COMMISSIONER OF INCOME TAX I vs. DESAI DEVELOPERS

Facts

The assessee, Desai Developers, a builder and developer, filed an income tax return for Assessment Year 2009-10 declaring a total income of Rs. NIL after claiming a deduction of Rs. 32,81,410/- under Section 80IB(10) of the Income Tax Act, 1961. The Assessing Officer (AO) found that the assessee had not fully utilized the permissible Floor Space Index (FSI) for a housing project. The AO disallowed the entire deduction claimed under Section 80IB(10), holding that profit from the sale of unutilized FSI was not eligible for deduction. The AO also disallowed Rs. 22,44,480/- under Section 40(a)(ia). The Commissioner of Income Tax (Appeals) deleted both disallowances. The Income Tax Appellate Tribunal (ITAT) dismissed the revenue's appeal. The revenue has filed the present Tax Appeal before the High Court.

Held

The High Court answered the substantial question of law in favour of the revenue and against the assessee. The Court noted that the issue concerning the eligibility of profit from the sale of unutilized FSI for deduction under Section 80IB(10) was squarely covered by a previous Division Bench decision of the same court in Tax Appeal No. 549/2008 and other allied appeals. This decision held that profit relatable to the sale of unutilized FSI would not be eligible for deduction under Section 80IB(10). The Court found that the assessee had significantly underutilized the permissible FSI without providing any special grounds to justify such underutilization. The Court rejected the assessee's request for remand, stating that the Assessing Officer had provided detailed particulars regarding the total permissible FSI, utilized FSI, and unutilized FSI in the assessment order, which were not disputed by the assessee. Consequently, the Tax Appeal was allowed.

Key Issues

1. Whether on the facts and in the circumstances of the case, the ITAT was right in law in allowing deduction u/s. 80IB(10) r.w.s. 80IB(1) to the assessee on profit derived from sale of unutilized FSI, as it has not been derived from the business activity of development and construction of a housing project? (Question of law) Revenue's contention: The profit from the sale of unutilized FSI is not eligible for deduction under Section 80IB(10) as it does not arise from the core business activity of development and construction of a housing project. The revenue relies on a Division Bench decision of the High Court in Tax Appeal No. 549/2008 and allied appeals. Assessee's contention: The assessee concedes that the issue is covered in favour of the revenue by the cited decision. However, the assessee requests a remand to the Assessing Officer for exact calculation of unutilized FSI, relying on the decision in Commissioner of Income-tax-I vs. Shreenath Infrastructure.