High Court directs ITAT to re-examine compliance with Industrial Park Scheme & eligibility for deductions

The High Court directed the ITAT to re-examine compliance with the Industrial Park Scheme, eligibility for deductions under Section 80IA(4)(iii), number of tenants, and allocation of space. The Tribunal was tasked with verifying if the industrial park met scheme conditions and the functional test. The matter required a fresh examination by the AO to establish factual findings. The appeals by the Revenue were allowed for statistical purposes, and cases were restored to the AO for detailed examination.

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Issues Involved:

1. Compliance with conditions laid down in the Industrial Park Scheme, 2002.
2. Eligibility to claim deduction under Section 80IA(4)(iii) of the Income Tax Act.
3. Number of tenants in the industrial park.
4. Allocation of more than 50% of the total allocable area to a single tenant.

Detailed Analysis:

1. Compliance with Conditions Laid Down in the Industrial Park Scheme, 2002:

The Hon'ble High Court directed the ITAT to determine whether the assessee had complied with the conditions of the Industrial Park Scheme, 2002. The Tribunal's previous order was found to be "cryptic" and lacking in factual findings regarding the assessee's fulfillment of the scheme's conditions. The High Court quashed the Tribunal's order and mandated a fresh examination with detailed reasons.

2. Eligibility to Claim Deduction under Section 80IA(4)(iii) of the Income Tax Act:

The High Court instructed the ITAT to ascertain the eligibility of the assessee to claim deductions under Section 80IA(4)(iii). The Tribunal needed to verify if the assessee met the conditions stipulated in the scheme and the relevant notifications. The Tribunal's task was to ensure that the assessee adhered to the terms of the Industrial Park Scheme, 2002, and the CBDT Notification No.212/2007.

3. Number of Tenants in the Industrial Park:

The Assessing Officer (AO) denied the deduction on the grounds that the industrial park had only three tenants instead of the required four. The AO's physical verification revealed that only two companies occupied the premises, while the six-monthly return (IPS-2) listed three companies. The CIT(A) and Tribunal had previously allowed the deduction, but the High Court's directive necessitated a re-examination of whether the industrial park indeed had four independent functional units.

4. Allocation of More Than 50% of the Total Allocable Area to a Single Tenant:

The AO also denied the deduction because one tenant, M/s I-Flex Solutions, occupied more than 50% of the total allocable area. The Tribunal had to determine if the assessee's arrangement violated the condition that no single unit should occupy more than 50% of the allocable area. The assessee argued that M/s I-Flex Solutions occupied three separate units, each less than 50% of the allocable area, which needed factual verification.

Factual Findings and Functional Test:

The Tribunal referred to the jurisdictional High Court's decision in CIT v. M/s. Primal Projects Pvt. Ltd., which laid down the "functional test." This test assesses whether each unit can function independently with separate facilities, instrumentation, power connection, and door number. The Tribunal needed to verify if the assessee's units met this functional test.

Conclusion and Directions:

The Tribunal concluded that the matter required a fresh examination by the AO to establish the factual findings. The AO was directed to verify if the five floors of the industrial park were independent and separate units as per the functional test. The assessee was instructed to cooperate with the revenue authorities for an expeditious resolution.

Outcome:

The appeals filed by the Revenue were allowed for statistical purposes, and the cases were restored to the files of the AO for a detailed factual examination.

Order Pronouncement:

The order was pronounced on the 10th day of August, 2021.

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