AI Drafter 
TaxTMI 
TaxTMI 
2014 (12) TMI 141
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....f constructed properties; developing, operating and maintaining real estate projects which, inter-alia, include development of a Special Economic Zone (SEZ) at Chennai. and other related infrastructural developments. The Tax Audit Report u/s 44AB and report u/s 80IA(7) of the Act obtained before filing of return, were filed before the AO during the assessment proceedings. In the audited Profit & Loss account, the assessee has declared development income of Rs. 1350.52 crores against the cost of development shown at Rs. 367.91 crores. The assessee has also shown Land Lease Rent, Lease rent from constructed properties and other Income during the year. In the computation of income, the assessee claimed deduction of Rs. 981.64 crores u/s 80IAB 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 Private Limited ("DAPL" or "Co-developer" hereinafter for short) which was not....
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....year. With these findings and observations made in the assessment order, the AO has disallowed entire claim of deductions of Rs. 981,64,29,656/- u/s 80IAB of the Act. Aggrieved with the order, appellant filed the present appeal". 3. On appeal before the First Appellate Authority, the Ld.CIT(Appeals) granted part relief. Aggrieved both the assessee and the Revenue are in appeal before us. 4. We have heard Mr.R.S.Singhvi, the Ld.Counsel for the assessee and Smt.Sudha Kumari, the Ld.CIT, D.R. on behalf of the Revenue. 5. The submissions of the Ld.Counsel for the assessee that all the issues arising in both these appeals are no more res integra, as the 'B' Bench of the Tribunal in the assessee's own case for the Assessment Year 2008-09 in ITA no.5469/Del/2012 and 5366/Del/2012 vide order dt. 21st Feb., 2014 has adjudicated the matter in favour of the assessee, which could not be controverted by the Ld.CIT, D.R. On a perusal of the papers on record, orders of the authorities below and the decisions of the Delhi 'B' Bench of the Tribunal in the assessee's own case, we hold that the issue is covered by the order of the Tribunal. 6. The Revenue has filed appeal on the following....
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....ommissioner of Income Tax (Appelas) has erred in law and on facts of the case in relying upon his judgement in the case of the assessee for the Assessment Year 2008-09 and accordingly holding the transfer of bare shells by assessee to its co-developer was an authorized operation on the ground that the agreement of assessee with co developer regarding transfer of bare shells for development consideration was approved by BOA ignoring the fact that such transfer was not an authorized operation as per Notification no. SO 1846 E dated 27.10.2006, that the BOA ;had only allowed such transfer subject to the condition that taxability of such transaction would be examined by IT authorities and also the fact that even the clarification dated 20.1.2011 only states that transfer of bare shells by assessee to its co developers is allowed and it no where says that it was an authorized operation eligible for benefits under the SEZ 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 80lAB in respect of profits derived from transfer of built up space( bare shells buildings) completely ignoring that as per provi....
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....nChennai is 10.5%. 13. That the Ld CIT (A) is not justified in determining development consideration of bare shells at Rs. 1312.71 cr and thereby restricting the disallowance u/s 80lAB to Rs. 37.82 cr ignoring the facts brought on record in the assessment order as well as facts mentioned in the remand reports. 14. That the Ld CIT (A) has erred in law & on facts in holding that the bare shell buildings transferred to co-developer was stock in trade as against capital asset treated by the AO ignoring the facts mentioned in the assessment order. 15. That the appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing of appeal." 7. The assessee has filed appeal on the following grounds. "1. That on the facts and in the circumstances of the case, the Ld.CIT(Appeals) has erred in law in holding that the fair market value of development consideration is Rs. 9100/- per sq feet as against Rs. 11109/- per sq feet claimed by the appellant and thereby restricting the deduction u/s 80 IAB of the Act at Rs. 6,525,543,300 as against Rs. 8,587,499,121 claimed by the appellant. 2. Without prejudice, the Ld.CIT(Appeals) erred ....
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....ia 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, Ministry of Commerce and Industries, Deptt of Commerce vide notification dated 27/10/2006 notified default authorized operation which inter alia included construction of office space. 26. The assessee company entered into a memorandum of understanding along with its addendum with DLF Assets Pvt. Ltd as a co-developer vide agreement dated 29/1....
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....n 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 bare-shells, 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 1/49th of the total development income received in any one financial year. The contention of the assessee on the other hand remained that the SEZ Act 2005 specifically allows of co-developer in the main developer and defines "co-developer' under Section 2 (f) of the SEZ Act 2005, as such in this definition, the Co-developer " is defined" as "dev....
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....nd 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, Ministry of Commerce & Industry. 4 16.11.2006 The lard admeasuring 13.292 hectares owned by the assessee at Nandampakkam Post, Ramapuram Chennai was notified in the Gazette of India vide Notification No. S.O. 1978 (E) dated 16.11.2006. 5 29.11.2006 The assessee entered into a Memorandum of Under....
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.... 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 8.2 below, Co-developer cannot at any time sell, alienate or transfer by any other means other than sub-lease any Unit or other space/land of SEZ to any third party ..... in any manner whatsoever. 8.1. The Co-developer shall be treated as owner of th....
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....f 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 of lease rentals/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 Inco....
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....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 codeveloper 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 codeveloper, 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 approval or for the reasons contained in Section 10(1) of the SEZ Act. In the present case, however, there is no dispute that no such case appears to either with the assessee or the DAPL so as to forfeit the status....
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....oving 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 of bear shells by the assessee to the co-developer was not a notified authorized operation in our view does not stand. The AO has neither sought any further clarification on this specific issue from the Boar....
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....nd substance in the finding of the AO that the transfer of bare shell by the assessee to the co-developer was not an approved authorized operation, for the purpose of disallowing claim of deduction u/s 80IAB. There is no dispute that the co-developer 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 Codeveloper (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 the Board of Approvals. 35. The only issue now remains to be decided is the facts and consequence of the disclaimer contained in Clause 3 (xvii) of the approval letter dated 1/6/2009 which the subject mat....
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....te 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 in-fact 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 of approval letter dated 1/6/2009. No further approval of transfer of bare shell was required since the agreement dated 20/3/2008 providing for transfer of bare shell to the co-developer for an agreed ....
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.... 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 onetime 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 codeveloper was an authorized operation has been set at rest by further clarifications dated 18/1/2011 and 20/1/2011 issued by the Ministry of Commerce. The BOA, being the statutory authority under the SEZ Act, has granted various app....
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....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 shell building on long term lease to approved co-developer are authorized activities under SEZ Act & Rules. Thus these clarifications also dispel the findings of CIT revising the asse4s....
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....mmissioner of Customs Cochin 2009 (235) ELT 385 (SC); -M.J. Exports Ltd. vs. CEGAT 1992 (60) ELT 161 (SC); 25 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 co-developer 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 codeveloper. 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 enough material on the record to hold that the transfer of bare shell buildings to co-developers constitute authorized activity. Thus,....
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....almost similar to the facts of the case in the case of DLF Info City Developers (Chennai) Ltd. (Supra). We thus following the decision taken on these issues in the case of DLF Info City Developers (Chennai) Ltd. (supra) decide the issues raised in the grounds and additional ground in the case of appeal preferred by the Revenue against the revenue and the same are rejected and the issue raised in Ground No. 2 of the appeal preferred by the Assessee is allowed. Ground No-1 raised therein is general in nature and Ground No. 3 thereof is an alternative ground to the issue raised in Ground No.2. 43. Consequently, appeal preferred by the Revenue is dismissed and that preferred by the Assessee is allowed. 44. In summary the appeals preferred by the assessee are allowed and those of the revenue are dismissed." 8.1. We respectfully follow the order of the Co-Ordinate Bench of the Tribunal in the assessee's own case. 9. The Ld.Counsel for the assessee further submitted that the issue arose for the first time in Assessment Year 2007-08. The Assessing Officer accepted the claim u/s 143(3) on the basis of approval granted by designated Board of Approval under SEZ Act. However, CIT s....