Facts of the Case
Facts in brief are that the assessee is engaged in the business of real estate development, construction of building and slum rehabilitation. During the year under consideration, the assessee undertook construction of tenements under Slum Rehabilitation Scheme of the Government of Maharashtra (‘the said Scheme’ in short) so as to enable the State to provide shelters to slum dwellers, for which consideration was paid in the form of FSI. The FSI thus awarded as consideration for the construction activities undertaken under the said Scheme could either be utilized for construction of sale buildings on situ (on the same plot), or sold in open market as such, or in the form of Transferable Development Rights (‘TDR’ in short). During the year under consideration, the assessee had claimed deduction u/s, 80- IB(10) of the act which was arrived at after reducing the cost involved in the construction of rehabilitation buildings from the consideration received for the FSI granted by the State and which was sold to third parties as permitted under the said scheme. However, AO declined assessee’s claim of deduction on the plea that the profit claimed as deduction u/s 80-IB(10) of the Act was not derived from the housing project but from sale of unutilized FSI. For arriving at his conclusion the AO has relied upon the judgment of Hon’ble Supreme Court in the case of Liberty India vs. CIT (317 ITR 218) and Hon’ble Gujarat High Court in the case of CIT vs. Moon Star Developers (367 ITR 621).
The AO further observed that since the FSI sold formed part of the project under development, the project could not be said to be completed and, therefore, deduction u/s. 80-IB(10) of the Act was not allowable.
As per AO since the FSI sold to each of the persons mentioned in paragraph 2.1.5 of the assessment order was in excess of 1000 sq. ft there was violation of S. 80-IB(10)(iii)(c) of the Act. It was also observation of AO that the persons to whom FSI was sold were closely related with the assessee and, therefore, it was sold with intention to defraud the revenue, wherein the FSI was sold at very high rates so as to avail excessive deduction u/s.80-IB(10) of the Act.
Held by ITAT
The tribunal held that consideration received for sale of unutilized FSI is eligible for claim of deduction u/s.80IB(10). The provisions of S. 80-IB(10) of the Act did not mandate that for the purpose of availing the benefit, the assessee should construct the tenements on the strength of the FSI received as consideration, however the assessee has a liberty to sell them off for monetary value and then find out the profit so as to make it ‘derived from’ the housing project.
Now coming to the objections of the AO to the effect that FSI sold to each of the person was in excess of 1000 sq.ft was misconceived as this limitation is for the constructed tenements and not for sale of FSI. Also, none of the parties was closely associated with the assessee, as assumed by AO and with regards to the observation that FSI sold was at inflated rates, it was found that all the sales were at ‘arm’s length’. Hence, such profits are eligible for deduction u/s.80IB(10). Therefore, the appeal of the assessee is allowed.