2022 (10) TMI 343 - AT - Income Tax

Disallowance claimed as deduction u/s 80IB(10) - whether assessee is a Developer or Works Contractor ? - Revenue argued that assessing officer has identified the assessee as a Works Contractor , therefore assessee is not eligible to claim deduction under section 80IB(10) - HELD THAT - The question as to whether assessee is a Developer or Works Contractor has been adjudicated by the Coordinate Bench of ITAT, Surat, in favour of assessee 2018 (3) TMI 1979 - ITAT SURAT As the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench, in assessee s own case and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings of the Coordinate Bench (supra). We find no reason to interfere in the said order of the Coordinate Bench, therefore, respectfully following the binding judgment of the Coordinate Bench in assessee s own case, CIT(A) has rightly deleted the addition. Therefore, we confirm the findings of ld CIT(A) and dismiss the ground raised by the Revenue. Disallowance at 10.41% being profit on sale of unutilized FSI - HELD THAT - Marginal under utilization of FSI certainly cannot be a ground for rejecting the claim under section 80IB(10) of the Act. It has further contended that due to certain special grounds there may be considerable under utilization and such case may stand on a different footing. It has further contented that in the judgement in the case of CIT Vs. Shreenath Infrastructure 2014 (4) TMI 482 - GUJARAT HIGH COURT the Hon'ble High Court, after considering the judgment in the case of Moonstar Developers has held that it is not possible to utilize the full FSI allotted and that the under utilization in the marginal range of 25 - 30% would not be hit by disallowance of deduction u/s 80IB(10). Assessee has also placed reliance on the case of Narayan Housing Corporation 2016 (9) TMI 247 - ITAT AHMEDABAD wherein the order has been passed after discussing both the orders in the case of Moonstar and Srireenath Infrastructure. The Hon'ble ITAT Ahmedabad has held that disallowance on account of unutilized FSI was restricted to 30% as against the 60% made by AO. On the basis of the above order of Hon'ble ITAT, assessee has contended that in its case the disallowance of deduction may be restricted in relation to the unutilized FSI. CIT(A) directed the AO to restrict the disallowance in relation to the unutilized FSI at 10.41% of total claim of deduction u/s 80IB(10) of the Act, which comes to Rs.30,19,469/-. Accordingly, addition to the extent of Rs.30,19,469/- was confirmed out of total disallowance was deleted. We have gone through the findings of ld CIT(A) and noted that there is no infirmity in the conclusion reached by the ld CIT(A). That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.

Summary

Issues Involved:
1. Eligibility for deduction under section 80IB(10) of the Income Tax Act, 1961.
2. Restriction of profit on sale of unutilized Floor Space Index (FSI).

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 80IB(10):

The Revenue challenged the deletion of a disallowance of Rs. 2,90,05,475/- claimed as a deduction under section 80IB(10) of the Income Tax Act, 1961. The Assessing Officer (AO) had disallowed this deduction on the grounds that the assessee was not entitled to it because there were two separate agreements for the sale of plot and construction on the plot, and thus, the assessee merely acted as a contractor rather than a developer. The AO's decision was based on the interpretation that the assessee did not fulfill the conditions laid down in section 80IB(10), particularly because the assessee did not develop the entire project on a single plot of land with a minimum area of one acre and instead entered into contracts with individual plot owners.

The Commissioner of Income Tax (Appeals) [CIT(A)] overturned the AO's decision, stating that the assessee's status as a developer was not negated by the separate agreements for plot sale and construction. The CIT(A) relied on previous appellate orders and judicial precedents, including the Gujarat High Court's decision in the case of Vedant Enterprises, which clarified that ownership of land is not a precondition for claiming deduction under section 80IB(10). The CIT(A) observed that the assessee had consistently claimed deductions under section 80IB(10) for previous assessment years, which were allowed by the CIT(A) and upheld by the ITAT.

The Income Tax Appellate Tribunal (ITAT) confirmed the CIT(A)'s decision, noting that the issue had already been adjudicated in favor of the assessee in the previous assessment years. The ITAT referenced its own decision in the assessee's case for AY 2009-10, where it was held that the assessee was a developer and not merely a contractor, thus eligible for the deduction under section 80IB(10). The ITAT found no reason to deviate from the earlier decisions and upheld the CIT(A)'s order, dismissing the Revenue's appeal.

2. Restriction of Profit on Sale of Unutilized FSI:

The Revenue also contested the CIT(A)'s decision to restrict the profit on the sale of unutilized FSI at 10.41% instead of 36.87% as determined by the AO. The AO had disallowed Rs. 1,06,94,319/- being the profit from the sale of unutilized FSI, relying on the Gujarat High Court's decision in the case of Moon Star Developers, which held that profits from unutilized FSI are not eligible for deduction under section 80IB(10).

The CIT(A) considered the assessee's argument that marginal underutilization of FSI should not lead to a complete disallowance of the deduction. The CIT(A) referenced the Gujarat High Court's decision in the case of Shreenath Infrastructure, which allowed for some underutilization of FSI without disallowing the deduction. The CIT(A) also referred to the ITAT's decision in the case of Narayan Housing Corporation, which restricted disallowance to 30% of unutilized FSI.

Based on these precedents, the CIT(A) directed the AO to restrict the disallowance to 10.41% of the total claim of deduction under section 80IB(10), amounting to Rs. 30,19,469/-. The ITAT upheld the CIT(A)'s decision, finding no infirmity in the conclusion reached by the CIT(A) and dismissed the Revenue's appeal on this ground as well.

Conclusion:

The ITAT dismissed the Revenue's appeal, confirming the CIT(A)'s orders on both issues. The assessee was deemed eligible for the deduction under section 80IB(10), and the disallowance related to unutilized FSI was restricted to 10.41% of the total claim. The judgment was pronounced on 06/10/2022.