Proof of Real Ownership in Housing Projects: ITAT Ahmedabad Upholds Section 80IB(10) Deduction

1. Background of the Dispute

The Income Tax Appellate Tribunal, Ahmedabad Bench, in the case of ITO Vs Shreeji Associates Iscon House, dealt with two departmental appeals concerning disallowance of deduction under Section 80IB(10)(f) of the Income Tax Act 1961 for Assessment Years (AY) 2011-12 and 2012-13.

The assessee was a partnership firm engaged in developing and constructing housing projects, claiming deduction under Section 80IB(10) in respect of its eligible project.

Key Assessment Years and Proceedings

  • AY 2011-12

    • Original assessment completed under Section 143(3) allowing full deduction under Section 80IB(10).
    • Subsequently, reassessment was initiated under Section 147 on the basis of a search conducted in the JP-ISCON group.
    • The Assessing Officer (AO) invoked Section 80IB(10)(f) alleging violation of the condition restricting multiple allotments to the same individual or related persons.
    • Disallowance of deduction: ₹19,91,61,270.

  • AY 2012-13

    • Similar pattern of reassessment and disallowance.
    • Disallowance of deduction: ₹3,85,02,385.

In both years, the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, confirmed the reopening but deleted the disallowance under Section 80IB(10)(f). The Revenue carried the matter to the Tribunal.

The Tribunal also condoned short delays of 11 days and 7 days in filing the Revenue’s appeals, considering the explanation regarding transfer of officers and non-availability of records.

2. Core Allegation: Proxy Allotments Through Employees

AO’s Stand

The AO’s case rested primarily on the following allegations:

  • The assessee-firm had sold 13 flats in the project to employees of JP Iscon Pvt. Ltd.
  • Partners of the assessee allegedly funded the purchase by giving interest-free loans to these employees.
  • After about three years, the employees repaid these loans.
  • On the strength of a statement of Shri Ankit Shah recorded under Section 132(4), the AO held that:
    • The flats were actually purchased for one Shri Jayesh Kotak.
    • Employees were merely name lenders or representatives, used as front purchasers.
    • As a result, multiple residential units were in substance allotted to one individual, allegedly violating the embargo in Section 80IB(10)(f).

On this basis, the AO denied the deduction under Section 80IB(10) for AY 2011-12 and 2012-13.

CIT(A)’s Key Findings

The CIT(A) sustained the reopening but deleted the disallowance, primarily on the grounds that:

  • The purchasers were actual employees, in whose names:
    • Allotment letters were issued.
    • Sale deeds were executed and registered.
    • Consideration was paid through their own bank accounts.
  • The AO had not produced any independent documentary evidence to prove:
    • That these employees were acting as representatives of Shri Jayesh Kotak, or
    • That the assessee was privy to any proxy arrangement.
  • The AO relied almost exclusively on the statement of Shri Ankit Shah recorded under Section 132(4).
  • No cross-examination opportunity was provided to the assessee in respect of this statement.
  • The employees, in subsequent transactions:
    • Sold the flats,
    • Declared capital gains in their respective income tax returns, and
    • The Department had accepted such assessments.

On these facts, the CIT(A) held that there was no violation of Section 80IB(10)(f) and directed deletion of the entire disallowance for both years.

3. Rule 27 Application: Year of Allotment and Jurisdictional Aspect

Before the Tribunal, the assessee did not file a cross-appeal but moved an application under Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963.

What the Assessee Claimed Under Rule 27

The assessee sought to support the CIT(A)’s order on additional legal grounds that had been decided against it at the first appellate stage, including:

  1. Lack of jurisdiction / invalid reassessment:
    The entire reassessment proceedings were argued to be legally unsustainable, being contrary to the statutory preconditions for reopening.