TaxTMI 
TaxTMI 
2017 (10) TMI 1207
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....ed discussion and analysis, allowability of deduction 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 ....
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....hus,, the Assessing Officer observed that the claim 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....
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....o-developer by transferring and handing over specified bare-shell buildings located 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. ....
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....erred above before the A.O. during the course of the assessment proceedings. The A.O. has discussed these clarifications at page 34-35 of the order and she has held following her order for the AY 2009- 10 that the aforesaid clarifications were of no help to the appellant because 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 vi....
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....red into is recognized as revenue based on the percentage of actual project costs incurred thereon to total estimated project cost, subject to such actual cost incurred being 30 per cent or more of the total estimated project cost. Project cost includes the estimated construction and development cost of such 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 be....
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....uildings were neither part of the capital work in progress nor fixed assets of the appellant. The A.O. in the assessment order has not categorically held the income of the appellant to be assessed as capital gains since no such addition has been made, the observations of the A.O. have been without prejudice in disallowing the claim of the appellant for deduction U/s 80 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 ....
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.... case in holding that the assessee is eligible for claim of deduction u/s 80IAB in respect of profits derived from transfer for built up space (bare shells building) completely ignoring that as per provisions of proviso to sec 80IAB (2) only income from transfer for operation and maintenance of SEZ is eligible for deduction and not the profits derived from transfer of mere built up space (bare shells 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 th....
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....hese issues which have been raised by the ld. CIT-D.R. had duly taken note by the Tribunal in earlier years which fact too had been noted in detail by the ld. CIT (A), hence earlier precedence has to be followed. 14. After considering the aforesaid submissions and on perusal of the material referred to before us, we find that the issue of allowability of deduction under section 80IAB on similar set of facts and reasoning was prevalent in the assessment 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 assess....