Commissioner of Income Tax-I vs Sahajanand Developers

K.S. Jhaveri, J.—By way of this Appeal, the appellant has challenged the judgment and order of the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench "Camp at Baroda" dated 07.11.2008 in ITA No. 2637/Ahd/2008 for the Assessment Year: 2005 - 2006.

Learned Counsel for the appellant has posed the following substantial questions of law for consideration:-

"[A] Whether, on the facts and circumstances of the case, the Tribunal was right in law in allowing deduction u/s. 80IB(10) r.w.s. 80IB(1) to the assessee when the approval by the local authority as well as completion certificate was not granted to the assessee but to the landowner and the rights and the obligations under the said approval were not transferable, and when the transfer of dwelling units in favour of the end-users was made by the landowner and not by the assessee?

[B] Whether, on the facts and in the circumstances of the case, the Tribunal 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 not being the element of profits derived from the business activity of development and construction of the housing project relating to the sale of tenements?"

The facts which give rise to this Appeal are as under:- The assessee is a partnership firm and engaged in the business of developing and building housing project. The returns of income was filed on 25.10.2005 declaring Nil income. The return of income was accompanied with audit report in the form 3CD and 3CB as required u/s. 44AB of the Act. The case was selected for scrutiny and notice u/s. 143(2) of the Act was issued. Subsequently, a notice u/s. 142(1) was issued and served upon the assessee calling for certain information and fixing the hearing on 26.10.2007. In response to the notice, the Chartered Accountant and Authorized Representative of the assessee attended from time to time and furnished the details called for, which were verified and kept on record. During the year under assessee, the assessee firm had constructed housing project and shown total net profit at Rs. 22,75,953/- as having been derived from the development and building of the housing project. Deduction u/s. 80IB(10) The assessee had claimed deduction u/s. 80IB(10) at 100% of its gross total income on the plea that it derived income from the business of an undertaking developing and building housing projects approved by the local authority within the meaning of Section 80IB(1) r.w.s. 80IB(10) of the Act. The Assessing Officer found that the approval of the local authority in this case was not given to the assessee but it was given to the landowner with whom the assessee had entered into what is termed as a development agreement for the construction of the housing project, and accordingly the Assessing Officer disallowed this deduction. Profit attributable to the sale of unutilized FSI During the course of assessment proceedings, the Assessing Officer observed that the assessee had not fully utilized the permissible FSI available, as per the approval of Municipal Corporation. The un-utilized FSO was unexploited for the purposes of development and construction of housing project thereupon. In view of this, it was inferred that as no further construction was carried out by the assessee, the un-utilized FSO disposed of by the assessee alongwith the tenements to the prospective buyers had fetched profits for the assessee firm in addition to the profits derived from business activity of construction contracted by him with the land owners. There the composite figure of profits declared in the accounts of the assessee and pertaining to the projects, has in its fold two elements of profit sources embedded within it - firstly, the element of profits derived from the business activity of development and construction of the said housing project relating to the sale of tenements and second the element of profits derived from the sale of un-utilized FSI relating to the units sold by the assessee. Whereas, assuming without admitting that despite not being the owner, the assessee firm is entitled to deduction u/s. 80IB(10), the element of profits derived from the business activity of development and construction relating to the sale of tenements are entitled to deduction u/s. 80IB(10), the element of profits derived from the sale of unutilized FSI, relating to the units sold by the assessee is undoubtedly beyond the ambit of the provisions of section 80IB(10) and in the fitness of things having regard to the import of the provisions of section 80IB(10), deduction under the said section was not available to the assessee. The issue emerges is the profits derived from the sale of FSI not becoming the subject matter of deduction u/s. 80IB(10). On appeal by the respondent - assessee, CIT(A) deleted the addition drawing a parallel from the case of Commissioner of Income-Tax v. Radhe Developers decided by the ITAT (Ahmedabad), which has now attained finality as the appeal of revenue is dismissed and reported in 341 Income Tax Reports 413. The Appellate Tribunal relying on the case mentioned herein above endorsed the view of the CIT(A).

We have heard learned Advocate for the appellant and perused the records of the case. We are of the view that the above question is now governed by the decision of this Court in the case of Commissioner of Income-Tax v. Radhe Developers (supra). Relevant part of the Judgment reads as under:-

"(ii) That the assessees had, in part performance of the agreement to sell the land in question, been given possession thereof and had also carried out the construction work for development of the housing project. A combined reading of section 2(47)(v) of the Act and section 53A of the Transfer of Property Act, 1882, would lead to a situation where the land would for the purpose of the Act be deemed to have been transferred to the assessees. In that view of the matter, for the purpose of income derived from such property, the assessees would be the owners of the land for the purpose of the Act although title in the land had not yet passed on to the assessees and would pass only upon execution of a duly registered sale deed. For the limited purpose of deduction under section 80-IB(10) of the Act, the assessees had satisfied the condition of ownership also, even if it was necessary.

In the aforesaid circumstances, when the questions of law posed in this Appeal has already been answered by this Court, we are of the view that there is no point in admitting this Appeal. Hence, this Tax Appeal deserves to be dismissed.

The questions posed having already being answered in favour of the assessee and against the Department, this Appeal fails at this stage itself.