TaxTMI 
TaxTMI 
TaxTMI 
2017 (10) TMI 1207
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....uction under section 80IAB has been allowed on similar set of facts and grounds. Even the Ld. CIT (A) has followed the order of the Tribunal and Assessing Officer also has relied upon his predecessor's order. He pointed out that in the grounds of appeal also, the Revenue has stated that the Tribunal has failed to appreciate the proviso to section 80IAB(2), which means that the Revenue is aggrieved by the order of the Tribunal for earlier assessment years. 4. On the other hand, the ld. CIT (DR), Ms. Rachna Singh, filed a detailed written submission before us to highlight the Revenue's stand on the issues involved. 5. The brief facts are that the assessee-company was incorporated on 17/3/2005 for the purpose of the business of developing, operating and maintaining real estate projects which inter-alia included development of Special Economic Zone (SEZ) and related infrastructure. During the year, the assessee has declared an income of Rs. 369.99 crores against the cost of Rs. 167.47 crores. Besides development income, land lease rent and other income were also shown. The assessee in its return of income has claimed deduction under section 80IAB amounting to Rs. 202,52,07,111/- in r....
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.... of the assessee for deduction under section 80IAB is admissible to the extent of 1/49th of the total development income received in one financial year and accordingly, worked out disallowance at Rs. 202,52,07,111/-. 6. Before the ld. CIT (A), assessee has made detailed submission giving the entire background of the claim as well as orders of the Tribunal for earlier assessment years. The ld. CIT(A) has highlighted the following relevant facts qua this issue which, for the sake of ready reference, are reproduced hereunder:- "15. The main issue involved in the grounds of appeals preferred by the appellant is as to whether the relief was allowable for the claim of deduction u/s 80IAB of the Act at Rs. 202,23,69,951/-.The relevant facts are that the appellant during the year had been engaged in the business of developing, operating and maintaining real estate projects which inter alia included development of SEZs and all related infrastructure in accordance with the applicable laws and policies of the Government of India. The appellant company had ownership, leasehold rights and was in possession of land ad-measuring 17.40 hectares equivalent to 43 acres situated at 1/24 Shivaji Ga....
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....ed within the project. Several correspondences were entered into and approval was given by BOA (Board of Approval) from time to time. 19. The tax audit report u/s 44AB and report u/s 80IA (7) of the Act was obtained by the appellant, before filing of its return of income for the year. In its audited profit and loss account, the appellant had declared development income of Rs. 369.99 Crores against the cost of development shown at Rs. 167.47 Crores, land lease rent of Rs. 0.64 crores and other income of Rs. 98.33 Crores. In the computation of income the appellant had claimed deduction of Rs. 202,52,07,111/- 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 appellant u/s 80IAB in respect of profits derived from SEZ at Chennai was not admissible as the appellant 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 allow....
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....ecause the deduction U/s 80 IAB of the Act is available for development, operation and maintenance of SEZ while the appellant has developed and transferred the cold shells to the co-developer for a consideration. The AO has also held alternatively that the transfer of the assets gives rise to capital gains and her stand still remains the same irrespective of these clarifications. Therefore, the A.O. following the order of the AO for the earlier years has observed and held that the income for the instant year emanating from the development of SEZ was in the nature of profit accruing to the appellant from the sale of assets and thus not an authorised activity under the SEZ Act and consequently not eligible for deduction U/s 80IAB of the Act. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 43. As stated earlier I have perused the appellate orders passed by my predecessor for the AY 2008-09 vide order dated 14.08.2012 in Appeal NO.154/GGN/2010-11 as well as for the AY 2009-10 vide order dated 27.12.2012 in Appeal No.504/GGN/2011-12 and also pursued the facts of the case, analysis of the submissions of the appellant, documents on record, as well as the order of the Hon'bl....
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....properties. The estimates of the saleable area and costs are reviewed periodically and effect of any changes in such estimates is recognized in the period such changes are determined. However, when the total project cost is estimated to exceed total revenues from the project, the loss is recognized immediately. Lease rent is recognized in accordance with the terms of the Co-developer agreements on accrual basis." 50. The appellant has submitted that the Cost of development includes estimated internal development costs, external development charges, construction costs and development/ construction materials, which is charged to the profit and loss account based on the percentage of revenue recognized as per accounting policy, in consonance with the concept of matching costs and revenue. Final adjustment is made on completion of the applicable project. It has been pointed out that there has been no change in the method of accounting during the year under appeal in comparison to earlier years. In support, the appellant has furnished the operational figures as follows:- Sr. No. Particulars A.Y, 2010-11 A.Y. 2009-10 1 Revenue from Operation 369.35 1350.53 2 Cost W....
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.... IAB, that in alternative the income of the appellant shall constitute capital gains on the reasoning that it had transferred bare shells as an asset in the SEZ. The observations of the Ld. A.O. lack merit as work in progress in the business of construction cannot be treated as capital asset. Section 2(14) of the Income Tax Act specifically excludes stock in trade from the definition of asset. Thus, development income derived by the appellant from transfer of bare shell buildings in SEZ cannot be treated as short term capital gains, considering the business of developer and accounting treatment adopted in the books of accounts irrespective of the treatment by the co-developer in its books of account as fixed assets. Therefore, I am of the view that observations of the A.O. are not on sound footing in holding that the income can be assessed as capital gains. 56. In view of my above observations, which find support from the order of my predecessor for the AY 2008-09 & 2009- 10, as well as of the Hon'ble ITAT for the AY 2007-08 and 2008-09, it is held that the profits derived on account of development consideration of bare shells would constitute the 'profits and gains' ....
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.... building) 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 of built up area in SEZ. The CIT(A) has erred in law and 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 80IAB. Both the CIT (A) and ITAT failed to appreciate the spirit of proviso to Sec. 80IAB (2) that the moment the developer 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 year meaning thereby right of developer to claim benefits of SEZ would cease on transfer of operation and maintenance of SEZ to co-developer. CIT (A) has erred in law and on facts in holding that 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 ari....
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....sessment years 2008-09 and 2009-10, wherein the Tribunal after threadbare analysis of the provisions of the Act as well as the material placed on record, has allowed the deduction. If such deduction under section 80IAB has been allowed in initial years and there is no change in the material facts in subsequent years including the year under consideration, ostensibly then, as a matter of judicial precedence, no different view or stand can be taken. This proposition is well settled by the Hon'ble Delhi High Court in the case of CIT vs. International Tractors Limited reported in [2017] 84 taxmann.com 132 (Delhi), wherein in the context of allowability of deduction under section 80IA, the Hon'ble High Court laid down that, where assessee industrial undertaking had fulfilled the eligibility condition to claim deduction under section 80IA in the initial year, then the benefit of deduction would be extended for next 10 years irrespective of whether after initial year there was an expansion of industrial undertaking by increased investment in plant & machinery that have taken it outside ambit and scope of that provision. Thus, the Hon'ble High Court highlighted the principles o....