are eligible, only because some other units in the same project exceed the prescribed built-up area. The Assessing Officer has to compute the deduction on a pro rata basis in respect of the residential units which are eligible. This view has subsequently been followed by the Hon’ble Bombay High Court while dismissing Revenue appeals raising the same question.

The Tribunal applied this principle in the assessee’s own case in Atul Projects India Pvt. Ltd. v. DCIT, ITA Nos. 1940, 1876, 1877, 1879 & 1880/Mum/2023, order dated 27.09.2023. In that case, the Tribunal noticed that Flats Nos. 2201 and 2202 had built-up areas exceeding 1,000 sq. ft., but the assessee had not claimed deduction on the profits attributable to those flats. The Tribunal, following Kumar Builders Consortium (supra), directed the Assessing Officer to allow deduction under section 80-IB(10) of the Act in respect of those flats sold during the relevant year whose built-up area was below 1,000 sq. ft.

Therefore, the legal position is clear. The deduction cannot be denied in its entirety merely because some flats in the project exceed 1,000 sq. ft. At the same time, deduction can be allowed only in respect of the profits attributable to residential units which satisfy the prescribed area condition. Consequently, the factual enquiry for A.Y. 2022-23 is not whether some other flats in the “Blue Mountain” project exceeded 1,000 sq. ft., but whether the flats whose profits form the basis of the deduction claimed by the assessee for the present year themselves satisfy the condition contained in section 80-IB(10)(c) of the Act.

In this regard, the assessee has placed before us details of the flats on the basis of which it has claimed deduction during the year. According to the statement furnished by the assessee, the relevant units are Flat No. A-1804 and Flat No. A-2004, and the assessee has shown the built-up area of each flat at 970 sq. ft. The statement further shows aggregate sale consideration of ₹3,36,17,632/- and net profit of ₹2,23,76,246/- claimed as deduction under section 80-IB(10).

The above material, if factually correct and if the area of 970 sq. ft. has been computed in accordance with the statutory definition contained in section 80-IB(14)(a), would prima facie bring these residential units within the permissible limit prescribed under section 80-IB(10)(c) of the Act. However, the Assessing Officer has not examined this factual position specifically with reference to these two units. The learned CIT(A) has also granted relief by following the earlier Tribunal order without verifying the built-up area of the individual flats in the deduction claimed for the present assessment year by the assessee.

Therefore, in the interest of justice, we are restoring this limited factual issue to the file of the Assessing Officer. The Assessing Officer shall examine the documents and evidence produced by the assessee in respect of Flat Nos. A- 1804 and A-2004 and verify the actual built-up area of each flat in accordance with the definition contained in section 80-IB(14)(a)of the Act. The Assessing Officer shall, in particular, verify the approved plans, measurements and other relevant records and ascertain whether the built-up area, after including such projections, balconies and thickness of walls as are required to be included under section 80-IB(14)(a) of the Act and excluding the common areas contemplated therein, does not exceed 1,000 sq. ft.

If, upon such verification, the Assessing Officer finds that the two residential units in respect of which the assessee has claimed deduction have built-up areas which is not exceeding 1,000 sq. ft. and the profit claimed as deduction is attributable to such eligible units only, the Assessing Officer shall allow the deduction under section 80-IB(10) in accordance with law and in terms of the judgment of the Hon’ble Bombay High Court in Principal Commissioner of Income-tax v. Kumar Builders Consortium (supra) and the earlier order of the Tribunal in the assessee’s own case. If any unit does not satisfy the prescribed condition, the Assessing Officer shall restrict the deduction to the profits attributable to the eligible units alone and shall not deny the deduction relating to otherwise eligible units merely because some other unit in the project is ineligible.

We further notice that the Department had carried the aforesaid order of the Tribunal in appeal before the Hon’ble Bombay High Court. The Hon’ble Bombay High Court, in Pr. Commissioner of Income Tax, Central-1, Mumbai v. Atul Projects India Pvt. Ltd., Income Tax Appeal No. 876 of 2025 for A.Y. 2016-17 arising out of ITA No. 1877/Mum/2023 and Income Tax Appeal No. 878 of 2025 for A.Y. 2019-20 arising out of ITA No. 1880/Mum/2023, order dated 07.11.2025, disposed of the Department’s appeals on the ground that the tax effect was below ₹2 crores. The Hon’ble High Court, however, expressly kept the question of law open and granted liberty to the Department to seek revival/restoration if it was subsequently found that the tax effect exceeded ₹2 crores or that the appeals fell within any prescribed exception, subject to an application being filed on or before 31.01.2026. Thus, as matters presently stand, the Department’s appeals against the Tribunal’s order for the aforesaid assessment years stand disposed of and the order of the Tribunal continues to hold the field, though the Hon’ble High Court has not adjudicated the underlying question of law on merits.

Accordingly, the appeal of the Department is allowed for statistical purposes.