2012 (10) TMI 246 - AT - Income Tax

Deduction u/s 80IB - Real Estate Developers - dis-allowance on ground that land is not owned by the assessee-firm and approval of the local authority for the construction of the said housing project was not in the name of the assessee and that the beneficial ownership was also not in the name of the assessee - also that proceeds are attributable to the sale of unutilized FSI - Held that - CIT(A) deleted dis-allowance placing reliance on decision in case of Radhe Developers (2011 (12) TMI 248 - GUJARAT HIGH COURT) wherein it was held that Section 80IB(10) provides for deductions to an undertaking engaged in the business of developing and constructing housing projects under certain circumstances. It does not provide that the land must be owned by the assessee seeking such deductions - Revenue s appeal is dismissed. As regards allowing deduction u/s 80IB(10) in respect of profits attributable to sale of unutilized FSI it is held that there is no requirement as to the FSI under the scheme of the provisions of section 80IB(10) and in any case, assessee had not sold FSI plot, even if the unutilized FSI rights are available with the assessee, it is the only way left out of utilizing such unutilized FSI is to make construction on top of the ground floor, which is already being sold to prospective buyers, and this concept of element of unutilized FSI sold is imaginary and based on surmises and conjectures - Decided in favor of assessee

Summary

Issues Involved:
1. Deduction under Section 80IB(10) of the Income Tax Act.
2. Ownership and approval by the local authority.
3. Sale of unutilized Floor Space Index (FSI) and its eligibility for deduction under Section 80IB(10).

Detailed Analysis:

1. Deduction under Section 80IB(10) of the Income Tax Act:
The primary issue revolves around the eligibility of the assessee for deduction under Section 80IB(10). The Revenue contended that the assessee did not meet the conditions prescribed under this section, specifically arguing that the assessee was not the owner of the land and did not have the necessary approvals from the local authority. The CIT(A) allowed the deduction, noting that the land was contributed as capital by the partners and that the firm had entered into a development agreement with the landowners, thereby assuming control over the project. The Tribunal upheld this view, referencing the Supreme Court's decision in Sunil Siddharthbhai Vs. CIT and the ITAT's decision in Radhe Developers, which clarified that ownership of the land is not a prerequisite for claiming deduction under Section 80IB(10).

2. Ownership and Approval by the Local Authority:
The Assessing Officer (AO) argued that the land did not belong to the assessee-developer and that the approval for the construction was not in the name of the assessee. This was seen as a violation of Section 80IB(10). However, the CIT(A) and the Tribunal found that the assessee had effective control over the project through its development agreement, which included responsibilities such as obtaining construction permissions, making advertisements, appointing architects, purchasing materials, and collecting consideration from members. The Tribunal concluded that these factors demonstrated that the assessee was indeed the developer of the project and thus eligible for the deduction.

3. Sale of Unutilized Floor Space Index (FSI):
The AO also disallowed the deduction on the grounds that the assessee had not fully utilized the permissible FSI and had sold the unutilized FSI, which could not be considered as profits derived from developing and building housing projects. The CIT(A) and the Tribunal rejected this argument, citing the ITAT's decision in Radhe Developers, which held that there is no requirement under Section 80IB(10) to fully utilize the permissible FSI. The Tribunal further noted that the concept of selling unutilized FSI was based on conjecture and that the assessee had not dealt with FSI in a manner that would disqualify it from claiming the deduction.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to allow the deduction under Section 80IB(10). It held that the assessee had met the necessary conditions, including effective control over the project and proper development agreements, and that the arguments regarding unutilized FSI were unfounded. The judgment emphasized that ownership of the land is not a requirement for claiming the deduction, provided the developer has effective control and responsibility for the project.