TaxTMI 
TaxTMI 
2013 (8) TMI 330
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....ng as an unauthorized operation under the SEZ Act. (iii) CIT failed to appreciate that admittedly Chennai SEZ was approved by the BOA and was duly notified in the gazette of India. (iv) While exercising revisionary power, CIT cannot sit over the judgment of the Competent Authority i.e. BOA disregarding it's approval and ordering the re-examination thereof. (v) CIT failed to appreciate that his objections related to lease of land only and is not related to any other unauthorized operation including handing over and transfer of bare shell buildings. The land has not been transferred by the appellant. (vi) CIT erred in holding that assessing officer granted deduction u/s 80-IAB without proper examination of the BOA approval in the co-developer agreement between the assessee and the co- developer. (vii) CIT erred in law in holding that the assessment order passed u/s 143(3) by assessing officer was erroneous as assessing officer allowed the claim u/s 80-IAB without any examination. (viii) CIT erred in law in passing 263 order without waiting for a remand report from which was called by him from assessing officer during the course of hearing on 6-3-2012. (ix) CIT erre....
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....ng of approval to the Developers or Units (other than the Developers or the Units which are exempt from obtaining approval under any law or by the Central Government) for foreign collaborations and foreign direct investments, (including investments by a person resident outside India), in the Special Economic Zone for its development, operation and maintenance; (d) granting of approval or rejecting of proposal for providing infrastructure facilities in a Special Economic Zone or modifying such proposals; (e) granting, notwithstanding anything contained in the Industries (Development and Regulation) Act, 1951, a licence to an industrial undertaking referred to in clause (d) of section 3 of that Act, if such undertaking is established, as a whole or part thereof, or proposed to be established, in a Special Economic Zone; (f) suspension of the letter of approval granted to a Developer and appointment of an Administrator under subsection (1) of section 10; (g) disposing of appeals preferred under sub-section(4) of section 15; (h) disposing of appeals preferred under sub-section (4) of section 16; (i) performing such other functions as may be assigned to it by the Centr....
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....the company in terms of Special Economic Zone Act, 2005 and Special Economic Zone rules, 2006. Vide another notification issued by the Ministry of Commerce and Industry dated 16-11-2006, an additional area of 34,384 hectors was notified and included as a part of Special Economic Zone. 4) After going through all the particulars of the case, the income as returned by the assessee is accepted. Interest u/s 234A, B,C & D is being charged in the ITNS which is part of this assessment order. Credit for prepaid taxes if any is being allowed. Requisite documents are being issued." 3.6. Thereafter, the CIT issued a notice u/s 263 dated 17-6-2011 proposing that in his view this assessment order passed by ACIT Gurgaon was erroneous insofar as it was prejudicial to the interests of the revenue, the same is placed on PB 56-57. CIT proposed the assessment order suffers from following errors: (i) The assessee has wrongly claimed deduction u/s 80IAB on sale of bare shell buildings as such sales cannot be equated with the activity of developing and maintaining the SEZ. (ii) Sale of Bare shell building is not an authorized operation. (iii) While approving the co developers agreement....
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....fficer to examine the taxability of these amounts under the Income Tax Act, 1961, The relevant portion of approval of the BOA conveyed through letter dated 01-06-2009 of the Director (SEZ Section), Department of Commerce, Ministry of Commerce and Industry (para xvii) is as follows: "Approval given by BOA for co-developers for particular terms and conditions of lese agreement will not have any bearing on the treatment of the income by way of lease rental/ down payment/premium etc. for purposes of assessment under the prevalent income tax Act and rules. The assessing officer will have the right to examine the taxability of these amounts under the income tax". 5. While section 80-IAB provides for deduction in respect of profits and gains from activities of developing, operating and maintaining SEZs, the assessee had claimed deduction under the said section on the receipt of sale proceeds of bare shell buildings and such sale cannot be equated with the activity of developing, operating and maintaining the SEZ. As a matter of fact, in terms of notification dated 27-10-2006 issued by the Ministry of Commerce and Industry, Govt. of India, sale of buildings, including bare shells, wa....
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....12. 9. Eventually, on 06.03-12 the representatives of the assessee appeared and made written submissions dated 06.03.12, and the hearing was adjourned 13.03.2012, after seeking some more details. The representatives of the assessee appeared and made partial submissions. Accordingly, the hearing was adjourned to 20.03.12, on which date the assessee made further submissions. Once again, fresh submissions dated 28.03.1.2 were received 011 28.03.12, and these included an opinion from Justice VN Khare (former CJI, India), apparently supporting claim of the assessee.' ' 10. In short, after the initial submissions-dated 25.07.11 there was a long hiatus in the proceedings due to several adjournments sought by the assessee from time to time. Only in recent weeks the assessee appeared and made detailed written submissions on several occasions, Including the last submission-dated28.03.12,-received on the same day. As these proceedings are getting time barred -bV3ioii2~there is little time to seek opinion of the assessing officer and take a considered view in the matter. 11. At the same time, I am satisfied that the assessment order dated 31.12.2009 for Asstt. Year 2007-08 is ....
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.... for assessee to do unless CIT desired more information or raised specific queries. Thereafter the CIT fixed the date of hearing on 6-3-2012 and asked the assessee to file a gist of written submissions and called the concerned assessing officer Shri D.S. Kalyan also for hearing. 4.2. On 6-3-2012 the assessee's representative and Sr. V.P. Taxation appeared before the CIT and filed the required gist of submissions. The assessing officer Shri D.S. Kalyan ACIT (OSD) Range-I, Gurgaon was also present. CIT asked him to file a report on the submissions of the assessee. The assessee was asked to give following documents: (i) Minutes of Board meeting, approving the sale of bare shell buildings; (ii) The techno financial basis for calculation of sale price. Hearing was then fixed for 13-3-2012 as the next date of hearing. 4.3. On 13-3-2012 the assessee's representative filed submissions as desired vide letter dated 13-3-2012. Only the minutes of the Board meeting could not be produced. The assessee was again asked to make further submissions, if any, by the CIT and the case was fixed on 20-3-2012. 4.4. On 20-3-2012 the assessee's representative appeared and filed w....
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....g officer and take a considered view in the matter. Section 263 casts a statutory obligation on the part of CIT to take a considered view in the matter. Section 263 does not postulates that CIT can take a view that the order passed by assessing officer as erroneous and prejudicial to the interests of revenue, without considering assessee's replies in response to his show cause notice. This action of the CIT while exercising power u/s 263 amounts to violation of the statutory provisions of revisionary power and on this count the CIT's 263 order deserves to be quashed. (vi) All the record was available with the CIT and there is no justification in giving a specious plea that the assessee's claim required careful and detailed examination which is not possible in few days available between last submissions received from the assessee on 28-3-2012. The plea is an eye wash, assessee expeditiously submitted all details which is evident from the letter dated 28-3-2012 itself. The same refers to earlier submissions dated 25-7-2011, 6-3-2012, 13-3-2012 and 28-3-2012. Therefore, the CIT has cleverly taken the final gist filed by the assessee to be the only submission filed befor....
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....ion (4)". (f) after section 80-IA, the following section shall be inserted, namely:- Deductions in "80-I AB. (1) Where the gross total income of an assessee, being a Developer, includes any profits and gains derived by an undertaking or an enterprise from any business of developing a Special Economic Zone, notified on or after the 1st day of April, 2005 under the Special Economic Zone Act, 2005, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to one hundred per cent, of the profits and gains derived from such business for ten consecutive assessment years." (2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which a Special Economic Zone has been notified by the Central Government: Provided that where in computing the total income of any undertaking, being a Developer for any assessment year, its profits and gains had not been included by application of the provisions of sub-section (13) of section 80-1A, the underta....
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....ed by sec 80IAB to eligible assesses on operations authorized by the BOA. The CIT by 263 order endeavors to redefine and review the operations held as Authorized by BOA. Thus in the garb of 263 order a new process of futile roving and fishing enquiries is attempted to be legitimized. 5.5. Sub rule (5) of rule 11 of SEZ Rules reads "The land or built up space in the processing area or free trade and warehousing zone shall be given on lease only to the entrepreneur holding a valid Letter of Approval issued under rule 19 and......" This implies that the SEZ Act bars transfer of built up space to the ultimate user to whom only lease of such space is permitted. On the other hand, the SEZ Act, by allowing the Co-Developer to enter into a project, recognizes and treat the Co-Developer at par with 'Developer' for all intent and purpose. If this be the case, i.e., the developer and co- developer are at par and have same status in SEZ Act and Income Tax Act, then any transaction, of any nature, between the two would be an 'Authorized Operation'. This contention is further strengthened from the fact that the sub-rule (5) of rule 11 of SEZ rules 2006 only imposes "a bar" on ....
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....l buildings would be part of the business of development of SEZ and would therefore constitute business income, on which deduction under section 80IAB of the Act would be admissible. 5.12. Fifthly the record of assessment, proceeding sheet, compliance, questionnaire and oral arguments before AO demonstrates that AO inquired the same and recorded his satisfaction in the Assessment order. A clear finding about considering the material and eligibility of deduction u/s 80IAB has been recorded. Clarifications by Board Of Approval 5.13. After a prolonged assessment proceedings and order u/s 143(3), the assessee was shocked to receive a notice u/s 263 proposing the allowability of claim to be erroneous and prejudicial to the interest of revenue. Consequently assessee reverted back to the Board of Approval under SEZ Act and sought specific clarifications in this behalf. 5.14. By letter dated 10.01.2011 and 18.01.2011 assessee sought these regarding long term lease of land by Developer to Co-Developer; transfer and handover of bare shell/cold shell buildings to co-developer for converting the same into warm shell; leasing of warm shells to approved units by co-developer etc to b....
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.... 5.19. Ld CIT alleged following errors in the order of assessing officer, which are prejudicial to the interests of revenue: (i) Section 80-IAB provides for deduction in respects of profits and gains from activities of developing, operating and maintaining SEZ whereas the assessee has claimed deduction on sale proceeds of bare shell buildings. Such sale cannot be equated with the activity of developing, operating and maintaining of SEZ. The notification dated 27-10-2006 issued by the Ministry of Commerce & Industries, Govt. of India contemplates that this is not an authorized operation of the SEZ. (ii) BOA approval dated 1-6-2009 was conditional in following terms: "Approval given by BOA for co-developers for particular terms and conditions of lese agreement will not have any bearing on the treatment of the income by way of lease rental/ down payment/ premium etc. for purposes of assessment under the prevalent income tax Act and rules. The assessing officer will have the right to examine the taxability of these amounts under the income tax". The assessing officer has allowed the claim u/s 80-IAB without any examination thereof as stipulated in BOA approval and the co- d....
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....ding with the Co-Developer M/s DLF Assets Pvt. Ltd. dated 29th Nov, 2006. (copy enclosed at paper book pages 21-48) (v) Copy of Letter dated 14th Feb, 2007 issued by Govt. of India, Ministry of Commerce and Industry Department of Commerce (SEZ section) Udyog Bhawan, New Delhi to M/s DLF Assets Pvt. Ltd., as a Co-Developer approving the MOU. (copy enclosed at paper book pages 54-57) (vi) Copy of Letter dated 19th June, 2007 issued by Govt. of India, Ministry of Commerce and Industry Department of Commerce (SEZ section) Udyog Bhawan, New Delhi being the approval of authorized operations of the Co-Developer. (copy enclosed at paper book pages 58-59) (vii) Copy of definitive Co-Developer Agreement dated 20th Mar, 2008. (copy enclosed at paper book pages 60-117) (viii) Copy of Letter dated 1st June, 2009 issued by Govt. of India, Ministry of Commerce and Industry Department of Commerce (SEZ section) Udyog Bhawan, New Delhi being the approval to the Co- Developer Agreement. (copy enclosed at paper book pages 118-121) 6.1. These documents contain following agreements placed before the Board of Approval while considering & approving the operations of assessee:- a) Co-Deve....
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....y assessee. Rights are to be relinquished whether it is a sale of stock in trade or it is transfer of a capital asset, criterion of relinquishment of rights is not decisive to convert the nature of transfer of business stock in trade into capital gains. Reliance is placed on following judgments: - CIT Nagpur vs. Sutlej Cotton Mills Supply Agency Ltd. 100 ITR 706 (SC); - Raja Bahadur Visheshwar Singh (Deceased ) & Others Vs. CIT, Bihar & Orissa 41 ITR 685 (SC) - Dalhousie Investment Trust Co. Ltd. vs CIT(Central) Calcutta 68 ITR 486 (SC) - Fidelity Advisor Series VIII, In re 271 ITR 1 ARA 6.7. Reference is also invited to circular no. 4/2007 dated 15.06.2007, in which the CBDT has issued instructions to the Assessing Officers to follow the guideline for determining the head of Income after considering the following Supreme Court Judgments:- - CIT (Central), Calcutta vs. Associated Industrial Development Co. (P.) Ltd. (1971) 82 ITR 586 (SC) - CIT (Bombay) Vs. Holck Larsen (1986) 160 ITR 67 (SC) - (AAR) 288 ITR 641 6.8. Reference is invited to following provisions: (i) 'business' u/s 2(13) of the Income Tax Act which reads as under:- 2(13) "busine....
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....so does not make order erroneous as long as a possible view is taken by him. Therefore, the impugned assessment order can neither be held as erroneous nor prejudicial to the interests of revenue. If view taken by AO is a possible view the same cannot be revised u/s 263 merely because CIT may hold another possible view: 6.11. Ld. Counsel contends that in law and on facts, the impugned assessment order is valid and tenable as per canons of law in so far as it allows deduction under section 80 IAB after due verification thereof. The view taken by AO on admissibility of deduction u/s 80IAB is a possible and plausible view. In any event, the issue of admissibility of claim of deduction under section 80IAB of the act assuming the worst, can at best be regarded as debatable one as CIT holds another possible view. The assessing officer, having taken a possible and plausible view, jurisdiction under section 263 of the act is ousted and the order would neither be called as erroneous nor prejudicial to interest of revenue; this proposition has been laid in settled way the courts by a catena of judgments. (i) The Hon'ble Supreme Court has specifically held in the case of Malabar I....
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....iries have not been conducted by assessing officer about the claim of allow ability u/s 80-IAB. In the notice it is proposed that transfer is liable to be capital gains and not as business income though this issue is abandoned by him while passing the order. Issue about lack of enquiry and inadequate inquiry: 6.13. It is pleaded by ld counsel that the assessment record, notice u/s 143(2), 142(1), questionnaire, pleadings, submissions and assessment order all together clearly demonstrate that requisite enquiries were conducted by AO while allowing the assessees claim u/s 80IAB. Assuming but not admitting in worst scenario CIT may assume that inadequate inquiries were conducted. On this count also Hon'ble Delhi High Court has repeatedly held that revisionary powers u/s 263 cannot be exercised if CIT is of the view inquiries made by AO were inadequate. Reliance is placed on (i) CIT vs. Sunbeam Auto Ltd. 332 ITR 167 (Del.) In the case of CIT vs. Sunbeam Auto Ltd., it was held by Hon'ble High Court of Delhi that where the A.O. had made an enquiry before completion of assessment, the same could not be set aside for reason of 'inadequate' enquiry. The AO had ca....
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....e is due enquiry by the assessing officer ,though it has been considered to be inadequate by the CIT, recourse u/s 263 cannot be made. Accordingly, it is submitted that the initiation of revision proceedings under Section 263 of the IT Act being to take another possible view about allowability of deduction and adequacy of enquiries is unsustainable and contrary to authority of law and the same is directly contrary to the law laid down by the said two Hon'ble Supreme Court judgments in the case of Malabar Industrial Company Ltd. vs. CIT, CIT vs. Max India Ltd and other Delhi high court judgments on these issues (supra). 6.14. The entire transaction i.e. activity of transfer of bare shell buildings by developer to co developer including the documentation of the same has been approved by BOA under SEZ Act. In such circumstances there is no scope for presuming that such activity is not an authorized activity. Consequently, the interest of revenue as expressed by BOA while approving the co developers agreement has been taken care of by assessing officer by examining the allow ability of deduction u/s 80IAB of the Income-tax Act. It is not open to the CIT under section 263, to ....
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.... the power of revision under the Act cannot have any jurisdiction to question the validity or the legality of the authorized operations which have been approved by the Regulatory body of the Central Government i.e. BOA and attempt to dispute the same is contrary to the statutory provisions of the SEZ Act. 6.17. The assessee has not sold the land in favour of the co-developer as wrongly alleged by CIT. As the record demonstrates assessee only leased out the bare shell buildings in favour of co-developer. The transfer or the leasing of bare shell buildings comes within the purview of authorized activities and the co-developer agreement having been approved by the BOA, the income tax authorities have to allow the deduction u/s 80-IAB. As per the settled propositions of law in case BOA are appointed by the Central Government in various fields of giving benefits like SEZ, Customs and various other fiscal legislation, the income-tax authorities cannot sit over the judgment of the BOA. By catena of judgments the courts have held that the approvals accorded by such regulatory boards in development schemes cannot be questioned by tax authorities. Reliance in this behalf is placed on: ....
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....s 263 is bad in law. (ii) The assessee's agreement with co-developer is approved by the BOA. The activity of transferring bare shell buildings is only an authorized activity as certified by the BOA itself and the annexure attached to the notification. (iii) The assessee has not sold any land but only transferred the bare shell buildings on lease. Therefore, there is no error as pointed out by ld. CIT. (iv) The assessing officer has conducted proper inquiries which is evident from proceedings sheets; letters; questionnaire; assessee's response and detailed notes submitted on eligibility u/s 80-IAB. Thus assessing officer's order is neither erroneous nor prejudicial to the interests of revenue. 6.21. In view of these facts and circumstances it is pleaded by ld counsel that the impugned 263 order passed by the CIT may be quashed. 7. Ld. CIT (DR), on the other hand, supported the order of CIT u/s 263 and contends as under: (i) The assessing officer's order is very short and does not spell out any reason for allowing relief to the assessee. (ii) The record does not reflect that proper inquiries were conducted, except a casual reference to his being s....
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....feels that the order is erroneous and prejudicial to the interest of the revenue, the Commissioner may pass revisional orders. If, on the other hand, the Commissioner is satisfied, after hearing the assessee, that the orders are not erroneous and prejudicial to the interest of the revenue, he may choose not to exercise his power of revision. 8.1. The judgment mandates that the assessee must be called, his explanation sought for and examined by the Commissioner and if, on the other hand, the Commissioner is satisfied, after hearing the assessee, that the order is not erroneous and prejudicial to the interest of the revenue, he has an option not to exercise his power of revision. In this case the BOA clarified the transfer and co-developer agreement to be an authorized activity, referring to the documents already filed with assessing officer. These clarifications are relevant. In view of Hon'ble Delhi High Court judgment in the case of Vikas Polymers, CIT ought to have considered them along with written submissions, assessing officer's report and record. After due consideration thereof and application of mind, power u/s 263 should have been exercised. 8.2. This is for t....
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.... add that apparently this rider appear to be made while approving the co- developer agreement. This is possibly applicable to co-developer and not the assessee as the condition was put during the course of approval of the agreement between assessee and the co-developer. Be that as it may, in any case, the assessing officer having considered all these pleading and submissions, it cannot be held that he did not examine the allowability of the claim by proper inquiry. Therefore, we do not find any substance in this finding. Thus, in our considered view the assessment neither suffers from the lack of inquiry nor any error on this count. 9.1. The Hon'ble Delhi High Court in the case of Anil Kumar Sharma (supra), makes a difference between lack of inquiry and inadequate inquiry. In any case this is not a case of lack of inquiry. The order does not become erroneous only because the CIT in his view holds that inadequate inquiries, were conducted. More particularly, in this case, where the CIT himself admits that he is not able to consider the material available on record due to lack of time. 9.2. Apropos lack of time, it is observed that we find no fault attributable to assessee ....
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....on of figures of interest. This judgment refers to a different set of facts and partly sets aside the revision to CIT with further conditions and as the ITAT's consideration of bifurcation at appellate level was found to be not appropriate. In contradistinction, in the case before us there are no such complex issues. The issue is limited i.e. whether 80-IAB claim was considered by the assessing officer or not. We have already held that it clearly emerges from assessment record that relevant queries were raised by assessing officer, detailed submissions, developers and co-developers agreements were filed, justification of 80-IAB claim as provided by the assessee and the nature of debts owed by DLF Assets consequent to such transfer was also asked for by assessing officer. In our considered view, the ratio of this judgment also does not apply to assessee's case. (iii) CIT Vs. Harsh J. Punjabi (2012) 345 ITR 451 (Del.) - In this case the issue pertains to inquiry into the allowability of commission of Rs. 3.33 crorres debited to the P&L A/c. No bifurcation of commission about Chennai and Gurgaon unit by assessee, though the commission was paid to the same parties. Both t....