DCIT, New Delhi V. M/s DLF Commercial Developers Ltd., New Delhi

ITA 2503/DEL/2013

• Counselvise Citation: 250320114 RSA 2013
• Duration Of Justice: 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-04-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 29-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR SUDHA KUMARI
• Keywords: Capital asset; Business income; Additional evidence; Scheme of amalgamation; Revised return
• Section: 27; 12

Judgement Text

ITA NO. 2503/DEL/13 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SHRI G. D. AGRAWAL, VICE PRESIDENT AND SHRI A. D. JAIN, JUDICIAL MEMBER I.T.A .NO. 2503DEL/2013 (ASSESSMENT YEAR: 2008-09) DCIT CIRCLE 10 (1) NEW DELHI (APPELLANT) VS M/S DLF COMMERCIAL DEVELOPERS LTD. NEW DELHI (RESPONDENT) APPELLANT BY DR. SUDHA KUMARI, CIT DR RESPONDENT BY SH. R. S. SINGHVI, CA ORDER PER A. D. JAIN, JM THIS IS DEPARTMENTS APPEAL FOR A.Y 2009-10 CONTEN DING THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION O F RS.4003367733/- MADE ON ACCOUNT OF DISALLOWANCE OF DEDUCTION U/S 80IAB OF T HE I.T ACT AND IN TREATING THE INCOME FROM SALE OF ASSETS AS BUSINESS INCOME AGAIN ST THE CAPITAL GAIN ASSESSED BY THE AO. 2. THE FACTS AS PER THE RECORD ARE THAT THE ASSESSE E COMPANY WAS INCORPORATED ON 1/1/2002. THIS COMPANY HAS BEEN ENGAGED IN THE BUSINESS OF DEVELOPING, OPERATING AND MAINTAINING REAL ESTATE PROJECTS, WHI CH INCLUDES DEVELOPMENT OF SEZ AND ALL RELATED INFRASTRUCTURE. THE ASSESSEE C OMPANY FILED ITS RETURN OF INCOME SHOWING AN INCOME OF RS.291,48,67,717/-. TH EREAFTER, THE ASSESSEE COMPANY FILED A REVISED RETURN OF INCOME DECLARING IN INCOME OF RS.3,50,69,770/- ITA NO. 2503/DEL/13 2 AFTER CLAIMING DEDUCTION OF RS.400,33,67,733/- U/S 80IAB OF THE I.T ACT. THE REVISED RETURN WAS FILED ON ACCOUNT OF DEMERGER OF NON SEZ ACTIVITIES FROM THE ASSESSEE COMPANY W.E.F. 1/4/2008, AS PER SCHEME OF AMALGAMATION AND APPROVAL GRANTED BY DELHI HIGH COURT. IN THE ASSESSMENT ORD ER PASSED FOR THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 80-IAB OF THE I. T. ACT AMOUNTING TO R S. 400,33,67,733/- FOR DEVELOPING SPECIAL ECONOMIC ZONE AT HYDERABAD. 3. THE LD. CIT(A), BY VIRTUE OF THE IMPUGNED ORDER, DELETED THE DISALLOWANCE MADE BY THE AO. 4. THE LD. DR HAS CONTENDED THAT THE LD. CIT(A) HAS ERRONEOUSLY DELETED DISALLOWANCE/ADDITION CORRECTLY MADE BY THE AO, WRO NGLY TREATING THE INCOMES OF THE ASSESSEE FROM THE SALE OF ASSETS AS BUSINESS INCOME, WHEREAS THE SAME HAS RIGHTLY BEEN ASSESSED BY THE AO AS CAPITAL GAIN. 5. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. IT HAS BEEN SUBMIT TED THAT THE MATTER STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION DATED 13/12/2013 OF THE DELHI BENCH OF THE TRIBUNAL IN THE ASSESSEES O WN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, I.E. A.Y, 2008-09, IN IT A NO. 2560/DEL/13 ( COPY PLACED ON RECORD). RELIANCE HAS ALSO BEEN PLACED O N THE ORDER DATED 21/2/2014, PASSED BY THE DELHI BENCH OF THE TRIBUNAL IN ITA NO S. 5469 & 5366/DEL/12 (A.Y 2008-09) AND ITA NOS. 5470 & 5367 /DEL/12 (A.Y 200 8-09), IN THE CASE OF DLF INFO CITY DEVELOPERS CHENNAI LTD., A SISTER CONCERN OF THE PRESENT ASSESSEE. THE LD. CIT(A), WHILE DELETING THE DISALLOWANCE, HAS HE LD, INTER-ALIA, AS FOLLOWS:- 7.3 I HAVE CONSIDERED THE SUBMISSION OF THE APPEL LANT, REMAND REPORT, REJOINDER TO REMAND REPORT AND OF CIT(A), FARIDABAD ORDER. IT IS SEEN THAT APPELLANT IS ENGAGED IN THE BUSINESS OF REAL ESTATE AND THE DEVELOPMENT OF SUCH COMMERCIAL PROJECTS IS THE MAIN OBJECT OF THE APPELLANT. THE APPELLANT HAD BEEN FOLLOWING THE PERCENTAGE OF COMP LETION METHOD ITA NO. 2503/DEL/13 3 (POCM) METHOD FOR RECOGNIZING REVENUE OF VARIOUS PR OJECTS AS PER THE ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHA RTERED ACCOUNTANTS OF INDIA AND IT HAS BEEN ACCEPTED BY THE DEPARTMENT SI NCE INCEPTION. IT IS SEEN THAT THE APPELLANT HAS BEEN FOLLOWING ME RCANTILE SYSTEM OF ACCOUNTING AND HAS BEEN RECOGNIZING THE REVENUE IN ACCORDANCE WITH THE ACCOUNTING STANDARD AS-7 & AS-19 ISSUED BY THE INST ITUTE OF CHARTERED ACCOUNTANTS OF INDIA. IT IS NOW A JUDICIALLY RECOG NIZED PREPOSITION THAT IN CASE OF CONTRACTS OR BUSINESS OF CONSTRUCTION, IN O RDER TO ASCERTAIN THE INCOME, ONE NEED NOT WAIT TILL THE CONTRACT IS COMP LETED. THE ASSESSING OFFICER HOWEVER CANNOT APPLY ANY OTHER METHOD FOR R ECOGNIZING THE REVENUE AND HAS TO ACCEPT THE ACCOUNTING POLICY FOL LOWED BY THE APPELLANT, THEREFORE, WHEN THE APPELLANT HAS RECOGNIZED THE IN COME FOLLOWING PERCENTAGE OF COMPLETION METHOD AS PER AS-7 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, THE PROFITS DERIVED ON ACCOUNT OF DEVELOPMENT CONSIDERATIONS OF BARE SHELLS WOULD CON STITUTE THE PROFITS AND GAINS DERIVED FROM BUSINESS OF DEVELOPING SPECIAL E CONOMIC ZONE WITHIN THE MEANING OF SECTION 80IAB OF THE ACT. THE ACCOUNTING TREATMENT OF WARM SHELLS BY THE CO-D EVELOPER IN ITS BOOKS OF ACCOUNTS AS AN ASSET WOULD NOT MAKE ANY DIFFEREN CE AS FAR AS THE APPELLANT IS CONCERNED. THE ADMITTED FACT REMAINS THT THE APPELLANT HAS COMPUTED ITS INCOME UNDER THE PERCENTAGE OF COMPLET ION METHOD (POCM) WHICH IS PRESCRIBED FOR CALCULATING PROFITS AND GAI NS OF BUSINESS OF REAL ESTATE DEVELOPER UNDER THE MANDATORY ACCOUNTING STA NDARD ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OR INDIA. THE A SSESSING OFFICERS OBSERVATIONS BY REFERRING TO THE CLASSIFICATION OF ASSETS SHOWN BY THE CO- DEVELOPER WAS A SALE OF CAPITAL ASSET SUBJECTED TO CAPITAL GAIN IS AGAINST THE VERY PRINCIPLE OF THE ACT WHEN THE BARE SHELL B UILDINGS WERE NEITHER PART OF CAPITAL WORK IN PROGRESS NOR FIXED ASSETS O F THE APPELLANT. A PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT THE AS SESSING OFFICER HAS NOT CATEGORICALLY HELD THE INCOME OF THE APPELLANT UNDE R THE HEAD CAPITAL GAINS AS NO SUCH SPECIFIC ADDITION HAS BEEN MADE. THE ASSESSING OFFICER HAS ONLY MADE HIS OBSERVATIONS WITHOUT PREJUDICE TO HIS DECISION IN DISALLOWING THE ENTIRE CLAIM OF DEDUCTION U/S 80IAB . IT IS SEEN THAT OBSERVATIONS OF THE ASSESSING OFFIC ER ARE NOT BASED ON CORRECT APPRECIATION OF FACTS. THE APPELLANT HAS S HOWN WORK IN PROGRESS IN THE BUSINESS OF CONSTRUCTION AND BY NO STRETCH OF I MAGINATION WORK IN PROGRESS CAN BE TREATED AS CAPITAL ASSET. THE STOC K IN TRADE IS SPECIFICALLY EXCLUDED FROM THE DEFINITION OF CAPITAL ASSET. T HE STOCK IN TRADE IS SPECIFICALLY EXCLUDED FROM THE DEFINITION OF CAPIT AL ASSET U/S 2 (14) OF THE ACT. THE DEVELOPMENT OF THE BARE SHELL BUILDINGS I N THE SEZ AND ITA NO. 2503/DEL/13 4 SUBSEQUENT TRANSFER THEREOF CANNOT BE CONSIDERED AS GIVING RISE TO SHORT TERM CAPITAL GAIN, CONSIDERING THE BUSINESS OF THE APPELLANT AND ACCOUNTING TREATMENT ADOPTED IN THE BOOKS OF ACCOUNT IRRESPECT IVE OF THE TREATMENT BY THE CO-DEVELOPMENT IN THE BOOKS OF ACCOUNTS AS FIXE D ASSETS. THE OBSERVATIONS OF THE ASSESSING OFFICER ON THIS ISSUE ARE ERRONEOUS, LEGALLY UNTENABLE AND MISDIRECTED IN HOLDING THAT THE INCOM E CAN BE ASSESSED AS CAPITAL GAINS. I HAVE GONE THROUGH THE JUDICIAL RU LINGS RELIED UPON BY THE APPELLANT IN SUPPORT TO ITS CLAIM WHICH ARE SQUAREL Y APPLICABLE TO THE FACTS OF THE APPELLANTS CASE. THEREFORE, THE OBSERVATIO N OF THE ASSESSING OFFICER OF ASSESSING THE INCOME FROM SALE OF BARE SHELL AND COLD SHELL AS INCOME FROM CAPITAL GAIN IS ERRONEOUS AND NOT BASED ON COR RECT APPRECIATION OF FACTS. HENCE, THE FINDINGS OF THE ASSESSING OFFICE R ARE REJECTED. 6. THE LD. CIT(A), IT IS SEEN, HAS ALSO TAKEN INTO CONSIDERATION THE FOLLOWING FACTS:- THE APPELLANT HAS CONTENDED THAT THE ASSESSING OFF ICER HAS EXCEEDED HIS JURISDICTION IN DISREGARDING THE APPROVALS GRANTED TO THE APPELLANT BY THE BOARD OF APPROVALS CONSTITUTED UNDER THE SEZ ACT. IN THIS REGARD, IT IS NOTICED THAT:- THE APPELLANT WAS GRANTED APPROVAL BY THE MINISTRY OF COMMERCE & INDUSTRY (SEZ SECTION) FOR SETTING UP A SECTOR SPEC IFIC SEZ FOR IT/ITES SECTOR AT RANGAREDDY DISTRICT, HYDERABAD (ANDHRA PR ADESH). AN AREA OF 10.617 HECTARES SITUATED IN GACHIBOWLI VILLAGE, SHI RLINGAMPALI MANDAL, RANGAREDDY DISTRICT IN STATE OF ANDHRA PRADESH WAS NOTIFIED BY THE MINISTRY OF COMMERCE & INDUSTRY VIDE NOTIFICATION D ATED 26/4/2007. THE AUTHORIZED OPERATIONS TO BE UNDERTAKEN BY THE A PPELLANT WERE ALSO APPROVED BY A SEPARATE APPROVAL BY THE GOVT. OF IND IA, MINISTRY OF COMMERCE & INDUSTRY (SEZ SECTION) VIDE LETTER DATED 21/6/2007. THE APPELLANT ENTERED INTO A MOU DATED 29/11/2006 ( WRONGLY MENTIONED AS 29/11/2007 IN THE MOU WHICH WAS RECTIFIED BY COR RIGENDUM DATED 6/11/2007) WITH THE CO-DEVELOPER AND FILED THE SAME FOR APPROVAL BEFORE THE BOARD OF APPROVALS. AN ADDENDUM THERETO WAS ALSO ENTERED INTO AMENDING THE TERMS OF THE ORIGINAL MOU ON 29/11/2006. THE APPOINTMENT OF CO- DEVELOPER M/S DLF ASSETS PVT. LTD. WAS APPROVED BY THE MINISTRY OF CO MMERCE VIDE THEIR LETTER DATED 1/5/2007. THE AUTHORIZED OPERATIONS TO BE TAKEN UP BY THE CO- DEVELOPER IN THE SAID HYDERABAD SEZ WAS ALSO APPROVED BY THE MINISTRY OF COMMERCE & ITA NO. 2503/DEL/13 5 INDUSTRY (SEZ SECTION) VIDE LETTER DATED 18/6/2007 WHICH INCLUDED AN OPERATION OF DEVELOPMENT OF OFFICE SPACE (WARM SHEL L). IN ORDER TO CONSOLIDATE THE MOU AND ADDENDUMS THERE TO A CO-DEVELOPER AGREEMENT WAS ENTERED INTO BETWEEN THE APPELLANT AN D DLF ASSETS PVT. LTD ON 20/3/2008 WHICH WAS ALSO FILED BEFORE THE BOARD OF APPROVALS AND THE APPROVAL WAS ALSO GRANTED TO THIS AGREEMENT VIDE LE TTER DATED 1/6/2009 BY THE MINISTRY OF COMMERCE & INDUSTRY (SEZ SECTION). THE APPELLANT HAS FILED ALL THESE APPROVALS AND NOT IFICATIONS WHICH ARE CONTAINED IN THE PAPER BOOK. IN SUPPORT OF ITS CLA IM THE APPELLANT HAS ALSO FILED COPIES OF POCM CHART, A CERTIFICATE FROM THE CHARTERED ACCOUNT IN FORM NO. 10CCB WHICH IS PLACED IN THE PAPER BOOK. IT IS SEEN THAT AS PER THE MOU DATED 29/11/2006 THE DEVELOPER AGREED TO APPOINT DLF ASSETS PVT. LTD AS CO-DEVELOPER FOR DEV ELOPING, OPERATING AND MAINTAINING THE SAID SEZ BY GRANTING DAPL THE EXCLU SIVE RIGHT TO EXECUTE A PART OF THE AUTHORIZED OPERATIONS AND THE CO-DEVE LOPER HAS AGREED TO FUND AND EXECUTE THE SAID AUTHORIZED OPERATIONS SPE CIFICALLY ALLOCATED TO IT BY THE DEVELOPER. IN THIS MOU IT WAS STATED THAT THE DEVELOPER WILL C REATE IN FAVOUR OF THE CO- DEVELOPER IN THE SAID PROPERTY AND BUILDING THEREON A 49 YEARS LEASE ON TERMS TO THE MUTUALLY AGREED UPON. THE CO-DEVELOPE R SHALL BE ENTITLED TO USE THE SAID PROPERTY FOR CARRYING OUT CO-DEVELOPER OPERATIONS. PURSUANT TO THE COMPLETION OF BUILDING, THE CO-DEVELOPER WIL L BE ENTITLED TO IDENTIFY CUSTOMERS FOR OCCUPYING THE BUILT UP UNITS WITHIN T HE PROJECT AND SHALL HAVE THE RIGHT TO SUB-LEASE THE UNITS IN THE PROJEC T OR PART THEREOF. THE CO- DEVELOPER SHALL BE TREATED AS OWNER OF THE ADDITION S, MODIFICATIONS EQUIPMENTS ETC. WHICH ARE INSTALLED BY THE CO-DEVEL OPER IN BUILDING OR PROJECT. THIS MOU WAS APPROVED BY THE MINISTRY OF COMMERCE & INDUSTRY, DEPTT OF COMMERCE (SEZ SECTION) VIDE LETTER DATED 1/5/200 7 AND THE MOU WAS MADE PART OF THE APPROVAL LETTER AS MENTIONED IN PA RA-2 OF THE SAID LETTER. IT IS EVIDENT FROM THE ABOVE THAT THERE WAS A CLEAR APPROVAL OF BOTH THE APPELLANT AND THE CO-DEVELOPER FRO DEVELOPMENT, OPE RATION AND MAINTENANCE OF AFORESAID SEZ WHEREIN THE INITIAL AR RANGEMENT BY THE APPELLANT WAS TO CARRY OUT PART DEVELOPMENT AND LES E OUT THE LAND AND BUILDING THEREON TO CO-DEVELOPER FOR A LEASE PERIOD OF 49 YEARS. HOWEVER, IT HAS BEEN STATED THAT, IN THE ADDENDUM TO THE MOU CERTAIN AMENDMENTS WERE MADE TO THE MOU WHICH INTER ALIA INCLUDE CLAUS E 2.3 WHEREIN THE PHRASE DEVELOPER WILL CREATE, IN FAVOUR OF THE CO- DEVELOPER IN THE SAID PROPERTY AND THE BUILDINGS THERE UPON, A 49 YEARS L EASE....... WAS REPLACED BY LEASE....... AND THE BARE SHELL BUILDINGS CONST RUCTED BY THE APPELLANT ITA NO. 2503/DEL/13 6 WERE PROPOSED TO BE HANDED OVER TO THE CO-DEVELOPER FOR A DEVELOPMENT CHARGE WHICH WAS FIXED AT RS.4845/- PER SQ. FT. IN THE 32 ND MEETING OF THE BOARD OF APPROVALS HELD ON 23/2/20 09 FOUR PROPOSALS OF DLF GROUP WERE DISCUSSED. IN THIS MEE TING, THE REPRESENTATIVE OF DEPARTMENT OF REVENUE POINTED OUT THAT THESE PROPOSALS HAVE ALREADY BEEN APPROVED AND THE AMENDMENTS IN TH E EARLIER APPROVALS ARE NOW BEING FILED AFTER A GAP OF CONSIDERABLE TIM E. THE FRESH APPROVAL MAY BE SOUGHT IF ANY MATERIAL CHANGES ARE MADE IN T HE AGREEMENTS. ACCORDINGLY, THE BOARD DECIDED TO DEFER THE PROPOSA LS AND DECIDED THAT THESE CASES CAN BE EXAMINED ON FILE. SUBSEQUENTLY, THE APPELLANT FILED A DEFINITIVE CO-D EVELOPER AGREEMENT EXECUTED WITH THE CO-DEVELOPER DATED 20/3/2008 WHER EIN THE DEVELOPMENT CONSIDERATION WAS FINALLY REVISED TO A MINIMUM OF R S.5250/- PER SQ.FT. OF THE BUILT UP SPACE WITHIN THE SEZ BUILDINGS VIDE C LAUSE 2.6 OF THE AGREEMENT. 6.1 THE LD. CIT(A), IT IS SEEN, HAS FURTHER TAKEN I NTO CONSIDERATION THE FOLLOWING FACTS:- CONSEQUENT UPON THE DECISION TAKEN IN THE 32 ND MEETING OF THE BOARD OF APPROVALS ON 23/2/2009 TO EXAMINE THE MATTER ON FIL E, THE NOTE SHEET WAS PREPARED, WHICH THE APPELLANT HAS FILED AND ACCEPTE D AS ADDITIONAL EVIDENCE COLLECTED BY THE APPELLANT UNDER THE RIGHT TO INFORMATION ACT. IT IS SEEN FROM THE ADDITIONAL EVIDENCES FILED BY THE APPELLANT THAT THE MATTER WAS REFERRED TO DIRECTOR (ITA-1) CBDT PURSUANT TO O BJECTIONS RAISED BY THE REPRESENTATIVE OF THE DEPARTMENT OF REVENUE (DO R) IN THE 32 ND MEETING AFTER THE BOARD OF APPROVALS CLARIFYING THE POSITIO N AS UNDER:- 1. THE DEVELOPER IS NOT SELLING THE LAND TO THE CO- DEVELOPER BUT IS ONLY LEASING IT OUT. 2. NORMALLY AFTER THE LAND IS RELEASED, THE CO-DEVE LOPER WILL CONSTRUCT THE BUILDING. IN THIS CASE THE DEVELOPER HAS ALREA DY CONSTRUCTED THE SHELL WHICH IS BEING TRANSFERRED TO THE CO-DEVE LOPER FOR A CONSIDERATION. THE CO-DEVELOPER WILL FINISH THE SH ELLS, LEASED IT OUT TO THE UNITS AND COLLECT RENTALS. IN OTHER CASES A LSO, THE SAME ACTIVITY IS CARRIED, THE ONLY DIFFERENCE IN THIS CA SE IS THE READY AVAILABILITY OF THE SHELLS. 3. THE TRANSFER AND HAND OVER DEED IS IN RESPECT OF THE SHELLS WHICH THE CO-DEVELOPER CANNOT PROCEED FURTHER. ITA NO. 2503/DEL/13 7 4. AT NO STAGE THE DEVELOPER SELLS THE LAND TO THE CO-DEVELOPER AND AT THE END OF THE LEASE PERIOD THE LAND REVERTS TO THE DEVELOPER. THE DEVELOPER CONTINUES TO BE RESPONSIBLE FOR THE DEVEL OPER OPERATIONS. 5. THE CO-DEVELOPER WILL HAVE ALL THE RIGHTS AND EX CLUSIVE POSSESSION OF THE SEZ BUILDINGS (WHICH ARE BEING DEVELOPED BY HIM) SUCH ARE NECESSARY TO EXECUTE THE CO-DEVELOPER OPERATIONS. IN PRINCIPLE THE DEPARTMENT OF COMMERCE APPROVED TH E REVISED CO- DEVELOPER AGREEMENTS. THE MATTER WAS REFERRED TO THE CENTRAL BOARD OF DIR ECT TAXES FOR THEIR COMMENTS VIDE LETTER DATED 8/4/2009. THE DIRECTOR (ITA-1, CBDT VIDE LETTER DATED 26/5/2009 COMMUNICATED TO THE DEPARTME NT OF COMMERCE VIDE PARAS 3 & 4 AS UNDER:- 3. AN EXAMINATION OF THE AGREEMENTS MADE AVAILABLE SHOWS THE DEVELOPERS PROPOSE TO LEASE LAND TO THE CO-DEVELOPE RS FOR A PERIOD OF 30 YEARS OR MORE IN EXCHANGE FOR PAYMENT OF SUBSTAN TIAL AMOUNT OF CONSIDERATION BEING PAID ON LUMP SUM BASIS. THE OW NER PROPOSES TO TRANSFER COLD SHELL OF THE BUILDING ON HANDOVER BAS IS WHICH WOULD BE FURTHER DEVELOPED AND MAINTAINED IT BY THE CO-DEVEL OPER. 4. THE ISSUE REGARDING TRANSFER OF LAND BY DEVELOPE RS ON AN INDEFINITE/LONG LEASE WHICH VIRTUALLY AMOUNTS TO A SALE HAS BEEN BROUGHT TO THE NOTICE OF DOC ON EARLIER OCCASIONS. AFTER PROTRACTED DISCUSSION ON THE ISSUE AND ALSO TAKING INTO ACCOUN T THE ADVICE OF MINISTRY OF LAW, IT WAS AGREED TO APPROVE SUCH PROP OSALS SUBJECT TO THE INCLUSION OF DISCLAIMER IN THE LETTER OF APPROV AL THAT THE APPROVAL WILL HAVE NO BEARING ON TAX TREATMENT OF INCOME ARI SING OUT OF SUCH TRANSACTION WHICH WILL BE DECIDED AS PER THE RELEVA NT PROVISIONS OF THE INCOME TAX ACT, 1961. AFTER TAKING INTO ACCOUNT THE ABOVE CORRESPONDENCES THE APPROVAL LETTER WAS ISSUED TO DLF ASSETS PVT. LTD. ON 1/6/2009 CONV EYING THE APPROVAL, RELEVANT CLAUSES OF WHICH READ AS UNDER:- (2) YOUR REVISED AGREEMENT DATED 20/3/2008 ENTERED INTO WITH THE DEVELOPER OF THE AFORESAID SECTOR SPECIFIC SPECIAL ECONOMIC ZONE OF DLF COMMERCIAL DEVELOPER LIMITED FOR PROVIDING COMM ON FACILITIES SHALL FORM PART OF THIS APPROVAL. (3) (XVII) APPROVAL GIVEN BY BOARD OF APPROVALS 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 LE ASE RENTALS/DOWN PAYMENT/PREMIUM ETC. FOR THE PURPOSES OF ASSESSMEN T UNDER THE PREVALENT INCOME TAX ACT AND RULES. THE ASSESSING OFFICER WILL ITA NO. 2503/DEL/13 8 HAVE THE RIGHT TO EXAMINE THE TAXABILITY OF THESE A MOUNTS UNDER THE INCOME TAX ACT. 7. THE LD. CIT(A) ALSO OBSERVED THAT AS PER THE QUA LETTERS DATED 18/1/2011 & 20/1/2011 ISSUED BY THE MINISTRY OF COMMERCE, DEPTT OF SEZ, AS FILED BY THE ASSESSEE, THE ASSESSEE AND THE CO-DEVELOPER HAD PER FORMED THE AUTHORIZED OPERATIONS DULY APPROVED BY THE BOARD OF APPROVALS. IT WAS OBSERVED THAT THESE LETTERS HAD BEEN FIELD BEFORE THE AO IN THE ASSESSM ENT PROCEEDINGS; THAT THE LETTER DATED 20/1/2011 MADE IT CLEAR THAT THE ASSESSEE COU LD TRANSFER BARE SHELL AND COLD SHELL BUILDINGSTO THE CO-DEVELOPER BY EXECUTING TRA NSFER AND HANDING OVER DEED AND IN CONSIDERATION THEREOF, THE CO-DEVELOPER WOUL D MAKE PAYMENT OF SUCH AMOUNT AS DEVELOPMENT CONSIDERATION IN FAVOUR OF TH E DEVELOPER, AS AGREED TO BETWEEN THE PARTIES; AND THAT IN VIEW OF SUCH CLARI FICATION, THE AOS OBSERVATION THAT THE TRANSFER OF BARE SHELL BUILDINGS BY THE AS SESSEE TO THE CO-DEVELOPER WAS NOT AN AUTHORIZED OPERATION, WAS NOT BASED ON THE C ORRECT APPRECIATION OF THE DOCUMENTS FILED BY THE ASSESSEE; AND THAT FROM THE SAID CLARIFICATIONS ISSUED BY THE MINISTRY OF COMMERCE, AS ALSO THE CORRESPONDENC E BETWEEN THE MINISTRY OF COMMERCE AND THE CBDT, THERE REMAINED NO DOUBT THAT THE DISCLAIMER REFERRED BY THE AO IN THE APPROVAL LETTER DATED 1/6/2009 WAS APPLICABLE ONLY TO THE TRANSACTION OF TRANSFER OF LAND IN THE GUISE OF LON G TERM LEASE BY RECEIVING LEASE RENTALS/DOWN PAYMENTS/PREMIUM COMMENSURATE WITH THE SALE VALUE OF THE LAND, AS WAS EVIDENT FROM PARA 4 OF LETTER DATED 26/5/200 9 SENT BY THE DIRECTOR (ITA -1) CBDT TO THE DEPTT OF COMMERCE AND INDUSTRIES. THE LD. CIT(A) OBSERVED THAT THEREFORE, THE DISCLAIMER VIDE POINT 3 (XVII) OF T HE CO-DEVELOPER APPROVAL LETTER, ON WHICH THE AO HAD RELIED, WAS NOT APPLICABLE TO T HE TRANSFER OF BARE SHELLS AND COLD SHELLS FOR A CONSIDERATION; THAT THE TRANSFER OF BARE SHELLS AND COLD SHELLS FOR A CONSIDERATION HAD BEEN APPROVED AS AUTHORIZED OPERA TIONS AS PER THE APPROVAL ISSUED BY THE B.O.A; THAT THE MINISTRY OF COMMERCE HAD, IN THEIR CLARIFICATION ITA NO. 2503/DEL/13 9 DATED 18/1/2011 EXPLICITLY CLARIFIED THAT ALL LEASE S OF LAND WERE SUBJECT TO THE GENERAL CONDITION CONTAINED IN PARA 3 (XVII) OF LET TER DATED 1/6/2009 AND THIS GENERAL CONDITION WAS APPLICABLE TO THE TERMS AND C ONDITIONS OF THE LAND LEASE AGREEMENT ONLY. 8. IT WAS ON THE BASIS OF THE ABOVE THAT THE LD. CI T(A) OBSERVED AS UNDER:- KEEPING IN VIEW, THE DISCUSSIONS ABOVE IT IS CLEA R THAT THE APPELLANT HAS BEEN DULY APPROVED BY THE BOARD OF APPROVALS AS A D EVELOPER, THE LAND IN VILLAGE GACHIBOWLI SHIRILINGAMPALLI MANDAL, RANGARE DDY DISTRICT IN THE STATE OF ANDHRA PRADESH WAS NOTIFIED. THE CONTENT S OF LETTER DATED 1/6/2009 APPLIES ONLY TO TRANSFER OF LAND OR ONE TI ME LEASE RENTAL/ONE TIME DOWN PAYMENT/PREMIUM ETC. RECEIVED AGAINST EH LAND AS CLARIFIED BY THE MINISTRY OF COMMERCE IN THE CLARIFICATION DATED 18/ 1/2011 AND CORRESPONDENCE MADE BETWEEN THE MINISTRY OF COMMERC E AND DEPARTMENT OF REVENUE AS FILED BY THE APPELLANT DURING THE COU RSE OF APPELLATE PROCEEDINGS AS ADDITIONAL EVIDENCE. IN VIEW OF THE FACTS DISCUSSED ABOVE, I AGREE WITH THE SUBMISSION OF THE APPELLANT THAT THE DISCLAIMER CONDITION MENTIONED I N THE CO-DEVELOPER APPROVAL LETTER DATED 1/6/2009 IS PRIMARILY PUT IN BY THE BOARD OF APPROVALS IN THE APPROVALS TO PUT A CURB ON THE WRO NG PRACTICES OF LEASING THE LAND FOR LONG PERIODS AND RECEIVING ONETIME PAY MENT IN THE FORM OF LEASE RENTAL/DOWN PAYMENTS/PREMIUMS ETC. WHICH TANT AMOUNT TO SALE OF LAND IN THE GUISE OF LONG TERM LEASE. THE APPELLAN T HAS OBTAINED REQUISITE APPROVAL FROM THE BOARD OF APPROVALS BY DISCLOSING ALL FACTS. THE ENTIRE CONTROVERSY AS TO WHETHER THE TRANSFER OF BARE SHEL L BUILDINGS TO THE CO- DEVELOPER WAS AN AUTHORIZED OPERATION HAS BEEN SET AT REST BY THE CORRESPONDENTS MADE BETWEEN THE MINISTRY OF COMMERC E AND DEPARTMENT OF REVENUE AND ALSO BY CLARIFICATION LETTERS ISSUED DATED 18/1/2011 & 20/1/2011 BY MINISTRY OF COMMERCE. THE APPELLANT H AS MADE AN AGREEMENT WITH THE CO-DEVELOPER GIVING THE LAND ON LEASE FOR 49 YEARS AND YEARLY LEASE RENTALS ARE BEING RECEIVED BY THE APPE LLANT. THERE IS NO LUMSUM PAYMENT IN THE FORM OF LEASE RENTALS/DOWN PA YMENTS/PREMIUMS ETC. RECEIVED BY THE APPELLANT AGAINST THE LAND DURING T HE YEAR. I AS SATISFIED THAT ALL THE CONDITIONS AS REQUIRED TO BE SATISFIED UNDER THE SEZ ACT/RULES ARE FULFILLED AND THE APPELLANT IS AN APPROVED DEVE LOPER FOR ALL INTENT AND PURPOSE OF SECTION 8OIAB OF THE ACT. CONSEQUENT UP ON APPROVAL GRANTED BY THE BOARD OF APPROVALS FOR THE TRANSFER OF BARE SHELLS TO THE CO- DEVELOPER FOR A CONSIDERATION IS AN AUTHORIZED OPER ATION AND INCOME ITA NO. 2503/DEL/13 10 DERIVED FROM SUCH TRANSFER OF COLD SHELL OR BARE SH ELLS IS ELIGIBLE FOR DEDUCTION U/S 80IAB OF THE INCOME TAX ACT, 1961. REGARDING THE OBSERVATION OF THE ASSESSING OFFICER THAT THE LAND AND BUILDING ARE ONE COMPOSITE AND CANNOT BE SEPARATED, THE APPELLANT HAS STATED THAT THE INDIAN LAW RECOGNIZES SEPARATE OWNE RSHIP OF THE LAND AND BUILDING AND THIS POSITION HAS BEEN RECOGNIZED BY V ARIOUS HIGH COURTS INCLUDING THE HONBLE SUPREME COURT WHEREIN IT HAS BEEN HELD THAT THE MAXIM, WHAT IS ANNEXED TO THE SOIL GOES WITH THE SO IL HAS NOT BEEN ACCEPTED AS AN ABSOLUTE RULE OF LAW OF THIS COUNTRY. 9. ACCORDINGLY, THE LD. CIT(A) HELD AND, IN OUR CON SIDERED OPINION, RIGHTLY SO THAT THE ASSESSEE HAD NOT VIOLATED ANY OF THE CO NDITIONS LAID DOWN IN THE SEZ RULES BEFORE US, THE DEPARTMENT HAS NOT BEEN ABLE T O REFUTE THESE WELL REASONED OBSERVATIONS AND FINDINGS OF FACT RECORDED BY THE L D. CIT(A). 10. TOO, AS CORRECTLY CONTENDED ON BEHALF OF THE AS SESSEE, THE MATTER IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TWO TRIBUNAL DECIS IONS, ONE IN THE CASE OF THE ASSESSEE ITSELF, FOR THE IMMEDIATELY PRECEDING ASSE SSMENT YEAR AND THE OTHER IN THE CASE OF DLF INFO CITY DEVELOPERS (CHENNAI LTD.) A SISTER CONCERN OF THE ASSESSEE. IN THE ASSESSEES OWN CASE FOR A. Y 200 8-09, THE TRIBUNAL HAS, INTER- ALIA, OBSERVED AS FOLLOWS:- 9.4. IT IS CLEARLY EMERGES THAT BY THE END OF THE 263 HEARING THE CIT BRUSHED ASIDE THE CONSIDERATION OF ISSUE BY HOLDING THAT HE HAS NO SUFFICIENT TIME TO GO INTO THE MATERIAL, THEREFORE, THE ASSESSMENT IS SET ASIDE TO THE ASSESSING OFFICER WHO WILL CARRY OUT DETAILE D INQUIRY. IN OUR CONSIDERED VIEW, CIT FAILED TO DISCHARGE HIS STATUT ORY DUTY AND INSTEAD OF TAKING A CLEAR CALL AND DEMONSTRATING ERRORS MADE B Y ASSESSING OFFICER AND PREJUDICE CAUSED TO THE REVENUE, THE BUCK HAS B EEN PASSED ON TO ASSESSING OFFICER BY SETTING ASIDE ASSESSMENT ORDE R, WHICH IS AGAINST THE LETTER AND SPIRIT OF PROVISIONS OF SECTION 263. WH ERE THE AUTHORITY FAILS TO CARRY OUT ITS STATUTORY OBLIGATION, THE ORDER CANNO T BE HELD AS TENABLE AND IS LIABLE TO BE QUASHED. 9.5 APROPOS THE ISSUE OF SALE OF BARE SHELL BUILDIN GS BEING AUTHORIZED ACTIVITY, IT IS AMPLY CLEAR THAT THE SEZ ACT AUTHOR IZED ACTIVITIES INCLUDE CONSTRUCTION OF BARE SHELL/COLD SHELL/WARM SHELL BU ILDINGS AND TRANSFER THEREOF. BOA HAS APPROVED IT AND CLARIFIED THE SAM E. THERE IS ENOUGH MATERIAL ON THE RECORD TO HOLD THAT THE TRANSFER OF BARE SHELL BUILDINGS TO ITA NO. 2503/DEL/13 11 CO-DEVELOPERS CONSTITUTE AUTHORIZED ACTIVITY. THUS , WE SEE NO ERROR ON ANY COUNT AS HELD BY CIT IN THE ORDER OF ASSESSING OFFI CER ALLOWING DEDUCTION U/S 80-IAB. 11. IN THE CASE OF THE SISTER CONCERN OF THE ASSESS EE, DLF INFO CITY DEVELOPERS, THE TRIBUNAL HAS HELD, INTER-ALIA, PAGE 40 TO 41. 36. THUS, AS DISCUSSED ABOVE, THE ADMITTED AND UN DISPUTED FACT REMAIN THAT THE ASSESSEE HAS BEEN DULY APPROVED BY THE BOA AS A DEVELOPER, THE LAND OWNED BY THE ASSESSEE AT CHENNAI WAS NOTIFIED BY THE GOVT. OF INDIA FOR ESTABLISHMENT OF SEZ, THE AUTHORIZED OPERATIONS TO BE UNDER TAKEN IN THE SAID SSEZ WERE APPROVED BY BOA, THE CO-DEVELOPE R AGREEMENT DATED 20/3/2008 EXECUTED WITH THE CO-DEVELOPER CONTEMPLAT ING TRANSFER OF BARE SHELLS TO THE CO-DEVELOPER HAS BEEN DULY APPROVED BY THE BOP; THE DAPL HAS BEEN APPROVED AS A CO-DEV ELOPER, THE TRANSFER OF BARE SHELL TO THE CO- DEVELOPER HAS BEEN APPROVED AS AN AUTHORIZED OPERAT ION B Y THE BOP AND THE DISCLAIMER CONTAINED IN CLAUSES 3(XVII) OF THE APPROVAL LETTER DATED 1/6/2009 APPLIES ONLY TO THE LEASE OF LAND AS CLARI FIED BY 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 A ND NOT TO THE TRANSFER OF BARE SHELLS. NOTING THESE MATERIAL FACTS WE ARE OF THE VIEW THAT THE LD. CIT(A) HAS RIGHTLY AGREED WITH THE PLEA OF THE ASSE SSEE THAT THE TAX DISCLAIMER CONDITION MENTIONED IN T HE 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 R ECEIVING ONE TIME PAYMENT IN THE FORM OF LEASE RENTALS/DOWN PAYMENTS/ PREMIUM ETC WHICH TANTAMOUNT TO SALE OF LAND IN THE GUISE OF LONG TER M LEASE. THE ASSESSEE HAS OBTAINED REQUISITE APPROVALS FROM THE BOA IN MO ST TRANSPARENT MANNER BY DISCLOSING NOT ONLY DEVELOPMENT CONSIDERA TION BUT ALSO THE BASIS FOR DETERMINING THE SAME. THE ENTIRE CONTROV ERSY AS TO WHETHER TRANSFER OF BARE SHELL BUILDINGS TO THE CO-DEVELOPE R WAS AN AUTHORIZED OPERATION HAS BEEN SET AT REST BY FURTHER CLARIFICA TIONS DATED 18/1/2011 AND 201/2011 ISSUED BY THE MINISTRY OF COMMERCE. THE B OA, BEING THE STATUTORY PROCESS OF LAW AFTER DULY CONSIDERING AND EXAMINING ALL THE FACTS AND DOCUMENTS ON RECORD IN ACCORDANCE WITH RELEVANT PROVISIONS OF SEZ ACT AND SEZ RULES. THUS, THE CONSEQUENTIAL BENEFIT S THAT IS AVAILABLE TO A DEVELOPER UNDER THE INCOME TAX ACT CANNOT BE DENIED . THE AO DOES NOT HAVE ANY JURISDICTION TO QUESTION THE VALIDITY OR T HE LEGALITY OF AUTHORIZED OPERATIONS WHICH HAVE BEEN APPROVED BY THE BOA/CENT RAL GOVERNMENT ITA NO. 2503/DEL/13 12 SECTION 27 OF SEZ ACT PROVIDES FOR MODIFICATION OF INCOME TAX ACT TO THE EXTENT OF SECOND SCHEDULE OF SEZ ACT. PAGE 42. 37. THE SECOND SCHEDULE OF SEZ ACT CONTENDS BARE TEXT OF CERTAIN PROVISION INCLUDING SECTION 80IAB TO BE INCORPORATE D IN THE INCOME TAX ACT PRESENT TO THE SECTION 80IAB (HAVING THE SAME I N AS MENTIONED IN SEZ ACT) HAS BEEN BROADLY INCORPORATED INTO THE INCOME TAX ACT. SECTION 51 OF SEZ ACT HAVING AN OVER RIDING EFFECT OVER ANY OTHER LAW, READS AS UNDER:- 51.(1) THE PROVISIONS OF THIS ACT SHALL HAVE EFFE CT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OT HER LAW FOR THE TIME BEING IN FORCE OR IN ANY INSTRUMENT HAVING EFFECT B Y VIRTUE OF ANY LAW OTHER THAN THIS ACT. 38. THUS, IT IS CLEAR FROM THE ABOVE THAT THE PROVI SIONS OF SEZ ACT SHALL HAVE OVER RIDING EFFECT EVEN IF ANYTHING INCONSISTE NT IS CONTAINED IN THE INCOME TAX ACT. THE SEZ ACT HAS BEEN ENACTED CONTA INING THE SPECIFIC LEGISLATION TO BE BROUGHT IN OTHER STATUTES. WHEN THE TERMS LIKE SEZ, AUTHORIZED OPERATIONS, DEVELOPERS ETC HAVE BEEN SPE CIFICALLY DEFINED UNDER THE SEZ ACT, IT IS NOT OPEN TO ANY AUTHORITY TO REL OOK AT THE MEANING OF TERMS ALREADY DEFINED UNDER THE SEZ ACT. PAGE 45. 39. WE THUS FIND THAT ASSESSEE IS A DEVELOPER UND ER THE SEZ ACT AND IS IN THE BUSINESS OF DEVELOPING A SEZ, THE SEZ HAS BEEN NOTIFIED ON THE FIRST DAY OF APRIL 2005 UNDER THE SPECIAL ECONOMIC ZONE ACT 2 005; AND THE PROFITS HAVE BEEN DERIVED FROM THE BUSINESS OF DEVELOPMENT, OPERATION AND MAINTENANCE OF SEZ. WE THUS FULLY AGREE WITH THE F INDING OF THE LD. CIT(A) THAT ALL THE CONDITIONS AS REQUIRED TO THE S ATISFIED UNDER THE SEZ ACT/ RULES ARE FULFILLED AND THE ASSESSEE IS APPROV ED DEVELOPER FOR ALL THE INTENT AND PURPOSES OF SECTION 80IAB OF THE I.T. AC T. CONSEQUENT UPON APPROVAL GRANTED BY THE BOA FOR TRANSFER OF BARE SH ELL TO THE CO-DEVELOPER, THE PROFITS ARISING TO THE ASSESSEE FROM SUCH AN AU THORIZED TRANSACTION ARE ELIGIBLE FOR DEDUCTION U/S 80IAB OF THE ACT. PAGE 45 40. THUS, WE FIND THAT THE ISSUES DISCUSSED AND V IEW SUPPRESSED THEREON HEREINABOVE IN THE PRECEDING PARAGRAPHS WILL COVER THE ISSUE RAISED IN ADDITIONAL GROUND OF THE APPEAL PREFERRED BY THE RE VENUE AND THE ISSUES RAISED IN GROUND NOS. 6,7,8,9,10 & 14 OF THE REVENU ES APPEAL. IN RESULT ALL THESE GROUNDS OF THE APPEAL OF THE REVENUE ARE REJECTED. 41.CONSEQUENTLY, APPEAL PREFERRED BY THE ASSESSEE I S ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ITA NO. 2503/DEL/13 13 12. THE ASSESSEES CASE, IT IS SEEN, ALSO FINDS SUP PORT FROM THE ABOVE TRIBUNAL DECISION IN THE CASE OF ITS SISTER CONCERN, DELHI I NFO CITY DEVELOPERS (CHENNAI LTD) FOR A. Y 2007-08. 13. IN COMMISSIONER OF INCOME TAX VS. TATA COMMUNI CATION SERVICES LTD, IN ITA NO. 531/2011, VIDE ORDER DATED 8/82011 (COPY PLACED ON RECORD), THE HONBLE JURISDICTIONAL HIGH COURT OF DELHI HAS HELD THAT DEDUCTION U/S 80IA OF THE ACT CANNOT BE DENIED AFTER HAVING BEEN GRANTED IN THE FIRST YEAR OF CLAIM, AS THE RESTRAINT OF SECTION 80 IA (3) CANNOT BE CONSID ERED FOR EVERY YEAR OF CLAIM OF DEDUCTION, BUT CAN BE CONSIDERED ONLY IN THE YEAR O F FORMATION OF THE BUSINESS. 14. NO DECISION CONTRARY TO THE ABOVE CASE LAWS HAS BEEN PUT FORWARDED BEFORE US BY THE DEPARTMENT. 15. IN THE ABOVE DISCUSSED FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY ERROR IN THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALL OWANCE OF DEDUCTION U/S 80 IB OF THE ACT, AS CLAIMED BY THE ASSESSEE. THE ORDER OF THE LD. CIT(A) IS, ACCORDINGLY, UPHELD AND THE GRIEVANCE OF THE DEPART MENT STANDS REJECTED. 16. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 17 TH OF APRIL 2014. SD/- SD/- (G. D. AGRAWAL) ( A.D. JAIN) VICE PRESIDENT JUDICIAL MEMBER DATED: 17/04/2014 *R. NAHEED* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT ITA NO. 2503/DEL/13 14 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT RE GISTRAR ITAT NEW DELHI