2022 (10) TMI 343 - AT - Income Tax

Tribunal Upholds Deduction for Assessee in Section 80IB(10) Case

Income Tax Officer-1 (1), Bharuch Versus M/s Samruddhi Developers

Income Tax Officer-1 (1), Bharuch Versus M/s Samruddhi Developers - TMI 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.