TMI Blog2014 (11) TMI 486X X X X Extracts X X X X X X X X Extracts X X X X ..... e due date of 31.03.2008 - only 3 units out of total 223 approved by the BMC remained incomplete on which deduction u/s.80IB(10) will not be available - CIT(A) has followed the judgement of The Commissioner of Income Tax Business Ward XV(3), Chennai. Versus M/s. Sanghvi and Doshi Enterprise [2012 (12) TMI 84 - MADRAS HIGH COURT] – Decided against revenue. Deduction on unutilized FSI units – Held that:- In The Commissioner of Income Tax-I Versus Moon Star Developers [2014 (4) TMI 1042 - GUJARAT HIGH COURT] it has been held that Marginal underutilization of FSI certainly cannot be a ground for rejecting the claim u/s 80IB(10) of the Act - Even if there has been considerable underutilization, if the assessee can point out any special grounds why the FSI could not be fully utilized, the case may stand on a different footing - in cases where the utilization of FSI is way short of the permissible area of construction, looking to the scheme of section 80IB(10) of the Act and the purpose of granting deduction on the income from development of housing projects envisaged, bifurcation of profits arising out of such activity and that arising out of the net sell of FSI must be resorted to – ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide order dated 22.11.2011, thereby the Assessing Officer (AO in short) disallowed the claim of the assessee for deduction u/s.80IB(10) amounting to ₹ 42,76,463/- in second round of litigation. In earlier round, the AO had framed assessment u/s.143(3) of the Act dated 26/12/2007, whereby the AO had disallowed the deduction u/s.80IB(10) of the Act. The matter travelled upto the ITAT by way of ITA No.3074/Ahd/2008 dated 27/11/2009 and the Tribunal restored the issued back to the file of AO with the direction as recorded in the assessment order in para-5, which is reproduced hereunder:- 5. That ITAT, Ahmedabad vide order dated 27.11.2009 vide direction on page No.50 51 of the order restored the issues to the file of the AO with the direction that: (1) The AO shall look into the agreement entered into by each of the assessee with the landowner and decide whether the assessee has in fact purchased the land for a fixed consideration from the landowner and has developed the housing project at its own cost and risks involved in the project. In case the AO finds that practically the land has been bought by the Developer and Developer has all dominant control over the proje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified in deleting the disallowance. He submitted that the appellant could not produce completion certificate in respect of 129 Units. However, the ld.CIT(A) granted the relief on the basis of the application made by the assessee to the Vadodara Municipal Corporation. He submitted that this approach of the ld.CIT(A) is not justified. 4. On the contrary, ld.Sr.counsel for the assessee submitted that the issue is squarely covered in favour of assessee and he placed reliance on the judgement of Hon ble Gujarat High Court rendered in the case of CIT-IV vs. Tarnetar Corporation (2012) reported at 210 Taxman 206 (Guj.). He also placed reliance on the decision of the Coordinate Bench (ITAT Ahmedabad D Bench) rendered in the case of Saket Corporation vs. ITO in ITA No.3377/Ahd/2010 for AY 2007-08 dated 14/08/2014. He also placed reliance on the judgement of the Hon ble Delhi High Court rendered in the case of CIT vs. CHD Developers Ltd. (2014) reported at 362 ITR 177 (Delhi). In support of this contention, delay on the part of the concerned authority for issuing the completion certificate would not disentitle the assessee from claim of deduction under section 80-IB(10) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enclosed at page No.97 of the paper-book of the assessee. The Coordinate Bench of this Tribunal in Saket Corporation vs. ITO (supra) has followed the judgement of Hon ble Delhi High Court rendered in the case of CIT vs. CHD Developers Ltd.(supra) and held that in the instance case the housing project was approved on 10/03/2004 by the competent authority. The above fact is not in dispute and the fact, as per the decision of Hon ble Delhi Court rendered in the case of CIT vs. CHD Developers Ltd.(supra), the condition for obtaining completion certificate within four years of the date of approval for being eligible for deduction u/s.80IB(10) of the Act is not applicable. In the present case also, it is recorded by the AO that initially the approval of the project from Vadodara Municipal Corporation was obtained on 25/10/2000. This fact is not controverted by the Revenue. The Hon ble Delhi High Court in the case of CIT vs. CHD Developers Ltd.(supra), held as under:- In the present case, concededly the approval for the project was given by the Mathura Vrindavan Development Authority on March 16, 2005. Clearly the approval related to the period prior to 2005, i.e., before the amendme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factual enquiry has to be made thereon as to whether the built-up area is in fact 1500 sq.ft. or more than that, we do not think that the Revenue could have any serious objection on this aspect. In the circumstances, we confirm the order of the Tribunal on the remand portion. Ld. Authorized Representative for the appellant has also relied upon the decision of Madras High Court in case of Viswas Promoters (P.) Ltd. Vs. CIT (2013) 29 taxmann.com 19 (Mad.) wherein it has been held that each residential block in a housing project is a housing project in itself for purpose of claiming deduction u/s.80IB(10) of the Act. It has been held by the High Court that the proportionate deduction has to be allowed to the assessee in respect of the units which fulfill the eligibility conditions. The appellant is eligible for deduction u/s.80IB(10) on those units in respect of which completion certificates have been issued by the BMC. It will also get deduction u/s.80IB(10) in respect of those units for which assessee had applied to BMC before the due date i.e. 31.03.2008. The appellant has received completion certificate in respect of 129 units (on 20.04.2005 for 39 units, on 23.08.2005 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs. Shreenath Infrastructure reported at (2014) 44 taxmann.com 461 (Guj.). The Hon ble Gujarat High Court in the case of CIT vs. Shreenath Infrastructure has followed the judgement of Hon ble Gujarat High Court in the case of CIT vs. Moon Star Developers (Tax Appeal No.549) and has reproduced the observation of the Hon ble High Court in para-3 of their judgement as under:- 3 . It was held and observed as under:- 28. In this context, we may examine, whether the decision of the Assessing Officer to treat the income of the assessees from sale of FSI separate and excludable from the purview of section 80IB(10) of the Act? The concept of FSI, is a well-known one. Local authorities, such as Corporations, Municipalities and Panchayats, frame regulations for regulating activities of development of lands within their local areas. Such regulations are popularly referred to General Development Control Regulations (GDCR). In addition to providing different zones controlling development activities in different areas for regulated and orderly development of urban areas, these regulations also provide for various other details such as maximum height up to which the construction can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her than the former because the buyer there gets not only a residential unit of 1500 sq. feet, he also gets the right to build further construction of 4500 sq. feet. Whether this includes open land or not is not important. In terms of construction business, it is equivalent to sale of land. Thus, therefore, when a developer constructs residential unit occupying a fourth or half of usable FSI and sells it, his profits from the activity of development and construction of residential units and from sale of unused FSI are distinct and separate and rightly segregated by the Assessing Officer. 31. It is true that section 80IB(10) of the Act does not provide that for deduction, the undertaking must utilize 100% of the FSI available. The question however is, can an undertaking utilize only a small portion of the available area for construction, sell the property leaving ample scope for the purchaser to carry on further construction on his own and claim full deduction under section 80IB(10) of the Act on the profit earned on sale of the properly? If this concept is accepted, in a given case, an assessee may put up construction of only 100 sq. ft. on the entire area of one acre of plot an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o have been derived from such housing project. Terms derived from , arising out of and attributable to are often times used in the context of income tax in different connotation. In the case of Sterling Foods (supra), the assessee was engaged in processing prawns and other sea food which it exported. In the process, the assessee earned import entitlements to use itself or sell the same to others. During the year under consideration, the assessee included such sale proceeds for claiming relief under section 80HH of the Act, in case of any profit or gain derived from an industrial undertaking in backward areas. In this context, the Apex Court held that the import entitlements cannot be said to be derived from the industrial undertaking of the assessee. For the application of the words derived from , there must be a direct nexus between the profits and gains and the industrial undertaking and in the case on hand, the nexus was not direct but only incidental. 7.3. After considering the totality of the facts of the present case, this issue is restored back to the file of AO to verify the unutilization of FSI and decide this issue afresh in the light of the judgement of Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judgement of the Hon ble Jurisdictional High Court rendered in the case of CIT-IV vs. Tarnetar Corporation (2012) reported at 210 Taxman 206 (Guj.), judgement of the Hon ble Delhi High Court rendered in the case of CIT vs. CHD Developers Ltd. (2014) reported at 362 ITR 177 (Delhi) and decision of the Coordinate Bench rendered in the case of Saket Corporation vs. ITO in ITA No.3377/Ahd/2010 for AY 2007-08 dated 14/08/2014 . 11. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below as well as the judgements relied upon by the ld.counsel for the assessee. We find that the ld.CIT(A) has denied the deduction on the basis that the assessee could not produce completion certificate before 31/03/2008. The ld.CIT(A) observed that the completion certificate were issued only in respect of 132 units only on 31.03.2008. We find that the order in respect of AY 2007-08 was passed by the ld.CIT(A) on 31/01/2011. However, the order in respect of AY 2005-06 was passed by the ld.CIT(A), against the order of the AO passed u/s.143(3) rws 254 of the Act, on 15/03/2013, wherein the ld.CIT(A) has allowed deduction. This order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed u/s.80IB(10) of the Act. 4. Learned CIT(A) erred in making applicable observations of the Special Bench decision dealing with concept of profit of housing project for denying the benefit of proportionate deduction failing to appreciate that the appellant obtained completion certificate of units as housing project only. 5. Both the lower authorities have erred in law and on facts in not considering various explanations, submissions and evidences placed on record by the appellant in its proper perspective. This action of both the lower authorities deserves to be quashed. 6. Levy of interest u/s.234A/234B/234C 234D of the Act is not justified. 7. Initiation of penalty u/s.271(1)(c) of the Act is not justified. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 15.2. Ground Nos.1 to 5 are inter-connected and, therefore, the same are decided together. Facts are identical to facts of Revenue s appeal in ITA No.1686/Ahd/2013 for AY 2005-06 (supra), wherein we have decided the issue in favour of the assessee. Therefore, taking a consistent vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Ground No.1 is against the disallowance on the basis that the relationship between the assessee and the end user of the units was that of work contract since the approval by the local authority as well as completion certificate was not granted to the assessee but to the landowner and the rights and the obligations under the said approval were not transferable. This issue has been decided by us in favour of assessee by relying on the judgement of Hon ble Gujarat High Court rendered in the case of CIT vs. Radhe Developers reported at (2012) 341 ITR 403 (Guj.). Therefore, we do not find any infirmity in the order of the ld.CIT(A), same is hereby upheld. Thus this ground of Revenue s appeal is rejected. 18.3. Ground No.2 is against the issue of allowability of deduction u/s.80IB(10) r.w.s.80IB(1) of the Act to the on profit derived from sale of unutilized FSI. Since the facts are identical to the facts of Assessee s appeal in ITA No.1325/Ahd/2011 for AY 2007-08, therefore, this issue is restored back to the file of AO for verification and decision afresh in the light of the judgement of Hon ble Gujarat High Court rendered in the case of CIT vs. Moon Star Developers in Tax Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of penalty u/s.271(1)(c) of the Act which is premature. 21. As a result, Assessee s appeal in ITA No.2434/Ahd/2012 for AY 2009-10 is partly allowed. 22. Now, we take up the Revenue s appeal in ITA No.2331/Ahd/2012 for AY 2009-10, wherein following grounds have been taken:- 1. On the facts and in the circumstances of the case and in law, the ld.CIT(Appeals) erred in allowing deduction of ₹ 79,21,904/- u/s.80IB(10) r.w.s. 80IB(1) to the assessee on profit derived from sale of unutilized FSI not being the element of profits derived from the business activity of development and construction of the housing project. 2. The appellant craves leave to ad to, amend or alter the above grounds as may be deemed necessary. Relief claimed in appeal It is prayed that the order of the CIT(Appeals) be set aside and that of the Assessing Officer be restored. 22.1. The only effective ground raised in this Revenue s appeal is against in allowing deduction of ₹ 79,21,904/- u/s.80IB(10) r.w.s. 80IB(1) to assessee on profit derived from sale of unutilized FSI. Since this issue has been restored back to the file of AO for verification and decision afresh in the light of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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