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2017 (1) TMI 768 - ITAT MUMBAI

2017 (1) TMI 768 - ITAT MUMBAI - TMI - Decline of claim of deduction u/s.80IB(10) - as per AO the profit claimed as deduction u/s 80-IB(10) of the Act was not derived from the housing project but from sale of unutilized FSI - Held that:- The assessee had fully utilized the FSI as per the rehabilitation scheme. The consideration for construction of the rehabilitation building was received in the form of FSI which could either be used for sale, or for construction of the sale building. Unlike the .....

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by assessee was entirely due to construction activity and not due to purchase and sale of land / FSI. - Consideration in the instant case was received for handing over the constructed tenements to the Slum Rehabilitation Authorities free of cost. - Whether FSI sold was part of the project under development, therefore the project itself was incomplete, therefore, on such incompleted project the assessee was not eligible for deduction u/s.80IB(10)? - Held that:- From the record, we found .....

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on of construction of the awarded project. In any case, as per the proviso below clause (b) in S. 80-IB(10) of the Act neither clause (a) concerning completion of the project, nor clause (b) relating to the size of the land applies to a project constructed for rehabilitation of slum dwellers. Accordingly, the objection raised by Revenue authorities are devoid of any merit. - FSI sold to each of the person was in excess of 1000 sq.ft which was in violation of Section 80IB(10)(iii)(c) - Held t .....

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ere was breach of the condition prescribed u/s. 80-IB(10)(c)(iii) of the Act the Assessing Officer mistook the area of FSI sold to the area of the tenements constructed. Thus, the objection raised by AO with regard to the area is also devoid of any merit. - Objection to the price at which FSI were sold to the party on the plea that they were related to the assessee - Held that:- As found that Smt. Kantarani Gulati was an independent buyer and she was erroneously mentioned as a related party. .....

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38% respectively. As regards Shri Rushank Shah, he was having only 5% stake and, hence, none of the parties was closely associated with the assessee, as assumed by AO. However, we do not find any material having been brought on record by the AO to prove close connection between the buyers and the assessee, and any 'arrangement' between the parties so as to produce more profit to the assessee. - With regard to the observation of the AO to the effect that FSI sold was at inflated rates, we fo .....

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it was sold at ₹ 83,552/- and ₹ 83,543/- respectively. In view of these comparison the inference drawn by the Assessing Officer that the FSI sold was at inflated rates was contrary to his own record. - Decided in favour of assessee - ITA No. 4190/Mum/2016 - Dated:- 5-1-2017 - Shri R. C. Sharma, AM And Shri Ravish Sood, JM Assessee by Shri Vijay Mehta with Shri Dharmesh Shah Revenue by Shri R. P. Meena ORDER Per R. C. Sharma ( A. M ) This is an appeal filed by the assessee against th .....

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ments under Slum Rehabilitation Scheme of the Government of Maharashtra ('the said Scheme' in short) so as to enable the State to provide shelters to slum dwellers, for which consideration was paid in the form of FSI. The FSI thus awarded as consideration for the construction activities undertaken under the said Scheme could either be utilized for construction of sale buildings on situ (on the same plot), or sold in open market as such, or in the form of Transferable Development Rights ( .....

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from the housing project but from sale of unutilized FSI. For arriving at his conclusion the AO has relied upon the judgment of Hon ble Supreme Court in the case of Liberty India vs. CIT (317 ITR 218) and Hon ble Gujarat High Court in the case of CIT vs. Moon Star Developers (367 ITR 621). 5. The AO further observed that since the FSI sold formed part of the project under development, the project could not be said to be completed and, therefore, deduction u/s. 80-IB(10) of the Act was not allowa .....

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r CIT(A) confirmed the action of the AO observing that the rehabilitation building and sale of buildings are part of the same project, therefore, profit claimed as deduction u/s.80IB(10) of the Act was attributable to and not derived from sale of unutilized FSI and sale component of the housing project. Against this order of CIT(A) assessee is in further appeal before us. 8. It was vehemently argued by learned AR that the profit so earned by assessee on the rehabilitation project represented the .....

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10 dated 31.10.2011 • DCIT v. Sonasha Enterprises for A.Y. 2009-10 in ITA No. 5292/Mum/2011 dated 08.06.2012 • Judgment of the Hon'ble Bombay High Court in CIT v. Sonasha Enterprises 10. On the other hand, learned DR submitted that profit claimed as deduction u/s. 80-IB(10) of the Act was not derived from the housing project; there was violation of S. 80-IB(10)(iii)(c) of the Act; the project of rehabilitation of building and sale of building were one and not separate; and that as .....

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thorities below and material placed before us. We had also deliberated on the judicial pronouncements referred by lower authorizes in their respective orders as well as cited by learned AR and DR during the course of hearing before us in the context of factual matrix of the case. From the record we found that the assessee was awarded a slum rehabilitation project on C.S. No. 47 (Pt.) of Lower Parel Division of Keshavrao Khade Marg, identified as Rajiv Nagar CHS by the Slum Rehabilitation Authori .....

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2.636, out of which FSI of 2.41 could be consumed on the plot, was issued on 06.12.2010. Copies of the original LOI dated 16.09.2004 and the revised one dated 06.12.2010 were placed on pages 18-25 and 26-36 of PS No. 1. As per the revised LOI, the built-up area of the rehabilitation buildings was 2,911.41 sq. mtrs. The FSI received as consideration for the habitats constructed under the said Scheme could either be utilized for construction of saleable area in situ (on same plot of land) by devel .....

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f construction of the rehabilitation buildings as per the terms and conditions specified in the revised LOI to the satisfaction of SRA in 2010, the assessee became entitled to construct the saleable area of 2,209.84 sq. mtr on the basis of the FSI granted as consideration in situ or, in the alternative to sell it off as such, or in the form of TDR by virtue of clause (v) of DCR 33(1) extracted above. The assessee, therefore, made the requisite application to SRA on 08.12.2010 and it was granted .....

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e purpose of availing the benefit the assessee should construct the tenements on the strength of the FSI received as consideration, however the assessee has a liberty to sell them off for monetary value and then find out the profit so as to make it 'derived from' the housing project. If that were the intention of the Legislature, the provision would have been drafted accordingly as in the case of S. 80-HHC of the Act, according to which the sale proceeds of the goods exported out of Indi .....

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firm had undertaken one such construction activity of construction of 343 residential tenements on a plot of land situated at plot - A, Survey No.57, CTS NO.251 A, Village Anik, Chembur, Mumbai, incidentally such housing project was a slum related project. The housing project was developed on a plot of land admeasuring 4550.67 sq. meters (1.13 acre) i.e. on a plot of land admeasuring over 1 acre. All the tenements constructed were of an area at 225 sq. ft. carpet area (about 270 sq. ft. of built .....

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om local authorities, and pronouncement of occupation certificates were fully met as per the provisions of section 80IB(10), The claim of the Assessee u/s 80IB(10) was made as the Assessee had met with all the conditions prescribed under the section. Under the scheme the new homes are given to slum dwellers free of cost and all the tenements constructed for slum dwellers are handed over to the SRA formed under The Maharashtra Slum Areas (Improvement).Clearance and Redevelopment) Act, 1971. The c .....

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the form of TDR. The next objection of the AO is the profit on sale of TDR was attributable to to the Assessee" and was not "derived from" developing and building housing project. Since the profit earned on sale of TDR was only incidental, it cannot be considered as income from the project and shall not be eligible for deduction u/s 80IB(10). The Assessee had received various amounts on sale of TDR and such sale of TDR was credited to the profit and loss account. The issue is whet .....

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onsideration received from SRA was consideration for sale of 343 tenements received in the form of FRC/TDR. The TDR was received as sale consideration and and hence the value of the TDR or the amount realised from the sale of the TDR is nothing but sale consideration received / receivable for development of the tenements. It is income directly derived from the sale of tenements. Such TDR were not attributable, to such sale. The issue is whether income earned on sale of TDR was a direct income on .....

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s income derived from exports. However the Government had formulated schemes for giving incentives to exporters. These incentives does not accrue or arise from sale and export of the goods. It arises from the assessee being the exporter In the circumstances the Apex Court held that the incentives are not directly connected with the consideration receivable from the sale of goods and hence cannot be considered as derived from exports. The Apex Court in the case of CIT v Baby Marine Exports (290 I .....

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be money or money's worth. Instead of giving sale consideration in cash, the SRA has got TDR allotted to the Assessee. Therefore the value of the TDRs allotted to the Assessee (determined on the basis of the price realised from the subsequent sale of the TDRs) would constitute the sale consideration realised. SRA confirms such mode of payment in clause 16 and 17 of the agreement. Thus TDR was received as money or money's worth as consideration from SRA. Supreme Court in the case of CIT v .....

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ly under similar facts and circumstances, the Tribunal directed the AO to allow claim of deduction u/s. 80IB(10) in the case of Sonasha Enterprises ITA No.4911 & 4912/Mum/2010 vide order dated 31/10/2011. The precise observation of Tribunal was as under:- 5.2 As regard the last contention of the revenue is that the assessee is not a builder and the income received by sale of TDR and not by sale of housing project is concerned, we find that there is no dispute about the fact that the assessee .....

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of the Tribunal was followed by ITAT E Bench in assessee s own case for the assessment year 2009-10 in ITAT No.5292/M/2011 vide order dated 08/06/2012. 17. ITAT G Bench in case of Akruti City Limited vide order dated 21/10/2011 has considered the same issue with regard to allowability of Section 80IB(10) deduction in respect of sale proceed of FSI and held that profit arising from sale of FSI was allowable for exemption u/s.80IB(10). 18. Now coming to the decision relied on by CIT(A) in the case .....

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l part of available FSI and constructed certain residential tenements thereon. The project was sold and consideration was realized in cheque. It was found in that case that the consideration realized by the assessee was primarily towards unutilized FSI and not for the construction carried out. In effect, the assessee purchased the land (having some FSI) and sold the land after carrying out marginal construction and realized the consideration which was mainly for unutilized FSI. As a matter of fa .....

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per the rehabilitation scheme. The consideration for construction of the rehabilitation building was received in the form of FSI which could either be used for sale, or for construction of the sale building. Unlike the facts of the case before the Hon'ble Gujarat High Court, the assessee had not acquired any land with FSI. The assessee's case was that the receipt of the consideration for developing housing project in the form of FSI which was encashed and converted by the assessee in mo .....

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was constructed and completed to the satisfaction of Slum Rehabilitation Authorities (SRA), a Government body. In the case of Moon Star Developers, the consideration was primarily received for sale of unutilized FSI where as consideration in the instant case was received for handing over the constructed tenements to the Slum Rehabilitation Authorities free of cost. In the case of Moon Star Developers, consideration was received in the form of cash / cheque where as in the case of assessee, the .....

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n ble Tribunal are squarely applicable to the facts of the case of the assessee and the fact that there the profits arose out of sale of TDR was not a distinguishable feature. Conceptually, there is no difference between the Transferable Development Rights (TDR) and Floor Space Index (FSI). Both represent permissible construction area. The only difference between the two is while TDR can be transferred from one project/piece of land to another, FSI has to be used in situ, i.e. on the same piece .....

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ete, therefore, on such incompleted project the assessee was not eligible for deduction u/s.80IB(10). 22. From the record, we found that the Commencement Certificate dated 04/10/2011 and permission for construction of the saleable area under the said Scheme would not have been issued in case the project meant for rehabilitation of the downtrodden was incomplete. Thus, the FSI for construction of the saleable area was the 'consideration' for undertaking construction of the rehabilitation .....

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of any merit. However, the CIT(A) in his order inferred that the project undertaken by the assessee was not covered under DCR 33(10) as notified by the CBDT in Notification No. 67/20-10 dated 03.08.2010, as according to him, it was effective from the date of its publication, i.e. 03.08.2010 and, therefore, the assessee could not take benefit thereof since the project undertaken by it was approved much anterior, i.e. on 16.09.2004. The CIT (A) had also inferred that the other notification dated .....

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11, a copy of which was placed on page 43 of PB No. I, by which the effective date of the first notification was made as '01.04.2004' in place of 03.08.2010. Thus, the aforesaid objection raised by the CIT (A) in ignorance of the corrigendum Notification No. 67/2010 dated 05.01.2011 is not tenable. Thus, the CIT(A) by placing reliance on an incorrect notification erroneously concluded so, once the aforesaid corrigendum notification is applicable, as per proviso to S. 80-IB(10)(b) of the .....

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the person was in excess of 1000 sq.ft which was in violation of Section 80IB(10)(iii)(c) of the Act, we found that this objection of the AO was misconceived. The stipulation of limitation of the area of the constructed tenements prescribed in clause (c) of Section 80IB (10)((iii) of the Act is concerned with the residential units constructed and not for sale of FSI received as consideration towards the cost of construction undertaken. We found that the tenements so constructed under the said sc .....

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O observed that the purchasers of the FSI were closely related to the assessee and, therefore, it was an attempt to defraud the revenue also. We had carefully gone through the sale made to each and every party and we found that Smt. Kantarani Gulati was an independent buyer and she was erroneously mentioned as a related party. Similarly, Shri Hafeez Contractor was, and still is, a renowned Architect and the fact as to how he and Smt. Pearl Contractor were considered as related parties is a myste .....

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ver, we do not find any material having been brought on record by the AO to prove close connection between the buyers and the assessee, and any 'arrangement' between the parties so as to produce more profit to the assessee. For this purpose reliance can be placed upon the order of the Hon'ble Tribunal in the case of ACIT v. Ishwar Manufacturing Co. (P) Ltd [157 ITD 883, 890 (Chandigarh). 26. With regard to the observation of the AO to the effect that FSI sold was at inflated rates, w .....

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ed, it was sold at ₹ 83,552/- and ₹ 83,543/- respectively. In view of these comparison the inference drawn by the Assessing Officer that the FSI sold was at inflated rates was contrary to his own record. 27. We further observe that stamp duty rate applied by the AO was not conclusive but at the most indicative. Even S.50C of the Act permits valuation by DVO which itself was an indicator that stamp duty rate was not conclusive and in support of this contention reliance can be placed u .....

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