Appeal Details
Counselvise Citation
[2013] 120 COUNSELVISE.COM (IT) 4781 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
7 month(s) 12 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
13-12-2013
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
B
Assessment Year
2008-2009
Appeal Filed On
01-05-2013
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B NEW DELHI) BEFORE SHRI R.S. SYAL AND SHRI RAJPAL YADAV ITA NO. 2560/DEL/2013 ASSESSMENT YEAR: 2008-09 DLF COMMERCIAL DEVELOPERS LTD., VS. COMMISSIONER OF INCOME-TAX, 9 TH FLOOR, DLF CENTRE, SANSAD MARG, DELHI-IV, NEW DELHI. (PAN: AABCD9619C) (APPELLANT) (RESPONDENT) APPELLANT BY: S/SH. RS SING HVI & S. GOEL, CAS RESPONDENT BY: DR. SUDHA KUMARI , CIT(DR) ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF A SSESSEE AGAINST THE ORDER OF LEARNED CIT(APPEALS) DATED 14.03.2013 PASS ED UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961 FOR ASSESSMENT YEAR 200 8-09. THOUGH THE ASSESSEE HAS TAKEN FIVE GROUNDS OF APPEAL BUT ITS G RIEVANCE REVOLVES AROUND A SINGLE ISSUE; THAT LEARNED COMMISSIONER HAS ERRED I N TAKING COGNIZANCE UNDER SEC. 263 OF THE ACT AND SETTING ASIDE THE ASS ESSMENT ORDER ON THE GROUND THAT ASSESSMENT ORDER IS ERRONEOUS AND PREJU DICIAL TO THE INTEREST OF REVENUE. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF REAL ESTATES DEVELOPMENT. IT HAS FI LED ITS RETURN OF INCOME ON 13 TH SEPTEMBER 2008 ELECTRONICALLY, DECLARING AN INCOME OF 2 RS.106,26,74,013. THE RETURN WAS PROCESSED UNDER SE C. 143(1) OF THE ACT ON 17.3.2010. THE CASE WAS SELECTED FOR SCRUTINY ASSES SMENT AND A NOTICE UNDER SEC. 143(2) DATED 03.8.2009 WAS ISSUED AND SERVED U PON THE ASSESSEE. A QUESTIONNAIRE DATED 18.5.2010 WAS ISSUED TO THE ASS ESSEE ALONG WITH NOTICE UNDER SEC. 142(1) OF THE ACT. IN RESPONSE TO THE NO TICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED BEFORE THE ASSESSING OFFICER AND SUBMITTED THE NECESSARY DETAILS FROM TIME TO TIME. LEARNED ASSESSING OFFICER HAS PASSED THE ASSESSMENT ORDER UNDER SEC. 143(3) O N 29.2.2010. 3. THERE WERE NUMBER OF ISSUES WHICH WERE SCRUTINIZ ED BY THE LEARNED ASSESSING OFFICER IN THE ASSESSMENT ORDER BUT FOR T HE PURPOSE OF PRESENT APPEAL, WE ARE CONCERNED WITH THE ISSUE PERTAINING TO GRANT OF DEDUCTION UNDER SEC. 80IAB OF THE ACT. 4. THE BRIEF FACTS OF THE CASE AS EMERGING FROM THE RECORD ARE THAT IN ORDER TO ACHIEVE THE OBJECTS OF ORGANIZED INFRA-STR UCTURAL DEVELOPMENT IN THE COUNTRY, GOVERNMENT OF INDIA HAS ENACTED SPECIAL EC ONOMIC ZONE ACT, 2005. THE ACT PROVIDES DIFFERENT INCENTIVES TO THE DEVELOPERS OF VARIOUS SEZ IN THE COUNTRY, ONE OF THE BENEFITS AMONGST OTHERS IS TO GRANT DEDUCTIONS UNDER SEC. 80IAB OF THE ACT @ 100% OF THE INCOME DE RIVED BY AN 3 UNDERTAKING FROM ANY BUSINESS OF DEVELOPING SEZ, NO TIFIED ON OR AFTER 01.04.2005. ACCORDING TO THE ASSESSEE, IT HAD APPLI ED FOR DEVELOPMENT OF SEZ IN AN AREA OF 10.617 HECTORS AT VILLAGE GACHI B OWLI, RANGAREDI DISTRICT HYDERABAD. THE MINISTRY OF COMMERCE & INDUSTRIES DE PARTMENT HAS GRANTED APPROVAL VIDE LETTER DATED 23.10.2006. A NO TIFICATION TO THIS EFFECT WAS ISSUED ON 26.4.2007. THUS, AS PER THE REQUIREME NT UNDER SEZ ACT; THAT A NOTIFICATION OF SEZ SHOULD BE ISSUED AFTER IST DAY OF APRIL 2005 OF THE ACT HAS BEEN FULFILLED BY THE ASSESSEE. IT HAS CLAIMED A DEDUCTION OF RS.584,93,80,397 UNDER SEC. 80IAB OF THE ACT. 5. LEARNED ASSESSING OFFICER HAD CALLED FOR THE INF ORMATION WITH RESPECT TO THIS ISSUE AND ASSESSEE HAS SUBMITTED ALL THE DE TAILS. HE DISCUSSED THE ISSUE IN PARAGRAPH NO. 11 OF THE ASSESSMENT ORDER. AFTER DETAILED DISCUSSION, HE REVISED THE FIGURE AT RS.573,94,33,765 AND ALLOWED THE DEDUCTION TO THIS EXTENT UNDER SEC. 80IAB OF THE ACT. 6. LEARNED COMMISSIONER ON AN ANALYSIS OF THE RECOR D FORMED AN OPINION THAT ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THEREFORE, HE TOOK COGNIZANCE UNDER SEC. 2 63 OF THE ACT AND ISSUED A SHOW-CAUSE NOTICE TO THE ASSESSEE, INVITING ITS E XPLANATION AS TO WHY THE ORDER OF THE ASSESSING OFFICER BE NOT SET ASIDE BEI NG ERRONEOUS AND 4 PREJUDICIAL TO THE INTEREST OF REVENUE. THE COPY OF THE NOTICE IS AVAILABLE ON PAGE 77 OF THE PAPER BOOK, IT READS AS UNDER: OFFICE OF THE COMMISSIONER OF INCOME-TAX DELHI-IV, NEW DELHI F.NO. CIT-IV/263/2011-12/473 DATED: 5 TH MAY, 2011 TO THE PRINCIPAL OFFICER, M/S. DLF COMMERCIAL DEVELOPERS LTD., 9 TH FLOOR, DLF CENTRE, SANSAD MARG, NEW DELHI-110001 SUB: PROCEEDINGS U/S. 263 OF THE INCOME-TAX ACT, 1 961 IN THE CASE OF M/S. DLF COMMERCIAL DEVELOPMENT L TD. A.Y. 2008-09 .. THE EXAMINATION OF THE INCOME TAX ASSESSMENT RECOR DS OF M/S. DLF COMMERCIAL DEVELOPERS LTD. FOR A.Y. 2008-09 REVEALS THAT:- (A) THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.584,93,80, 397 UNDER SECTION 80IAB OF THE IT ACT, 1961, BEING PROFIT FRO M HYDERABAD SEZ PROJECT. AS PER FORM NO. 10CCB, ADDRE SS OF SEZ PROJECT IS GACCHIBOWLI, RANGAREDDI DISTRICT, HY DERABAD (AP). IN THE ASSESSMENT ORDER DATED 29.12.2010, THE ASSESSING OFFICER HAS ALLOWED DEDUCTION U/S. 80IAB OF RS.573, 94,33,765/. (B) THE CLAIM OF DEDUCTION U/S 80IAB HAS BEEN MADE IN R ESPECT OF RECEIPT ON ACCOUNT OF SALE OF BARESHELL BUILDINGS, CONSTRUCTED ON SEZ LAND BY THE ASSESSEE, TO M/S. DLF ASSETS LTD. W ITH WHOM A CO-DEVELOPER AGREEMENT HAS BEEN SIGNED BY THE ASS ESSEE. (C) THOUGH SECTION 80IAB PROVIDES FOR DEDUCTION FROM TH E ACTIVITY OF DEVELOPING, OPERATING AND MAINTAINING SEZ, THE A SSESSEE HAS WRONGLY CLAIMED SUCH DEDUCTION ON THE RECEIPT OF SA LE OF BARE SHELL BUILDINGS, WHICH CANNOT BE EQUATED WITH THE A CTIVITY OF DEVELOPING, OPERATING AND MAINTAINING SEZ. 5 (D) SALE OF BUILDING IS NOT ONE OF AUTHORIZED OPERATION S IN THE SEZ AS PER THE NOTIFICATION DATED 27 TH OCTOBER, 2006 ISSUED BY THE MINISTRY OF COMMERCE AND INDUSTRY, GOVT. OF INDIA. (E) THE CO-DEVELOPER AGREEMENT BETWEEN M/S. DLF COMMERC IAL DEVELOPERS LTD. (I.E. ASSESSEE ) AND M/S. DLF ASSET S PVT. LTD. WAS CONSIDERED BY THE SEZ BOARD OF APPROVAL (BOA) O N 23.02.2009 AND 19.06.2009. WHILE CONSIDERING THE AG REEMENT, THE REPRESENTATIVE OF THE DEPARTMENT OF REVENUE (DO R) POINTED OUT THAT THE CO-DEVELOPER AGREEMENT REFERS TO TRAN SFER AND HAND OVER DEEDS WHICH STATES THAT CO-DEVELOPER SHALL BE THE OWNER OF THE SEZ BUILDINGS ON PAYMENT OF DEVELOPMENT CONSIDE RATION, WHICH IS AGAINST THE SPIRIT OF SEZ ACT AND RULES. TAKING THIS INTO CONSIDERATION, THE BOA PUT A CONDITION THAT TH E ASSESSING OFFICER, WILL HAVE THE RIGHT TO EXAMINE THE TAXABIL ITY OF THESE AMOUNTS UNDER THE INCOME-TAX ACT. (F) AS THE SALE OF BARE SHELL BUILDINGS TO THE CO-DEVEL OPER, I.E. DLF COMMERCIAL DEVELOPERS LTD. IN ACCORDANCE WITH THE C O- DEVELOPER AGREEMENT, IS AGAINST THE SPIRIT OF SEZ A CT & RULES AND IS NOT ONE OF THE AUTHORIZED OPERATIONS OF SEZ, THE ASSESSEE DID NOT DERIVE INCOME FROM BUSINESS OF DEVELOPING S EZ. SUCH ISOLATED TRANSACTION OF SALE OF BARE SHELL BUILDING S TO THE CO- DEVELOPER IS NOTHING BUT SALE OF CAPITAL ASSETS AS THE ASSESSEE HAS RELINQUISHED AGRICULTURE LAND RIGHTS OVER THE B UILDINGS. ACCORDINGLY, THE INCOME FROM SALE OF BARE SHELL BUI LDINGS IS CAPITAL GAINS ON SALE OF BUILDINGS. 2. THE ABOVE MENTIONED FACTS, ARISING FROM EXAMINAT ION OF ASSESSMENT RECORDS, INDICATE THAT WHILE FINALIZING THE ASSESSMENT ORDER, THE ASSESSING OFFICER DID NOT CON SIDER THE FACTUAL POSITION AND DID NOT MAKE INQUIRY OR INVEST IGATION ON THIS ISSUE, AS A RESULT OF WHICH THE DEDUCTION U/S. 80IAB HAS BEEN WRONGLY GRANTED. FAILURE TO MAKE SUCH INQUIRY RESULTING IN UNDUE BENEFIT TO THE ASSESSEE BY GRANT OF WRONG DED UCTION HAS MADE THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 3. I HAVE PERSONALLY EXAMINED THE ASSESSMENT RECORD S AND HAVE CONCLUDED THAT THE FACTS MENTIONED ABOVE CLEAR LY INDICATE THAT THE ASSESSMENT ORDER OF THE ASSESSEE FOR A.Y. 2008-09 APPEARS TO BE ERRONEOUS AND PREJUDICIAL TO THE INTE REST OF 6 REVENUE. THEREFORE, I AM OF THE OPINION THAT THIS I S A FIT CASE WHERE PROVISIONS OF SEC. 263 OF THE INCOME-TAX ACT, 1961 ARE REQUIRED TO BE INVOKED AND THE ASSESSMENT ORDER SHO ULD BE REVISED ACCORDINGLY DISALLOWING THE CLAIM OF DEDUCT ION FOR RS.584,93,80,397 U/S. 80 IAB OF THE I.T. ACT. 4. IF YOU HAVE ANY OBJECTIONS TO THE PROPOSED REVIS ION IN THE ASSESSMENT ORDER ON THE LINES MENTIONED ABOVE, YOU MAY SUBMIT THE SAME BEFORE ME AT 11.30 AM ON 23 RD MAY 2011. 5. YOU MAY PLEASE NOTE THAT IN CASE NO REPLY IS REC EIVED, IT MAY BE PRESUMED THAT YOU HAVE NOTHING TO SAY IN THI S MATTER AND THE ASSESSMENT ORDER WILL BE REVISED U/S. 263 O N THE BASIS OF MATERIAL AVAILABLE BEFORE ME. SD/- (AMARENDRA K. TEWARY) COMMISSIONER OF INCOME-TAX DELHI-IV, NEW DELHI. 7. IN RESPONSE TO THE NOTICE, ASSESSEE HAD APPEARED AND SUBMITTED ITS REPLY. LEARNED CIT HAS EXTRACTED THE BRIEF SUMMARY OF THE REPLY IN IMPUGNED ORDER AND THEREAFTER SET ASIDE THE ASSESSM ENT ORDER BY RECORDING A BRIEF FINDINGS, IT IS IMPERATIVE UPON US TO TAKE NO TE OF THE FINDINGS WHICH READ AS UNDER: 6. AS ENUMERATED ABOVE THE ASSESSEE COMPANY IS A D EVELOPER OF SEZ, DURING THE YEAR CLAIMED DEDUCTION U/S. 80IAB O N THE DEVELOPMENT INCOME RECEIPT FROM THE CO-DEVELOPER WH ICH IS ALSO A COMPANY OF SAME GROUP. DEDUCTION U/S. 80IAB AMOUNTI NG TO RS.573,94,33,765 WAS ALLOWED BY THE A.O. ON THE BAS IS OF ACCOUNTING METHOD FOLLOWED BY THE ASSESSEE, RELEVANT PROVISION S OF SEZ INCLUDING PROVISION OF INCOME TAX ACT AND AFTER EXA MINING TAXABILITY 7 OF THE DEVELOPMENT INCOME CLAIMED EXEMPT BY THE A SSESSEE COMPANY. SECTION 80IAB OF THE IT ACT INSERTED BY SEZ ACT GIV ES ASSESSEE DEDUCTION OF 100% OF PROFIT AND GAINS DERI VED FROM THE BUSINESS OF DEVELOPING SEZ. THIS DEDUCTION IS AVAIL ABLE FOR 10 CONSECUTIVE ASSESSMENT YEAR AND THIS DEDUCTION IS A LSO ALLOWABLE TO THE CO-DEVELOPER ON TRANSFER COLLABORATION AND MAIN TENANCE OF SEZ FOR REMAINING PERIOD OF 10 CONSECUTIVE ASSESSMENT Y EARS. THUS SECTION 80IAB CLEARLY REFERS TO EXEMPTION FOR PROFIT FROM O PERATION AND MAINTENANCE OF SEZ ONLY AND NOT FOR PROFIT FROM SAL E OF ASSETS. THIS SECTION DOES NOT SPECIFICALLY PROVIDES FOR A DEDUCT ION TO INCOME ARISING FROM THE TRANSFER OF ASSETS TO A CO-DEVELOP ER BY A DEVELOPER. 7. (I) THE DETAILED EXAMINATION OF ISSUES INVOLVED AS ABOVE IN THE ASSESSEES CASE, ESTABLISHED THE FOLLOWING: A. RULE 11(10) OF SEZ RULES 2006 SPECIFIES THAT THE DEVELOPER SHALL NOT SELL THE LAND IN A SEZ. AS SALE OF LAND IS PROHIBITED AND IT WAS POSSIBLE FOR THE ASSESSEE TO SELL THE BUILDING ONLY, THE LAND HAS BEEN GIVEN TO CO-DEVELO PER THROUGH AN ARRANGEMENT OF LEASE OF LAND WHICH IS NOTHING BU T A PLAY TO OVERCOME THIS PROHIBITION. B. SALE OF BUILDINGS TO THE CO-DEVELOPER IS NOT AN ACTIVITY OF DEVELOPMENT PF SEZ. IT IS AN ISOLATED TRANSACTION G IVING ONE TIME INCOME FROM TRANSFER OF CAPITAL ASSETS. IT IS VERY CLEAR FROM THE AGREEMENT THAT THE INTENTION FROM THE VERY BEGI NNING WAS TO CONSTRUCT AND SALE THE BUILDINGS AS A ONETIME ACTIV ITY. SUCH ISOLATED TRANSACTION CAN NEVER BE TERMED AS BUSINES S ACTIVITY. CO-DEVELOPER AGREEMENT IS VERY CLEARLY SHOWING THAT THE DEVELOPER LOSSES ALL RIGHTS OVER THESE ASSETS AND T HE RELINQUISHMENT OF RIGHT IS IRREVOCABLE. C. THERE IS NO DISPUTE THAT BUILDINGS HAVE BEEN SOL D TO CO- DEVELOPER. 8 D. THOUGH SEZ ACT PROHIBITS FOR SALE OF LAND THEREB Y IMPLICITLY DENYING ANY BENEFIT TO A DEVELOPER WHO I S BASICALLY INTERESTED IN DERIVING INCOME BY TRANSFER OF ASSETS , THE ASSESSEE HAS FOUND A WAY TO OVERCOME THIS PROHIBITION BY CRE ATING 49 YEARS LEASE IN FAVOUR OF CO-DEVELOPER, RENEWABLE FU RTHER, THUS EFFECTIVELY TRANSFERRING THE LAND ALSO. E. SEZ ACT NOTIFIES SPECIFIC AUTHORIZED OPERATIONS WHICH ALONE WOULD QUALIFY FOR EXEMPTIONS, CONCESSIONS AND DRAWBACKS. THEREFORE INCOME FROM SALE OR TRANSFER O R SUCH OPERATION WOULD NOT BE ELIGIBLE FOR EXEMPTION AS PE R NOTIFICATION NO. S.O. 1846(E) DATED 27 TH OCTOBER, 2006. (II) IN VIEW OF THE ABOVE, THE ASSESSEES INCOME FROM TH E SALE OF ASSETS IS NOT ELIGIBLE FOR DEDUCTION U/S. 80IAB. (III) ONCE IT IS ESTABLISHED THAT THE TRANSFER OF BUILDIN GS TO CO- DEVELOPER IS NOT A BUSINESS ACTIVITY AND THE INCOME FROM SUCH TRANSFER IS NOT BUSINESS INCOME, IT IS CLEAR THAT S ALE OF SUCH BUILDINGS, IN THE NATURE OF CAPITAL ASSETS, HAS GEN ERATED CAPITAL GAINS AND, THEREFORE, INCOME SHOWN BY THE ASSESSEE ON THIS COUNT HAS TO BE TREATED AS CAPITAL GAINS. ON EXAMINATION OF THE ASSESSMENT RECORDS FOR THE A. Y. 2008-09, IT IS SEEN THAT THE A.O. HAS ALLOWED THE DEDUCTION U/S. 8 0IAB WRONGLY WITHOUT CONSIDERING THE ABOVE FACTS SO AS TO RENDER THE ASSESSMENT ORDER NOT ONLY ERRONEOUS BUT ALSO PREJUDICIAL TO TH E INTEREST OF REVENUE. HENCE, THE ASSESSMENT IS SET ASIDE ON THIS LIMITED ISSUE TO BE REFRAMED BY THE A.O. AFTER CONSIDERING THE ABOVE FACTS AND A FTER GIVING THE ASSESSEE OPPORTUNITY OF BEING HEARD. SD./- (HARAMOHAN BARMAN) COMMISSIONER OF INCOME-TAX, DELHI-IV, NEW DELHI. 8. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE IMPUGNING THE ORDER OF LEARNED COMMISSIONER HAS CONTENDED THAT AN IDENTICA L ISSUE WAS INVOLVED IN THE CASE OF DLF INFOCITY DEVELOPERS VS. ACIT, GURGA ON. IN THAT CASE ALSO, 9 LEARNED COMMISSIONER HAS PASSED AN ORDER ON 29.3.20 12 UNDER SEC. 263 OF THE ACT FOR ASSESSMENT YEAR 2007-08 AND SET ASIDE T HE ALLOWANCE OF DEDUCTION UNDER SEC. 80IAB OF THE ACT. HE POINTED O UT THAT ALL THE ARGUMENTS WHICH ARE TAKEN UP BY THE ASSESSEE BEFORE THE LEARN ED COMMISSIONER IN THE IMPUGNED ORDER WERE ALSO TAKEN UP IN THE CASE OF DL F INFOCITY DEVELOPERS VS. ACIT. THIS ISSUE HAS BEEN CONSIDERED BY THE ITA T IN ITA NO. 2637/DEL/2012. THE ITAT HAS QUASHED THE ORDER OF TH E LEARNED COMMISSIONER VIDE ITS ORDER DATED 2.8.2013. THEREFO RE, ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE ISSUE IN DISP UTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT. HE FURTHER CONTENDED, ASSESSEE HAS SUBMITTED ALL THE REQUISITE DETAILS TO THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS AND FULFILLED ALL THE CONDITIONS ENUMERATED IN SEC. 80IB OF THE ACT. HE TOOK US THRO UGH THE REPLY OF THE ASSESSEE SUBMITTED BEFORE THE LEARNED COMMISSIONER AVAILABLE ON PAGES 80 TO 98 OF THE PAPER BOOK. ACCORDING TO THE LEARNED C OUNSEL FOR THE ASSESSEE, IT HAS APPLIED FOR CARRYING OUT ACTIVITY OF DEVELOPING AN SEZ AT VILLAGE GACHI BOALI, RANGAREDY, DISTT. HYDERABAD. THE MINISTRY OF COMMERCE & INDUSTRIES, DEPARTMENT OF COMMERCE HAS APPROVED THE DEVELOPMENT OF SEZ VIDE LETTER DATED 23.10.2006 AND THEREAFTER ISSUED A NOTIFICATION ON 26.4.2007. THUS, THE CONDITIONS REGARDING NOTIFICAT ION OF SEZ AFTER IST DAY OF 10 APRIL, 2005 UNDER SEZ ACT 2005 HAS BEEN FULFILLED. THE ASSESSEE COMPANY HAD ENTERED INTO AN UNDERSTANDING WITH DLF ASSETS P VT. LTD. FOR THE CO- DEVELOPMENT OF THE PROJECT. THIS MEMORANDUM OF UNDE RSTANDING WAS FILED WITH THE GOVERNMENT OF INDIA FOR APPROVAL AND THE A PPROVAL WAS RECEIVED ON IST OF MAY 2007. AS PER THE TERMS OF THE UNDERSTAND ING, ASSESSEE COMPANY AGREED TO TRANSFER BARE SHELL BUILDING TO THE CO-D EVELOPERS AND WAS ALSO RESPONSIBLE FOR CREATION OF INFRA-STRUCTURAL FACILI TIES LIKE INTERNAL ROAD, SECURITY POST, COMPOUND WALL, DIESEL STORAGE AREA, SEWERAGE TREATMENT PLANT, WATER TREATMENT PLANT, ELECTRICITY LINES, HORTICULT URAL AND LAND ESCAPING ETC. THE SEZ ACT SPECIFICALLY ALLOWS INDUCTION OF CO-DEV ELOPERS WITH MAIN DEVELOPERS AND DEFINITION OF CO-DEVELOPERS HAS BE EN PROVIDED IN CLAUSE K OF THE SEZ ACT. AS PER THE DEFINITION, CO-DEVELOPER MEANS DEVELOPER. THE CLAIM OF DEDUCTION UNDER SEC. 80IAB IS BASED ON PRO FIT DERIVED BY THE ASSESSEE COMPANY THROUGH AN MOU DATED 29.11.2006 EN TERED BETWEEN THE ASSESSEE COMPANY AND CO-DEVELOPERS FOR TRANSFER OF BARE SHELL BUILDING BY THE DEVELOPER TO THE CO-DEVELOPER DULY APPROVED BY BOA THROUGH THEIR LETTER DATED IST MAY 2007. THE MOU WAS LATER ON CONVERTED IN A DEFINITE AGREEMENT WHICH WAS ALSO APPROVED BY THE MINISTRY O F COMMERCE & INDUSTRIES THROUGH THEIR LETTER TO THE CO-DEVELOPER DATED IST JUNE 2009. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT IN THE SHOW-CAUSE 11 NOTICE ISSUED UNDER SEC. 263 OF THE INCOME-TAX ACT, 1961, THE LEARNED COMMISSIONER HAD ALLEGED THAT DEDUCTION UNDER SEC. 80IAB WOULD BE ADMISSIBLE FROM THE ACTIVITY OF DEVELOPING, OPERATI NG AND MAINTAINING SEZ, THE ASSESSEE HAS WRONGLY CLAIMED SUCH DEDUCTION ON THE RECEIPT OF SALES OF BARE SHELL BUILDING WHICH CANNOT BE EQUATED WITH TH E ACTIVITY OF DEVELOPING, OPERATING AND MAINTAINING SEZ. TO THIS QUERY, CONTE NTION OF THE ASSESSEE WAS THAT ROLE OF DEVELOPERS IN THE SEZ HAS BEEN DEM ARCATED IN SEZ ACT. THE DEVELOPERS IS THE FOCAL AND INTEGRAL PART OF SEZ AN D ITS INVOLVEMENT IS CONTINUOUS I.E. ON GOING AS LONG AS THE SEZ EXISTS AND IS IN OPERATION. IT IS PRIMARILY RESPONSIBLE FOR DEVELOPMENT OF INFRA-STRU CTURAL FACILITIES AND THEREAFTER MAINTENANCE AND OPERATION OF THE SAME. T HE ASSESSEE DID NOT WALK AWAY AFTER THE CONSTRUCTION OF BARE SHELL BUT ALSO CREATED OTHER INFRA- STRUCTURAL ACTIVITIES LIKE INTERNAL RODE, SECURITY POST, COMPOUND WALL, SEWERAGE TREATMENT PLANT, ELECTRICITY, HORTICULTURA L ETC. THE DEVELOPERS AND CO-DEVELOPERS ARE PLACED AT THE SAME PEDESTAL IN TH E SEZ ACT. THE SUB- RULE(5) OF RULE 11 OF SEZ ACT PROVIDES THAT LAND OR BUILT UP SPACE IN THE PROCESSING AREA OR FREE TRADE AND WAREHOUSING ZONES SHALL BE GIVEN ON LEASE ONLY TO THE ENTREPRENEURS HOLDING A VALID LETTER OF APPROVAL ISSUED UNDER RULE 19 THUS, THE SEZ ACT BARS TRANSFER OF BUILT UP SP ACE TO THE ULTIMATE USER TO WHOM ONLY LEASE OF SUCH SPACE IS PERMITTED. ON T HE OTHER HAND, THE SEZ 12 ACT, ALLOWS CO-DEVELOPERS TO ENTER INTO A PROJECT A ND THE CO-DEVELOPERS WOULD BE RECOGNIZED AND TREATED AT PAR WITH DEVELOP ERS FOR ALL INTENT AND PURPOSES. ANY TRANSACTION BETWEEN THESE TWO ENTITIE S WOULD BE AN AUTHORIZED OPERATION. HE FURTHER POINTED OUT THAT IN ORDER TO ELIMINATE ALL SORT OF CONFUSIONS, THE ASSESSEE HAD APPROACHED THE COMPETE NT AUTHORITY I.E. BOARD OF APPROVAL (HEREINAFTER REFERRED TO BOA UNDER THE SEZ ACT FOR CLARIFICATION WITH REGARD TO TRANSFER OF BARE SHELL BUILDING TO T HE CO-DEVELOPERS. THE DIFFERENT ISSUES RAISED BY THE ASSESSEE HAVE BEEN C LARIFIED IN THE LETTER DATED 18.1.2011. THIS LETTER WAS SUBMITTED BEFORE THE LEA RNED COMMISSIONER AND IS PLACED ON PAGES 106 TO 108 OF THE PAPER BOOK. TH E LEARNED COUNSEL FOR THE ASSESSEE TOOK US THROUGH THE CLARIFICATIONS/CONFIRM ATIONS ISSUED TO IT BY THE MINISTRY OF COMMERCE & INDUSTRIES FOR TRANSFER OF B ARE SHELL BUILDING. IT IS WORTH TO TAKE NOTE OF CERTAIN QUESTIONS AND ANSWERS IN THIS LETTER WHICH READ AS UNDER: 2. THE APPROVED CO DEVELOPER CAN TAKE THE LAND FRO M DEVELOPER ON LONG TERM LEASE AND ACQUIRE/DEVELOP/OWN BUILDING ON THE LEASED LAND TO PERFORM ITS AUTHORIZED OPERATIONS. ANS. THE CO DEVELOPER CAN TAKE LAND ON LEASE FOR A DEFINITE PERIOD. THE CO-DEVELOPER CAN ALSO ACQUIRE, DEVELOP AND OWN THE BUILDINGS ON THE LEASED LAND TO PERFORM APPROVED AUTHORIZED OPER ATIONS AS APPROVED BY THE BOARD OF APPROVAL FOR SEZ. 13 X X X X X X X X X X X X 4. THE ABOVE GENERAL CONDITION NO. 3 (XVII) IN THE CO-DEVELOPER APPROVAL DATED JUNE 1, 2009 DOES NOT APPLY TO ANY O THER AUTHORIZED OPERATION OF THE DEVELOPER/APPROVED CO-DEVELOPER. ANS. THIS GENERAL CONDITION IS APPLICABLE TO THE T ERMS & CONDITIONS OF THE LEASE AGREEMENT ONLY. 5. THE DEVELOPER IS ENGAGED IN THE BUSINESS OF DEV ELOPMENT OF IT/ITES SEZ BY CARRYING OUT AUTHORIZED OPERATIONS I NCLUDING DEVELOPMENT/CONSTRUCTION OF BUILDINGS (IN WHICHEVER FORM SUCH A BUILT-UP AREA/OFFICE SPACE/BARE SHELL/COLD SHELL) A ND OTHER INFRASTRUCTURE SUCH AS COMPOUND WALL, ROADS WITH ST REET LIGHTING, WATER TREATMENT PLANT, SEWAGE LINES, STORM WATER DR AINS, WATER SUPPLY LINES, AFFLUENT TREATMENT PLANT AND PIPELINES AND O THER INFRASTRUCTURE FOR AFFLUENT TREATMENT, MASTER PLANNING, HORTICULTU RE, GREEN BELTS, LAND SCAPING, VEHICLE PARKING BLOCKS. THESE ACTIVITIES A S MENTIONED ABOVE ARE AUTHORIZED OPERATIONS UNDER THE SEZ ACT, SEZ RU LES AS AMENDED. ANS. YES, ALL THESE ARE AUTHORIZED OPERATIONS OF TH E DEVELOPER OF A SEZ AS APPROVED BY THE APPROVAL COMMITTEE/BOARD OF APPROVAL FOR SEZ. 6. THE DEVELOPERS BUSINESS OF DEVELOPMENT OF SEZ ALSO ENVISAGES TRANSFER AND HANDOVER OF DEVELOPED/CONSTR UCTED BUILDINGS 14 (IN WHICHEVER FORM SUCH AS BARE SHELL/COLD SHELL) A GAINST DEVELOPMENT CHARGES/DEVELOPMENT CONSIDERATION FORMING PART OF MOU/AGREEMENT APPROVED BY BOA. THESE ACTIVITIES ARE AUTHORIZED OPERATIONS UNDER SEZ ACT AND RULES AS AMENDED. ANS. YES, ALL THESE ARE AUTHORIZED OPERATIONS OF TH E DEVELOPER OF A SEZ AS APPROVED BY THE APPROVAL COMMITTEE/BOARD OF APPROVAL. HOWEVER, NO SALE IS ALLOWED IN SEZ. 9. THE MINISTRY THEREAFTER ISSUED ONE MORE CLARIFIC ATION ON 20.1.2011. THE OBSERVATIONS MADE IN REPLY TO QUESTION NO. 6 IN THE LETTER DATED 18.1.2011 HAS BEEN EXPLAINED. IN THE LETTER DATED 1 8.1.2011, AN EXPRESSION HOWEVER, NO SALE IS ALLOWED IN SEZ IN REPLY TO QU ESTION NO. 6 HAS BEEN OBSERVED. THIS EXPRESSION HAS BEEN EXPLAINED IN THE LETTER DATED 20.1.2011 AND IT READS AS UNDER: FOR THAT THE SEZ BUILDINGS (BARE SHELL/COLD SHELL) WILL BE TRANSFERRED AND HANDED OVER TO THE CO-DEVELOPER UPO N EXECUTION OF A TRANSFER AND HANDOVER DEED AND WHICH HAS ALREADY BE EN APPROVED. IN CONSIDERATION OF SUCH TRANSFER AND HAND OVER THE CO -DEVELOPER SHALL MAKE PAYMENT OF SUCH AMOUNT AS DEVELOPMENT CONSIDER ATION IN FAVOUR OF THE DEVELOPER AS IS AGREED TO BETWEEN THE PARTIES. THE ABOVE MENTIONED TRANSFER AND HAND OVER IS ALLOWED IN SEZ. 15 10. WITH REGARD TO THE ALLEGATIONS OF COMMISSIONER THAT ASSESSING OFFICER HAS NOT APPRECIATED THE FACTS AND CERTAIN ISSUES IN RIGHT PERSPECTIVE. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT ASSESSING OFFICER HAD ISSUED DETAILED QUESTIONNAIRE UNDER SEC. 142(1) OF THE ACT, THE ASSESSEE HAS SUBMITTED THE FOLLOWING DOCUMENTS BEFORE THE ASSESS ING OFFICER: 1. COPY OF LETTER DATED 23 RD OCTOBER, 2006 ISSUED BY GOVT. OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY, DEPARTMEN T OF COMMERCE (EPZ SECTION), UDYOG BHAVAN, NEW DELHI BEING THE AP PROVAL FOR SETTING UP A SECTOR SPECIFIC SPECIAL ECONOMIC ZONE FOR IT/ITES SECTOR AT HYDERABAD. 2. COPY OF LETTER DATED 21 ST JUNE, 2007 ISSUED BY GOVT. OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY, DEPARTMENT OF CO MMERCE (SEZ SECTION) UDYOG BHAWAN, NEW DELHI BEING THE APPROVAL OF AUTHORIZED OPERATIONS OF THE DEVELOPER. 3. COPY OF NOTIFICATION DATED 26 TH APRIL 2007 ISSUED BY MINISTRY OF COMMERCE AND INDUSTRY, DEPARTMENT OF COMMERCE NO TIFYING THE LAND FOR DEVELOPMENT OF SEZ AT GACHIBOWLI VILLAGE, RANGAREDDY DISTT: HYDERABAD. 4. COPY OF MEMORANDUM OF UNDERSTANDING WITH THE CO- DEVELOPER M/S. DLF ASSETS PVT. LTD. DATED 29 TH NOV. 2006. 5. COPY OF LETTER DATED 1 ST MAY 2007 ISSUED BY THE GOVERNMENT OF INDIA, MIN. OF COMMERCE AND INDUSTRY DEPARTMENT OF COMMERCE 16 (SEZ SECTION) UDYOG BHAWAN, NEW DELHI TO M/S. DLF A SSETS PVT. LTD., AS A CO-DEVELOPER APPROVING THE MOU. 6. COPY OF LETTER DATED 18 TH JUNE 2007 ISSUED BY GOVERNMENT OF INDIA, MINISTRY OF COMMERCE & INDUSTRY DEPARTMENT O F COMMERCE (SEZ SECTION) UDYOG BHAWAN, NEW DELHI BEING THE APP ROVAL OF AUTHORIZED OPERATIONS OF THE CO-DEVELOPER. 7. COPY OF DEFINITIVE CO-DEVELOPER AGREEMENT DATED 20 TH MAY 2008. 11. HE ALSO TOOK US THROUGH THE REPLIES OF THE ASSE SSEE SUBMITTED TO THE ASSESSING OFFICER AVAILABLE ON PAGE NOS. 384 TO 396 OF THE PAPER BOOK. HE SPECIFICALLY DREW OUR ATTENTION TOWARDS PAGE NO. 39 2 OF THE PAPER BOOK AND POINTED OUT THAT COPY OF LEASE AGREEMENT DATED 25.3 .2008 ENTERED INTO BY THE ASSESSEE COMPANY WITH M/S. DLF ASSETS PVT. LTD. WAS PRODUCED BEFORE THE ASSESSING OFFICER. THE ASSESSEE HAS RECOGNIZED TOTA L LEASE INCOME DURING THE YEAR AT RS.3,78,22,654. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER POINTED OUT IT HAS NOT SOLD THE LAND TO THE CO-DEVELOPERS, BECAUSE THAT ISNOT PERMISSIBLE UNDER THE SEZ ACT. THE DEVELOPERS CAN O NLY LEASE LAND TO THE CO-DEVELOPERS AND CAN RECEIVE THE LAND LEASE RENTAL S. THE BARE SHELL OFFICE SPACE CAN BE TRANSFERRED BY A DEVELOPER TO THE CO- DEVELOPER AND IN RESPECT OF WHICH, CONSIDERATION WILL BE RECEIVED BY THE DEV ELOPER. THE CO- 17 DEVELOPERS WILL FURTHER DEVELOP THE BARE SHELL OFFI CE SPACE INTO WARM SHELL OFFICE SPACE AND LEASE IT TO DIFFERENT ENTITIES. TH E CO-DEVELOPERS CANNOT SHELL OFFICE SPACE TO DIFFERENT ENTITIES. THE CO-DEVELOPE RS WOULD ONLY RECEIVE LEASE RENTALS FOR LEASING OFF OFFICE SPACE WHICH IS SUBJE CT TO TAX. THE SALE OF BARE SHELL BUILDING TO THE CO-DEVELOPERS HAS ALREADY BEE N CLARIFIED BY THE MINISTRY OF COMMERCE & INDUSTRIES AND HAS BEEN ACCEPTED AS A N AUTHORIZED OPERATION OF SEZ. THE LEGAL POSITION HAS BEEN CLARIFIED BY TH E MINISTRY ITSELF. ALL THE BUILDINGS ARE HELD BY THE ASSESSEE COMPANY AS A STO CK-IN-TRADE. SECTION 2(14) OF THE ACT DEFINES CAPITAL ASSETS AND SPECIFI CALLY EXCLUDE STOCK-IN- TRADE. THE LEARNED COUNSEL FOR THE ASSESSEE EMPHAS IZED THAT LEARNED COMMISSIONER HAS ERRED IN CONSTRUING THE NATURE OF ASSESSEES BUSINESS AND FORMING AN OPINION THAT CAPITAL ASSETS HAVE BEEN S OLD BY THE ASSESSEE AND WHOSE SALE CONSIDERATION WOULD NOT BE ELIGIBLE FOR ALLOWANCE OF DEDUCTION UNDER SEC. 80IAB OF THE ACT. HE POINTED OUT THAT SI NCE ASSESSEE HAS BEEN SHOWING THE BARE SHELL BUILDING AS A STOCK-IN-TRADE , THERE CANNOT BE ANY CAPITAL GAIN ON TRANSFER OF BARE SHELL BUILDING TO THE DEVELOPERS. IF CONSTRUCTION OF A BARE SHELL BUILDING IS THE BUSINE SS ACTIVITY OF THE ASSESSEE, ITS SALE TO THE CO-DEVELOPERS HAS BEEN RECOGNIZED A S AUTHORIZED OPERATION THEN HOW THE INCOME RESULTING FROM THAT ACTIVITY WO ULD NOT BE ELIGIBLE FOR DEDUCTION UNDER SEC. 80IAB. LEARNED COMMISSIONER HA S NOT ADDRESSED 18 HIMSELF TOWARDS THIS ISSUE. ON THE STRENGTH OF HON' BLE DELHI HIGH COURTS IN THE CASE OF DIRECTOR OF INCOME-TAX VS. JYOTI FOUNDA TION REPORTED IN 257 ITR 388, HE SUBMITTED THAT LEARNED COMMISSIONER OUGHT T O HAVE PRIMA FACIE ESTABLISHED ON THE RECORD AS TO HOW THE DEDUCTION I S NOT ADMISSIBLE TO THE ASSESSEE. HE CANNOT SIMPLICITOR ISSUED A SHOW-CAUSE NOTICE UNDER SEC. 263 AND WITHOUT TOUCHING THE ISSUE ON MERIT, SET ASIDE THE ASSESSMENT ORDER REMITTING THE ISSUE FOR FURTHER INVESTIGATION. SUCH A STEP CAN ONLY BE TAKEN AFTER CONDUCTING THE INQUIRY BY THE LEARNED COMMISS IONER HIMSELF. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT AS FAR AS CASE LAW APPRAISING THE BROAD TEST FOR JUDGING ANY ACTION TA KEN UNDER SEC. 263 ARE CONCERNED IN THE CASE OF SISTER CONCERN I.E. DLF IN FOCITY (SUPRA), ASSESSEE HAS REFERRED A LARGE NUMBER OF CASES AND THESE CASE S HAVE BEEN NOTICED BY THE ITAT ON PAGE NO. 32 OF THE ORDER. HE RELIED UPO N THE ITATS ORDER. 12. LEARNED CIT(DR) ON THE OTHER HAND RELIED UPON T HE ORDER OF LEARNED COMMISSIONER. HOWEVER, SHE WAS UNABLE TO CONTROVERT THE FACT THAT A SIMILAR ISSUE WAS CONSIDERED BY THE ITAT IN THE CASE OF DLF INFOCITY DEVELOPERS VS. ACIT. 13. WE HAVE DULY CONSIDERED RIVAL CONDITION AND GONE TH ROUGH THE RECORD CAREFULLY. THE ITAT IN THE CASE OF MRS. KHAT IZA S. OOMERBHOY 19 VS. ITO, MUMBAI, 101 TTJ 1095, ANALYSED IN DETAIL V ARIOUS AUTHORITATIVE PRONOUNCEMENTS INCLUDING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIES 243 ITR 83 AS WELL AS HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE O F GABRIEL INDIA LTD. AND HAS PROPOUNDED THE FOLLOWING BROADER PRINC IPLE TO JUDGE THE ACTION OF CIT TAKEN UNDER SECTION 263. THE FUNDAMENTAL PRINCIPLE WHICH EMERGE FROM THE AB OVE CASES MAY BE SUMMARIZED BELOW THE CIT MUST RECORD SATISFACTION THAT THE ORDER OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. BOTH THE CONDITIONS MUST BE FULFILLED. SEC. 263 CANNOT BE INVOKED TO CORRECT EACH AND EVER Y TYPE OF MISTAKE OR ERROR COMMITTED BY THE AO AND IT WAS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WI LL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT AP PLICATION OF LAW WILL SUFFICE THE REQUIREMENT OF ORDER BEING ERRONEOUS. IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORDER. EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDIC IAL TO THE INTERESTS OF THE REVENUE AND IF THE AO HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS ARE POSSIBLE AND THE AO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE. IF CANNOT BE TREATED AS AN ERRONEOUS ORDER, UNLESS THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE UNDER LAW 20 IF WHILE MAKING THE ASSESSMENT, THE AO EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINE THE INCOME, THE CIT, WHILE EXERCISING HIS POWER UNDER S 263 IS NOT PERMITTED TO SUBSTITUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIMATED BY THE AO. THE AO EXERCISES QUASI-JUDICIAL POWER VESTED IN HIS AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH LAW AND ARRIVE AT A CONCLUSION, SUCH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEE STRATIFIED WITH THE CONCLUSION. THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER S . 263 MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION . IF THE AO HAS MADE ENQUIRIES DURING THE COURSE OF A SSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANATION BY A LETTER IN WRITING AND THE AO ALLOWS THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, THE DECISION OF THE AO CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. 14. IN THE LIGHT OF ABOVE, LET US EXAMINE THE FACTS . LEARNED COMMISSIONER CAN TAKE ACTION UNDER SEC. 263 OF THE INCOME-TAX AC T, 1961, IF THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF THE REVENUE. BOTH THESE CONDITIONS SHOULD BE AVAILABLE ON RECORD . AN ORDER CAN BE ERRONEOUS, WHEN LEARNED ASSESSING OFFICER HAS MISCO NSTRUED OR MISINTERPRETED THE PROVISIONS OF INCOME-TAX ACT, 19 61 OR FACTS ON THE RECORD WHICH GOAD HIM TO ARRIVE AT WRONG CONCLUSIONS. IF S UCH WRONG CONCLUSIONS 21 RESULT INTO ESCAPEMENT OF INCOME FROM TAXATION, THE N, PREJUDICE WOULD CAUSE TO THE REVENUE. NOW, IN THE PRESENT CASE, LEARNED C OMMISSIONER MAINLY ASSIGNED TWO REASONS FOR TERMING THE ASSESSMENT ORD ER AS ERRONEOUS, NAMELY, (A) LEARNED ASSESSING OFFICER HAD GRANTED DEDUCTION UNDER SEC. 80IAB WHICH IS NOT ADMISSIBLE TO THE ASSESSEE; (B) THAT LEARNED ASSESSING OFFICER DID NOT CARRY OUT PROPER INVESTIGATION. 15. LET US TAKE THE SECOND QUESTION FIRST. HON'BLE DELHI HIGH COURT IN THE CASE OF SUNBEAM AUTO REPORTED IN 332 ITR 167 AND CI T VS. ANIL KUMAR REPORTED IN 335 ITR PAGE 1 HAS POINTED OUT THE DIST INCTION BETWEEN LACK OF INQUIRY AND INADEQUATE INQUIRY. IN CASE OF NO INQUI RY, LEARNED COMMISSIONER CAN BE JUSTIFIED TO SAY THAT ASSESSMEN T ORDER IS ERRONEOUS BECAUSE THE ASSESSING OFFICER PLAYS A ROLE OF INVES TIGATOR AS WELL AS ADJUDICATOR. HE IS DUTY BOUND TO LOOK INTO THE DETA ILS, VERIFY THEM AND THEN ADJUDICATE. LEARNED COMMISSIONER HAS OBSERVED IN HI S ORDER THAT ASSESSING OFFICER FAILED TO CONDUCT PROPER INQUIRY. THE EXPRE SSION PROPER INQUIRY IS A VERY SUBJECTIVE AND VAGUE TERM, IT DEPENDS UPON E ACH ADJUDICATOR, WHAT IS A PROPER INQUIRY. IN THE IMPUGNED ORDER, LEARNED CO MMISSIONER HAS NOT REFERRED ANY PARTICULAR FACT; HAD THAT BEEN CONSID ERED THEN RESULT COULD BE DIFFERENT. WE COULD APPRECIATE THE STAND OF THE REV ENUE, IF LEARNED 22 COMMISSIONER HAD POINTED OUT THE PARTICULAR FACTS W HOSE NON-INVESTIGATION BY THE LEARNED ASSESSING OFFICER, GOAD HIM ON WRONG CONCLUSION. LEARNED ASSESSING OFFICER HAS ENQUIRED ABOUT THE OVERHEAD E XPENDITURE, HE HAS REDUCED THE CLAIM OF THE ASSESSEE, THIS SUGGESTS TH AT HE WAS AWARE ABOUT THE CLAIM OF DEDUCTION UNDER SEC. 80IAB. THE ALLEGATION S BY THE LEARNED COMMISSIONER, AT THE MOST, CAN BE; THAT IT IS NOT D ISCERNIBLE FROM THE RECORD WHETHER VERY APPLICABILITY OF SEC. 80IAB WAS EXAMIN ED OR NOT. THIS ASPECT WE WILL DEAL WITH THE ISSUE NO.1, HOWEVER, ON THE P OINT NO.2, WE ARE OF THE OPINION THAT ASSESSING OFFICER HAD EXAMINED THE DET AILS OF DEDUCTION CLAIMED UNDER SEC. 80IAB. HE HAD ISSUED QUESTIONNAI RE AND THEREAFTER REVISED THE CLAIM. THE ALLEGED INADEQUATE INQUIRY C ANNOT BE A GROUND TO TERM THE ASSESSMENT ORDER AS ERRONEOUS. 16. AS FAR AS REASON NO.1 IS CONCERNED, THE SEZ ACT WAS ENACTED IN 2005, OFFERING SLEW OF BENEFIT TO DEVELOPERS OF VARIOUS S EZ IN INDIA. THE ACT PROVIDES A COMPLETE MECHANISM AND UNDER SEC. 8(1), A REGULATORY BODY CALLED BOARD OF APPROVAL (FOR SHORT BOA) IS CREAT ED, CONFERRING WIDE POWERS ON IT, WHICH ARE ENSHRINED IN SEZ ACT. SIMUL TANEOUSLY, SECTION 80IAB HAS BEEN INTRODUCED IN THE INCOME-TAX ACT, 19 61 PROVIDING 100% DEDUCTION ON THE INCOME DERIVED FROM SEZ ON FULFILL MENT OF VARIOUS 23 CONDITIONS. IT ALSO EMERGES OUT FROM THE RECORD THA T THE DEVELOPERS WOULD NOT SELL THE WARM SHELL BUILDING AND THE ULTIMATE USER WOULD BE A LESSER ONLY. HOWEVER, A PROVISION HAS BEEN MADE IN THE SEZ ACT, WHEREBY A CO- DEVELOPER HAS BEEN PROVIDED WHO WILL BE TREATED AT PAR WITH THE DEVELOPERS. THE ASSESSEE HAS LEASED OUT THE LAND TO THE CO-DEVE LOPER AND SOLD BARE SHELL STRUCTURE TO THE CO-DEVELOPER, WHO WILL CONVERT IT INTO THE WARM SHELL AND ULTIMATELY LEASE RENTAL WOULD BE EARNED FROM EXPLOI TATION OF DEVELOPED BUILDING. WHEN ALL THESE ASPECTS COME UP THEN ASSES SEE APPROACHED THE BOA WHO IS A COMPETENT AUTHORITY UNDER THE SEZ ACT. THE TRANSFER OF BARE SHELL BUILDING HAS BEEN APPROVED BY THE BOA. IT WAS HELD AS AN AUTHORIZED ACTIVITY. BOA HAS NOT RAISED ANY DISPUTE. WE HAVE E XTRACTED SOME OF THE QUESTIONS AND REPLIES. WE HAVE ALSO GONE THROUGH TH E OTHER CORRESPONDENCE AVAILABLE ON PAGES 106 TO 113 OF THE PAPER BOOK. IN BRIEF, CO-DEVELOPER IS TO BE CONSTRUED AS DEVELOPER. THE BARE SHELL STRUCTURE CAN BE SOLD BY A DEVELOPER TO THE CO-DEVELOPER. THIS ACTIVITY IS TO BE CONSIDERED AS AN AUTHORIZED ACTIVITY UNDER THE SEZ ACT. THE ASSESSEE HAS TREATED ALLEGED BARE SHELL AS STOCK-IN-TRADE. IT HAS CLAIMED THE DEDUCTION IN ONE YEAR ON SALE OF STOCK IN TRADE. SECTION 80IAB PROVIDES THAT INCOME DERIVED FROM THE ACTIVITY OF DEVELOPING SEZ, NOTIFIED ON OR AFTER IS T DAY OF APRIL 2005, WOULD BE ELIGIBLE FOR DEDUCTION SUBJECT TO FULFILLMENT OF CONDITIONS IN SUB-SECTION 24 (5) AND (7) TO (12) OF SEC. 80IA OF THE INCOME-TAX ACT, 1961. AS FAR AS FULFILLMENT OF CONDITIONS WITH REGARD TO PROVISIONS OF SUB-SECTION (5) AND (7) TO (12) OF SEC. 80IA IS CONCERNED, LEARNED COMMISSI ONER HAS NOT RAISED ANY DISPUTE. SUB-SECTION (5) OF SEC. 80-IA PUTS CERTAIN RESTRICTIONS ON THE QUANTUM OF ADMISSIBLE DEDUCTION. THIS ASPECT HAS BE EN EXAMINED BY THE ASSESSING OFFICER WHILE DEALING WITH ALLOCATION OF PROPORTIONATE OVERHEADS EXPENSES. SUB-SECTION (7) TALKS OF SUBMISSION OF RE PORTS IN FORM NO. 10CCB WHICH IS NOT IN DISPUTE. SUB-SECTION (8) TALKS OF T RANSFER OF SERVICE AT ARMS LENGTH PRICE, SO THAT ANY ASSESSEE WOULD NOT CLAIM EXCESS DEDUCTION. THIS EXERCISE HAS ALSO BEEN CARRIED OUT BY THE ASSESSING OFFICER AND NO DISPUTE HAS BEEN RAISED. SUB-SECTION 80(A) AGAIN RESTRICT T HE QUANTUM OF DEDUCTION AVAILABLE WHERE PROFITS OF THE UNDERTAKING OR ENTER PRISES HAVE BEEN CLAIMED AS DEDUCTION UNDER THIS SECTION. SINCE NO DEDUCTION WAS CLAIMED UNDER ANY OTHER SECTION OF THIS CHAPTER, THEREFORE, ACCORDING TO THE ASSESSEE, THIS SECTION IS NOT APPLICABLE. SUB-SECTION (10) EMPOWERS THE AS SESSING OFFICER TO REDUCE THE QUANTUM OF DEDUCTION, IF IT WAS FOUND THAT THE TRANSACTIONS HAVE BEEN SO ARRANGED WHICH GIVES HIGHER RATE OF PROFIT THEN ORD INARY PROFIT IN THAT LINE OF BUSINESS. SUB-SECTION (11) DEALS WITH THE NOTIFICAT ION, IF ANY, ISSUED BY THE GOVERNMENT DENYING THE DEDUCTION TO ANY PARTICULAR CLASS OF INDUSTRY OR IN ANY, NOTIFIED AREA. IT IS ALSO NOT APPLICABLE. SIMI LARLY, SUB-SECTION (12) UNDER 25 SEC. 80IA DEALS WITH A SITUATION WHERE THE UNDERTAK ING OR ENTERPRISE HAS BEEN AMALGAMATED, THIS CLAUSE IS ALSO NOT APPLICABLE. 16.1 THOUGH IN THE PRESENT APPEAL, WE ARE NOT CALLE D UPON TO ADJUDICATE THE ISSUE REGARDING ADMISSIBILITY OF DEDUCTION UNDER SE C. 80IAB CONCLUSIVELY BECAUSE THE LEARNED COMMISSIONER HIMSELF HAS NOT AD JUDICATED THIS ISSUE THAT A DEDUCTION WOULD NOT BE ADMISSIBLE TO THE ASS ESSEE. HE CONFINED HIMSELF TO THE AREA THAT PROPER INQUIRY WAS NOT CON DUCTED BEFORE GRANTING THE DEDUCTION. THUS, OUR ENDEAVOR IS TO JUDGE THE ASSES SMENT ORDER AND WHETHER LEARNED ASSESSING OFFICER HAS TAKEN ONE OF THE POSS IBLE VIEWS WHILE GRANTING DEDUCTION UNDER SEC. 80-IAB OF THE INCOME-TAX ACT, 1961. IN OUR OPINION, LEARNED COMMISSIONER HAS FAILED TO COMPREHEND THE C OMPLETE CONCEPT OF SEZ ACT AND CONFINED HIMSELF TO THE ORDINARY MEANIN G OF EXPRESSION INCOME DERIVED FROM DEVELOPING SEZ PROVIDED IN SE C. 80IAB. HE CONSTRUED THE LIMITED INCOME FROM DEVELOPING SEZ AC T, AS THE LEASE RENTAL. ON THE OTHER HAND, STAND OF THE ASSESSEE IS THAT IF A DEVELOPER TRANSFERS A BARE SHELL STRUCTURE OF THE BUILDING, DEVELOPED BY HIM T O A CO-DEVELOPERS THEN SUCH AN ACTIVITY WOULD FALL WITHIN THE AMBIT OF AUT HORIZED ACTIVITY AND THE FINAL AUTHORITY TO INTERPRET WHETHER IT IS AN AUTHO RIZED ACTIVITY OR NOT IS BOA. THIS AUTHORITY HAS GRANTED ITS APPROVAL ABOUT THE T RANSFER OF BARE SHELL 26 STRUCTURE AND TERMED IT AS A AUTHORIZED ACTIVITY OF DEVELOPMENT OF SEZ. WE HAVE ALSO NOTICED THAT ASSESSEE HAS NOT TOTALLY ABA NDONED THE PROJECT. IT HAS STILL TO PERFORM NUMBER OF RESPONSIBILITIES. THUS, ASSESSING OFFICER HAS TAKEN ONE OF THE POSSIBLE VIEW OR INTERPRETATION OF ALL T HESE PROVISIONS, SOMEHOW, HIS VIEW DOES NOT MATCH WITH THE VIEW OF LEARNED CO MMISSIONER BUT THAT WOULD NOT AUTHORIZE THE LEARNED COMMISSIONER TO SAY THAT ASSESSMENT ORDER IS ERRONEOUS. 17. WE DEEM IT APPROPRIATE TO TAKE NOTE OF THE ITAT S ORDER IN THE CASE OF SISTER CONCERN, WHICH READ AS UNDER: ISSUE ABOUT LACK OF ENQUIRY AND INADEQUATE INQUIRY: 6.13. IT IS PLEADED BY LD COUNSEL THAT THE ASSESSM ENT RECORD, NOTICE U/S 143(2), 142(1), QUESTIONNAIRE, PLEADINGS, SUBMI SSIONS AND ASSESSMENT ORDER ALL TOGETHER CLEARLY DEMONSTRATE T HAT REQUISITE ENQUIRIES WERE CONDUCTED BY AO WHILE ALLOWING THE A SSESSEES CLAIM U/S 80IAB. ASSUMING BUT NOT ADMITTING IN WORST SCEN ARIO CIT MAY ASSUME THAT INADEQUATE INQUIRIES WERE CONDUCTED. ON THIS COUNT ALSO HONBLE DELHI HIGH COURT HAS REPEATEDLY HELD THAT R EVISIONARY POWERS U/S 263 CANNOT BE EXERCISED IF CIT IS OF THE VIEW I NQUIRIES MADE BY AO WERE INADEQUATE. RELIANCE IS PLACED ON (I) CIT VS. SUNBEAM AUTO LTD. 332 ITR 167 (DEL.) 27 IN THE CASE OF CIT VS. SUNBEAM AUTO LTD., IT WAS HE LD BY HONBLE HIGH COURT OF DELHI THAT WHERE THE A.O. HAD MADE AN ENQUIRY BEFORE COMPLETION OF ASSESSMENT, THE SAME C OULD NOT BE SET ASIDE FOR REASON OF INADEQUATE ENQUIRY. THE A O HAD CALLED FOR REASONS/ EXPLANATION AND HAD DECIDED AFTER CONS IDERING THE EXPLANATION FILED. THERE WAS NO LACK OF ENQUIRY. TH E ORDER OF CIT UNDER SECTION 263 WAS INVALID, SINCE AO HAD TAK EN A POSSIBLE VIEW. ( II) CIT VS. HONDA SIEL POWER PRODUCTS LTD. 235 CTR 336 (DEL.) IN THE CASE OF CIT VS. HONDA SIEL POWER PRODUCTS LT D., IT WAS HELD BY HONBLE HIGH COURT OF DELHI THAT THERE IS N O MATERIAL TO INDICATE THAT THE ASSESSING OFFICER HAD NOT APPLIED HIS MIND TO THE PROVISIONS OF SECTION 80IB(13) READ WITH SECTIO N 80IA(9). THE PRESUMPTION THAT THE ASSESSMENT ORDERS PASSED U NDER SECTION 143(3) PASSED BY THE ASSESSING OFFICER HAD BEEN PASSED UPON AN APPLICATION OF MIND, HAS NOT BEEN REBUTTED BY THE REVENUE. NO ADDITIONAL FACTS WERE NECESSARY BEFORE THE ASSESSING OFFICER FOR THE PURPOSE OF CONSTRUING THE PROVISIONS OF SECTION 80IB(13) READ WITH SECTION 80IA(9). IT W AS ONLY A LEGAL CONSIDERATION AS TO WHETHER THE DEDUCTION UND ER SECTION 80HHC WAS TO BE COMPUTED AFTER REDUCING THE AMOUNT OF DEDUCTION UNDER SECTION 80IB FROM THE PROFITS AND G AINS. THERE IS NO DOUBT THAT THE ASSESSING OFFICER HAD ALLOWED THE DEDUCTION UNDER SECTION 80HHC WITHOUT REDUCING THE AMOUNT OF DEDUCTION ALLOWED UNDER SECTION 80IB FROM THE PR OFITS AND GAINS. HE DID NOT SAY SO IN SO MANY WORDS, BUT THAT WAS THE END RESULT OF HIS ASSESSMENT ORDER. SINCE HE WAS HOLDIN G IN FAVOUR OF THE ASSESSEE, AS HAS BEEN OBSERVED IN HARI IRON TRADING COMPANY (SUPRA) AND EICHER LIMITED (SUPRA), GENERAL LY, THE ISSUES WHICH ARE ACCEPTED BY THE ASSESSING OFFICER, DO NOT FIND MENTION IN THE ASSESSMENT ORDER, IT CANNOT BE SAID THAT THE ASSESSING OFFICER HAD NOT APPLIED HIS MIND. IT CANN OT ALSO BE SAID THAT THE ASSESSING OFFICER HAD FAILED TO MAKE ANY ENQUIRY BECAUSE NO FURTHER ENQUIRY WAS NECESSARY AND ALL TH E FACTS WERE BEFORE THE ASSESSING OFFICER. (III) CIT V. ANIL KUMAR SHARMA (2011) 3 35 ITR 1 28 IN THIS CASE THE HONORABLE HIGH COURT WAS SEIZED WI TH THE ISSUE ON CONDITIONS PRECEDENT FOR THE REVISION OF ORDER AND DIFFERENTIATED BETWEEN THE LACK OF INQUIRY AND THE INADEQUATE INQU IRY BY THE ASSESSING OFFICER IT IS HELD THAT THE FINDING BY TH E TRIBUNAL THAT THE ASSESSING OFFICER HAD MADE INQUIRY AND THAT COMMISS IONER WAS NOT ABLE TO POINT OUT IN HIS ORDER, THE ORDER OF REVISI ON NOT VALID. (IV) VODAFONE ESSAR SOUTH LTD. VS. C I T 2011 TIOL 417 ITAT DEL. IN THIS CASE THE HONBLE BENCH HELD THAT WHERE THE RE IS DUE ENQUIRY BY THE ASSESSING OFFICER ,THOUGH IT HAS BE EN CONSIDERED TO BE INADEQUATE BY THE CIT, RECOURSE U/S 263 CANNO T BE MADE. ACCORDINGLY, IT IS SUBMITTED THAT THE INITIATION OF REVISION PROCEEDINGS UNDER SECTION 263 OF THE IT ACT BEING T O TAKE ANOTHER POSSIBLE VIEW ABOUT ALLOWABILITY OF DEDUCTI ON AND ADEQUACY OF ENQUIRIES IS UNSUSTAINABLE AND CONTRARY TO AUTHORITY OF LAW AND THE SAME IS DIRECTLY CONTRARY TO THE LAW LAID DOWN BY THE SAID TWO HONBLE SUPREME COURT JUD GMENTS IN THE CASE OF MALABAR INDUSTRIAL COMPANY LTD. VS. CIT, CIT VS. MAX INDIA LTD AND OTHER DELHI HIGH COURT JUDGMENTS ON THESE ISSUES (SUPRA). 6.14. THE ENTIRE TRANSACTION I.E. ACTIVITY OF TRANS FER OF BARE SHELL BUILDINGS BY DEVELOPER TO CO DEVELOPER INCLUDING TH E DOCUMENTATION OF THE SAME HAS BEEN APPROVED BY BOA UNDER SEZ ACT. IN SUCH CIRCUMSTANCES THERE IS NO SCOPE FOR PRESUMING THAT SUCH ACTIVITY IS NOT AN AUTHORIZED ACTIVITY. CONSEQUENTLY, THE INTEREST OF REVENUE AS 29 EXPRESSED BY BOA WHILE APPROVING THE CO DEVELOPERS AGREEMENT HAS BEEN TAKEN CARE OF BY ASSESSING OFFICER BY EXAMININ G THE ALLOW ABILITY OF DEDUCTION U/S 80IAB OF THE INCOME-TAX ACT. IT IS NOT OPEN TO THE CIT UNDER SECTION 263, TO SIT IN JUDGMENT ON THE VA LID VIEW AS TO WHETHER THE TRANSFER OF BARE SHELL BUILDING IN SEZ FOR A DEVELOPMENT CONSIDERATION IS AN AUTHORIZED OPERATION OR NOT AS LONG AS IT IS APPROVED BY THE BOA AND DULY ENQUIRED BY AO. SUCH POWERS ARE VESTED EXCLUSIVELY, LAWFULLY AND SOLELY WITH THE BO ARD OF APPROVALS (BOA) UNDER SEZ ACT. A PERUSAL OF THE RECORD IN OUR CASE SHOWS THAT THE BOA HAS EXPRESSLY AND CONSCIOUSLY EXERCISED SUC H POWER VESTED IN IT AND APPROVED THE TRANSFER OF BARE SHELL FROM DEVELOPER TO CO- DEVELOPER TO BE AN AUTHORIZED OPERATION. THIS UNDER STANDING IS ONCE AGAIN CONFIRMED IN CLARIFICATIONS OF MINISTRY OF CO MMERCE DATED 18 TH OF JANUARY 2011 AND 20 TH JANUARY 2011, COPIES OF WHICH ARE CONTAINED IN THE PAPER BOOK PART OF ANNEXURE TO THIS SUBMISSI ON. THESE CLARIFICATIONS WERE OBTAINED BY ASSESSEE WHEN CIT R AISED THESE ISSUES. IN THIS BEHALF BOA UNEQUIVOCALLY CLARIFIED THAT THE CO-DEVELOPERS AGREEMENT WAS AN AUTHORIZED AGREEMENT AND THE TRANS FER OF BARE SHELL BUILDINGS TO CO-DEVELOPERS WAS ALSO AN AUTHORIZED A CTIVITY. 6.15. THUS, IT IS PLEADED THAT THE LD. ASSESSING OF FICER CARRIED OUT PROPER INQUIRIES; ASSESSEE SUBMITTED PROPER EXPLANA TION THEREON, A NOTE WHEREOF IS RECORDED IN THE PROCEEDINGS SHEETS. THE REQUISITE FINDING HAS BEEN RECORDED IN THE ASSESSMENT ORDER. THE ORDER OF ASSESSING OFFICER MAY BE SHORT BUT IT CONTAINS ALL THE RELEVANT FINDINGS ABOUT HIS INQUIRY AND SATISFACTION. ASSESSING OFFIC ER IS A QUASI JUDICIAL 30 AUTHORITY AND HIS FINDINGS AND OBSERVATIONS GIVEN I N CLEAR TERMS BY HIM IN THE ORDER ARE CONCLUSIVE. THERE IS NO PROFAR MA ABOUT THE FORMAT OF ASSESSMENT ORDER AND LENGTH OF ASSESSMENT ORDER IN THE INCOME-TAX ACT. THE ORDER SHOULD BE BASED ON RECORD OF PROCEED INGS AND MATERIAL ON THE FILES AND ALL THIS SHOULD REFLECT THE INQUIR IES MADE BY ASSESSING OFFICER AND THE CONCLUSION ARRIVED THEREON. THE REC ORD IN THE ASSESSEES CASE STANDS TESTIMONY THAT A FULL AND PR OPER EXERCISE OF HEARING DURING THE COURSE OF ASSESSMENT WAS CARRIED OUT AND THE ASSESSMENT ORDER WAS PASSED GIVING CRYSTAL CLEAR FI NDINGS ALLOWING THE 80IAB CLAIM OF THE ASSESSEE. 6.16. THE LETTER OF APPROVAL IS ISSUED BY THE BOARD BY A STATUTORY PROCESS OF LAW AND ONCE IT HAS BEEN ISSUED BY THE EXCLUSIVE SANCTIONING AUTHORITY, THE CONSEQUENTIAL BENEFITS T HAT ARE AVAILABLE TO A DEVELOPER CANNOT BE DENIED. THE ASSESSING OFFICER O R THE COMMISSIONER OF INCOME-TAX EXERCISING THE POWER OF REVISION UNDER THE ACT CANNOT HAVE ANY JURISDICTION TO QUESTION TH E VALIDITY OR THE LEGALITY OF THE AUTHORIZED OPERATIONS WHICH HAVE BE EN APPROVED BY THE REGULATORY BODY OF THE CENTRAL GOVERNMENT I.E. BOA AND ATTEMPT TO DISPUTE THE SAME IS CONTRARY TO THE STATUTORY PROVI SIONS OF THE SEZ ACT. 6.17. THE ASSESSEE HAS NOT SOLD THE LAND IN FAVOUR OF THE CO-DEVELOPER AS WRONGLY ALLEGED BY CIT. AS THE RECORD DEMONSTRAT ES ASSESSEE ONLY LEASED OUT THE BARE SHELL BUILDINGS IN FAVOUR OF CO -DEVELOPER. THE TRANSFER OR THE LEASING OF BARE SHELL BUILDINGS COM ES WITHIN THE 31 PURVIEW OF AUTHORIZED ACTIVITIES AND THE CO-DEVELOP ER AGREEMENT HAVING BEEN APPROVED BY THE BOA, THE INCOME TAX AUT HORITIES HAVE TO ALLOW THE DEDUCTION U/S 80-IAB. AS PER THE SETTLED PROPOSITIONS OF LAW IN CASE BOA ARE APPOINTED BY THE CENTRAL GOVERNME NT IN VARIOUS FIELDS OF GIVING BENEFITS LIKE SEZ, CUSTOMS AND VAR IOUS OTHER FISCAL LEGISLATION, THE INCOME-TAX AUTHORITIES CANNOT SIT OVER THE JUDGMENT OF THE BOA. BY CATENA OF JUDGMENTS THE COURTS HAVE HEL D THAT THE APPROVALS ACCORDED BY SUCH REGULATORY BOARDS IN DEV ELOPMENT SCHEMES CANNOT BE QUESTIONED BY TAX AUTHORITIES. RE LIANCE IN THIS BEHALF IS PLACED ON: - APOLLO TYRES VS. CIT (2002) 9 SCC 1 (SC); - MALAYALA MANORAMA CO. LTD. VS. CIT (2008) 12 SCC 61 2 (SC) - CIT V. HCL COMMET SYSTEM & SERVICES LTD. 305 ITR 40 9 (SC); - MARMO CLASSIC VS. COMMISSIONER OF CUSTOMS [2002(143 ) ELT 153 (TRIB. MUMBAI)] AFFIRMED BY HONBLE SUPREME COURT IN [2003(152) ELT A85 (SC)]; - LOKASH CHEMICAL WORKS VS. M.S. MEHTA 1981 (8) ELT 2 35; - TITAL MEDICAL SYSTEMS PVT. LTD. VS. COLLECTOR 2003 (151) ELT 254 (SC) - CESTAT JUDGMENT IN HICO ENTERPRISES VS. COMMISSIONE R 2005 (189) ELT 135 (TRIB. LB) APPROVED BY HONBLE SUPREME COURT IN 2008 (228) ELT 161 (SC); - ATUL COMMODITIES PVT. LTD. VS. COMMISSIONER OF CUST OMS COCHIN 2009 (235) ELT 385 (SC); 32 - M.J. EXPORTS LTD. VS. CEGAT 1992 (60) ELT 161 (SC); 6.18. ASSESSEE HAS SUCCESSFULLY DISPELLED THE UNFOU NDED ALLEGATION OF THE CIT THAT THE CLAIM U/S 80IAB WAS NOT ENQUIRED B Y ASSESSING OFFICER AND IT WAS AN ERROR WHICH WAS PREJUDICIAL T O REVENUE. UNDER THESE CIRCUMSTANCES THE ORDER OF ASSESSING OFFICER CANNOT BE HELD TO BE ERRONEOUS OR PREJUDICIAL TO THE INTERESTS OF REVENU E. 6.19. ALL THESE CASES, WHICH PERTAIN TO REGULATORY AUTHORITIES UNDER CUSTOMS, DGFT, STATE GOVT. DEVELOPMENT BOARDS, IMPO RT LICENSE ETC., IT HAS BEEN HELD THAT CERTIFICATE ISSUED BY C OMPETENT AUTHORITIES CANNOT BE REVIEWED BY THE LOWER AUTHORITIES LIKE CU STOM OFFICERS, INCOME-TAX OFFICERS ETC. WHY THE ORDER OF CIT U/S 263 IF INVALID AND UNSUSTA INABLE IN LAW 6.20. THUS, TAKING INTO CONSIDERATION ALL THE ABOVE CIRCUMSTANCES, ALLEGATIONS ABOUT ASSESSING OFFICERS ORDER BEING E RRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE BY THE CIT IN 263 SHOW CAUSE NOTICE AND 263 ORDER HAVE NO SUBSTANCE. THUS THE 26 3 ORDER OF THE CIT IS NOT TENABLE ON FOLLOWING COUNTS: (I) LD. CIT FAILED TO APPLY HIS MIND AND TO CONSIDER EX PLANATION AND MATERIAL FILED BY THE ASSESSEE INCLUDING THE VERIFI CATIONS FROM BOA CONFIRMING THE ASSESSEES STAND. LD. CIT HAS BEEN C ANDID ENOUGH TO ADMIT THAT HE HAS NOT ENOUGH TIME TO CONSIDER TH ESE SUBMISSIONS AND THE REPORT OF ASSESSING OFFICER WHICH WAS CALL ED BY LD. CIT ONLY. ADMITTEDLY THE ORDER HAS BEEN PASSED WITHOUT CONSIDERING THE 33 MATERIAL AVAILABLE ON RECORD AND CROSS VERIFYING OF THE ASPECTS WITH THE CASE RECORD. IN THESE CIRCUMSTANCES, THE 263 OR DER IS VITIATED BY LACK OF APPLICATION OF MIND AND PROPER CONSIDERATIO N OF THE MATERIAL, THUS THE ORDER U/S 263 IS BAD IN LAW. (II) THE ASSESSEES AGREEMENT WITH CO-DEVELOPER IS APPRO VED BY THE BOA. THE ACTIVITY OF TRANSFERRING BARE SHELL BUILDI NGS IS ONLY AN AUTHORIZED ACTIVITY AS CERTIFIED BY THE BOA ITSELF AND THE ANNEXURE ATTACHED TO THE NOTIFICATION. (III) THE ASSESSEE HAS NOT SOLD ANY LAND BUT ONLY TRANSFE RRED THE BARE SHELL BUILDINGS ON LEASE. THEREFORE, THERE IS NO ER ROR AS POINTED OUT BY LD. CIT. (IV) THE ASSESSING OFFICER HAS CONDUCTED PROPER INQUIRIE S WHICH IS EVIDENT FROM PROCEEDINGS SHEETS; LETTERS; QUESTIONN AIRE; ASSESSEES RESPONSE AND DETAILED NOTES SUBMITTED ON ELIGIBILIT Y U/S 80-IAB. THUS ASSESSING OFFICERS ORDER IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF REVENUE. 6.21. IN VIEW OF THESE FACTS AND CIRCUMSTANCES IT I S PLEADED BY LD COUNSEL THAT THE IMPUGNED 263 ORDER PASSED BY THE CIT MAY BE QUASHED. 7. LD. CIT (DR), ON THE OTHER HAND, SUPPORTED THE O RDER OF CIT U/S 263 AND CONTENDS AS UNDER: (I) THE ASSESSING OFFICERS ORDER IS VERY SHORT AND DOE S NOT SPELL OUT ANY REASON FOR ALLOWING RELIEF TO THE ASSESSEE. (II) THE RECORD DOES NOT REFLECT THAT PROPER INQUIRIES W ERE CONDUCTED, EXCEPT A CASUAL REFERENCE TO HIS BEING SATISFIED AB OUT THE ASSESSEES ELIGIBILITY TO CLAIM U/S 80-IAB. 34 (III) THE CLARIFICATIONS ISSUED BY BOA SUBSEQUENT TO THE ASSESSMENT PROCEEDINGS WERE NOT PART OF THE RECORD AND WERE N OT BEFORE THE ASSESSING OFFICER AND HAVE NO RELEVANT. (IV) THEREFORE THERE IS NO ERROR IN DIRECTION GIVEN BY T HE CIT TO ASSESSING OFFICER TO VERIFY THE SAME AND CARRY OUT PROPER INQUIRIES. REVISION PROCEEDINGS ARE VALID AND DESERVE TO BE UP HELD. 7.1. LD. DR THEN RELIED ON FOLLOWING JUDGMENTS: - CIT VS. NAGESH KNITWARS P. LTD. (2012) 345 ITR 13 5 (DEL.) - CIT VS. DLF POWER LTD. (2012) 345 ITR 446 (DEL.) - CIT VS. HARSH J. PUNJABI (2012) 345 ITR 451 (DEL. ) 7.2. IT IS PLEADED THAT RATIO OF THESE JUDGMENTS IS APPLICABLE TO THE FACTS OF THE ASSESSEES CASE AND CONSIDERING THEM T HE 263 ACTION EXERCISED BY THE CIT, HOLDING THAT THE ORDER IS ERR ONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE IS JUSTIFIE D. 8. LD. COUNSEL FOR THE ASSESSEE IN REPLY REFERS TO THE HONBLE DELHI HIGH COURT JUDGMENT IN THE CASE OF CIT VS. V IKAS POLYMERS 236 CTR 476 (DEL.), WHEREIN IT HAS BEEN HELD THAT T HE PROVISIONS OF SECTION 263 OF THE ACT, WHEN READ AS A COMPOSITE WH OLE MAKE IT INCUMBENT UPON THE COMMISSIONER BEFORE EXERCISING R EVISIONAL POWERS TO: (I) CALL FOR AND EXAMINE THE RECORD, AND (II) GIVE THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND THEREAFT ER TO MAKE OR CAUSE TO BE MADE SUCH ENQUIRY AS HE DEEMS NECESSARY. IT I S ONLY ON FULFILLMENT OF THESE TWIN CONDITIONS THAT THE COMMI SSIONER MAY PASS AN ORDER EXERCISING HIS POWER OF REVISION. MINUTELY EXAMINED, THE 35 PROVISIONS OF THE SECTION ENVISAGE THAT THE COMMISS IONER MAY CALL FOR THE RECORDS AND IF HE PRIMA FACIE CONSIDERS THAT AN Y ORDER PASSED THEREIN BY THE ASSESSING OFFICER IS ERRONEOUS INSOF AR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, HE MAY AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTER MAKING OR CAUS ING TO BE MADE SUCH ENQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY. THE TWIN REQUIRE MENT OF THE SECTION IS MANIFESTLY FOR A PURPOSE. MERELY BECAUSE THE COM MISSIONER CONSIDERS ON EXAMINATION OF THE RECORD THAT THE ORD ER HAVE BEEN ERRONEOUSLY PASSED SO AS TO PREJUDICE THE INTEREST OF THE REVENUE WILL NOT SUFFICE. THE ASSESSEE MUST BE CALLED, HIS EXPLA NATION SOUGHT FOR AND EXAMINED BY THE COMMISSIONER, AND THEREAFTER IF THE COMMISSIONER STILL FEELS THAT THE ORDER IS ERRONEOU S AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, THE COMMISSIONER MAY P ASS REVISIONAL ORDERS. IF, ON THE OTHER HAND, THE COMMISSIONER IS SATISFIED, AFTER HEARING THE ASSESSEE, THAT THE ORDERS ARE NOT ERRON EOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, HE MAY CHOOSE NOT T O EXERCISE HIS POWER OF REVISION. 8.1. THE JUDGMENT MANDATES THAT THE ASSESSEE MUST BE CALLED, HIS EXPLANATION SOUGHT FOR AND EXAMINED BY THE COMMISSI ONER AND IF, ON THE OTHER HAND, THE COMMISSIONER IS SATISFIED, AFTE R HEARING THE ASSESSEE, THAT THE ORDER IS NOT ERRONEOUS AND PREJU DICIAL TO THE INTEREST OF THE REVENUE, HE HAS AN OPTION NOT TO EXERCISE HI S POWER OF REVISION. IN THIS CASE THE BOA CLARIFIED THE TRANSFER AND CO -DEVELOPER AGREEMENT TO BE AN AUTHORIZED ACTIVITY, REFERRING TO THE DOCUMENTS ALREADY FILED WITH ASSESSING OFFICER. THESE CLARIFI CATIONS ARE RELEVANT. 36 IN VIEW OF HONBLE DELHI HIGH COURT JUDGMENT IN THE CASE OF VIKAS POLYMERS, CIT OUGHT TO HAVE CONSIDERED THEM ALONG W ITH WRITTEN SUBMISSIONS, ASSESSING OFFICERS REPORT AND RECORD. AFTER DUE CONSIDERATION THEREOF AND APPLICATION OF MIND, POWE R U/S 263 SHOULD HAVE BEEN EXERCISED. 8.2. THIS IS FOR THE REASON THAT IF A QUERY IS RAIS ED DURING THE COURSE OF SCRUTINY BY THE ASSESSING OFFICER, WHICH WAS ANS WERED TO THE SATISFACTION OF THE ASSESSING OFFICER, BUT NEITHER THE QUERY NOR THE ANSWER WERE REFLECTED IN THE ASSESSMENT ORDER, THIS WOULD NOT BY ITSELF LEAD TO THE CONCLUSION THAT THE ORDER OF THE ASSESS ING OFFICER CALLED FOR INTERFERENCE AND REVISION. 8.3. IN THE INSTANT CASE, FOR EXAMPLE, THE COMMISS IONER HAS OBSERVED IN THE ORDER PASSED BY HIM THAT THE ASSESS EE HAS NOT FILED CERTAIN DOCUMENTS ON THE RECORD AT THE TIME OF ASSE SSMENT. ASSUMING IT TO BE SO, IN OUR OPINION, THIS DOES NOT JUSTIFY THE CONCLUSION ARRIVED AT BY THE COMMISSIONER THAT THE ASSESSING OFFICER H AD SHIRKED HIS RESPONSIBILITY OF EXAMINING AND INVESTIGATING THE C ASE. MORE SO, IN VIEW OF THE FACT THAT THE ASSESSEE EXPLAINED THAT T HE CAPITAL INVESTMENT MADE BY THE PARTNERS, WHICH HAD BEEN CALLED INTO QU ESTION BY THE COMMISSIONER, WAS DULY REFLECTED IN THE RESPECTIVE ASSESSMENTS OF THE PARTNERS WHO WERE INCOME-TAX ASSESSEES AND THE UNSE CURED LOAN TAKEN FROM M/S. STUTEE CHIT AND FINANCE (P) LTD. WAS DULY REFLECTED IN THE ASSESSMENT ORDER OF THE SAID CHIT FUND WHICH WAS AL SO AN ASSESSEE. 37 8.4. IN THIS CASE THE ASSESSEE HAS PRODUCED EVERYTH ING BEFORE THE CIT WHO FAILED TO CONSIDER NOT ONLY THE RECORD FILE D BEFORE THE ASSESSING OFFICER BUT EVEN THE SUBSEQUENT CLARIFICATIONS . THEREFORE, THERE IS NO MERIT IN THE ARGUMENT OF LD. CIT(DR). 9. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS AND ARGUMENTS HAVE B EEN DESCRIBED IN DETAIL ABOVE. APROPOS THE ISSUE THAT NO INQUIRIES W ERE CONDUCTED BY ASSESSING OFFICER, WE ARE UNABLE TO AGREE WITH THE LD. CIT (DR) INASMUCH ASSESSING OFFICER ASKED FOR JUSTIFICATIO N OF 80-IAB CLAIM, WHICH IS DULY RESPONDED BY ASSESSEE. THE ASSESSMEN T RECORD MEANS THE PROCEEDINGS SHEETS, MATERIAL AVAILABLE ON RECOR D AND THE REPLIES OF THE ASSESSEE. CONSIDERING THESE ASPECTS IT EMERGES THAT ALL THE REQUIRED DOCUMENTS WERE FILED AND CONSIDERED BY ASSESSING OF FICER AND ON BEING SATISFIED, DEDUCTION U/S 80-IAB WAS ALLOWED WHICH IS MENTIONED IN THE ASSESSMENT ORDER. THUS, THE CASE BEFORE US IS NOT OF LACK OF INQUIRY AND THE CONDITION MENTIONED IN NOTI FICATION DATED 27- 10-2006 GIVING TO ASSESSING OFFICER THE RIGHT TO EX AMINE THE TAXABILITY OF ISSUE OF 80-IAB IN THE SPIRIT OF SEZ PROVISION S TANDS VINDICATED. BESIDES, WE MAY HASTEN TO ADD THAT APPARENTLY THIS RIDER APPEAR TO BE MADE WHILE APPROVING THE CO-DEVELOPER AGREEMENT. TH IS IS POSSIBLY 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. BE THAT AS IT MAY, IN ANY CAS E, THE ASSESSING OFFICER HAVING CONSIDERED ALL THESE PLEADING AND SU BMISSIONS, IT CANNOT BE HELD THAT HE DID NOT EXAMINE THE ALLOWABILITY OF THE CLAIM BY PROPER INQUIRY. THEREFORE, WE DO NOT FIND ANY SUBSTANCE IN THIS FINDING. THUS, 38 IN OUR CONSIDERED VIEW THE ASSESSMENT NEITHER SUFFE RS FROM THE LACK OF INQUIRY NOR ANY ERROR ON THIS COUNT. 9.1. THE HONBLE DELHI HIGH COURT IN THE CASE OF AN IL KUMAR SHARMA (SUPRA), MAKES A DIFFERENCE BETWEEN LACK OF INQUIRY AND INADEQUATE INQUIRY. IN ANY CASE THIS IS NOT A CASE OF LACK OF INQUIRY. THE ORDER DOES NOT BECOME ERRONEOUS ONLY BECAUSE TH E CIT IN HIS VIEW HOLDS THAT INADEQUATE INQUIRIES, WERE CONDUCT ED. MORE PARTICULARLY, IN THIS CASE, WHERE THE CIT HIMSELF A DMITS THAT HE IS NOT ABLE TO CONSIDER THE MATERIAL AVAILABLE ON RECORD D UE TO LACK OF TIME. 9.2. APROPOS LACK OF TIME, IT IS OBSERVED THAT WE F IND NO FAULT ATTRIBUTABLE TO ASSESSEE FOR CAUSING HIATUS TO THE PROCEEDINGS. ASSESSEES DETAILED REPLY COVERING ALL THE ASPECTS WAS FILED AS BACK AS 25-7-2011 I.E. 8 MONTHS PRIOR TO THE PROCEEDINGS. T HE CIT HIMSELF CALLED THE ASSESSING OFFICER IN HEARING AND ASKED H IM TO SUBMIT A REPORT AND ENSURE THAT THE REPORT IS FILED. NON-SEE KING OF ASSESSING OFFICERS REMAND REPORT ALSO IS NOT ATTRIBUTABLE TO ASSESSEE. 9.3. COMING TO THE CASE LAWS CITED BY THE LD. CIT ( DR) (I) CIT VS. NAGESH KNITWARS P. LTD. (2012) 345 ITR 135 (DEL.): THIS CASE PERTAINS TO DEDUCTION U/S 80-HHC ON THE ISSUE OF PREMIUM ON SALE OF EXPORT QUOTA BEING NOT COVERED BY SECTIONS 28(IIIA), (IIIC), WHICH SHOULD NOT HAVE BEEN TAKEN INTO CONSIDERATION WHILE COMPUTING THE DEDUCTION. THE ASSESSING OFFICERS AC TION WAS FOUND TO BE NOT IN CONFORMITY WITH THE RATIO OF DECISIONS IN THE CASES OF ACG ASSOCIATED CAPSULES (2012) 343 ITR 89 (SC); CIT VS. KALPATARU COLOURS AND CHEMICALS (2010) 328 ITR 451 (BOM.); AND 39 TOPMAN EXPORTS VS. CIT (2012) 342 ITR 49 (SC) AND T HE INTERPRETATION OF CBDT CIRCULAR IN THIS BEHALF. THE 263 ACTION WAS UPHELD ACCORDINGLY. THE FACTS OF THIS CASE WILL NOT BE APPLICABLE TO ASSESSEES CASE. IN CASE BEFORE US THE ISSUE PERTAI NS TO A SIMPLE QUESTION WHETHER THE ASSESSEES CLAIM U/S 80-IAB WA S INQUIRED INTO BY THE ASSESSING OFFICER OR NOT, WHICH IS FOUN D TO BE CORRECT. THUS, THERE IS NEITHER THE QUESTION OF APPLICABILIT Y OF ANY RELEVANT SUPREME COURT JUDGMENT NOR INTERPRETATION OF A CBDT CIRCULAR. THEREFORE, THIS JUDGMENT CANNOT BE APPLIED TO ASSES SEES CASE. (II) CIT VS. DLF POWER LTD. (2012) 345 ITR 446 (DEL.): I N THIS CASE THE CIT U/S 263 HELD THAT THERE WAS LACK OF INQUIRY ON THE PART OF THE ASSESSING OFFICER. BESIDES, THE ITAT WENT INTO THE BIFURCATION OF INTEREST EXPENSES SUBMITTED BY THE ASSESSEE AT A PPELLATE STAGE AFTER 263 ACTION IN RESPECT OF TWO UNITS ONE ENGA GED IN POWER GENERATION AND ANOTHER ENERGY SYSTEM UNIT ABOUT TH E CLAIM OF DEDUCTION U/S 80-IA. THE MATTER WAS PARTLY SET ASID E BACK TO THE CIT TO CONSIDER WHETHER THE ISSUE IN QUESTION WAS R AISED BEFORE ASSESSING OFFICER AND PROPERLY CONSIDERED. THE ORDE R FURTHER STIPULATES A CONDITION THAT IF THAT IS CORRECT THEN THE CITS JURISDICTION WOULD BE ASCRIBED TO THE LIMITED EXTE NT OF DECIDING WHETHER THE FINDING WAS ERRONEOUS. BESIDES, IN THIS CASE THE ITAT AT APPELLATE STAGE ON 263 ACTION ITSELF WENT INTO T HE BIFURCATION OF FIGURES OF INTEREST. THIS JUDGMENT REFERS TO A DIFF ERENT SET OF FACTS AND PARTLY SETS ASIDE THE REVISION TO CIT WITH FUR THER CONDITIONS AND AS THE ITATS CONSIDERATION OF BIFURCATION AT APPELLATE LEVEL WAS FOUND TO BE NOT APPROPRIATE. 40 IN CONTRADISTINCTION, IN THE CASE BEFORE US THERE A RE NO SUCH COMPLEX ISSUES. THE ISSUE IS LIMITED I.E. WHETHER 80-IAB CLAIM WAS CONSIDERED BY THE ASSESSING OFFICER OR NOT. WE HAVE ALREADY HELD THAT IT CLEARLY EMERGES FROM ASSESSMENT RECORD THAT RELEVANT QUERIES WERE RAISED BY ASSESSING OFFICER, DETAILED SUBMISSIONS, DEVELOPERS AND CO-DEVELOPERS AGREEMENTS WERE FILED, JUSTIFICATION OF 80-IAB CLAIM AS PROVIDED BY THE ASSESSEE AND TH E NATURE OF DEBTS OWED BY DLF ASSETS CONSEQUENT TO SUCH TRANSF ER WAS ALSO ASKED FOR BY ASSESSING OFFICER. IN OUR CONSIDERED V IEW, THE RATIO OF THIS JUDGMENT ALSO DOES NOT APPLY TO ASSESSEES CAS E. (III) CIT VS. HARSH J. PUNJABI (2012) 345 ITR 451 (DEL.) IN THIS CASE THE ISSUE PERTAINS TO INQUIRY INTO THE ALLOWABILITY OF COMMISSION OF RS. 3.33 CRORRES DEBITED TO THE P&L A/C. NO BIFURCA TION OF COMMISSION ABOUT CHENNAI AND GURGAON UNIT BY ASSESS EE, THOUGH THE COMMISSION WAS PAID TO THE SAME PARTIES. BOTH T HE UNITS WERE ELIGIBLE FOR 10A DEDUCTION SEPARATELY. SINCE THE BI FURCATION OF EXPENDITURE RELATABLE TO RESPECTIVE UNITS WAS NOT M ADE, IT WAS HELD THAT ASSESSING OFFICERS ORDER WAS ERRONEOUS AND PR EJUDICIAL TO THE INTERESTS OF REVENUE. THIS CASE ALSO WILL NOT BE APPLICABLE TO ASSESSEES CASE INASMUCH AS THE ISSUE OF ANY BIFURCATION OF COMMISS ION TO DIFFERENT UNITS IS NOT INVOLVED AND RELATES ONLY TO A QUESTIO N OF INQUIRY AND SATISFACTION BY ASSESSING OFFICER ABOUT ASSESSEES CLAIM U/S 80-IAB. IN OUR CONSIDERED VIEW, THE ISSUE HAS BEEN INQUIRE D, THE RELEVANT MATERIAL, AGREEMENT IS ON RECORD, PROCEEDINGS SHEE TS AND THE ORDER OF ASSESSING OFFICER. THEREFORE, THIS CASE DOES NO T HELP THE CASE OF THE REVENUE. 41 9.4. IT CLEARLY EMERGES THAT BY THE END OF THE 263 HEARING THE CIT BRUSHED ASIDE THE CONSIDERATION OF ISSUE BY HOLDIN G 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 D ETAILED INQUIRY. IN OUR CONSIDERED VIEW, CIT FAILED TO DISCHARGE HIS ST ATUTORY DUTY AND INSTEAD OF TAKING A CLEAR CALL AND DEMONSTRATING ER RORS MADE BY ASSESSING OFFICER AND PREJUDICE CAUSED TO THE REVE NUE, THE BUCK HAS BEEN PASSED ON TO ASSESSING OFFICER BY SETTING ASID E ASSESSMENT ORDER, WHICH IS AGAINST THE LETTER AND SPIRIT OF PROVISION S OF SEC. 263. WHERE THE AUTHORITY FAILS TO CARRY OUT ITS STATUTORY OBLI GATION, THE ORDER CANNOT BE HELD AS TENABLE AND IS LIABLE TO BE QUASHED. 9.5. APROPOS THE ISSUE OF SALE OF BARE SHELL BUILDI NGS BEING AUTHORIZED ACTIVITY, IT IS AMPLY CLEAR THAT THE SEZ ACT AUTHORIZES ACTIVITIES INCLUDE CONSTRUCTION OF BARE SHELL/ COLD SHELL/ WARM SHALL BUILDINGS AND TRANSFER THEREOF. BOA HAS APPROVED IT AND CLARIFIED THE SAME. THERE IS ENOUGH MATERIAL ON THE RECORD TO HOL D THAT THE TRANSFER OF BARE SHELL BUILDINGS TO CO-DEVELOPERS CONSTITUTE AUTHORIZED ACTIVITY. THUS, WE SEE NO ERROR ON ANY COUNT AS HELD BY CIT I N THE ORDER OF ASSESSING OFFICER ALLOWING DEDUCTION U/S 80-IAB. 9.6. EVEN IF THE WORST IS ASSUMED AGAINST ASSESSING OFFICER, HIS ALLOWABILITY OF CLAIM U/S 80-IAB TO ASSESSEE MAY BE HELD TO BE A POSSIBLE AND PLAUSIBLE VIEW. IN SUCH EVENTUALITY AL SO, MERELY BECAUSE CIT IN HIS PERCEPTION HELD ANOTHER POSSIBLE VIEW AB OUT CLAIM U/S 80- IAB, THE ASSESSMENT ORDER DOES NEITHER BECOME ERRON EOUS NOR PREJUDICIAL TO THE INTERESTS OF REVENUE AS HELD BY HONBLE SUPREME 42 COURT IN THE HOST OF CASES INCLUDING MALABAR INDUST RIAL COMPANY LTD. (SUPRA) AND MAX INDIA LTD. (SUPRA). RESPECTFULLY FO LLOWING THE HONBLE SUPREME COURT JUDGMENTS ON THIS COUNT ALSO WE HOLD THAT THE ASSESSMENT ORDER IS NEITHER ERRONEOUS NOR PREJUDICI AL TO THE INTERESTS OF REVENUE. THEREFORE, THE CITS IMPUGNED ORDER U/S 26 3 DESERVES TO BE QUASHED. 9.7. OUR VIEWS ON ALL OTHER OBSERVATIONS ARE ALSO FORTIFIED BY THE CASE LAWS MENTIONED ABOVE, WHICH WE RESPECTFULLY FO LLOW. 9.8. IN VIEW OF THE CIRCUMSTANCES MENTIONED ABOVE, WE QUASH 263 ORDER PASSED BY THE CIT AND ALLOW THE ASSESSEES AP PEAL. 10. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ISSUE ABOUT LACK OF ENQUIRY AND INADEQUATE INQUIRY: 6.13. IT IS PLEADED BY LD COUNSEL THAT THE ASSESSM ENT RECORD, NOTICE U/S 143(2), 142(1), QUESTIONNAIRE, PLEADINGS, SUBMI SSIONS AND ASSESSMENT ORDER ALL TOGETHER CLEARLY DEMONSTRATE T HAT REQUISITE ENQUIRIES WERE CONDUCTED BY AO WHILE ALLOWING THE A SSESSEES CLAIM U/S 80IAB. ASSUMING BUT NOT ADMITTING IN WORST SCEN ARIO CIT MAY ASSUME THAT INADEQUATE INQUIRIES WERE CONDUCTED. ON THIS COUNT ALSO HONBLE DELHI HIGH COURT HAS REPEATEDLY HELD THAT R EVISIONARY POWERS U/S 263 CANNOT BE EXERCISED IF CIT IS OF THE VIEW I NQUIRIES MADE BY AO WERE INADEQUATE. RELIANCE IS PLACED ON 43 (I) CIT VS. SUNBEAM AUTO LTD. 332 ITR 167 (DEL.) IN THE CASE OF CIT VS. SUNBEAM AUTO LTD., IT WAS HE LD BY HONBLE HIGH COURT OF DELHI THAT WHERE THE A.O. HAD MADE AN ENQUIRY BEFORE COMPLETION OF ASSESSMENT, THE SAME C OULD NOT BE SET ASIDE FOR REASON OF INADEQUATE ENQUIRY. THE A O HAD CALLED FOR REASONS/ EXPLANATION AND HAD DECIDED AFTER CONS IDERING THE EXPLANATION FILED. THERE WAS NO LACK OF ENQUIRY. TH E ORDER OF CIT UNDER SECTION 263 WAS INVALID, SINCE AO HAD TAK EN A POSSIBLE VIEW. ( II) CIT VS. HONDA SIEL POWER PRODUCTS LTD. 235 CTR 336 (DEL.) IN THE CASE OF CIT VS. HONDA SIEL POWER PRODUCTS LT D., IT WAS HELD BY HONBLE HIGH COURT OF DELHI THAT THERE IS N O MATERIAL TO INDICATE THAT THE ASSESSING OFFICER HAD NOT APPLIED HIS MIND TO THE PROVISIONS OF SECTION 80IB(13) READ WITH SECTIO N 80IA(9). THE PRESUMPTION THAT THE ASSESSMENT ORDERS PASSED U NDER SECTION 143(3) PASSED BY THE ASSESSING OFFICER HAD BEEN PASSED UPON AN APPLICATION OF MIND, HAS NOT BEEN REBUTTED BY THE REVENUE. NO ADDITIONAL FACTS WERE NECESSARY BEFORE THE ASSESSING OFFICER FOR THE PURPOSE OF CONSTRUING THE PROVISIONS OF SECTION 80IB(13) READ WITH SECTION 80IA(9). IT W AS ONLY A LEGAL CONSIDERATION AS TO WHETHER THE DEDUCTION UND ER SECTION 80HHC WAS TO BE COMPUTED AFTER REDUCING THE AMOUNT OF DEDUCTION UNDER SECTION 80IB FROM THE PROFITS AND G AINS. THERE IS NO DOUBT THAT THE ASSESSING OFFICER HAD ALLOWED THE DEDUCTION UNDER SECTION 80HHC WITHOUT REDUCING THE AMOUNT OF DEDUCTION ALLOWED UNDER SECTION 80IB FROM THE PR OFITS AND GAINS. HE DID NOT SAY SO IN SO MANY WORDS, BUT THAT WAS THE END RESULT OF HIS ASSESSMENT ORDER. SINCE HE WAS HOLDIN G IN FAVOUR OF THE ASSESSEE, AS HAS BEEN OBSERVED IN HARI IRON TRADING COMPANY (SUPRA) AND EICHER LIMITED (SUPRA), GENERAL LY, THE ISSUES WHICH ARE ACCEPTED BY THE ASSESSING OFFICER, DO NOT FIND MENTION IN THE ASSESSMENT ORDER, IT CANNOT BE SAID THAT THE ASSESSING OFFICER HAD NOT APPLIED HIS MIND. IT CANN OT ALSO BE SAID THAT THE ASSESSING OFFICER HAD FAILED TO MAKE ANY ENQUIRY BECAUSE NO FURTHER ENQUIRY WAS NECESSARY AND ALL TH E FACTS WERE BEFORE THE ASSESSING OFFICER. 44 (III) CIT V. ANIL KUMAR SHARMA (2011) 3 35 ITR 1 IN THIS CASE THE HONORABLE HIGH COURT WAS SEIZED WI TH THE ISSUE ON CONDITIONS PRECEDENT FOR THE REVISION OF ORDER AND DIFFERENTIATED BETWEEN THE LACK OF INQUIRY AND THE INADEQUATE INQU IRY BY THE ASSESSING OFFICER IT IS HELD THAT THE FINDING BY TH E TRIBUNAL THAT THE ASSESSING OFFICER HAD MADE INQUIRY AND THAT COMMISS IONER WAS NOT ABLE TO POINT OUT IN HIS ORDER, THE ORDER OF REVISI ON NOT VALID. (IV) VODAFONE ESSAR SOUTH LTD. VS. C I T 2011 TIOL 417 ITAT DEL. IN THIS CASE THE HONBLE BENCH HELD THAT WHERE THE RE IS DUE ENQUIRY BY THE ASSESSING OFFICER ,THOUGH IT HAS BE EN CONSIDERED TO BE INADEQUATE BY THE CIT, RECOURSE U/S 263 CANNO T BE MADE. ACCORDINGLY, IT IS SUBMITTED THAT THE INITIATION OF REVISION PROCEEDINGS UNDER SECTION 263 OF THE IT ACT BEING T O TAKE ANOTHER POSSIBLE VIEW ABOUT ALLOWABILITY OF DEDUCTI ON AND ADEQUACY OF ENQUIRIES IS UNSUSTAINABLE AND CONTRARY TO AUTHORITY OF LAW AND THE SAME IS DIRECTLY CONTRARY TO THE LAW LAID DOWN BY THE SAID TWO HONBLE SUPREME COURT JUD GMENTS IN THE CASE OF MALABAR INDUSTRIAL COMPANY LTD. VS. CIT, CIT VS. MAX INDIA LTD AND OTHER DELHI HIGH COURT JUDGMENTS ON THESE ISSUES (SUPRA). 6.14. THE ENTIRE TRANSACTION I.E. ACTIVITY OF TRANS FER OF BARE SHELL BUILDINGS BY DEVELOPER TO CO DEVELOPER INCLUDING TH E DOCUMENTATION OF THE SAME HAS BEEN APPROVED BY BOA UNDER SEZ ACT. IN SUCH CIRCUMSTANCES THERE IS NO SCOPE FOR PRESUMING THAT SUCH ACTIVITY IS NOT 45 AN AUTHORIZED ACTIVITY. CONSEQUENTLY, THE INTEREST OF REVENUE AS EXPRESSED BY BOA WHILE APPROVING THE CO DEVELOPERS AGREEMENT HAS BEEN TAKEN CARE OF BY ASSESSING OFFICER BY EXAMININ G THE ALLOW ABILITY OF DEDUCTION U/S 80IAB OF THE INCOME-TAX ACT. IT IS NOT OPEN TO THE CIT UNDER SECTION 263, TO SIT IN JUDGMENT ON THE VA LID VIEW AS TO WHETHER THE TRANSFER OF BARE SHELL BUILDING IN SEZ FOR A DEVELOPMENT CONSIDERATION IS AN AUTHORIZED OPERATION OR NOT AS LONG AS IT IS APPROVED BY THE BOA AND DULY ENQUIRED BY AO. SUCH POWERS ARE VESTED EXCLUSIVELY, LAWFULLY AND SOLELY WITH THE BO ARD OF APPROVALS (BOA) UNDER SEZ ACT. A PERUSAL OF THE RECORD IN OUR CASE SHOWS THAT THE BOA HAS EXPRESSLY AND CONSCIOUSLY EXERCISED SUC H POWER VESTED IN IT AND APPROVED THE TRANSFER OF BARE SHELL FROM DEVELOPER TO CO- DEVELOPER TO BE AN AUTHORIZED OPERATION. THIS UNDER STANDING IS ONCE AGAIN CONFIRMED IN CLARIFICATIONS OF MINISTRY OF CO MMERCE DATED 18 TH OF JANUARY 2011 AND 20 TH JANUARY 2011, COPIES OF WHICH ARE CONTAINED IN THE PAPER BOOK PART OF ANNEXURE TO THIS SUBMISSI ON. THESE CLARIFICATIONS WERE OBTAINED BY ASSESSEE WHEN CIT R AISED THESE ISSUES. IN THIS BEHALF BOA UNEQUIVOCALLY CLARIFIED THAT THE CO-DEVELOPERS AGREEMENT WAS AN AUTHORIZED AGREEMENT AND THE TRANS FER OF BARE SHELL BUILDINGS TO CO-DEVELOPERS WAS ALSO AN AUTHORIZED A CTIVITY. 6.15. THUS, IT IS PLEADED THAT THE LD. ASSESSING OF FICER CARRIED OUT PROPER INQUIRIES; ASSESSEE SUBMITTED PROPER EXPLANA TION THEREON, A NOTE WHEREOF IS RECORDED IN THE PROCEEDINGS SHEETS. THE REQUISITE FINDING HAS BEEN RECORDED IN THE ASSESSMENT ORDER. THE ORDER OF ASSESSING OFFICER MAY BE SHORT BUT IT CONTAINS ALL THE RELEVANT FINDINGS 46 ABOUT HIS INQUIRY AND SATISFACTION. ASSESSING OFFIC ER IS A QUASI JUDICIAL AUTHORITY AND HIS FINDINGS AND OBSERVATIONS GIVEN I N CLEAR TERMS BY HIM IN THE ORDER ARE CONCLUSIVE. THERE IS NO PROFAR MA ABOUT THE FORMAT OF ASSESSMENT ORDER AND LENGTH OF ASSESSMENT ORDER IN THE INCOME-TAX ACT. THE ORDER SHOULD BE BASED ON RECORD OF PROCEED INGS AND MATERIAL ON THE FILES AND ALL THIS SHOULD REFLECT THE INQUIR IES MADE BY ASSESSING OFFICER AND THE CONCLUSION ARRIVED THEREON. THE REC ORD IN THE ASSESSEES CASE STANDS TESTIMONY THAT A FULL AND PR OPER EXERCISE OF HEARING DURING THE COURSE OF ASSESSMENT WAS CARRIED OUT AND THE ASSESSMENT ORDER WAS PASSED GIVING CRYSTAL CLEAR FI NDINGS ALLOWING THE 80IAB CLAIM OF THE ASSESSEE. 6.16. THE LETTER OF APPROVAL IS ISSUED BY THE BOARD BY A STATUTORY PROCESS OF LAW AND ONCE IT HAS BEEN ISSUED BY THE EXCLUSIVE SANCTIONING AUTHORITY, THE CONSEQUENTIAL BENEFITS T HAT ARE AVAILABLE TO A DEVELOPER CANNOT BE DENIED. THE ASSESSING OFFICER O R THE COMMISSIONER OF INCOME-TAX EXERCISING THE POWER OF REVISION UNDER THE ACT CANNOT HAVE ANY JURISDICTION TO QUESTION TH E VALIDITY OR THE LEGALITY OF THE AUTHORIZED OPERATIONS WHICH HAVE BE EN APPROVED BY THE REGULATORY BODY OF THE CENTRAL GOVERNMENT I.E. BOA AND ATTEMPT TO DISPUTE THE SAME IS CONTRARY TO THE STATUTORY PROVI SIONS OF THE SEZ ACT. 47 6.17. THE ASSESSEE HAS NOT SOLD THE LAND IN FAVOUR OF THE CO-DEVELOPER AS WRONGLY ALLEGED BY CIT. AS THE RECORD DEMONSTRAT ES ASSESSEE ONLY LEASED OUT THE BARE SHELL BUILDINGS IN FAVOUR OF CO -DEVELOPER. THE TRANSFER OR THE LEASING OF BARE SHELL BUILDINGS COM ES WITHIN THE PURVIEW OF AUTHORIZED ACTIVITIES AND THE CO-DEVELOP ER AGREEMENT HAVING BEEN APPROVED BY THE BOA, THE INCOME TAX AUT HORITIES HAVE TO ALLOW THE DEDUCTION U/S 80-IAB. AS PER THE SETTLED PROPOSITIONS OF LAW IN CASE BOA ARE APPOINTED BY THE CENTRAL GOVERNME NT IN VARIOUS FIELDS OF GIVING BENEFITS LIKE SEZ, CUSTOMS AND VAR IOUS OTHER FISCAL LEGISLATION, THE INCOME-TAX AUTHORITIES CANNOT SIT OVER THE JUDGMENT OF THE BOA. BY CATENA OF JUDGMENTS THE COURTS HAVE HEL D THAT THE APPROVALS ACCORDED BY SUCH REGULATORY BOARDS IN DEV ELOPMENT SCHEMES CANNOT BE QUESTIONED BY TAX AUTHORITIES. RE LIANCE IN THIS BEHALF IS PLACED ON: - APOLLO TYRES VS. CIT (2002) 9 SCC 1 (SC); - MALAYALA MANORAMA CO. LTD. VS. CIT (2008) 12 SCC 61 2 (SC) - CIT V. HCL COMMET SYSTEM & SERVICES LTD. 305 ITR 40 9 (SC); - MARMO CLASSIC VS. COMMISSIONER OF CUSTOMS [2002(143 ) ELT 153 (TRIB. MUMBAI)] AFFIRMED BY HONBLE SUPREME COURT IN [2003(152) ELT A85 (SC)]; - LOKASH CHEMICAL WORKS VS. M.S. MEHTA 1981 (8) ELT 2 35; - TITAL MEDICAL SYSTEMS PVT. LTD. VS. COLLECTOR 2003 (151) ELT 254 (SC) 48 - CESTAT JUDGMENT IN HICO ENTERPRISES VS. COMMISSIONE R 2005 (189) ELT 135 (TRIB. LB) APPROVED BY HONBLE SUPREME COURT IN 2008 (228) ELT 161 (SC); - ATUL COMMODITIES PVT. LTD. VS. COMMISSIONER OF CUST OMS COCHIN 2009 (235) ELT 385 (SC); - M.J. EXPORTS LTD. VS. CEGAT 1992 (60) ELT 161 (SC); 6.18. ASSESSEE HAS SUCCESSFULLY DISPELLED THE UNFOU NDED ALLEGATION OF THE CIT THAT THE CLAIM U/S 80IAB WAS NOT ENQUIRED B Y ASSESSING OFFICER AND IT WAS AN ERROR WHICH WAS PREJUDICIAL T O REVENUE. UNDER THESE CIRCUMSTANCES THE ORDER OF ASSESSING OFFICER CANNOT BE HELD TO BE ERRONEOUS OR PREJUDICIAL TO THE INTERESTS OF REVENU E. 6.19. ALL THESE CASES, WHICH PERTAIN TO REGULATORY AUTHORITIES UNDER CUSTOMS, DGFT, STATE GOVT. DEVELOPMENT BOARDS, IMPO RT LICENSE ETC., IT HAS BEEN HELD THAT CERTIFICATE ISSUED BY C OMPETENT AUTHORITIES CANNOT BE REVIEWED BY THE LOWER AUTHORITIES LIKE CU STOM OFFICERS, INCOME-TAX OFFICERS ETC. WHY THE ORDER OF CIT U/S 263 IF INVALID AND UNSUSTA INABLE IN LAW 6.20. THUS, TAKING INTO CONSIDERATION ALL THE ABOVE CIRCUMSTANCES, ALLEGATIONS ABOUT ASSESSING OFFICERS ORDER BEING E RRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE BY THE CIT IN 263 SHOW CAUSE NOTICE AND 263 ORDER HAVE NO SUBSTANCE. THUS THE 26 3 ORDER OF THE CIT IS NOT TENABLE ON FOLLOWING COUNTS: 49 (V) LD. CIT FAILED TO APPLY HIS MIND AND TO CONSIDER EX PLANATION AND MATERIAL FILED BY THE ASSESSEE INCLUDING THE VERIFI CATIONS FROM BOA CONFIRMING THE ASSESSEES STAND. LD. CIT HAS BEEN C ANDID ENOUGH TO ADMIT THAT HE HAS NOT ENOUGH TIME TO CONSIDER TH ESE SUBMISSIONS AND THE REPORT OF ASSESSING OFFICER WHICH WAS CALL ED BY LD. CIT ONLY. ADMITTEDLY THE ORDER HAS BEEN PASSED WITHOUT CONSIDERING THE MATERIAL AVAILABLE ON RECORD AND CROSS VERIFYING OF THE ASPECTS WITH THE CASE RECORD. IN THESE CIRCUMSTANCES, THE 263 OR DER IS VITIATED BY LACK OF APPLICATION OF MIND AND PROPER CONSIDERATIO N OF THE MATERIAL, THUS THE ORDER U/S 263 IS BAD IN LAW. (VI) THE ASSESSEES AGREEMENT WITH CO-DEVELOPER IS APPRO VED BY THE BOA. THE ACTIVITY OF TRANSFERRING BARE SHELL BUILDI NGS IS ONLY AN AUTHORIZED ACTIVITY AS CERTIFIED BY THE BOA ITSELF AND THE ANNEXURE ATTACHED TO THE NOTIFICATION. (VII) THE ASSESSEE HAS NOT SOLD ANY LAND BUT ONLY TRANSFE RRED THE BARE SHELL BUILDINGS ON LEASE. THEREFORE, THERE IS NO ER ROR AS POINTED OUT BY LD. CIT. (VIII) THE ASSESSING OFFICER HAS CONDUCTED PROPER INQUIRIE S WHICH IS EVIDENT FROM PROCEEDINGS SHEETS; LETTERS; QUESTIONN AIRE; ASSESSEES RESPONSE AND DETAILED NOTES SUBMITTED ON ELIGIBILIT Y U/S 80-IAB. THUS ASSESSING OFFICERS ORDER IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF REVENUE. 6.21. IN VIEW OF THESE FACTS AND CIRCUMSTANCES IT I S PLEADED BY LD COUNSEL THAT THE IMPUGNED 263 ORDER PASSED BY THE CIT MAY BE QUASHED. 7. LD. CIT (DR), ON THE OTHER HAND, SUPPORTED THE O RDER OF CIT U/S 263 AND CONTENDS AS UNDER: 50 (V) THE ASSESSING OFFICERS ORDER IS VERY SHORT AND DOE S NOT SPELL OUT ANY REASON FOR ALLOWING RELIEF TO THE ASSESSEE. (VI) THE RECORD DOES NOT REFLECT THAT PROPER INQUIRIES W ERE CONDUCTED, EXCEPT A CASUAL REFERENCE TO HIS BEING SATISFIED AB OUT THE ASSESSEES ELIGIBILITY TO CLAIM U/S 80-IAB. (VII) THE CLARIFICATIONS ISSUED BY BOA SUBSEQUENT TO THE ASSESSMENT PROCEEDINGS WERE NOT PART OF THE RECORD AND WERE N OT BEFORE THE ASSESSING OFFICER AND HAVE NO RELEVANT. (VIII) THEREFORE THERE IS NO ERROR IN DIRECTION GIVEN BY T HE CIT TO ASSESSING OFFICER TO VERIFY THE SAME AND CARRY OUT PROPER INQUIRIES. REVISION PROCEEDINGS ARE VALID AND DESERVE TO BE UP HELD. 7.1. LD. DR THEN RELIED ON FOLLOWING JUDGMENTS: - CIT VS. NAGESH KNITWARS P. LTD. (2012) 345 ITR 13 5 (DEL.) - CIT VS. DLF POWER LTD. (2012) 345 ITR 446 (DEL.) - CIT VS. HARSH J. PUNJABI (2012) 345 ITR 451 (DEL. ) 7.2. IT IS PLEADED THAT RATIO OF THESE JUDGMENTS IS APPLICABLE TO THE FACTS OF THE ASSESSEES CASE AND CONSIDERING THEM T HE 263 ACTION EXERCISED BY THE CIT, HOLDING THAT THE ORDER IS ERR ONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE IS JUSTIFIE D. 8. LD. COUNSEL FOR THE ASSESSEE IN REPLY REFERS TO THE HONBLE DELHI HIGH COURT JUDGMENT IN THE CASE OF CIT VS. V IKAS POLYMERS 236 CTR 476 (DEL.), WHEREIN IT HAS BEEN HELD THAT T HE PROVISIONS OF SECTION 263 OF THE ACT, WHEN READ AS A COMPOSITE WH OLE MAKE IT INCUMBENT UPON THE COMMISSIONER BEFORE EXERCISING R EVISIONAL 51 POWERS TO: (I) CALL FOR AND EXAMINE THE RECORD, AND (II) GIVE THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND THEREAFT ER TO MAKE OR CAUSE TO BE MADE SUCH ENQUIRY AS HE DEEMS NECESSARY. IT I S ONLY ON FULFILLMENT OF THESE TWIN CONDITIONS THAT THE COMMI SSIONER MAY PASS AN ORDER EXERCISING HIS POWER OF REVISION. MINUTELY EXAMINED, THE PROVISIONS OF THE SECTION ENVISAGE THAT THE COMMISS IONER MAY CALL FOR THE RECORDS AND IF HE PRIMA FACIE CONSIDERS THAT AN Y ORDER PASSED THEREIN BY THE ASSESSING OFFICER IS ERRONEOUS INSOF AR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, HE MAY AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTER MAKING OR CAUS ING TO BE MADE SUCH ENQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY. THE TWIN REQUIRE MENT OF THE SECTION IS MANIFESTLY FOR A PURPOSE. MERELY BECAUSE THE COM MISSIONER CONSIDERS ON EXAMINATION OF THE RECORD THAT THE ORD ER HAVE BEEN ERRONEOUSLY PASSED SO AS TO PREJUDICE THE INTEREST OF THE REVENUE WILL NOT SUFFICE. THE ASSESSEE MUST BE CALLED, HIS EXPLA NATION SOUGHT FOR AND EXAMINED BY THE COMMISSIONER, AND THEREAFTER IF THE COMMISSIONER STILL FEELS THAT THE ORDER IS ERRONEOU S AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, THE COMMISSIONER MAY P ASS REVISIONAL ORDERS. IF, ON THE OTHER HAND, THE COMMISSIONER IS SATISFIED, AFTER HEARING THE ASSESSEE, THAT THE ORDERS ARE NOT ERRON EOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, HE MAY CHOOSE NOT T O EXERCISE HIS POWER OF REVISION. 8.1. THE JUDGMENT MANDATES THAT THE ASSESSEE MUST BE CALLED, HIS EXPLANATION SOUGHT FOR AND EXAMINED BY THE COMMISSI ONER AND IF, ON THE OTHER HAND, THE COMMISSIONER IS SATISFIED, AFTE R HEARING THE 52 ASSESSEE, THAT THE ORDER IS NOT ERRONEOUS AND PREJU DICIAL TO THE INTEREST OF THE REVENUE, HE HAS AN OPTION NOT TO EXERCISE HI S POWER OF REVISION. IN THIS CASE THE BOA CLARIFIED THE TRANSFER AND CO -DEVELOPER AGREEMENT TO BE AN AUTHORIZED ACTIVITY, REFERRING TO THE DOCUMENTS ALREADY FILED WITH ASSESSING OFFICER. THESE CLARIFI CATIONS ARE RELEVANT. IN VIEW OF HONBLE DELHI HIGH COURT JUDGMENT IN THE CASE OF VIKAS POLYMERS, CIT OUGHT TO HAVE CONSIDERED THEM ALONG W ITH WRITTEN SUBMISSIONS, ASSESSING OFFICERS REPORT AND RECORD. AFTER DUE CONSIDERATION THEREOF AND APPLICATION OF MIND, POWE R U/S 263 SHOULD HAVE BEEN EXERCISED. 8.2. THIS IS FOR THE REASON THAT IF A QUERY IS RAIS ED DURING THE COURSE OF SCRUTINY BY THE ASSESSING OFFICER, WHICH WAS ANS WERED TO THE SATISFACTION OF THE ASSESSING OFFICER, BUT NEITHER THE QUERY NOR THE ANSWER WERE REFLECTED IN THE ASSESSMENT ORDER, THIS WOULD NOT BY ITSELF LEAD TO THE CONCLUSION THAT THE ORDER OF THE ASSESS ING OFFICER CALLED FOR INTERFERENCE AND REVISION. 8.3. IN THE INSTANT CASE, FOR EXAMPLE, THE COMMISS IONER HAS OBSERVED IN THE ORDER PASSED BY HIM THAT THE ASSESS EE HAS NOT FILED CERTAIN DOCUMENTS ON THE RECORD AT THE TIME OF ASSE SSMENT. ASSUMING IT TO BE SO, IN OUR OPINION, THIS DOES NOT JUSTIFY THE CONCLUSION ARRIVED AT BY THE COMMISSIONER THAT THE ASSESSING OFFICER H AD SHIRKED HIS RESPONSIBILITY OF EXAMINING AND INVESTIGATING THE C ASE. MORE SO, IN VIEW OF THE FACT THAT THE ASSESSEE EXPLAINED THAT T HE CAPITAL INVESTMENT MADE BY THE PARTNERS, WHICH HAD BEEN CALLED INTO QU ESTION BY THE COMMISSIONER, WAS DULY REFLECTED IN THE RESPECTIVE ASSESSMENTS OF THE 53 PARTNERS WHO WERE INCOME-TAX ASSESSEES AND THE UNSE CURED LOAN TAKEN FROM M/S. STUTEE CHIT AND FINANCE (P) LTD. WAS DULY REFLECTED IN THE ASSESSMENT ORDER OF THE SAID CHIT FUND WHICH WAS AL SO AN ASSESSEE. 8.4. IN THIS CASE THE ASSESSEE HAS PRODUCED EVERYTH ING BEFORE THE CIT WHO FAILED TO CONSIDER NOT ONLY THE RECORD FILE D BEFORE THE ASSESSING OFFICER BUT EVEN THE SUBSEQUENT CLARIFICATIONS . THEREFORE, THERE IS NO MERIT IN THE ARGUMENT OF LD. CIT(DR). 9. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS AND ARGUMENTS HAVE B EEN DESCRIBED IN DETAIL ABOVE. APROPOS THE ISSUE THAT NO INQUIRIES W ERE CONDUCTED BY ASSESSING OFFICER, WE ARE UNABLE TO AGREE WITH THE LD. CIT (DR) INASMUCH ASSESSING OFFICER ASKED FOR JUSTIFICATIO N OF 80-IAB CLAIM, WHICH IS DULY RESPONDED BY ASSESSEE. THE ASSESSMEN T RECORD MEANS THE PROCEEDINGS SHEETS, MATERIAL AVAILABLE ON RECOR D AND THE REPLIES OF THE ASSESSEE. CONSIDERING THESE ASPECTS IT EMERGES THAT ALL THE REQUIRED DOCUMENTS WERE FILED AND CONSIDERED BY ASSESSING OF FICER AND ON BEING SATISFIED, DEDUCTION U/S 80-IAB WAS ALLOWED WHICH IS MENTIONED IN THE ASSESSMENT ORDER. THUS, THE CASE BEFORE US IS NOT OF LACK OF INQUIRY AND THE CONDITION MENTIONED IN NOTI FICATION DATED 27- 10-2006 GIVING TO ASSESSING OFFICER THE RIGHT TO EX AMINE THE TAXABILITY OF ISSUE OF 80-IAB IN THE SPIRIT OF SEZ PROVISION S TANDS VINDICATED. BESIDES, WE MAY HASTEN TO ADD THAT APPARENTLY THIS RIDER APPEAR TO BE MADE WHILE APPROVING THE CO-DEVELOPER AGREEMENT. TH IS IS POSSIBLY APPLICABLE TO CO-DEVELOPER AND NOT THE ASSESSEE AS THE CONDITION WAS PUT DURING THE COURSE OF APPROVAL OF THE AGREEMENT BETWEEN ASSESSEE 54 AND THE CO-DEVELOPER. BE THAT AS IT MAY, IN ANY CAS E, THE ASSESSING OFFICER HAVING CONSIDERED ALL THESE PLEADING AND SU BMISSIONS, IT CANNOT BE HELD THAT HE DID NOT EXAMINE THE ALLOWABILITY OF THE CLAIM BY PROPER INQUIRY. THEREFORE, WE DO NOT FIND ANY SUBSTANCE IN THIS FINDING. THUS, IN OUR CONSIDERED VIEW THE ASSESSMENT NEITHER SUFFE RS FROM THE LACK OF INQUIRY NOR ANY ERROR ON THIS COUNT. 9.1. THE HONBLE DELHI HIGH COURT IN THE CASE OF AN IL KUMAR SHARMA (SUPRA), MAKES A DIFFERENCE BETWEEN LACK OF INQUIRY AND INADEQUATE INQUIRY. IN ANY CASE THIS IS NOT A CASE OF LACK OF INQUIRY. THE ORDER DOES NOT BECOME ERRONEOUS ONLY BECAUSE TH E CIT IN HIS VIEW HOLDS THAT INADEQUATE INQUIRIES, WERE CONDUCT ED. MORE PARTICULARLY, IN THIS CASE, WHERE THE CIT HIMSELF A DMITS THAT HE IS NOT ABLE TO CONSIDER THE MATERIAL AVAILABLE ON RECORD D UE TO LACK OF TIME. 9.2. APROPOS LACK OF TIME, IT IS OBSERVED THAT WE F IND NO FAULT ATTRIBUTABLE TO ASSESSEE FOR CAUSING HIATUS TO THE PROCEEDINGS. ASSESSEES DETAILED REPLY COVERING ALL THE ASPECTS WAS FILED AS BACK AS 25-7-2011 I.E. 8 MONTHS PRIOR TO THE PROCEEDINGS. T HE CIT HIMSELF CALLED THE ASSESSING OFFICER IN HEARING AND ASKED H IM TO SUBMIT A REPORT AND ENSURE THAT THE REPORT IS FILED. NON-SEE KING OF ASSESSING OFFICERS REMAND REPORT ALSO IS NOT ATTRIBUTABLE TO ASSESSEE. 9.3. COMING TO THE CASE LAWS CITED BY THE LD. CIT ( DR) (IV) CIT VS. NAGESH KNITWARS P. LTD. (2012) 345 ITR 135 (DEL.): THIS CASE PERTAINS TO DEDUCTION U/S 80-HHC ON THE ISSUE OF PREMIUM ON SALE OF EXPORT QUOTA BEING NOT COVERED BY SECTIONS 28(IIIA), (IIIC), WHICH SHOULD NOT HAVE BEEN TAKEN INTO CONSIDERATION WHILE 55 COMPUTING THE DEDUCTION. THE ASSESSING OFFICERS AC TION WAS FOUND TO BE NOT IN CONFORMITY WITH THE RATIO OF DECISIONS IN THE CASES OF ACG ASSOCIATED CAPSULES (2012) 343 ITR 89 (SC); CIT VS. KALPATARU COLOURS AND CHEMICALS (2010) 328 ITR 451 (BOM.); AND TOPMAN EXPORTS VS. CIT (2012) 342 ITR 49 (SC) AND T HE INTERPRETATION OF CBDT CIRCULAR IN THIS BEHALF. THE 263 ACTION WAS UPHELD ACCORDINGLY. THE FACTS OF THIS CASE WILL NOT BE APPLICABLE TO ASSESSEES CASE. IN CASE BEFORE US THE ISSUE PERTAI NS TO A SIMPLE QUESTION WHETHER THE ASSESSEES CLAIM U/S 80-IAB WA S INQUIRED INTO BY THE ASSESSING OFFICER OR NOT, WHICH IS FOUN D TO BE CORRECT. THUS, THERE IS NEITHER THE QUESTION OF APPLICABILIT Y OF ANY RELEVANT SUPREME COURT JUDGMENT NOR INTERPRETATION OF A CBDT CIRCULAR. THEREFORE, THIS JUDGMENT CANNOT BE APPLIED TO ASSES SEES CASE. (V) CIT VS. DLF POWER LTD. (2012) 345 ITR 446 (DEL.): I N THIS CASE THE CIT U/S 263 HELD THAT THERE WAS LACK OF INQUIRY ON THE PART OF THE ASSESSING OFFICER. BESIDES, THE ITAT WENT INTO THE BIFURCATION OF INTEREST EXPENSES SUBMITTED BY THE ASSESSEE AT A PPELLATE STAGE AFTER 263 ACTION IN RESPECT OF TWO UNITS ONE ENGA GED IN POWER GENERATION AND ANOTHER ENERGY SYSTEM UNIT ABOUT TH E CLAIM OF DEDUCTION U/S 80-IA. THE MATTER WAS PARTLY SET ASID E BACK TO THE CIT TO CONSIDER WHETHER THE ISSUE IN QUESTION WAS R AISED BEFORE ASSESSING OFFICER AND PROPERLY CONSIDERED. THE ORDE R FURTHER STIPULATES A CONDITION THAT IF THAT IS CORRECT THEN THE CITS JURISDICTION WOULD BE ASCRIBED TO THE LIMITED EXTE NT OF DECIDING WHETHER THE FINDING WAS ERRONEOUS. BESIDES, IN THIS CASE THE ITAT AT APPELLATE STAGE ON 263 ACTION ITSELF WENT INTO T HE BIFURCATION OF FIGURES OF INTEREST. THIS JUDGMENT REFERS TO A DIFF ERENT SET OF FACTS 56 AND PARTLY SETS ASIDE THE REVISION TO CIT WITH FUR THER CONDITIONS AND AS THE ITATS CONSIDERATION OF BIFURCATION AT APPELLATE LEVEL WAS FOUND TO BE NOT APPROPRIATE. IN CONTRADISTINCTION, IN THE CASE BEFORE US THERE A RE NO SUCH COMPLEX ISSUES. THE ISSUE IS LIMITED I.E. WHETHER 80-IAB CLAIM WAS CONSIDERED BY THE ASSESSING OFFICER OR NOT. WE HAVE ALREADY HELD THAT IT CLEARLY EMERGES FROM ASSESSMENT RECORD THAT RELEVANT QUERIES WERE RAISED BY ASSESSING OFFICER, DETAILED SUBMISSIONS, DEVELOPERS AND CO-DEVELOPERS AGREEMENTS WERE FILED, JUSTIFICATION OF 80-IAB CLAIM AS PROVIDED BY THE ASSESSEE AND TH E NATURE OF DEBTS OWED BY DLF ASSETS CONSEQUENT TO SUCH TRANSF ER WAS ALSO ASKED FOR BY ASSESSING OFFICER. IN OUR CONSIDERED V IEW, THE RATIO OF THIS JUDGMENT ALSO DOES NOT APPLY TO ASSESSEES CAS E. (VI) CIT VS. HARSH J. PUNJABI (2012) 345 ITR 451 (DEL.) IN THIS CASE THE ISSUE PERTAINS TO INQUIRY INTO THE ALLOWABILITY OF COMMISSION OF RS. 3.33 CRORRES DEBITED TO THE P&L A/C. NO BIFURCA TION OF COMMISSION ABOUT CHENNAI AND GURGAON UNIT BY ASSESS EE, THOUGH THE COMMISSION WAS PAID TO THE SAME PARTIES. BOTH T HE UNITS WERE ELIGIBLE FOR 10A DEDUCTION SEPARATELY. SINCE THE BI FURCATION OF EXPENDITURE RELATABLE TO RESPECTIVE UNITS WAS NOT M ADE, IT WAS HELD THAT ASSESSING OFFICERS ORDER WAS ERRONEOUS AND PR EJUDICIAL TO THE INTERESTS OF REVENUE. THIS CASE ALSO WILL NOT BE APPLICABLE TO ASSESSEES CASE INASMUCH AS THE ISSUE OF ANY BIFURCATION OF COMMISS ION TO DIFFERENT UNITS IS NOT INVOLVED AND RELATES ONLY TO A QUESTIO N OF INQUIRY AND SATISFACTION BY ASSESSING OFFICER ABOUT ASSESSEES CLAIM U/S 80-IAB. IN OUR CONSIDERED VIEW, THE ISSUE HAS BEEN INQUIRE D, THE RELEVANT 57 MATERIAL, AGREEMENT IS ON RECORD, PROCEEDINGS SHEE TS AND THE ORDER OF ASSESSING OFFICER. THEREFORE, THIS CASE DOES NO T HELP THE CASE OF THE REVENUE. 9.4. IT CLEARLY EMERGES THAT BY THE END OF THE 263 HEARING THE CIT BRUSHED ASIDE THE CONSIDERATION OF ISSUE BY HOLDIN G 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 D ETAILED INQUIRY. IN OUR CONSIDERED VIEW, CIT FAILED TO DISCHARGE HIS ST ATUTORY DUTY AND INSTEAD OF TAKING A CLEAR CALL AND DEMONSTRATING ER RORS MADE BY ASSESSING OFFICER AND PREJUDICE CAUSED TO THE REVE NUE, THE BUCK HAS BEEN PASSED ON TO ASSESSING OFFICER BY SETTING ASID E ASSESSMENT ORDER, WHICH IS AGAINST THE LETTER AND SPIRIT OF PROVISION S OF SEC. 263. WHERE THE AUTHORITY FAILS TO CARRY OUT ITS STATUTORY OBLI GATION, THE ORDER CANNOT BE HELD AS TENABLE AND IS LIABLE TO BE QUASHED. 9.5. APROPOS THE ISSUE OF SALE OF BARE SHELL BUILDI NGS BEING AUTHORIZED ACTIVITY, IT IS AMPLY CLEAR THAT THE SEZ ACT AUTHORIZES ACTIVITIES INCLUDE CONSTRUCTION OF BARE SHELL/ COLD SHELL/ WARM SHALL BUILDINGS AND TRANSFER THEREOF. BOA HAS APPROVED IT AND CLARIFIED THE SAME. THERE IS ENOUGH MATERIAL ON THE RECORD TO HOL D THAT THE TRANSFER OF BARE SHELL BUILDINGS TO CO-DEVELOPERS CONSTITUTE AUTHORIZED ACTIVITY. THUS, WE SEE NO ERROR ON ANY COUNT AS HELD BY CIT I N THE ORDER OF ASSESSING OFFICER ALLOWING DEDUCTION U/S 80-IAB. 9.6. EVEN IF THE WORST IS ASSUMED AGAINST ASSESSING OFFICER, HIS ALLOWABILITY OF CLAIM U/S 80-IAB TO ASSESSEE MAY BE HELD TO BE A POSSIBLE AND PLAUSIBLE VIEW. IN SUCH EVENTUALITY AL SO, MERELY BECAUSE 58 CIT IN HIS PERCEPTION HELD ANOTHER POSSIBLE VIEW AB OUT CLAIM U/S 80- IAB, THE ASSESSMENT ORDER DOES NEITHER BECOME ERRON EOUS NOR PREJUDICIAL TO THE INTERESTS OF REVENUE AS HELD BY HONBLE SUPREME COURT IN THE HOST OF CASES INCLUDING MALABAR INDUST RIAL COMPANY LTD. (SUPRA) AND MAX INDIA LTD. (SUPRA). RESPECTFULLY FO LLOWING THE HONBLE SUPREME COURT JUDGMENTS ON THIS COUNT ALSO WE HOLD THAT THE ASSESSMENT ORDER IS NEITHER ERRONEOUS NOR PREJUDICI AL TO THE INTERESTS OF REVENUE. THEREFORE, THE CITS IMPUGNED ORDER U/S 26 3 DESERVES TO BE QUASHED. 9.7. OUR VIEWS ON ALL OTHER OBSERVATIONS ARE ALSO FORTIFIED BY THE CASE LAWS MENTIONED ABOVE, WHICH WE RESPECTFULLY FO LLOW. 9.8. IN VIEW OF THE CIRCUMSTANCES MENTIONED ABOVE, WE QUASH 263 ORDER PASSED BY THE CIT AND ALLOW THE ASSESSEES AP PEAL. 10. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. 18. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTA NCES, WE DO NOT FIND ANY DISPARITY ON FACTS, THEREFORE, RESPECTFULLY FOL LOWING THE ORDER OF CO- ORDINATE BENCH, WE ALLOW THE APPEAL OF ASSESSEE AND QUASH THE ORDER OF LEARNED COMMISSIONER PASSED UNDER SEC. 263 OF THE I NCOME-TAX ACT, 1961. DECISION PRONOUNCED IN THE OPEN COURT ON 13.12.2013 SD/- SD/- ( R.S. SYAL ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 13/12/2013 MOHAN LAL 59 COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR
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