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I-T - Development of housing project does not qualify for full deduction u/s 80IB(10), where utilization of FSI is way short of permissible area of construction & assessee has not made any special ground for under utilization of FSI : HC

By TIOL News Service

AHMEDABAD, MAY 15, 2018: THE ISSUE BEFORE THE COURT is - Whether development of a housing project qualifies for full deduction u/s 80IB(10), where the utilization of FSI is way short of the permissible area of construction & assessee has not made any special ground for under utilization of the FSI. And the answer is NO.

Facts of the case:

The assessee partnership firm engaged in the development of housing project, had filed its return for the relevant AY and claimed deduction u/s 80IB(10) of the Act . Subsequently the AO took return in to security and observed that the assessee had developed three housing projects and had utilized about 20% or less of the permissible Floor Space Index (FSI) for construction. The AO further observed that substantial portion of assessee's profits was not derived from development of housing project but through sale of the unutilized FSI. Hence, the AO made disallowance on profits derived from the sale of unutilized FSI, by differentiating the same from the casual business activity of the asssessee. On appeal, both the CIT(A) and Tribunal took a contrary view.

High Court held that,

++ the assessee was in the process of developing three housing projects viz. Subhlaxmi, Samruddhi, Bhagyalaxmi. In such projects, considering the land area and the permissible FSI of 1.6, the assessee was entitled to carry out total construction of 20198 sq.mtrs, 11426 sq.mtrs and 13130 sq.mtrs respectively. As against this, the assessee had actually carried out construction of 4538.13 sq.mtrs, 2212.42 sq.mtrs and 2639.26 sq.mtrs respectively in these projects. That left unutilized FSI of 15659.87 sq.mtrs, 9213.58 sq.mtrs and 10490.74 sq.mtrs respectively. Thus, in each of the projects, the assessee had utilized about 20% or less of the permissible FSI. It was in this context that the AO 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 and following the same, Revenue's appeal is allowed. Judgement of the Tribunal and CIT (A) are reversed and that of AO is restored.

(See 2018-TIOL-917-HC-AHM-IT)