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Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH AHMEDABAD
Before: SHRI PRAMOD KUMAR, & SHRI S. S. GODARA.
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “SMC” BENCH AHMEDABAD
BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER, AND SHRI S. S. GODARA, JUDICIAL MEMBER.
ITA No. 2768/Ahd/2015 (Assessment Year: 2011-12) Erstwhile Assessing Officer ACIT, Cir.2(2), Baroda Present Assessing Officer The Deputy Commissioner of Income Tax, Circle-1(2), 2nd Floor, Aayakar Bhavan, Race Course Circle, Baroda Appellant Vs. M/s. Shakti Developers Saujanya Society, Nr. Vadsar Village, Kalali, GIDC, Vadsar Road, Baroda 390012 Respondent PAN: AAQFS3259K
राज�व क� ओर से/By Revenue : Shri Roopchand, Sr. D.R. आवेदक क� ओर से/By Assessee : None सुनवाई क� तार�ख/Date of Hearing : 12.09.2017 घोषणा क� तार�ख/Date of Pronouncement : 22.09.2017 ORDER PER S. S. GODARA, JUDICIAL MEMBER This Revenue’s appeal for assessment year 2011-12 arises against the CIT(A)-5, Vadodara’s order dated 15.06.2015 in case no. CAB/5-101/14-15, reversing Assessing Officer’s action disallowing assessee’s Section 80IB(10) deduction claim of Rs.39,33,822/- in assessment order dated 30.01.2014, in proceedings u/s. 143(3) of the Income Tax Act, 1961; in short “the Act”.
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Case called twice. None appears at assessee’s behest. The Registry sent an RPAD notice as well dated 29.08.2017. The same stands returned back with the remark “not found”. We therefore proceed ex parte against the assessee in the instant appeal.
We come to Revenue’s sole substantive grievance now seeking to revive the abovestated Section 80IB(10) deduction disallowance made by the Assessing Officer on account of assessee’s failure in not utilizing major portion of FSI. There is no dispute about the fact that this assessee is a firm engaged in the housing construction and development business. This is not the Revenue’s case at all that it not otherwise entitled for the impugned Section 80IB(10) deduction. Its sole substantive endeavor is to treat assessee’s income derived from sale of unutilized FSI as not eligible for the above deduction claim. We therefore come to the relevant particulars pertaining to the instant FSI issue. It emerges from the case file that the assessee’s total FSI available for development, utilize and the one sold unutilized inter alia admeasure(s) 37,859.20, 15,552.11 & 22,307.09 sq.mtrs.; respectively. This leaves behind total unutilized land measuring 23,662 sq.mtrs. The Assessing Officer disallowed assessee’s deduction claim pertaining to the abovestated unutilized FSI after holding that the same could not be treated as profit derived from the development of the housing project in question. All this resulted in the impugned disallowance of Rs.39,33,822/-.
The CIT(A) reverses Assessing Officer’s above action as under:
“4.3.2. I have carefully considered the contentions of the appellant summarizedin para above. As far as appellant’s contention that when the Act is silent regarding the condition which he Revenue has raised and as accepted by the Hon’ble Gujarat High Court in the case of Radhey Developers (supra), I don’t find any merit in it since in the later decision in case of Moonstar Developers (supra), the Hon’ble High Court has accepted that there is no requirement in the Act regarding utilization of FSI. Hence, this contention is rejected. Coming to other contentions of the appellant regarding compelling reasons for under utilization of FSI, it is found that the appellant was prevented by the various by laws which are applicable to tenement from utilizing maximum permissible FSI. The appellant has demonstrated that in case of tenement construction, utilization of maximum permissible FSI is not possible under any circumstances because of height restriction and unutilized FSI just remains on paper. In the case of CIT vs
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Moonstar Developers [2014] 367 ITR 621(Guj.), Hon’ble High Court have observed that if there are compelling reasons for under utilization of FSI, deduction cannot be denied on grounds of under utilization even if there is considerable under utilization. The observation of High Court is in para 31 which is as under:
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 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, the case may stand on a different footing. 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 thereunder, 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 non-utilization of the FSI.
In the subsequent decision of Hon'ble Gujarat High Court in case of Shreenath Infrastructure (supra), Hon'ble High Court have considered their own decision and have held that if there is marginal under utilization in range of 25-30%, the 80IB deduction cannot be disallowed on the ground of under utilization of FSI. The observation of High Court in para 4 is as under:
"4. In the present case, the facts are somewhat different. The assessee, in the process 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
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FSI would not be hit by disallowance of deduction under Section 80IB of the Act.” 4.3.3. In the case of the appellant, it has been demonstrated that about 32% of plot size in case of tenement cannot be utilized because of height restriction. In the example given by the appellant he has submitted that in case of 1000 Sq. Ft, plot, max. FSI permissible is 1600 Sq. Ft. But max. permissible construction in a tenement is only 1280 (400 GF+ 440FF + 440SF), it means 320 Sq. Ft cannot be utilized i.e. 32% of plot size. There are various other factors which lead to under utilization like size of common plot. In case the size of plot is more, the common plot size will be commensurately higher, which is turn lead to higher % of un- utilized FSI. The appellant has established that he was prevented by sufficient compelling cause in not utilizing FSI fully. As held by the Hon'ble Gujarat High Court decision in case of Moonstar Developers (Supra) and Shreenath Infrastructure (Supra) when the appellant was prevented from utilizing FSI fully, the proportionate deduction cannot be disallowed. In appellant's case even if we exclude this 32% from the permissible FSI, then the ratio of FSI underutilized to the utilized FSI is within the permissible limit as held by the Hon'ble Gujarat High Court’s in case of Shreenath Infrastructure (supra). In view of the facts of the present case and ratio of jurisdictional High Court, the appeal of the appellant is allowed and the disallowance made by the AO is deleted. The AO is directed to allow the deduction U/s 80IB(10) of the Act fully as claimed by the appellant.”
We have heard learned Departmental Representative strongly reiterating Revenue’s sole substantive plea seeking to disallow assessee’s Section 80IB(10) deduction claim on account of sale of unutilized FSI. There can hardly be any dispute about the hon’ble jurisdictional high court’s two decisions in Moonstar Developers and Shreenath Infrastructure (supra) adjudicate the instant issue of the impugned deduction in case of unutilized FSI. Learned CIT(A) himself is very fair in restricting their lordships’ ratio in “Moonstar’s case” that the instant issue of unutilized FSI; even if involving considerable under utilization has to be adjudicated in view of various special grounds involved i.e. such as height restriction because of special zone passing of high tension electric wires over head or any other similar ground. Their lordships’ latter decision in case of Shreenath Infrastructure (supra) upholds minor variation in FSI unutilized in the range of 25 to 30%. It emerges from the case file that learned CIT(A) thereafter observes that assessee’s case also falls in the above category since coming under height restriction. He nowhere proves in above extracted portion of the lower appellate order as to how the entire non utilization of FSI can be held to be a case of height restriction. There is no other clarification forthcoming in the case file which could
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indicate cogent material to treat assessee’s case as that of a common plot size having relatively higher non utilization of FSI beyond 32% because of height restriction as per the above hon’ble jurisdictional high court’s decisions. We therefore restore the impugned addition to the extent it pertains to 68% of the unutilized FSI. The Assessing Officer is directed to frame a consequential computation after affording adequate opportunity to the assessee.
This Revenue’s appeal is partly allowed. [Pronounced in the open Court on this the 22nd day of September, 2017.]
Sd/- Sd/- (PRAMOD KUMAR) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 22/09/2017 True Copy S.K.SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।