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TMI Blog2016 (9) TMI 247X X X X Extracts X X X X X X X X Extracts X X X X ..... ct that only 23% of the FSI was utilized and decision was given in favour of Revenue by confirming the disallowance made for sale of unutilized FSI. However, it was also observed by Hon. High Court that utilization of FSI has to be introspected with the overall project and one has to keep space for the margin for keeping some portion of FSI unutilized depending on case to case. We observe that the same Hon. Bench of the Jurisdictional High Court which has decided the issue in favour of Revenue in the case of Moon Star Developers (2014 (4) TMI 1042 - GUJARAT HIGH COURT ) had dealt with similar issue of allowability of deduction u/s 80IB(10) of the Act for sale of unutilized FSI in the case of M/s Shreenath Infrastructure (supra) and came with the view that 25-30% of non-utilisation of FSI is permissible and assessee should not be devoid of claiming deduction u/s 80IB(10) of the Act. Respectfully following the judgment of Hon. Jurisdictional High Court in the case of Shreenath Infrastructure (2014 (4) TMI 482 - GUJARAT HIGH COURT) we are of the view that assessee should be allowed to claim deduction u/s 80IB(10) of the Act to the extent of 30% of unutilized FSI. We hereby deem it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... project of development and construction of residential houses. Assessment was framed by taking two alternatives; as per which in the first alternative total deduction claimed u/s 80IB(10) of the Act was denied as the assessee was not the owner of the land and was treated as work contractor for the project and in the second alternative discussed about the utilization of Floor Space Index(FSI) wherein it was observed that assessee had made construction and development of only 40% of the FSI available whereas deduction was claimed for the total profit earned from the sale of project area. In this alternative the ld. Assessing Officer was of the view that section 80IB(10) of the Act is relates to deduction of profits earned from actual construction and development of housing project and cannot be allowed on profits earned from sale of unutilized FSI on which no construction and development has been carried and accordingly disallowed the deduction claimed u/s 80IB(10) of the Act by ₹ 6,03,739/-. 4. When the issue came up before ld. CIT(A), total addition made by ld. Assessing Officer under both the alternatives were deleted by ld. CIT(A) by observing as below :- 15. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight over the land and no right in the land remained with the landowner. He has also stated that the assessee is responsible for the risk and costs involved in this project. Hence the conditions prescribed in the Shakti Corporation case have been met. Therefore the assessee is entitled to deduction u/s. 80IB(10) and it cannot be disallowed just because he is not the legal owner of the land, following the decisions cited above. 4.3. With regard to the alternate ground of restricting the deduction due to sale of unutilized FSI, following the decision of the Hon'ble ITAT in the case of M/s. Radhe Builders and Others the Assessing Officer's decision of restricting the claim of 80IB(10) on account of unutilized FSI is not acceptable and is also directed to be deleted. 4.4. It is therefore held that the disallowance of deductions of ₹ 12,55,090/-for AY 2002-03 and of ₹ 3,56,92,433/- for AY 2003-04 u/s. 80IB(10) made by the Assessing Officer are not correct and are hereby ordered to be deleted. 6. Ld. DR supported the order of ld. Assessing Officer. 7. On the other hand, ld. AR submitted that assessee has undertaken for development and construction of the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on sale of unutilized FSI was not eligible for the same. Accordingly ld. Assessing Officer after giving relevant figures of the total permissible FSI available at 1423.7 sq.m. subtracted 571.81 sq.m. on FSI utilized leaving behind 851.89 sq.m. FSI unutilized and proportionately reduced the deduction u/s 80IB(10) of the Act by ₹ 6,03,739/-. We find that assessee has not disputed the facts and figures observed by ld. Assessing Officer relating to FSI available for construction, FSI utilized and FSI unutilized as well as calculation of profit relatable to sale of unutilized FSI. Assessee is pressing the contention that FSI permissible is the maximum area on which construction can be done and project developer is at free liberty to utilize the FSI in order to make maximum gains at the end of completion of the project and, therefore, the total profit derived from such project irrespective of FSI utilized or unutilized is eligible for deduction u/s 80IB(10) of the Act. 9. We observe that Hon. Jurisdictional High Court has dealt with this issue of claim of deduction u/s 80IB(10) of the Act from sale of unutilized FSI in the case of CIT vs. Moon Star Developer the relevant porti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a works contract awarded by any person (including the Central or State Government). In the notes on clauses explaining the introduction of section 80-IB of the Act, in the context' of subsection (10) thereof, it was stated as under: The provision also seeks to provide that for approved housing projects the profits of which are fully deductible, the built-up area in regions other than outside twenty-five kms. of municipal limits of Delhi and Mumbai, the built-up area of the residential units does not exceed one thousand five hundred square feet. 24. In the budget speech for the financial year 1999-2000, the Finance Minister in the context of tax benefits under section 80-IA of the Act on housing projects, while increasing the maximum limit of the built-up area of the units from 1000 sq. ft. to 1500 sq. ft. at all locations except Mumbai and Delhi, stated as under: '98. The second element of this incentive package relates to the scheme for housing projects for enjoying a tax holiday under Section 80-IA of the Income-tax Act. The existing provision, inter alia, requires that the built-up area of dwelling units should not exceed 1000 sq. feet. There have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommenced development and construction of the housing project after a specified date; (c) that the project is on the size and plot of land which is of minimum of one acre; (d) That each residential unit has a maximum built-up area of 1500 sq. feet barring cities of Mumbai and Delhi and within a radius of 25 km of municipal units of such cities where such area should not exceed 1000 sq. ft. Further conditions were later on added which included restriction of not allotting more than one residential unit to any person who is not an individual. In case of allotment of residential unit to an individual, it was further provided that no other residential unit in such housing project allotted to such individual or his/her spouse, minor children or Hindu undivided family if such individual is a karta and any person representing such individual, the spouse or the minor children of such individual or the Hindu undivided family in which such individual is the karta. 27. At the relevant time, these later conditions were not in operation. Nevertheless, what can be seen from the conditions which prevailed at the relevant time is that deduction was aimed at providing 100% tax exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l FSI available to a maximum of 65.81%. In majority of the cases, the assessees have covered barely about one-fourth or one-third of the permissible FSI. 30. For any commercial activity of construction, be it residential or commercial complex maximum utilization of FSI is of great importance to the developer. Ordinarily, therefore, it would be imprudent for a developer to under-utilize available FSI. Sale price of constructed properties is decided on the built-up area. It can thus be seen that given the rate of constructed area remaining same, nonutilization of available FSI would reduce the profit margin of the developer. When a developer therefore utilizes only say 25% of FSI and sells the unit leaving 75% FSI still available for construction, he obviously works out the sale price bearing in mind this special feature. Let us compare two instances. In the same area two residential schemes are developed. Both have residential units of 1500 sq. feet. In one scheme 100% FSI is used in another 25% FSI is used and 75% is passed on to the buyer of the unit. Price of the unit in the later scheme would for apparent reason be considerably higher than the former because the buyer there g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 80-IB(10) of the Act and the purpose of granting deduction on the income from development of housing projects envisaged there-under, bifurcation of such profits arising out of such activity and ' that arising out of the net sell of FSI must be resorted to. In the present case, none of the assessees have made any special ground for nonutilization of the FSI. 32. The contention of the counsel for the assessee that as long as there has been 100% utilization of the maximum permissible area on the ground floor, deduction under section 80-18(10) of the Act cannot be declined, cannot be accepted. As noted earlier, in case of M/s. Moon Star Developers and many other assesses, such full utilization of the ground floor area available for construction resulted into barely 20% to 25% of the FSI being used, remaining more than 75% being left unused. 33. What, is available for deduction under section 80IB(10) of the Act is the profit of an undertaking derived from developing and building a housing project. Mere sale of open land or unused FSI as part of the housing project where utilization of the FSI is way short of permissible limits cannot be said to have been derived from suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... converse situation to offering of cash, discount. In principle, thus; the transaction remains the same and there is no distinction as to the source. 37. In view of the above discussion, the question is answered in favour of the Revenue. All Tax Appeals to this extent are allowed. Respective decisions of the Tribunal are reversed to that extent. Appeals are disposed of accordingly. 10. We observe that Hon. Jurisdictional High Court has decided the issue in favour of Revenue giving clear indication that deduction u/s 80IB(10) of the Act is allowable for development of housing project where strictly speaking 100% on FSI available may not be utilized for construction but certainly majority of the FSI should be utilized for actual construction and development and the issue has to be seen from case to case basis. Hon. Court further observed that marginal unutilisation of FSI cannot be a ground for rejecting the claim u/s 80IB(10) of the Act.. 11. We further observe that Hon. Jurisdictional High Court in the case of CIT vs. Shreenath Infrastructure (supra) has also dealt with similar issue of claim of deduction u/s 80IB(10) of the Act from sale of unutilized FSI by observing as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elopment of urban areas, these regulations also provide for various other details such as maximum height up to which the construction can be carried out, maximum area on the ground floor or on other floors which can be covered under construction, margin to be left on sides, parking facilities to be provided depending on the nature of building and most importantly, the maximum construction that can be carried out on a given piece of land. The last element, namely, the ratio of the land area versus the maximum construction permissible on such land, is referred to as floor space index (FSI for short). It is this FSI which will decide the maximum area of construction that can be earned out on any given piece of land. It is, therefore, not difficult to appreciate that besides several other factors of situational and other advantages and disadvantages, FSI permissible for the land in question would be an important factor in the context of development of the land. Given all other factors same, higher the FSI, the greater the value of the land. 29. It is in this context, we have to appreciate the under utilization of the FSI by the assessees in different housing projects under consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and sell the same to a single purchaser and claim full deduction on the profit arising out of such sale under section 80IB(10) of the Act. Surely, this cannot be stated to be development of a housing project qualifying for deduction under section 80IB(10) of the Act. This is not to suggest that for claiming deduction under section 801B (10) of the Act, invariably in all cases, the assessee must utilize the full FSI and any shortage in such utilization would invite wrath of the claim under section 80IB(10), being rejected. The question is where does one draw the line. In our opinion, the issue has to be seen from case to case basis. Marginal underutilization of FSI certainly cannot be a ground for rejecting the claim under section 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, such as, height restriction because of special zone, passing of high tension electric wires overhead, or any such similar grounds to justify under ^utilization, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of developing two Housing projects, had utilized 9595.64 sq.m of build-able area against the maximum permissible area of 13004 sq.m and in other cases, put up construction of 5997.28 sq.m against maximum permissible construction on 8127.75 sq.m. Under utilization, if at all was in the marginal range of 25% to 30%. As held by this Court in case of Moon Star Developers (supra) every case of even marginal under utilization of FSI would not be hit by disallowance of deduction under Section U1H of the Act In the result, Tax Appeals are dismissed. 12. Now from going through both the judgments of Hon. Jurisdictional High Court, we observe that the issue regarding deduction u/s 80IB(10) of the Act from sale consideration of unutilized FSI has to be seen in the overall context so much so that certainly 100% FSI cannot be utilized for construction and business expediency and for the overall success of the project 25% to 30% of the operation gap remains to be unutilized. However, in the case the operation of unutilized FSI is exorbitant i.e. more than 30% of the total permissible area then the matter has to be looked into from a different angle and one cannot ignore the possibility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artly allowed. 16. Now we take up ITA No.2193/Ahd/2012 for Asst. Year 2003-04 wherein following grounds have been raised - 1. On the facts and in the circumstances of the case and in law, the Id CIT (Appeals) erred in allowing deduction of ₹ 1,81,50,125/- 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 add to, amend or alter the above rounds 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. 17. As the issue in this appeal is similar as we have adjudicated in appeal in ITA No.2192/Ahd/2012 for Asst. Year 2002-03 and as far as the facts are concerned this year also unutilized FSI was 20579 sq.m. as against total permissible FSI available for construction 34261.18 sq.m. and therefore, for 60% of the permissible FSI remained unutilized. Applying, the decision taken by us in Revenue s appeal for Asst. Year 2002-03, we hereby sustain the disallowance to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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