TaxTMI 
TaxTMI 
2018 (5) TMI 1158
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.... 80IB(10) r.w.s. 80IB(10) to the assessee on profit derived from sale of unutilized FSI, not being the element of profit derived from the business activity of development and construction of the housing project relating to the sale of tenements?" 3. Brief facts are that the assessee is a partnership firm engaged in the business of development of housing project. For the assessment year 2004-05, the assessee had filed the return of income on 31.10.2004 declaring total income of Rs. 23,500/- after claiming deduction under section 80IB(10) of the Act. The Assessing Officer took the return into scrutiny. He noted that the assessee had developed three housing projects Shubhlaxmi, Samruddhi and Bhagyalaxmi. He further noted that out of the total permissible area for construction looking to the size of the land in the permissible FSI, the assessee had utilized only a small portion thereof. He therefore confronted the assessee with following facts: "In the context of the assessment proceedings and pursuant to perusal of the details furnished in this regard, it is observed that you have not undertaken the completion of the project in its entirety as far as development and constr....
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....He made following observations: "(c) Be that as it may, it is further stated that the above stated show cause notice also dwells upon another illustration of significant import which demonstrates that wherein a part of the FSI has been developed, by the constructing housing project thereupon and part of the FSI gets sold without developing, deduction u/s. 80IB logically would be available to the builder/developer only in respect of the area developed and constructed by him. The deduction u/s. 80IB(10) shall, therefore, not be available to the assessee who has merely sold unutilized FSI attributable to a plot of land though he may take a plea that it represents composite value stemming from his activity of development and construction of project in question. Hence, in the case of the assessee, it is seen that the deduction u/s. 80IB(10) is available to the assessee as far as it relates to the profit derived from that part of the property which is developed and constructed by the assessee and not on profits relating to unutilized FSI still remaining to be exploited in respect of the said partly developed property. (d) In the final, analysis, as the assessee has not ....
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....Assessing Officer had raised objection of the assessee's profit being derived through sale of unused FSI. Such an issue was examined by this Court in case of Commissioner of Income Tax vs. Moon Star Developers reported in [2014] 367 ITR 621 (Guj.) making following observations: "29. In this context, we may examine, whether the decision of the Assessing Officer to treat the income of the assessees from sale of FSI separate and excludable from the purview of section 80IB(10) of the Act? The concept of FSI, is a wellknown one. Local authorities, such as Corporations, Municipalities and Panchayats, frame regulations for regulating activities of development of lands within their local areas. Such regulations are popularly referred to General Development Control Regulations (GDCR). In addition to providing different zones controlling development activities in different areas for regulated and orderly development of urban areas, these regulations also provide for various other details such as maximum height upto 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, pa....
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....her construction of 4500 sq. feet. Whether this includes open land or not is not important. In terms of construction business, it is equivalent to sale of land. Thus, therefore, when a developer constructs residential unit occupying a fourth or half of usable FSI and sells it, his profits from the activity of development and construction of residential units and from sale of unused FSI are distinct and separate and rightly segregated by the Assessing Officer. 32. It is true that section 80IB(10) of the Act does not provide that for deduction, the undertaking must utilize 100% of the FSI available. The question however is, can an undertaking utilize only a small portion of the available area for construction, sell the property leaving ample scope for the purchaser to carry on further construction on his own and claim full deduction under section 80IB(10) of the Act on the profit earned on sale of the property? If this 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) ....
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.... times used in the context of income tax in different connotation. In the case of Sterling Foods (supra), the assessee was engaged in processing prawns and other sea food which it exported. In the process, the assessee earned import entitlements to use itself or sell the same to others. During the year under consideration, the assessee included such sale proceeds for claiming relief under section 80HH of the Act, in case of any profit or gain derived from an industrial undertaking in backward areas. In this context, the Apex Court held that the import entitlements cannot be said to be derived from the industrial undertaking of the assessee. For the application of the words "derived from", there must be a direct nexus between the profits and gains and the industrial undertaking and in the case on hand, the nexus was not direct but only incidental. 35. In case of Pandian Chemicals Ltd (supra), once again, the assessee claimed deduction under section 80HH of the Act. This claim included interest on deposit made with Electricity Board for supply of electricity. The Apex Court held that the interest derived by the industrial undertaking of the assessee on such deposits made wit....