RCA

Deduction under section 80-IB(10) available on a year to year basis for an undertaking engaged in developing and building housing projects showing profit on partial completion method.

Background

An undertaking engaged in developing and building housing projects is entitled to a deduction to the extent of 100% of the profits derived from such housing projects subject to the fulfillment of certain conditions in accordance with the provision of section 80_IB(10) of the Income-tax Act, 1961 (ITA).
One such condition requires that the said projects should commence on or after 1 October 1998 and complete within four years from the financial year in which the housing project is approved by the local authority.

In the case of an undertaking showing profit on partial completion, by applying Accounting Standard 7 issued by the Institute of Chartered Accountants of India, there was an issue whether the deduction u/s. 80-IB(10) would be available on a year to year basis or in the year of completion of the project.

Clarification

The Central Board of Direct Taxes (CBDT) has now clarified that the deduction can be claimed on a year to year basis where the assessee is showing profit from partial completion of the project in every year.

Further, it is also clarified that in case it is later found that the condition of completing the project within the specified time limit of 4 years as section 80-IB(10) has not been satisfied, the deduction granted to the assessee in the earlier years should be withdrawn.

Conclusion

The above clarification puts to rest a long drawn controversy regarding timing of claiming deduction u/s 80-IB(10) in respect of housing projects where the assessee was showing profits on partial completion.

Source: CBDT instruction No 4/2009, dated 30th June, 2009; Deloitte, Haskins & Sells