TaxTMI 
TaxTMI 
TaxTMI 
2014 (5) TMI 737
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....of the income tax Act at Rs. 1178,05,84,337. as against Rs.1352,32,97,397 claimed by the appellant. 3. Without prejudice, that on the facts and in the circumstances of the case, the learned CIT(A) erred in- law in confirming the addition of Rs.174,27,13,060/- holding the same to be excess deduction claimed rather than ignoring the same. 3. The revenue on the other hand has questioned the first appellate order on the following grounds:- Grounds of Appeal 1. That the Ld CIT(A) has erred in law and on facts of the case in admitting the letters/clarifications dated 18-1-2011 & 20-1-2011 issued by Ministry of Commerce as additional evidence and in taking cognizance thereof for holding that transfer of bare shell buildings by assessee to its co developer was a authorized operation ignoring the ) fact that as per sec. 9(2) only Board of Approval is empowered to grant approval of SEZ or authorized operations in the SEZ and not the Ministry of Commerce and the fact that I the above clarifications/ letters have no legal sanctity as these were not issued by the competent Authority of Board of Approval but by the Under Secretary and J. S, Ministry ( of Commerce respectively, who were not c....
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.... Act. 7. That the Ld CIT (A) has erred in law and on facts of the case in holding that the assessee is eligible for claim of deduction u/s 80lAS in respect of profits derived from transfer of built up space( bare shells buildings) completely ignoring that as per provisions of proviso to see u/s IAS (2) only income from transfer of operation and maintenance of SEZ is eligible for ded and not the profits derived from transfer of mere built up space( bare shells buildings) and such transfer of built up space is also against the -spirit of SEZ Act as provisions of section 11 (5) of the SEZ Act expressly prohibits sale of land or built up area in SEZ. 8. That the Ld CIT (A) has erred in law and on facts of the case in treating the solitary act of construction and transfer of built up space( bare shells buildings) as a business of developing, operation and maintenance of SEZ and thereby holding that assessee is eligible for deduction u/s 801AB. 9. In doing so, the Ld. CIT (A) has failed to appreciate the spirit of proviso to sec. 80lAS (2) that the moment the co developer transfers the operation & maintenance of SEZ to the co-developer, the ded u/s 80lAS would be available to the co d....
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....uch clarification because it had the effect of diluting the its claimer Clause which was added on behalf of CBDT". In support of this application for seeking permission to raise the additional ground, the Ld. DR submitted that the issue raised is legal in nature adjudication of which does not require fresh material outside the record is required to be considered. Hence, the same may be allowed. In this regard the Ld. DR referred the Annexure i.e. CBDT Clarification dated 26/5/2009 attached to the first appellate order. 5. The Ld. AR on the other hand opposed the application with the contention that the Ld. CIT (A) has already discussed the issue and the revenue should have raised it on earlier occasion. Considering this fact that the issue raised is legal in nature and adjudication of which does not need consideration of fresh material outside the record, we allow the application and the additional ground raised for our adjudication. Since the issue is connected with the allowability of the claimed deduction by the assessee u/s 80IAB we will discuss the issue raised in the additional ground while dealing with other connected grounds of the appeals about the eligibility of the dedu....
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....ere given by BOA (Board of Approval) time to time. The tax audit report u/s 44AB and report u/s 80IA (7) of the Act obtained before filing of its return of income for the year. In its audited profit and loss account, the assessee had declared development income of Rs.1677.45 crores against the cost of development shown at Rs.325.59 crores, land lease rent of Rs.1.31 crores and other income of Rs.20.33 crores. In the computation of income the assessee had claimed deduction of Rs. 1352.32 crores u/s 80 IAB of the Act against the development income earned during the year in respect of its SEZ project at Chennai. During the course of assessment proceedings, the AO observed that deduction claimed by the assessee u/s 80IAB in respect of profits derived from SEZ at Chennai was not admissible as the assessee sold the bare-shell buildings to the co-developer, namely DLF Assets Pvt Ltd (DAPL in short) which was not an authorized operation under the SEZ Act 2005 and the SEZ Rules, 2006. The AO held that in view of the provisions of Section 80IAB deduction of profit is allowed only from operation and maintenance of SEZ and not from the profit from bare shell of assets, which the assessee had e....
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....l of the assessee discussed above. The main issue involve in the grounds of the appeal preferred by the revenue is as to whether the Ld. CIT(A) was justified in giving relief of Rs.11,78,5,84,337/- towards the allowance of deduction made by the AO u/s 80IAB of the Act. 12. In its appeal the revenue has also questioned first appellate order involving the issues regarding admission of additional evidence i.e letters/ clarifications dated 18/1/2011 and 20/1/2011 issued by Ministry of Commerce and in taking cognizance thereof for holding that transfer of bare shell buildings by assessee to its co-developer was an authorized operation ignoring the fact that as per Section 9(2) only Board of Approval (in short BOA) is empowered to grant approval of SEZ and not the Ministry of Commerce. It was contended by the Ld. DR that the Ld. CIT(A) was not justified in observing that genuineness of the letters dated 18/1/2011 & 20/1/2011 was not disputed by the AO because the legal infirmity as pointed out was clearly mentioned in the remand report dated 30/5/2012. It was also submitted that it has been wrongly noted by the Ld. CIT(A) that the above stated additional evidence were already available ....
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....the moment the codeveloper transfers the operation and maintenance of SEZ to the co-developer, the deduction u/s 80IAB would be available to the co-developer for the remaining period in 10 consecutive years, meaning thereby right of developer to claim benefits of SEZ would cease on transfer of operation and maintenance of SEZ to co-developer. The Ld. DR contended further that the Ld. CIT(A) was also not justified in holding that the AO has no jurisdiction to challenge the validity of approval given by Ministry of Commerce ignoring the fact that approval given by BOA or Ministry of Commerce was not absolute but subject to condition that the treatment of income arising out of transaction of transfer of bare shell by assessee to co-developer would be decided as per relevant provisions of I.T Act, 1961. 13. The Ld. AR opposed the above contentions of the Ld. DR with this submission that additional evidence questioned in Ground No.s 1 to 5 i.e letters/clarification dated 18/1/2011 and 20/1/2011 issued by Ministry of Commerce was relevant for just and proper disposal of the issue and the Ld. CIT(A) has admitted the same after calling remand report of the AO. Having gone through the first....
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....consideration was not an authorized operation as per the SEZ Act. On receipt of assessment order, the appellant approached the Board of Approval (SEZ Section) for further clarifications, which were subsequently received. Therefore, the appellant had no opportunity to file these evidences during the course of assessment proceedings. These documents/evidences were, however, filed during the course of assessment proceedings for subsequent A.Y 2009-10. It is revealed on perusal of assessment order for A.Y 2009-10 passed on 30/12/2011 that these letters dated 18/1/2011 and 20/1/2011, being replied of the Board of Approval, were field by the appellant and duly discussed by deduction u/s 80IAB on the strength of a disclaimer contained in clause 3(XVII) of the approval letter dated 1/6/2009 issued by the Board of Approval to the Co-developer i.e. DLP Assets Private Ltd. The appellant has collected information under the Right to Information Act to explain the effect and consequence of such disclaimer . The Rule 46(A) provides that an assessee shall not be entitled to produce before the Commissioner of Income Tax (Appeals) any evidence whether oral or documentary other than the evidence prod....
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....by the Hon'ble Punjab and Haryana High Court in CIT Vs. Jind Co-operative Sugar Mills Ltd. (2011) (335 ITR 43) that, 'when the assessee files additional evidence before the CIT(A), it is not necessary that the CIT(A) must remand the matter to the AO but it depends on the nature of the evidence. The CIT(A) in appropriate case without prejudice to either party can look into the evidence itself. The spirit of rule 46A is founded on the principles of natural justice. In DCIT Vs. Dolphine MarQles Pvt. Ltd. (2011) 129 ITD 163 (JB) TM, it has been held that when CIT(A) had recorded the reasons for admission of additional evidence and had also given an opportunity to the AO to state his objections, if any, to admission of additional evidence and though AO had raised objection to admission of additional evidence, yet he had not stated anything about veracity of . additional evidence filed by assessee, there was no violation of the provisions of Rule 46A. The Hon'ble Orissa High Court in the case of B.L. Choudhury Vs. CIT (105 ITR 371) has observed that by the virtue of section 250, wide provision has been made conferring jurisdiction on the first appellate authority to make such....
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....ions; form integral part of the correspondence between Department of Commerce and Department of Revenue before granting the approval vide letter dated 01.06.2009, go to the very root of matter in deciding the eligibility or otherwise of the appellant's claim of deduction u/s. 80IAB of the Act and need to be taken into account in deciding major grounds of appeal. I find no rationality in the objection of the AO that these additional evidences cannot be 'admitted for being not in existence till completion of assessment. Such an objection would go against the spirit of the provisions of Rule 46A and section 250(4) of the Act. It is not the case that these evidences have been created after the completion of assessment. The note sheets in the file of Ministry of Commerce and copies' of letters showing correspondence between Department of Commerce and Department of Revenue did exist before completion of assessment and the clarifications have been issued based on the evidences already available in the file with the Board of Approval. In the light of facts discussed above, it is evident that the provisions of clause (c) and (d) of sub-rule (1) of Rule 46A are clearly attracted ....
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....gnoring the relevant considerations/factors such as other methods of determination of sale consideration, prevalent rate of such type of commercial properties in the area etc and thereby restricting disallowance to Rs.174.27 crore. The Ld. AR has pointed out that this issue is also covered by the decision of the Tribunal in the case of assessee itself for the A.Ys 2007-08 in ITA No. 2637/Del/12 a copy whereof has been made available at Page Nos. 1 to 46 of the paper book. The Ld. AR also submitted that assessee has followed the formula approved and referred in Para No. 2.9 at Page No. 130 of the paper book. He submitted further that the Ld. CIT(A) had called for a remand report from the AO in this regard, wherein he has accepted the formula as correct followed by the assessee to work capitalization. In this regard he referred page no. 164 of the paper book. 19. In support of Ground Nos. 12 & 13( Revenue's appeal) the Ld. DR has basically placed reliance on the assessment order. He contended that the Ld. CIT(A) was not justified in holding capitalization rate of 9.5% as reasonable ignoring the fact that formula of capitalization rate in the area of Chennai is 10.5%. He also impugne....
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....uences of such method in determining development consideration. It is also not a case, where reference can be made to the Departmental Valuation Officer (DVO) for determining the development consideration of bare shells u/s 142(1) without rejecting the books of account of the assessee (as the same has not been rejected by the AO). And since Section 55A is not applicable in the case of the assessee, it can also not be referred thereunder. Thus the Ld. CIT(A) in our view has rightly held the action of the AO in referring the matter to the DVO as misplaced. The Ld. CIT()A has also rightly not agreed with the contention of the AO that the Rent capitalization method adopted by the assessee is not prescribed or approved by any accounting policy or by any method of valuation of properties. Whereas the rationale behind Rent Capitalization Method is an intentionally accepted method of valuation of properties and has got legal recognition in Rule 3 of Schedule III of the Wealth Tax Act, wherein value of the property is determined on the basis of Net Maintainable Rent. 22. The Ld. CIT(A) has worked out value of development consideration on the basis of marketing of value of bare shell at Rs.....
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.... with the plea of the Ld. AR that following are the relevant point for consideration of the issue:- i. There was no dispute at the assessment stage regarding reasonableness of development consideration and the issue was raised only during appellate proceedings. ii. The development consideration was from one eligible business to another eligible business and both developer and co-developer were approved under SEZ Act for exemption u/s. 80IAB and as such there is no adverse revenue implication. iii. That entire income was derived from approved project and it is not open to have one income for assessment purposes and different income for granting exemption. iv. The development consideration is on the basis of approved formula laid down in the co-developer's agreement duly approved by Board of approvals. v. Income was on the basis of books of accounts and there is no dispute about genuineness of transaction or a case of rejection of books of accounts. vi. Average rent was not properly worked out as CIT(A) has disregarded car parking charges, which is independent source of income and not part of rent of premises and as such same cannot be disregarded. Further, adjustment of va....
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....s of SEZ Act 2005 and SEZ Rules, 2006. The related facts of Issue No. (a) are that the assessee in the business of developing, operating and maintaining real estate projects which included development of SEZs and all related infrastructure in accordance with the applicable laws and policies of the Govt. of India, had approached the Govt. of India to seek approval for setting up of a sector specific special economic zone (SEZ) for IT/ITES Sector on the land owned by it in Chennai, which was granted as a developer by the Deptt of Commerce (EPZ Section), Ministry of Commerce and Industry, Govt. of India vide approval letter F.2/124/2005-EPZ dated 22/6/2006 for setting up an IT/ITES Special Economic Zone on the said land owned by it. The authorized operations in respect of IT & ITES, SEZ proposed to be developed by the assessee were approved by the Govt. of India, Ministry of Commerce and Industry, Deptt of Commerce (SEZ Section), Udyog Bhawan, New Delhi vide its letter dated 29/8/2006 which inter alia included construction of office and commercial complexes not limited to bare shell facility and/ or fully furnished office space etc in the processing area of SEZ. The Govt. of India, Mi....
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....cer will have the right to examine the taxability of these amounts under the Income Tax Act.(Ground No. 10 of the Revenue's Appeal). The AO was of the view that the BOA for SEZ, has not been considered the income from specified transactions between developer and co-developer as examined from income tax and disallowed entire claim of deduction u/s 80IAB of the Act on the strength of the said disclaimer. The AO was of the view that the income from transfer of assets which was not stock-in-trade in the books of assessee, for a specific sale consideration to the co-developer, who became the absolute owner of the bareshells, was income chargeable under the head "capital gain" and not eligible for deduction us/ 80IAB. He held that the development income of assessee was nothing but future rentals as the valuation of bare shell buildings had been made by the assessee by rent capitalization method. The deduction u/s 80IAB was permissible for a period of 10 years and there was no provision for claiming the entire deduction in any one year, when the income was actually referable to future rentals of 49 years and hence the claim of deduction u/s 80IAB was admissible only to the extent of 1/49t....
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....ransfer of buildings (bare shell/cold shell buildings) against approved development charges/development consideration to the co-developer but the land infrastructure facilities etc continued to be owned and operated by the assessee company/developer. 28. To under stand the relevant facts in brief chronology of various events/approvals and important provisions of the SEZ Act summarized by the Ld. CIT(A) is being reproduced hereunder:- SI. No. Date Particulars 1 13.12.2005 The assessee filed an application before the Board of Approval, SEZ Section, Department of Commerce, Ministry of Commerce and Industry, Govt. of India for approval of IT/ITES Sector Specific Special Economic Zone at 1/124, Shivaji Gardens, Moonlight Stop, Nandampakkam Post, Ramapuram Chennai- Tamil Nadu. 2 22.06.2006 The assessee was granted approval as Developer by the Department of Commerce (SEZ Section), Ministry of Commerce & Industry, vide approval letter F. 21124 / 2005-EPZ for development, operation and maintenance of aforesaid SEZ. 3 29.08.2006 The authorized operations in respect of IT/ITES SEZ proposed to be developed by the assessee were approved by the (SEZ Section), Department of Commerce,....
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....with an option to renew the same on mutually acceptable terms and conditions on the expiry of the Lease in accordance with then extant laws and mutually acceptable terms and conditions). The lease rental shall be calculated on per square foot of leaseable area basis and the underlying land appurtenant thereto. 2.4 Co-Developer shall be entitled to use the said Property for carrying out the Co-Developer Operations. Pursuant to the completion of Buildings within the Project, the Co-Developer will be entitled to identify customers for occupying the built up Units within the Project and shall have the right to sub-lease the Units in the Project of part thereof, subject to execution and registration of the relevant sub-lease documentation. Upon identification of the customers, the Co-Developer will be entitled to recover rent and receive the necessary advances, deposits, etc. attendant to the sublease(s) so created by the Co-Developer." 3.4. The Co-developer shall be entitled to entrust the construction, modification, further development and provision of various facilities in the building thereby creating necessary infrastructure.............granted by the GOL 6.2.1 Subject to Clause....
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....of the agreement. In principle the department of commerce approved the revised co-developer agreement. Shri Raman Chopra, Director (ITA-i) CBDT vide letter dated 26/5/2009 addressed to Shri T. Srinidhi, Director, Deptt of Commerce, communicated the concurrence of CBDT with the proposal to prove the revised co-developer agreement in respect of the 4 co-developer agreements to DLF Assets Pvt. Ltd subject to inclusion of the disclaimer that the approval will have no bearing on tax treatment of income arising out of such transaction which will be decided as per the relevant provisions of the Income Tax Act, 1961 thereafter the approval letter was issued to DLF Assets Pvt. Ltd vide letter dated 1/6/2009, relevant clauses thereof read as under:- "(2) Your revised agreement dated 20th March, 2008 entered into with the Developer of the aforesaid sector specific ITIITES Special Economic Zone of DLF Info City Developers (Chennai) Limited for providing infrastructure and other common facilities shall form part of this approval. 3(xvii) Approval given by BOA for Co-Developer for particular terms and conditions of lease agreement will not have any bearing on the treatment of the income by way....
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.... and the provisions of Sub Section (5) and Sub Section (7) to (10) shall, as far as may be , apply to the said proposal made by such person or state Govt. As per Section 3(12), every person or a state Govt refer to in sub Section (11), whose proposal has been approved by the board and who, or which, has been granted letter of approval by the Central Govt, shall be considered as a co-developer of the Special Economic Zone. The powers and functions of the board of approval as per Section 9(2) (f) of the SEZ Act also include the power to invoke suspension of the letter of approval granted to a developer and appointment of an administrator under Sub Section(1) to Section (10). We thus find that by including a co-developer, the SEZ Act recognises and treats the co-developer at par with "developer" for all intend and purposes having equal status. Therefore, to hold a view that only one developer is responsible for developing, operating and maintaining a particular SEZ or that a SEZ cannot be transferred under the SEZ Act would be an incorrect interpretation. The letter of approval granted to either developer or a co-developer may be suspended for violation of any terms and conditions of ....
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....nnexure to the letter dated 29/8/2006 issued to the assessee and the list of authorized operations enclosed as annexure to the letter dated 19/6/2007 issued to the co-developer by the Board of Approval approving authorized operations revealing that all the authorized operations contained therein relate only to departmental activities required to be carried out for creation of infrastructural and other facilities for the purposes of developmental operation and maintenance of SEZs. The authorized operations are, therefore, required to be understood and constituted in the context of carrying out departmental activities coupled with availment of various duties and concessions. It is also pertinent to mention here that under Section 9(2) (b) of the SEZ Act, a Board of Approval has got over riding powers and empowered to grant approval of authorized operations to be carried out in the SEZ by the developer. To accommodate such powers of the Board of Approval, the notification dated 27/10/2006 contains a residuary clause and provides for such other operations which the board of approval may authorize from time to time. Thus we find that adverse inference drawn by the AO that the transfer o....
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....shall make payment of such amount as development consideration in favour of the developer as is agreed to between the parties. The above mentioned transfer and hand over is allowed in SEZ. We thus do not find substance in the finding of the AO that the transfer of bare shell by the assessee to the codeveloper was not an approved authorized operation, for the purpose of disallowing claim of deduction u/s 80IAB. There is no dispute that the codeveloper agreement dated 20/3/2008 was approved by both the department of commerce and Deptt of Revenue and this revised agreement forms integral part of the approval vide Clause (2) of the approval letter 1/6/2009 issued by the Board of Approval to the Co-developer (DAPL). The approval letter was issued after inclusion of a disclaimer as desired by CBDT vide letter dated 26/5/2009. Such approval was later discussed, confirmed and rectified in the 34th meeting of the Board of Approval held on 19/6/2009. Therefore, we fully agree with the finding of the Ld. CIT(A) that the contention of the AO that approval was given by 3 or 4 members of the same department is contrary to the facts and evidences on record when such approval stood rectified by th....
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....ter dated 1/6/2009 refers to the "Revised Agreement dated 20/3/2008" duly forming part of approval whereas the disclaimer is Clause 3(XVII) refers to "terms and conditions of lease agreement". The separate agreements for lease of land have been approved by the Board of Approval. Thus the various objections raised by the AO in the remand report dated 8/6/12 were devoid of any merit. Approval letter dated 1/6/2009 was issued by BOA to the Co-developer. Clause 3(xvii) of which is the main reason for entire controversy in the additional ground raised by the revenue to its appeal, para 3(xvii) of the approval letters date3d 14/2/2007 and 1/6/2009 issued to the co-developer are identically worded, pursuant to such conditions in the earlier approval letter dated 14/2/2007, the co-developer has already been granted approval of authorized operations vide letter dated 19/6/2007, which infact are also listed by the AO in his remand report. We thus fully agree with the finding of the Ld. CIT(A) that once the authorized operations were approved by the Board of Approval vide letter dated 19/6/2007, there was no further requirement of getting the same authorized operations approved again in terms....
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....o-developer has been duly approved by the BOP; the DAPL has been approved as a co-developer, the transfer of bare shell to the co-developer has been approved as an authorized operation by the BOP and the disclaimer contained in Clause 3(XVII) of the approval letter dated 1/6/2009 applies only to the lease of land as clarified by the Ministry of Commerce in the clarification dated 18/1/2011 and not to the transfer of bare shells. Noting these material facts we are of the view that the Ld. CTI(A) has rightly agreed with the plea of the assessee that the tax disclaimer condition mentioned in the co-developer approval is primarily to be in by the BOA in the approvals granted to put a curb on the wrong practice of leasing the land for long periods and receiving one time payment in the form of lease rentals/down payments/premium etc which tantamount to sale of land in the guise of long term lease. The assessee has obtained requisite approvals from the BOA in most transparent manner by disclosing not only development consideration but also the basis for determining the same. The entire controversy as to whether transfer of bare shell buildings to the co-developer was an authorized operati....
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....ave placed 'Developer' and the 'Co-developer at the same level i.e for Development (creating infrastructure facilities), maintenance and operations. It was in this context that SEZ BOA, under the aegis of Ministry of Commerce, approved conversion of 'bare shell' into 'warm shell by the Co-Developer as 'Authorized Operations' Page 21 para 5.15 Assessee received clarification from BOA/Government of India, Ministry of Commerce and Industry, Deptt of Commerce (SEZ Section), Udyog Bhawan, New Delhi dated 18/1/2011 & 20/1/2011 BOA in exercise of its statutory powers approved business model of the Assessee clarified that under Rule 11(9) 'sale of land' is not permissible in a SEZ. However Co- Developer can take land on lease from Developer for definite period. Further SEZ buildings i.e. bare shell/cold shell can be transferred and handed over to the Co-developer on payment of consideration to Developer, this transfer is permissible and authorized as per SEZ Act and Rules. The correspondence with the SEZ Authorities on this issue is placed on the P.B at Pages 122 to 130 and its contents are referred to by the ld. Counsel. Thus as per specific clarifications by BOA the transfer of bare sh....
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....rises Vs. Commissioner 2005-(189)ELT 135 (Trib. LB) approved by Hon'ble Supreme Court in 2008 (228) ELT 161 (SC); -Atul Commodities Pvt. Ltd. Vs. Commissioner of Customs Cochin 2009 (235) ELT 385 (SC); -M.J. Exports Ltd. vs. CEGAT 1992 (60) ELT 161 (SC); 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. Page 42 Para 9 The condition mentioned in Notification dated 27/10/2006 giving to assessing officer the right to examine the taxability of issue of 80IAB in the spirit of SEZ provision stands vindicated. Besides, we may hasten to add that apparently this rider appear to be made while approving the codeveloper agreement. This is possible 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. Page 46 para 9.5 Apropos the issue of sale of bare shell buildings being authorized activity, it is amply clear that the SEZ Act authorizes activities include construction of bare shell/cold shell/warm shell buildings and transfer thereof, BOA has approved it and clarified the same. There is ....