TaxTMI 
TaxTMI 
2019 (4) TMI 1850
X X X X Extracts X X X X
X X X X Extracts X X X X
....d construction of residential unit of more than 1500 sq. ft. in violation of provisions of clause (c) of section 80IB(10) of the Act and therefore, not eligible for deduction u/s 8016(10) of the Act. l(ii). On the facts and in the circumstances of the case and in law, the ld.CIT (Appeals) erred in allowing deduction u/s 8016(10) of the Act to the assessee without appreciating the fact that no separate approval was taken from Local Authority for the project 'Pratharn Meadows', in which each residential unit has a maximum built-up area of more than 1500 sq. ft." l(iii) On the facts and in the circumstances of the case and in law, the ld.CIT (Appeals) erred in allowing deduction u/s 8016(10) of the Act to the assessee on a pro rata basis when there is no such provision under the statute to grant the same?" 3. All the grounds of appeal of the Revenue 1(1) to 1(iii) are interconnected against the decision of ld. CIT(A) allowing deduction u/s. 80IB(10) of the act, therefore, for the sake of convenience these grounds of appeals are adjudicated together. ITA No. 2000/Ahd2014, Ground no. 1 of ITA No. 2192/Ahd/2015 assessment year 2010-11, Ground No. 1 of ITA ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the act in respect of (1) Pratham Citadel Project (2) Pratham Vatika Project (3) Pratham Shrusti Project (4) Pratham Residency Project (5) Pratham Vitas Project. On perusal of supporting documents filed in favour of the claim of deduction u/s. 80IB(10) of the Pratham Vitas Project, the assessing officer has stated that permission for development/Rajachithi issued by the Vadodara Urban Authority was not in the name of the assessee, therefore, the assessing officer had held that the assessee was not entitled for deduction under section 80IB(10) of the act. The assessing officer has also stated that the assessee was not the sole owner of the land in question and approval of the layout plan/Rajachithi issued by the local authority was of housing project consisting of 158 residential units out of which the built up area of 55 residential units exceed the prescribed limit of 1500 sq. ft. thereby contravening the provision sedition 80IB(10)(c) of the act. The assessing officer has further stated that the there was no provision in the act to allow partial benefit of section 80IB(10) of the act therefore entire deduction claimed u/s. 80IB(10) of the case of Rs. 76158914/- was disallowed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llect charges. Profit or loss which may result from execution of the project belonged entirely to the assessee. It can thus be seen that the assessee had developed the housing project. The fact that the assessee may not have owned the land would be of no consequence." On the question of ownership of the land raised by the Revenue, it has been held by the Hon'ble Court that: "41. In the present case, we find that the assessee had, in part performance of the agreement to sell the land in question, was given possession thereof and had also carried out the construction work for development of the housing project. Combined reading of Section 2(47)(v) and Section 53A of the Transfer of Property Act would lead to a situation where the land would be for the purpose of Income Tax Act deemed to have been transferred to the assessee. In that view of the matter, for the purpose of income derived from such property, the assessee would be the owner of the land for the purpose of the said Act. It is true that the title in the land had not yet passed on to the assessee. It is equally true that such title would pass only upon execution of a duly registered sale deed. However, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....zed Representative, it is seen that the appellant firm has developed a residential housing project namely 'Pratham Vista' which consisted of 103 Residential Units and from the details furnished, it is also seen that all the residential units developed by the appellant firm under the scheme 'Pratham Vista' are below the prescribed built up area of 1500 sft. 3.3.4. As regards the 55 Residential units referred to in the assessment order the Appellant has furnished the following documents to show that the scheme 'Pratham Meadows' was developed by the appellant's associate concern M/s Pratham Properties and they do not form part of the housing project developed by the appellant. Appellant filed various documents which consist of Copy of Brochure of 'Pratham Meadows' developed by Pratham Properties and Copy of Development Agreement entered into between the Land Owners and Pratham Properties on which 'Pratham Meadows' scheme is developed by Pratham Properties. The Appellant has also stated that M/s Pratham Properties is assessed to income tax under PAN AAHFP5012C and has furnished copies of the said firm's return of income filed for....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The assessee was asked for the explanation why the profit in the case where claim u/s. 80 IB(10) is higher rate of profit as compared to the project undertaken as shown 23.47% in the case of residential projects and 36.12% in the case commercial project. The only argument of the assessee is that it is due to differential rate of land of the project under taken and different projects undertaken in which deduction u/s. 80 IB of the Act. The cost of construction is almost same. The assessee has submitted statement of cost of residential and commercial project from which it was observed that the cost of construction including land in the case of residential project is 671.51 and selling price of per unit per sq.ft is 877.47. Whereas, in the commercial project the total cost is Rs. 751.06 sq.ft and selling rate is 1175.69. the Assessing Officer has rightly contended that the assessee has shown cost of construction of residential at Rs. 671.51 and cost of construction of commercial unit as 751.06. Normally in the case of Flats, the different type of amenities to be provided whereas in the case of commercial shops no such amenities required to be provided. In the shops, three walls with ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....alla (ITA No 5404/Mum/2008) and other judicial pronouncements. 3.3.7. Hon'ble Madras High Court in case of CIT Vs Sanghvi and Doshi Enterprise [2013] 255 CTR 156 (Mad.) held that: "36. This leaves us with the last question on proportionality, which was considered by us in T.C.(A)Nos.l348 and 1349 of 2007 dated 18.10.2012. Though the assessee had complied with the extent of built-up area as per clause (c) and the assessee is entitled to have the benefit of deduction under Section 80IB of the Income Tax Act, since the Tribunal had remanded the portion of the built-up area for verification before the Assessing Officer and a factual enquiry has to be made thereon as to whether the built-up area is in fact 1500 sq.ft. or more than that, we do not think that the Revenue could have any serious objection on this aspect. In the circumstances, we confirm the order of the Tribunal on the remand portion." 3.3.8. The Ld. Authorized Representative for the appellant has also relied upon the decision of Madras High Court in case of Viswas Promoters (P.) Ltd. Vs CIT [2013] 255 CTR 149 (Mad.) wherein it has been held that each residential block in a housing project is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for benefit u/s. 80IB(10) and not the profits which are attributable to the FSI that was sold as such without developing and constructing." Ground No. 2(a) & (b) of ITA No. 2192/Ahd/2015, Ground no. 2 of 2769/Ahd/2015, Ground No. 1 of 283/Ahd/2017, Ground No. 1 to 4 of of ITA 2673/Ahd/2015, Ground No. 1 to 6 of ITA No. 3086/Ahd/2016 and Ground No. 4 of ITA No. 2673/Ahd/2015 9. As the facts in all the above mentioned grounds of appeals are similar, so, Ground No. 2(a) & (b) of ITA No. 2192/Ahd/2015 is taken as lead case and its finding will be applicable to Ground no. 2 of 2769/Ahd/2015, Ground No. 1 of ITA 283/Ahd/2017, Ground No. 1 to 6 of ITA No. 3086/Ahd/2016 and Ground No. 4 of ITA No. 2673/Ahd/2015. 10. During the course of assessment, the assessing officer noticed that the assessee has carried out construction activities on the land without fully utilizing the permissible FSI (Floor Space Index). It is further stated that assessee firm has carried out only partial construction of the available FSI/Entire plot of land available for development with the assessee firm and the assessee firm has claimed deduction u/s. 80IB(10) of the act also on the profit earned from sal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in ITA No.2183/Ahd/2010 & ITA No. 3300/Ahd/2009 for A.Ys. 2006-07 & 2007-08. From the order of the Hon'ble ITAT, Ahmedabad, I find that they have followed the decision of Hon'ble Co-ordinate Bench in the case of Radhe Developers & Ors. V. ITO & Ors. (2008) 113 TTJ 300 (Ahd.) and dismissed the revenue's appeal. However, subsequent to the decision of ITAT, Ahmedabad in the case of Radhe Developers & Ors. (supra), Hon'ble High Court of Gujarat in the case of CIT-1 V. Moon Star Developers [2014] 367 ITR 621 (Guj.) have considered the decision of Radhe Developers & Ors. (supra) and have given the following findings: "..... However, in cases where the utilization of FSI is way short of the permissible area of construction, looking to the scheme of Section 80IB(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...." Nowhere in the order of the Hon'ble ITAT, Ahmedabad, I find that the issue regarding under utilization of FSI is discussed at ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... will appreciate that when a developer demarcates a'plot of land for housing projects, the following issues are always kept in mind: a. There is a standardized design for the housing unit with almost all the houses having a standard ground floor(built up) area. b. The developer has to meet the regulations for common plot - generally 10% of the land area with restrictions on dimensions (Minimum size of the common plot shall be 250 sq.mts. with no side less than 10.50 meters.) and road width (7.5metres.). The arrangement of ownership tenement in a plot, shall be as may be approved by the Authority with due regard to internal approach roads, marginal open spaces common plot, water supply, drainage, and internal road lighting. c. Where the land is evenly shaped, the area of common plot can be restricted to the legal requirement, however in case of land with uneven shapes, higher area may be required for the common plots and roads as it will not be possible to fit the maximum number of standardized houses in the given land. d. The developer also has to keep the requirement of margins for individual houses from the plot edge. In case of public road....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me wise reasons in respect of the utilization of FSI. These have now been tabulated to show the details of the plot wise variation- and their effect on the overall project. Your Honour will appreciate from the charts in respect of the various schemes viz. Pratham Residency, Pratham Citadel, Pratham Vatika Ahmedabad and Pratham Vistas regarding the loss in constructible area on account of the various factors stated. In the said charts, the plot wise details are furnished and from which a deduction on account of the impediments stated is mad. A summary of the variations is given at the end of the charts. Your Honour will kindly observe the following from the enclosed charts:" The project wise analysis of available FSI vis-a-vis utilized FSI is discussed in below para :- A. Pratham Residency: 6.1. Authorized Representative has submitted that the project Pratham Residency is constructed on Block Nos. 418, 422, 424 and 425 of Village Kapurai. The project consists of 285 units classified as Manor and Villas. Manors have a built up area of 1043.67 square feet and Villas have a built up area of 1278.87 square feet. The four blocks of land, while they had a squari....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has brought on record detailed explanations as to why full utilization of FSI was not possible on as many as fifty four plots because of their odd shapes, being corner plots, because of disputes with adjacent landowner and the necessary margins on account of the roads. The Authorized Representative has also furnished plot wise and project-wise summary of plot size, special reasons for underutilization of FSI as enunciated in the case of Shreenath infrastructure (supra). This summary is placed as Annexure 'A' of the paper book and from that it transpires that Gross FSI available with the appellant is 48614 Sqm, whereas, total 3427 Sqm is to be reduced considering special reasons forcing underutilization of FSI and this included town planning restriction, irregular shape of particular plots and disputes with others. Considering these special reasons, available FSI remains 43301.89 Sqm, whereas, FSI utilized in this project is 32279 Sqm. This is verifiable from the plot-wise details submitted by the Authorized Representative along with copies of maps and approved plans of the project which were furnished by the Appellant before the Assessing Officer also for verification. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....92.99 square meters and according to the AUDA (Ahmedabad Urban Development Authority) provision, a 12 meter by road is required across the entire project as main road. Authorized Representative has further contended that from the enclosed brochure, it can be seen that the project is constructed on 2 plots which are joined by narrow strip of 31.5 meter, therefore, according to the road regulation, after leaving the road across the project, only 19.5 meter was remaining on the eastern plot on the southern side and within the constrains the project was developed. It is argued by the Authorized Representative that the ground floor (Built up area) utilized is as high as 96%. 7.2. It is further submitted before me that there is a major public road to the west of the Project which necessitated higher margins and, therefore, the common plot and the common facilities (club house, swimming pool etc.) had to be kept on that side. It is also submitted that almost all the building in the project are quadruplicates units i.e. they are conjoined back to back as well as side to side. The only exception are plot Nos. 1, 10 & 11 where because of the common plot odd shape has come across lea....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... being able to fully utilize the FSI in the project. Hon'ble Gujarat High Court in the case of Moon Star Developers (Supra) has considered utilization of FSI up to 65% as reasonable. However, later on Hon'ble Gujarat High Court in the case of Shreenath infrastructure (supra) has allowed deduction due to special reasons for underutilization of FSI and after considering the same FSI utilization becomes "6% as mentioned by the Ld. Authorized Representative in above para. Therefore, keeping in mind this decision of Shreenath infrastructure (supra), I hold that the profits from the Pratham Vatika (Ahmedabad) project are fully eligible for deduction under section 80IB(10) of the Income Tax Act, 1961. Jhe Assessing Officer is accordingly directed to allow the deduction under the said section as claimed by the appellant. C. Pratham Vistas:- 8.1. Ld. Authorized Representative has submitted that Pratham Vistas is a project which has been executed on land bearing Block Nos. 1740, 1746 and 1757 (Part) of Village Bhaili, District Vadodara. The project consists of 103 units of various sizes. The defect in the plot is that towards south west ,of the plot there is 220KV h....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., whereas, FSI utilized in this project is 14,071 Sqm. This is tabulated by the appellant as under: 8.4. During the appeal before me Ld. Authorized Representative has made further submission as under:- "As against the total plot area of 14765.75 square metres the variation in respect of the plots which are covered by the reasons for under utilization is 2164.95 square metres which leaves balance plot area of 12600.80 square metres The FSI available on the same works out to 20161.28 square metres as against this the actual utilization of FSI in Pratham Vista project is 14070.65 square metres, i.e. utilization is 70%% of the available FSI. Your honour will kindly appreciate that the underutilization was in the marginal range of 25% to 30%. The judgment of the Hon. Gujarat High Court in the case of Shreenath Developers would apply to the facts of this project and therefore the marginal under-utilization would not be hit by disallowance of deduction U/s 80B(10) of the Act." 8.5. In view of the various reasons cited and the explanations given above, I agree with the Authorized Representative that the Appellant had exploited the project land to the maximum keeping in mi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2, the Town Planning Officer (TPO) has intimated that the original final plot of 14805 square meters has been reduced to 14061 square meters. 9.3. Similarly, during the course of the hearing, it was explained to me that the entire row of houses on the northern side of the project was facing a public road with higher margin requirements. It was also pointed out that the northern and southern sides of the project land were not parallel resulting in an odd shape which necessitated leaving more space for corner plots. 9.4. The regulations regarding laying down of the road has also played a very important role in putting up the number of units. It was explained that If against the regulatory margin an additional margin of 2.5 meter was to be given to the residential units. Had this not been done, unutilized land of 6 to 7 meter width would have been left where no construction could have been done. This would have ultimately resulted in huge waste of land on which no construction would have been permitted. 9.5. It was explained that Plot nos. 14, 32, 33 34, 65 and 66 were included in the town planning scheme and accordingly construction can be commenced only af....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tadel Project has to be restricted to 54 Plots and the disallowance in respect of the Profit attributable to Unutilized FSI for Pratham Citadel Project be calculated as under: No of Units Land Area Sqm FSI Sqm Total Project 66 11163 17745 Less: 12 2545 4073 54 8618 13672 [As against the FSI available of 13,672 Sqm, the appellant has utilized FSI f 7,479 SQM, therefore, underutilization of FSI is worked out at 6,193 Sqm i.e., 30%]. However, during the appeal before me Ld. Authorized Representative has made further submission as under:- "As against the total plot area of 11162.54 square metres the variation in respect of the plots which are covered by the reasons for under utilization is 750.98 square metres which leaves balance plot area of 10411.56 square metres The FSI available on the same works out to 16658.50 square metres as against this the actual utilization of FSI in Pratham Citadel project is 9139 square metres i.e. utilization is 55%% of the available FSI. Your honour will kindly appreciate that this is a case of under utilization and was in the marginal range keeping in view the various regul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en in the case of Moon Star Developers which is reproduced as under:- "31. 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) 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 80IB (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 re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....11 in respect of project Pratham Residency, Pratham Vatika, Pratham Vistas and Pratham Shrusti except Pratham Citedal are also allowed as per the ground of appeal of the assessee vide ITA No. 3086/Ahd/2016 for assessment year 2010-11. 14. In respect of project Pratham Citedal on which the ld. CIT(A) has disallowed the claim of the assessee u/s. 80IB(10) deduction in respect of utilization of FSI, we observe that in this case the assessee has shown very less area of utilization of FSI. It is noticed that total un-utilization of FSI was worked out at 45.30% which was quite high therefore the ld. CIT(A) has disallowed the claim of the assessee. In this connection, the assessee has contended that special circumstances for un-utilization was not considered and no specific findings on the same was given as laid down in the decision of Shreenath Developer of Gujarat High Court. We observe that assessing officer and CIT(A) has not controverted the special circumstances/grounds for less utilization of FSI as mentioned on page 65 to 66 on the order of the ld. CIT(A) as per the findings of the Hon'ble High Court of Gujarat given in the above cited judgment. In the light of the above facts ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....structed. (ii) In respect of Prathma Vistas Project, the approval of the Housing Project consisting of 158 residential units of which the built up area of 55 residential units exceeds the prescribed limit of 1500 sq. fts. (iii) Exclusion of other income to the amount of Rs. 17,13,580/- for the claim of 80IB(10) deduction We have also considered the number of judicial pronouncements referred by the ld. counsel in the index of case law, however he has mainly made reference to the facts of this case to the following two decisions of the Hon'ble Jurisdictional High of Gujarat on the issue of profitability on sale of un-utilized FSI (i) CIT vs. Moon Star Developes (2014) 367 ITR 62 (Guj) (ii) CIT vs. Shreenath Infrastructure (2014) Taxmann 461 (Gu) In the case of the Moon Star Developers wherein held that the marginal under-utilization of FSI certainly cannot be a ground for rejecting the claim under section 80IB(10) of the act. In the subsequent decision of the Hon'ble Gujarat in the case of CIT vs. Shreenath Infrastructure after referring the aforesaid earlier decision it is mentioned that even if there has been considerable under-utilization ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....263 that matter was set aside to the assessing officer to provide opportunity to the assessee to prove its contentions. After considering the aforesaid fact and legal finding, we observe that the assessing officer has not examined the issue of under-utilization of the FSI in the case of the assessee according to the directions of the Hon'ble High Court of Gujarat laid down in the above cited judicial pronouncements, therefore, the issue to be examined by the assessing officer according to the directions of Hon'ble High Court in the referred cases. In the light of the above facts and circumstances, we observe that the impugned issue was not examined while finalizing the assessment therefore the order of the assessing officer was erroneous as well as prejudicial to the interest of the revenue. We therefore uphold the order of the ld. Pr. CIT. Therefore, all the grounds of appeal from 1 to 10 are dismissed. C.O. No. 158/Ahd/2015 17. The assessee has filed cross objection against the decision of ld. CIT(A)-5, Baroda in confirming the disallowance made by the assessing officer for deduction u/s. 80IB(10) in respect of profit of Rs. 10,07,054/- of the Pratham Citadel Proje....