The main legal point established in the judgment is the requirement of strict compliance with the conditions for claiming exemption under Section 80IB(10) of the Income Tax Act and the liberal construction of beneficial provisions.

JUDGMENT

Alok Aradhe, J. - This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2007-08. The appeal was admitted by a bench of this Court vide order dated 23.01.2013 on the following substantial questions of law:

(i) Whether the appellate authorities were correct in holding that the assessee firm is eligible for deduction under Section 80IB(10) of the Income-Tax Act despite the fact that there was large scale violations and deviations to the sanctioned plan of the local authority by the assessee firm in carrying out the "Housing Project" without appreciating the fundamental nature of the legislature for providing such relief?

(ii) Whether the appellate authorities were correct in construing that deviations and violations committed by the assessee while undertaking the housing project and yet to be paid compounding fee for regularizing the default is fairly enough to claim the deduction under Section 80IB(10) without appreciating the intended structure of the legislative provisions of Section 80IB?

2. Facts leading to filing of this appeal briefly stated are that the assessee is a partnership firm, which had sold 66 flats. The net profit to the firm from the sale proceeds of 66 flats was to the extent of Rs.3,05,61,975/-. The assessee claimed whole of the aforesaid amount of profit of Rs.3,05,61,975/- as deduction under Section 80IB(10) of the Act and declared the income as 'NIL' for Assessment year 2007- 08. The case was selected for scrutiny and notices under Section 143(2) and 143(1) of the Act were issued to the assessee. The Assessing Officer by an order dated 29.12.2009 inter alia held that the assessee had not complied with the condition incorporated under Section 80IB(10)(a) of the Act inasmuch as assessee has sold built up area of 2,60,960.70 square feet, whereas, the project was approved for 1,53,066 square feet and therefore, the built up area was not in accordance with the approved plan and therefore, the project put up by the assessee was not approved by the local authority and provisions of Section 80IB(10) of the Act are not applicable and therefore, the claim of exemption under Section 80IB(10) of the Act was disallowed and the profits earned from the project in question i.e., Rs.3,05,61,970/- were treated as income and subjected to levy of tax and interest.

3. Being aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) by an order dated 10.11.2011 inter alia held that after the construction of residential apartments, a modified building drawing was submitted, which was duly approved by Bruhat Bengaluru Mahanagara Palike (BBMP). It was further found that subsequently the authorities of BBMP instructed the building for issuance of occupancy certificate and found that there is a deviation in the construction with reference to modified building plan, which was in the permissible limits as per revised master plan and therefore, compounding fee was levied, which was paid by the assessee and permission was granted to occupy the building for residential purposes. It was also held that Section 80IB(10) being beneficial provision should be liberally construed and there was no justification in reducing the deduction claimed by the assessee. It was held that the project was approved by the local authority as a housing project and therefore, in view of Central Board of Direct Taxes (CBDT) Circular dated 04.05.2010, the assessee is entitled to benefit of exemption under Section 80IB(10) of the Act. The revenue filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal', for short). The Tribunal by an order dated 31.08.2012 dismissed the appeal preferred by the revenue. In the aforesaid factual background, this appeal has been filed.

4. Learned counsel for the re