Section 80IB housing deductions cannot be denied based

Section 80IB housing deductions cannot be denied based on subsequent-year events and untested statements.

Issue

Whether a housing project developer can be denied statutory deductions under Section 80IB(10) for prior assessment years based on an alleged single-allottee violation that took place in a subsequent financial year, especially when the allegation relies on an untested statement without independent corroboration or an opportunity for cross-examination.

Facts

The assessee is a partnership firm engaged in developing housing projects and claimed deductions under Section 80IB(10) for the Assessment Years (AY) 2011-12 and 2012-13.
Following a search operation on the JP-ISCON group, the revenue department initiated reassessment proceedings against the assessee.
The Assessing Officer (AO) alleged that 13 flats were sold to employees of JP Iscon Pvt. Ltd., but were effectively purchased for a single individual through them, violating the single-allottee restriction under Section 80IB(10)(f).
The AO claimed these transactions were funded via interest-free loans from the assessee’s partners, which were later repaid by the employees after three years.
Based on this, the AO disallowed deductions of approximately Rs. 19.92 crores for AY 2011-12 and Rs. 3.85 crores for AY 2012-13.
The transaction timeline revealed that the alleged violations actually took place during the Financial Year 2012-13, which corresponds to the subsequent AY 2013-14.
The AO’s entire case rested primarily on a statement recorded under Section 132(4), but the department did not provide the assessee any opportunity to cross-examine the witness, nor did it gather independent corroborative evidence.

Decision

The issue is decided in favor of the assessee, and the deletion of the disallowances by the CIT(A) is sustained.
It was held that denying a tax deduction in an earlier assessment year based on an alleged violation that occurred in a subsequent assessment year is entirely contrary to the scheme of the Income-tax Act.
The tribunal ruled that since the disputed transactions took place in the period corresponding to AY 2013-14, the disallowances made for AY 2011-12 and AY 2012-13 completely lacked a legal foundation.
On the merits of the transaction, the tribunal found that the assessee produced valid documentary evidence supporting the genuineness of allotments to distinct individuals.
The tribunal concluded that an untested statement under Section 132(4), devoid of cross-examination or corroborative proof, cannot be used to dismantle valid property allotments and deny deductions.

Key Takeaways

Prospective Violations Do Not Nullify Past Deductions: Statutory tax benefits validly claimed in a specific financial year cannot be retrospectively cancelled due to events or alleged infractions that take place in a later tax period.
Right to Cross-Examination is Fundamental: The revenue department cannot make high-value tax additions or disallowances by solely relying on third-party statements recorded during a search without giving the taxpayer a fair opportunity to cross-examine those witnesses.
Documentary Evidence Overrules Uncorroborated Allegations: Officially registered property allotments made to individual buyers cannot be cast aside as benami or bundled transactions based on mere departmental suspicion or uncorroborated statements.

IN THE ITAT AHMEDABAD BENCH ‘D’

ITO

Shreeji Associates

Dr. B.R.R. Kumar, Vice President
and T. R. Senthil Kumar, Judicial Member

IT Appeal Nos. 73 & 72 (Ahd) of 2024
[Assessment years 2011-12 and 2012-13]

JUNE 11, 2026

Ms. Nupur Shah, A.R. for the Appellant. Sher Singh, CIT-DR for the Respondent.

ORDER

T.R. Senthil Kumar, Judicial Member.- These two appeals are filed by the Revenue as against separate appellate orders dated 06-11-2023 and 09-11-2023 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the assessment order passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Years 2011-12 and 2012-13 respectively. Since common issue of disallowance under section 80IB(10)(f) of the Act is involved in both the appeals for the sake of convenience, the same are heard together and disposed of by this common order.

2. The registry has noted that there is delay of 11 days and 7 days in filing the above appeals. Revenue filed notarized affidavit explaining that due to transfer of Officers, other work-load and case records were not found in the office, the delay in filing the above appeals. Considering the above submission the delay of 11 days and 7 days in filing the above appeals are hereby condoned.

3. ITA No.73/Ahd/2024 relating to the Asst. Year 2011-12 is taken as the lead case. Brief facts of the case is that the assessee is a partnership firm and engaged in the business of developing Housing projects. For the Asst. Year 2011-12 regular assessment u/s 143(3) of the Act, 1961 was completed in case of the assessee allowing the claim of deduction u/s.80IB(10) of the Act. Thereafter, the case of the assessee was selected for reassessment proceedings on the basis of search conducted on the JP-ISCON group, wherein the assessee firm sold 13 flats by the employees of JP Iscon Pvt. Ltd. and the cost was given by the Partner’s of the assessee firm by interest free loans. Three years later the employees of JP Iscon Pvt Ltd repaid by the loans which is against the provision of section 80IB(10)(f) of the Act. The assessee explained that there was no violation of the provisions of the Act. the Ld. A.O. after examination of the documents, independent enquiry and details filed by the assessee, Ld. A.O. concluded that the assessee has violated the provisions of section 80IB(10)(f) of the Act and disallowed the claim of Rs.19,91,61,270/-claimed by the assessee.

4. Aggrieved against the reassessment order, the assessee filed appeals before Ld. CIT(A), who has confirmed the reopening of assessment is as per the provisions of law but deleted the disallowance made u/s. 80IB(10)(f) of the Act by observing as follows:

“. 1. Considering the facts of case and discussion as above the appellant has claimed that the deduction of Rs. 19,91,61,270/- u/s.80IB(10)(f) of the I.T. Act, 1961. The Ld. A.O. has relied on the statement recorded on oath u/s 132(4) of Shri. Ankit Shah wherein he has accepted that Mr. Jayesh Kotak has paid the amount for purchase of Flats from the appellant along with other 12 members. Except the statement of Shri. Ankit Shah which was recorded during the course of Search proceedings the Ld. A.O. has not bought anything on records to prove that the appellant has violated the provisions of section 80IB(10)(f) of the Act.

2. On the contrary the appellant has submitted all the relevant documentary evidence to substantiate its claim. The appellant in its submission has mentioned that the appellant had nothing to do with the purchase of flats by employees of JP Iscon Pvt. Ltd. Further the partners of the appellant had given interest free loan to the employees of JP Iscon Pvt Ltd which was repaid by them to the partners at a later date. Further the appellant has submitted ledger copies of such loan confirmation. Also, the payment for purchase of flats was made from bank account of the employees and the flat was registered in their name and appellant or its partner had no control on such transaction.

………………………

3. As per the provision of above section it is clear that deduction u/s 80IB shall be allowed in case an assessee is in the business of developing and building housing projects provided the conditions therein are satisfied by such assessee. Further as per clause (f) if any residential unit in the housing project is allotted to a person being an individual then no other residential unit in such housing project should be allotted to such individual or spouse or the minor child of such children, HUF in which such individual is karta or any other person representing such individual, spouse or minor child or HUF in which such individual is karta.

4. In the instant case the appellant has sold the flats to the individual who were employees of JP Iscon Pvt. Ltd. and thus they do not get covered by the provision of section 801B(10) (f) (iii) of the Act and thus there is no violation of the said section. Further the purchaser of flat has disclosed the capital gain on sale of flat in its ITR and also paid relevant tax on the same. Further during the assessment proceedings in case of 5 employees including Shri. Ankit Shah has accepted that the transaction of purchase and sale of flat was related to him and their assessing officer has also accepted the contention given by them and passed the order accordingly. The appellant relies on the judgement given in matter of Pharande Developers Puna V. CIT, ITA NO.715/pN/2009 (AY 2005-06) and ITA NO.175/pN/2011 (AY 2006-07), Patel Jashwantlal A v. ITO (2015) 38 ITR 135 (Ahd.) (Trib.), CIT v. Brahama Associates (2011) (Mum.) (HC), CIT v. Arun Excello Foundations Pvt Ltd. , CIT v. Aakash Nidhi Builders & Developers (2016) , CIT v. Elegant Estates (2016) 383 ITR 49 (Mad)(HC), etc.

5. Also, the Ld. A.O. has not provided an opportunity of cross examination with Mr. Ankit Shah on whose statement reliance was placed before passing the assessment order. This is against the principal of natural justice. The appellant relies on the judgement given in the matter of Andaman Timber Industries v. Commissioner of Central Excise Kolkata II (SC), CIT v. Ramanbhai B Patelin Tax Appeal no. 207 to 210 of 2008 (Gujarat HC), Prarthana Construction Pvt Ltd. Tax Appeal no. 79 of 2000 (Gujarat HC) and etc.

6. As per above discussion and judicial judgement it is clear that disallowance/addition of deduction claimed by the appellant as per provision of section 801B(10) (f) of the I.T. Act, 1961 is not correct. Therefore, the addition made by the AO of Rs.19,91,61,270/- is deleted. The above ground of appeal is allowed.”

5. Aggrieved against the appellate order Revenue is in appeal in ITA No. 73/Ahd/2024 for A.Y. 2011-12 raising the following Grounds of Appeal:

1. “CIT(A) has erred in deleting the disallowance u/s. 80IB(10)(f) of the Income-tax Act, 1961, amounting to Rs.19,91,61,270/-, without properly appreciating that the provisions of section 80IB(10)(f) of the Act are applicable for sale of units/flats to its employees?”

2. The Ld. CIT(A) erred in ignoring the statement of Shri Ankit Shah recorded on oath, wherein entire gamut of selling units/flats to the employees has been disclosed by the assessee per se, which otherwise also disqualify the assessee for deduction u/s 801B(10) of the Act.

3. “The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary”.

4. “It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored”.

5.1. Learned CIT-DR Shri Sher Singh appearing for the Revenue supported the orders passed by the AO and requested to confirm the addition made u/s.80IB[10][f] of the Act and reverse the appellate orders.

6. Per contra Ld Counsel Ms. Nupur Shah appearing for the assessee firm, filed Rule 27 application under ITAT Rules as follows:

The Respondent respectfully submits as under:

1. That the present appeal has been filed by the ITO, Ward 1(1)(3), Ahmedabad, against the order of the CIT(A) National Faceless Appeal Centre (NFAC) Delhi dated 06.11.2023 for the Assessment Year 2011-12.

2. That though the order passed by the CIT(A) is in favour of the Respondent, there are certain grounds which were decided against the Respondent by the CIT(A), but the Respondent has not preferred any cross-appeal or cross-objection.

3. That the Respondent craves leave to support the order of the CIT(A) on the following grounds which were decided against him:

LACK OF JURISIDICTION

1. The entire proceedings are invalid and ex facie bad in law as the same are not supported by ingredients of the statutory provisions under which initiation of proceedings is done. Hence, all subsequent proceedings in furtherance to illegal initiation of proceedings are mere continuation of illegality in perpetuity.

2. The Respondent humbly submits that in the present cases all the employees and other persons as mentioned by the Ld. AO have purchased the flats in F.Y.2012-13 relevant to A.Y.2013-14 and deduction for the said flats has been claimed by the Respondent firm in the A.Y.2013-14 and hence even otherwise no disallowance can be made in the A.Y.2011-12.

3. The Respondent is entitled to support the impugned order on these grounds in terms of Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963.

4. It is, therefore, respectfully prayed that this Hon’ble Tribunal may kindly be pleased to consider the above grounds while adjudicating the appeal and allow the Respondent to support the order on the grounds decided against him.”

7. Before addressing the merits of the Revenue’s appeal, we deem it appropriate to adjudicate the application filed by the assessee under Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963. The Ld Counsel for the assessee submitted that although the order of the Ld CIT(A) is ultimately in favour of the assessee, certain legal grounds raised before the first appellate authority were decided against it. Therefore, the assessee seeks to support the impugned order on those grounds without filing an independent appeal or cross-objection. The principal grounds raised under Rule 27 are:

The assessment proceedings suffer from lack of jurisdiction and are bad in law; and

Without prejudice, the very basis of the disallowance is legally unsustainable since the alleged allotment of flats to the employees took place during Financial Year 2012-13 relevant to Assessment Year 2013-14, whereas the present appeal relates to Assessment Year 2011-12. Consequently, even assuming and without admitting there was any violation of section 80IB(10)(f), the deduction pertaining to such flats could only be examined in Asst. Year 2013-14 and not in the year under consideration.

7. 1. The Ld. CIT DR opposed the Rule 27 application and submitted that the assessee, having not preferred any appeal or cross-objection, cannot seek adjudication of issues decided against it.

8. We have considered the rival submissions. Rule 27 of the Income Tax (Appellate Tribunal) Rules permits a Respondent, though he may not have filed an appeal or cross-objection, to support the order appealed against on any of the grounds decided against him. The scope of Rule 27 is now well settled. Accordingly, the Rule 27 application is maintainable and deserves consideration.

8.1. The Revenue seeks restoration of the disallowance under section 80IB(10)(f) for Assessment Year 2011-12, whereas, the assessee has specifically contended that the flats alleged to have been allotted in violation of section 80IB(10)(f) were admittedly purchased during Financial Year 2012-13 and such transactions pertain to Assessment Year 2013-14. The deduction relatable to those units was also claimed in Asst. Year 2013-14. Significantly, the Revenue has not brought any material before us to demonstrate that the alleged allotments forming the basis of the disallowance actually pertain to the previous year relevant to Asst Year 2011-12.

8.2. Therefore the applicability of section 80IB(10)(f) has necessarily to be examined with reference to the year in which the relevant residential units are allotted and the corresponding deduction is claimed. If the alleged violation itself pertains to a subsequent assessment year, denial of deduction in an earlier year would be contrary to the scheme of the IT Act. An assessment has to be framed with reference to the income and statutory conditions applicable to the relevant previous year. Events occurring in a subsequent previous year cannot ordinarily constitute the basis for denying a deduction already allowable in an earlier assessment year, unless the statute specifically provides otherwise.

8.3. Even assuming, for the sake of argument, that the Revenue’s allegation regarding allotment of flats ultimately has some merit, such allegation admittedly relates to transactions stated to have taken place during Financial Year 2012-13, corresponding to Assessment Year 2013-14. Therefore, the disallowance made in Asst Year 2011-12 lacks legal foundation. Consequently, the order of the Ld CIT(A), deleting the disallowance, deserves to be sustained on this additional legal ground itself. Accordingly, the assessee’s Rule 27 application is allowed, and the order of the learned CIT(A) is sustained on the additional ground that the alleged violation, if any, pertains to Assessment Year 2013-14 and could not have formed the basis for disallowance in Asst Year 2011-12. In the result, Rule 27 application filed by the assessee is allowed.

9. We wish to adjudicate on merits of the Revenue case namely Ground Nos. 1 & 2 – Disallowance of deduction under section 80IB(10)(f) of the Act amounting to Rs.19,91,61,270/-. We have carefully considered the rival submissions, perused the assessment order, the order of the learned CIT(A), the materials available on record and the judicial precedents relied upon by both the parties. The short controversy before us is whether the assessee is disentitled to deduction under section 80IB(10) merely because the Revenue alleges that certain residential units, though allotted and registered in the names of different individuals, were in reality purchased for one Shri Jayesh Kotak through such individuals.

9.1. Section 80IB(10)(f) provides that where a residential unit in the housing project is allotted to an individual, no other residential unit in such project shall be allotted to—

•

such individual;

•

his or her spouse;

•

minor children;

•

the HUF in which such individual is the karta; or

•

any person representing such individual, spouse, minor child or such HUF.

9.2. Being a provision, which imposes a condition for denial of an otherwise beneficial deduction, its applicability has to be established by the Revenue through cogent and reliable evidences. The burden is upon the Revenue to prove that the statutory prohibition has in fact been violated by the assessee. The foundation of the assessment order is the statement of Shri Ankit Shah recorded under section 132(4) of the Act. Except placing reliance on such statement, the Ld AO has not brought any independent evidence to establish that:

•

the flats were allotted to Shri Jayesh Kotak;

•

the registered purchasers were merely name lenders;

•

the consideration actually emanated from Shri Jayesh Kotak;

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the assessee had knowledge of any alleged representative arrangement; or

•

the allotments were made in violation of section 80IB(10)(f).

9.3. Further No documentary evidence such as agreements, correspondence, financial trail or contemporaneous material has been brought on record by the Revenue to establish that the registered purchasers were merely acting on behalf of another person. An addition resulting in denial of deduction of nearly Rs.19.91 crores cannot rest merely upon suspicion or inference unsupported by corroborative evidences.

9.4. On the contrary, the assessee has produced substantial documentary evidence demonstrating that:

•

the flats were allotted to different individuals;

•

sale deeds were executed in their respective names;

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payments were made through their respective bank accounts;

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the purchasers became legal owners of the flats;

•

such purchasers subsequently sold the properties and disclosed capital gains in their respective income-tax returns, which have been accepted by the Department.

These facts substantially support the assessee’s explanation that the purchasers were independent legal owners. The explanation that partners of the assessee-firm had extended interest-free loans to certain employees has also been supported by ledger accounts and confirmations. Merely because financial assistance was extended cannot lead to the conclusion that the beneficial ownership vested in some other person, unless supported by independent evidence. Further Registered Sale Deeds clearly proves the ownership of the flats by various purchasers.

9.5. Another significant aspect cannot be ignored. The Ld AO has relied upon the statement of Shri Ankit Shah for drawing adverse inference against the assessee. However, admittedly no opportunity of crossexamination was granted despite reliance upon such statement. The Hon’ble Supreme Court in Andaman Timber Industries v. CCE, Kolkata-II 52 GST 355/[2016] 38 GSTR 117 (SC) has categorically held that where an adjudicating authority relies upon the statement of a witness, denial of cross-examination amounts to violation of principles of natural justice and renders such evidence unreliable for sustaining an adverse finding. The Gujarat High Court has also consistently held that where additions are substantially founded upon third-party statements, effective opportunity to crossexamine must ordinarily be granted. Therefore, the statement of Shri Ankit Shah cannot, by itself, constitute sufficient evidence against the assessee to deny the claim of deduction u/s.80IB[10] of the Act.

10. The Revenue argues that the expression “any person representing such individual” covers the present situation. We are unable to accept this contention in the absence of satisfactory evidences. The expression cannot be interpreted to mean that whenever multiple purchasers happen to know a common person or receive financial assistance from a common source, they automatically become representatives of that person. Such interpretation would enlarge the scope of the provision beyond its legislative intent. Thus before invoking clause (f), the Revenue must establish through reliable evidence that the allotment was in substance made to the same individual through another person acting merely as his representative or proxy. No such evidence has been brought on record by the Revenue in the present case. Whereas the subsequent conduct of the purchasers assumes significance. The purchasers have:

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held the flats/properties in their own names;

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dealt with the properties as owners;

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transferred the properties;

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disclosed capital gains in their own Returns of Income; and

•

the Department has accepted such assessments.

Having accepted the purchasers as owners for purposes of taxation of capital gains, the Department cannot, in the assessee’s case alone, contend that they were not the real owners without bringing convincing material to justify such inconsistent stand of the Revenue.

10.1 . It is settled law that section 80IB is a beneficial provision enacted to encourage development of housing projects. Where two interpretations are reasonably possible, the interpretation advancing the object of the incentive provision deserves acceptance. At the same time, denial of such substantial deduction requires strict proof of violation of statutory conditions. In the present case, such burden has not been discharged by the Revenue. Thus having regard to the entirety of facts and circumstances, we find that:

the Assessing Officer has primarily relied upon an untested statement recorded under section 132(4);

no effective opportunity of cross-examination was granted;

no independent corroborative evidence has been brought on record to establish that the registered purchasers merely represented Shri Jayesh Kotak;

the documentary evidence produced by the assessee supports the genuineness of the allotments made to different individuals.

10.2 . Therefore, we are of the considered opinion that the Ld CIT(A) was justified in holding that the conditions prescribed under section 80IB(10)(f) of the Act were not shown to have been violated by the assessee. Accordingly, the order of the learned CIT(A) deleting the disallowance of Rs.19,91,61,270/- does not require any interference and Ground Nos. 1 and 2 raised by the Revenue are devoid of merits and liable to be dismissed.

11. In the result, the appeal filed by the Revenue in ITA No.73/Ahd/ 2024 is hereby dismissed.

12. The Grounds of Appeal raised by the Revenue in ITA No.72/Ahd/ 2024 for A.Y. 2012-13 are as follows:

1) “CIT(A) has erred in deleting the disallowance u/s. 80IB(10) of the Income-tax Act, 1961, amounting to Rs.3,85,02,385/-, without properly appreciating that the provisions of section 80IB(10)(f) of the Act are applicable for sale of units/flats to its employees?”

3. “The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary”.

4. “It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored”.

13. There is no change in facts of the case and reopening of assessment except the amount of disallowance u/s.80IB(10) amounting to Rs.3,85,02,385/-. Thus, the decision rendered in Paragraphs 7 to 10.2 of this order is squarely applicable mutatis mutandi for this Asst. year 2012-13. We accordingly allow the legal ground raised by the assessee.

14. In the result, the appeal filed by the Revenue in ITA No. 72/Ahd/ 2024 is hereby dismissed.