DLF Info City Developers (Chennai) Ltd., Gurgaon V. Addl. CIT, Gurgaon

ITA 5469/DEL/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5442 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-11-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 29-10-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Principle of natural justice; Additional evidence; Fair market value; Competent authority
• Section: 142(1); 27; 6; 263; 11; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SHRI I. C. SUDHIR, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A .NO.-5469 & 5366/DEL/2012 (A.Y 2008- 09) I.T.A NO. 5470 & 5367/DEL/2012 (A.Y 2008-09) I.T.A NO. 5469/ DEL/2012 DLF INFO CITY DEVELOPERS (CHENNAI) LTD. 3 RD FLOOR, SHOPPING MALL COMPLEX, ARJUN MARG, DLF CITY, PHASE-1 GURGAON AACCD1488Q (APPELLANT) VS ADDL. CIT RANGE-1 GURGAON (RESPONDENT) I.T.A. 5366/DEL/2012 JCIT RANGE-II GURGAON (APPELLANT) VS DLF INFO CITY DEVELOPERS (CHENNAI) LTD. 3 RD FLOOR, SHOPPING MALL COMPLEX, ARJUN MARG, DLF CITY, PHASE-1 GURGAON AACCD1488Q (RESPONDENT) I.TA 5470/DEL/2012 DLF CYBER CITY DEVELOPERS LTD. 3 RD FLOOR, SHOPPING MALL COMPLEX, ARJUN MARG, DLF CITY, PHASE-1 GURGAON AACCD3572H (APPELLANT) VS ADDL. CIT RANGE-1 GURGAON (RESPONDENT) I.T.A NO. 5367/DEL/2012 JCIT RANGE-II GURGAON (APPELLANT) ( VS DLF CYBER CITY DEVELOPERS LTD.3 RD FLOOR, SHOPPING MALL COMPLEX, ARJUN MARG, DLF CITY,PHASE1 GURGAON AACCD3572H (RESPONDENT) ORDER PER I. C. SUDHIR, JM ITA NO. 5469 & 5366/DEL/2012 THESE CROSS-APPEALS BY THE PARTIES HAVE BEEN PREFER RED AGAINST THE COMMON FIRST APPELLATE ORDER FOR THE ASSESSMENT YEAR 2008- 09. 2. THE ASSESSEE HAS IMPUGNED FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE, THE IMPUGNED ORDER PASSED BY THE LEA RNED CIT (APPEALS) IS BAD IN LAW AND WRONG ON FACTS. 2. THAT ON THE FACTS AND IN THE CIRC UMSTANCES OF THE CASE, THE LEARNED CIT (APPEALS) HAS ERRED IN LAW IN HOLDING THAT THE FAIR MARKET VALUE OF DEVELOPMENT CONSID ERATION IS RS 6225/- PER SQ FEET AS AGAINST RS 6947/- PER SQ FEET CLAIMED BY THE APPELLANT & THEREBY RESTRICTING TH E DEDUCTION U/S 80LAS OF THE INCOME TAX ACT AT RS. 1178,05,84,3 37. AS AGAINST RS.1352,32,97,397 CLAIMED BY THE AP PELLANT. 3. WITHOUT PREJUDICE, THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRE D IN- LAW IN CONFIRMING THE ADDITION OF RS.174,27,13,060/- HOLD ING THE SAME TO BE EXCESS DEDUCTION CLAIMED RATHER THAN IGNORI NG THE SAME. APPELLANT BY DR. SUDHA KUMARI, CIT RESPONDENT BY MR. R. S. SINGHVI, CA 3. THE REVENUE ON THE OTHER HAND HAS QUESTIONED THE FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS:- GROUNDS OF APPEAL 1. THAT THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN ADMITTING THE LETTERS/CLARIFICATIONS DATED 18-1-201 1 & 20-1-2011 ISSUED BY MINISTRY OF COMMERCE AS ADDITIONAL EVIDENCE AND IN TAKING COGNIZANCE THEREOF FOR HOLDING THAT TRANSFER OF BARE SHELL BUI LDINGS BY ASSESSEE TO ITS CO DEVELOPER WAS A AUTHORIZED OPERATION IGNORING TH E ) FACT THAT AS PER SEC. 9(2) ONLY BOARD OF APPROVAL IS EMPOWERED TO GRANT A PPROVAL OF SEZ OR AUTHORIZED OPERATIONS IN THE SEZ AND NOT THE MIN ISTRY OF COMMERCE AND THE FACT THAT I THE ABOVE CLARIFICATIONS/ LETTERS H AVE NO LEGAL SANCTITY AS THESE WERE NOT ISSUED BY THE COMPETENT AUTHORITY OF BOARD OF APPROVAL BUT BY THE UNDER SECRETARY AND J. S, MINISTRY ( OF COMM ERCE RESPECTIVELY, WHO WERE NOT COMPETENT TO ISSUE ANY SUCH CLARIFICATION AS PER PROVISION OF SEC 8(8) OF THE SEZ ACT. 2. THAT IN DOING SO, THE LD CIT (A) HAS ALSO FAILED TO APPRECIATE WHETHER MINISTRY OF COMMERCE CAN ISSUE CLARIFICATION REGARD ING APPROVAL GIVEN BY BOA AND WHETHER SUCH A CLARIFICATION ISSUED BY AN A UTHORITY OTHER THAN BOA HAS ANY LEGAL SANCTITY OR EVIDENCIARY VALUE PAR TICULARLY WHEN RELEVANT ACTIVITIES MENTIONED IN THE CLARIFICATION ARE NOT MENTIONED IN THE APPROVAL GIVEN BY BOA TO THE ASSESSEE OR TO ITS CO DEVELOPER AND SUCH A CLARIFICATION IS ALSO IN CONTRAVENTION OF SPIRIT OF SEZ ACT. 3. THAT THE LD CIT(A) IS NOT JUSTIFIED IN OBSERVING THAT GENUINENESS OF THE LETTER DATED 18-1-2011 AND 20-1-2011 WAS NOT DISPUT ED BY AO BECAUSE THE LEGAL INFIRMITY AS POINTED OUT IN ABOVE GROUNDS WAS CLEARLY MENTIONED IN THE' REMAND REPORT DATED 30-05-2012. 4. THAT THE LD CIT (A) HAS ERRED IN LAW AND ON FACT S OF THE CASE IN ADMITTING THE CLARIFICATIONS REFERRED ABOVE AS ADDI TIONAL EVIDENCE BY HOLDING THAT THE C1ARIFJCATION HAVE BEEN ISSUED BAS ED ON EVIDENCES ALREADY AVAILABLE IN THE FILE WITH BOA, WHEREAS NO SUCH MAT ERIALS WAS AVAILABLE ON RECORDS I.E. IN THE NOTE SHEETS OF BOA AND THUS SUC H A FINDINGS IS AGAINST THE FACTS ON RECORDS. 5. THAT THE LD CIT (A) HAS ERRED IN LAW AND ON FACT S OF THE CASE IN HOLDING THAT THE PROVISIONS OF CLAUSE (C) & (D) OF SUB RULE (1) OF RULE 46A ARE ATTRACTED IN THE CASE OF ASSESSEE IN RESPECT OF CLA RIFICATIONS REFERRED ABOVE IGNORING THE FACT THAT SUCH CLARIFICATIONS NEITHER EXISTED IN THE FILES OF BOA NOR WERE ISSUED BY THE COMPETENT AUTHORITY I.E. BO A. 6. THAT THE LD CIT (A) HAS ERRED IN LAW AND ON FACT S OF THE CASE IN HOLDING THE TRANSFER OF BARE SHELLS BY ASSESSEE TO ITS CO-D EVELOPER WAS AN AUTHORIZED OPERATION ON THE GROUND THAT THE AGREEME NT OF ASSESSEE WITH CO DEVELOPER REGARDING TRANSFER OF BARE SHELLS FOR DEV ELOPMENT CONSIDERATION WAS APPROVED BY BOA IGNORING THE FACT THAT SUCH TRA NSFER WAS NOT AN AUTHORIZED OPERATION AS PER NOTIFICATION NO. SO 184 6 E DATED 27/10/2006, THAT THE BOA HAD ONLY ALLOWED SUCH TRANSFER SUBJECT TO THE CONDITION THAT TAXABILITY OF SUCH TRANSACTION WOULD BE EXAMINED BY IT AUTHORITIES AND ALSO THE FACT THAT EVEN THE CLARIFICATION DATED 20/ 01/11 ONLY STATES THAT TRANSFER OF BARE SHELLS BY ASSESSEE TO ITS CO DEVEL OPERS IS ALLOWED AND IT NO WHERE SAYS THAT IT WAS AN AUTHORIZED OPERATION ELIG IBLE FOR BENEFITS UNDER THE SEZ ACT. 7. THAT THE LD CIT (A) HAS ERRED IN LAW AND ON FACT S OF THE CASE IN HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR CLAIM OF DEDUCTIO N U/S 80LAS IN RESPECT OF PROFITS DERIVED FROM TRANSFER OF BUILT UP SPACE( BA RE SHELLS BUILDINGS) COMPLETELY IGNORING THAT AS PER PROVISIONS OF PROVI SO TO SEE U/S IAS (2) ONLY INCOME FROM TRANSFER OF OPERATION AND MAINTENA NCE OF SEZ IS ELIGIBLE FOR DED AND NOT THE PROFITS DERIVED FROM TRANSFER O F MERE BUILT UP SPACE( BARE SHELLS BUILDINGS) AND SUCH TRANSFER OF BUILT U P SPACE IS ALSO AGAINST THE -SPIRIT OF SEZ ACT AS PROVISIONS OF SECTION 11 (5) OF THE SEZ ACT EXPRESSLY PROHIBITS SALE OF LAND OR BUILT UP AREA I N SEZ. 8. THAT THE LD CIT (A) HAS ERRED IN LAW AND ON FACT S OF THE CASE IN TREATING THE SOLITARY ACT OF CONSTRUCTION AND TRANSFER OF BU ILT UP SPACE( BARE SHELLS BUILDINGS) AS A BUSINESS OF DEVELOPING, OPERATION A ND MAINTENANCE OF SEZ AND THEREBY HOLDING THAT ASSESSEE IS ELIGIBLE FOR D EDUCTION U/S 801AB. 9. IN DOING SO, THE LD. CIT (A) HAS FAILED TO APPRE CIATE THE SPIRIT OF PROVISO TO SEC. 80LAS (2) THAT THE MOMENT THE CO DEVELOPER TRANSFERS THE OPERATION & MAINTENANCE OF SEZ TO THE CO-DEVELOPER, THE DED U /S 80LAS WOULD BE AVAILABLE TO THE CO DEVELOPER FOR THE REMAINING PER IOD IN 10 CONSECUTIVE YEARS MEANING THEREBY RIGHT OF DEVELOPER TO CLAIM B ENEFITS OF SEZ WOULD CEASE ON TRANSFER OF OPERATION & MAINTENANCE OF SEZ TO CO-DEVELOPER. 10. THAT THE LD CIT (A) HAS ERRED IN LAW & ON FACTS IN HOLDING THAT AO HAS NO JURISDICTION TO CHALLENGE THE VALIDITY OF APPROV AL GIVEN BY MINISTRY OF COMMERCE IGNORING THE FACT THAT APPROVAL GIVEN BY S OA OR MINISTRY OF COMMERCE WAS NOT ABSOLUTE BUT SUBJECT TO CONDITION THAT THE TREATMENT OF INCOME ARISING OUT OF TRANSACTION OF TRANSFER OF BA RE SHELLS BY ASSESSEE TO CO-DEVELOPER WOULD BE DECIDED AS PER RELEVANT PROVI SIONS OF IT ACT. 11. THAT THE LD CIT(A) HAS ERRED IN LAW AND ON FACT S OF THE CASE IN ACCEPTING RENT CAPITALIZATION METHOD AND THAT TOO B Y ADOPTING RENT OF A PROPERTY OTHER THAN THE PROPERTY SOLD BY ASSESSEE T O ITS CO-DEVELOPER AS BASIS FOR DETERMINING DEVELOPMENT CONSIDERATION OF BARE SHELLS AND THEREBY HOLDING DEVELOPMENT CONSIDERATION @ RS. 6,2 25 PER SQ.FEET CORRESPONDS TO THE MARKET VALUE OF BARE SHELLS AND THUS TREATING THE SAME AS REASONABLE IGNORING THE RELEVANT CONSIDERATIONS/ FACTORS SUCH AS OTHER METHODS OF DETERMINATION OF SALE CONSIDERATION, PRE VALENT RATE OF SUCH TYPE OF COMMERCIAL PROPERTIES IN THE AREA ETC AND THEREB Y RESTRICTING DISALLOWANCE TO RS. 174.27 CR. 12. THAT THE LD CIT (A) HAS ERRED IN LAW & ON FACTS IN HOLDING CAPITALIZATION RATE OF 10% AS REASONABLE IGNORING T HE FACT THAT NORMAL CAPITALIZATION RATE IN THE AREA OF CHENNAI IS 10.5% . 13. THAT THE LD CIT (A) IS NOT JUSTIFIED IN DETERMI NING DEVELOPMENT CONSIDERATION OF BARE SHELLS AT RS. 1178.05 CR AND THEREBY RESTRICTING THE DISALLOWANCE U/S 80LAS TO RS. 174.27 CR IGNORING TH E FACTS BROUGHT ON RECORD IN THE ASSESSMENT ORDER AS WELL AS FACTS MEN TIONED IN THE REMAND REPORTS. 14. THAT THE LD CIT (A) HAS ERRED IN LAW & ON FACTS IN HOLDING THAT THE BARE SHELL BUILDINGS TRANSFERRED TO CO-DEVELOPER WA S STOCK IN TRADE AS AGAINST CAPITAL ASSET TREATED BY THE AO IGNORING TH E FACTS MENTIONED IN THE ASSESSMENT ORDER. 4. BESIDES THE REVENUE HAS ALSO MOVED APPLICATION F OR PERMISSION TO RAISE THE FOLLOWING ADDITIONAL GROUND WHETHER LD. CIT(A) IS JUSTIFIED IN RELYING UPON THE CLARIFICATIONS ISSUED BY THE MINISTRY OF COMMERCE ( SEZ) SECTION, NEW DELHI WITHOUT VERIFYING THAT SAME HAS BEEN ISSUED BY BOAR D OF APPROVAL BY FOLLOWING PROPER PROCEDURE AND ALSO WHETHER CBDT WAS CONSULTE D BEFORE ISSUE OF SUCH CLARIFICATION BECAUSE IT HAD THE EFFECT OF DILUTING THE ITS CLAIMER CLAUSE WHICH WAS ADDED ON BEHALF OF CBDT. IN SUPPORT OF THIS APPL ICATION FOR SEEKING PERMISSION TO RAISE THE ADDITIONAL GROUND, THE LD. DR SUBMITTE D THAT THE ISSUE RAISED IS LEGAL IN NATURE ADJUDICATION OF WHICH DOES NOT REQUIRE FR ESH MATERIAL OUTSIDE THE RECORD IS REQUIRED TO BE CONSIDERED. HENCE, THE SAME MAY BE ALLOWED. IN THIS REGARD THE LD. DR REFERRED THE ANNEXURE I.E. CBDT CLARIFICATIO N DATED 26/5/2009 ATTACHED TO THE FIRST APPELLATE ORDER. 5. THE LD. AR ON THE OTHER HAND OPPOSED THE APPLICA TION WITH THE CONTENTION THAT THE LD. CIT (A) HAS ALREADY DISCUSSED THE ISSU E AND THE REVENUE SHOULD HAVE RAISED IT ON EARLIER OCCASION. CONSIDERING THIS FA CT THAT THE ISSUE RAISED IS LEGAL IN NATURE AND ADJUDICATION OF WHICH DOES NOT NEED CONS IDERATION OF FRESH MATERIAL OUTSIDE THE RECORD, WE ALLOW THE APPLICATION AND TH E ADDITIONAL GROUND RAISED FOR OUR ADJUDICATION. SINCE THE ISSUE IS CONNECTED WIT H THE ALLOWABILITY OF THE CLAIMED DEDUCTION BY THE ASSESSEE U/S 80IAB WE WILL DISCUSS THE ISSUE RAISED IN THE ADDITIONAL GROUND WHILE DEALING WITH OTHER CONN ECTED GROUNDS OF THE APPEALS ABOUT THE ELIGIBILITY OF THE DEDUCTION. 6. WE FIND THAT THE MAIN ISSUE INVOLVED IN THE GROU NDS OF THE APPEALS PREFERRED BY THE PARTIES IS AS TO WHETHER THE RELIE F WAS ALLOWABLE FOR THE CLAIMED DEDUCTION U/S 80IAB OF THE ACT AT RS.13,52,32,97,39 7/-? THE RELEVANT FACTS ARE THAT THE ASSESSEE DURING THE YEAR HAD BEEN ENGAGED IN THE BUSINESS OF DEVELOPING, OPERATING AND MAINTAINING REAL ESTATE PROJECTS WHIC H INTER ALIA INCLUDED DEVELOPMENT OF SEZS AND ALL RELATED INFRASTRUCTURE IN ACCORDANCE WITH THE APPLICABLE LAWS AND POLICIES OF THE GOVERNMENT OF I NDIA. THE ASSESSEE COMPANY HAD OWNERSHIP, LEASEHOLD RIGHTS AND WAS IN POSSESSI ON OF LAND AD MEASURING 17.40 HECTARES EQUIVALENT TO 43 ACRES SITUATED AT 1 /24 SHIVAJI GAENS, MOONLIGHT STONES, NANDANPAKKAM, POST RAMPURAM, CHENNAI (TAMIL NAD). THE ASSESSEE APPROACHED THE GOVERNMENT OF INDIA TO SEEK APPROVAL FOR SETTING UP A SECTOR SPECIFIC SPECIAL ECONOMIC ZONE FOR IT/ITES SECTOR A T THE ABOVE SAID LAND. ACCORDINGLY THE ASSESSEE COMPANY WAS GRANTED APPROV AL AS DEVELOPER BY THE DEPTT OF COMMERCE (SEZ SECTION), MINISTRY OF COMMER CE AND INDUSTRY, GOVT. OF INDIA VIDE APPROVAL LETTER F.2/124/2005 EPZ DATED 2 2/6/2006 FOR SETTING UP IT/ITES SPECIAL ECONOMIC ZONE AT THE ABOVE SAID LAN D AND VIDE ITS LETTER DATED 29/8/2006, THE MINISTRY OF COMMERCE AND INDUSTRY, D EPTT OF COMMERCE (SEZ) GOVT. OF INDIA, THE AUTHORIZED OPERATIONS IN RESPEC T OF IT & ITES SPECIAL SECTION SEZ) PROPOSED TO BE DEVELOPED BY THE ASSESSEE WERE APPROVED WHICH INTER ALIA INCLUDED CONSTRUCTION OF OFFICE AND COMMERCIAL COMP LEXES NOT RELATED TO BARE- SHELL FACILITY AND OR FULLY FURNISHED OFFICE SPACE ETC. FURTHER VIDE NOTIFICATION DATED 19/3/2007 AN ADDITIONAL AREA OF 3.43 84 HECTA RES OF LAND WAS NOTIFIED FOR THE ABOVE SAID PURPOSE. 7. THE SEZ ACT 2005 SPECIFICALLY ALLOWS THE CO-DEVE LOPER TO INTER INTO A PROJECT, RECOGNIZES AND TREATS THE CO-DEVELOPER AT PAR WITH DEVELOPER AND DEFINES CO-DEVELOPER UNDER SECTION 2(F) OF THE SEZ ACT 20 05. IN THIS DEFINITION THE CO- DEVELOPER HAS ALSO BEEN DEFINED AS DEVELOPER. T HE ASSESSEE COMPANY HAD ENTERED INTO A MEMORANDUM OF UNDERSTANDING FOLLOWIN G WITH ITS ADDENDUM WITH M/S DLF ASSETS PVT. LTD. AS A CO-DEVELOPER VIDE AGR EEMENT DATED 29/11/2006 FOR DEVELOPING, OPERATING AND MAINTAINING THE SEZ AS A CO-DEVELOPER BY TRANSFERRING AND HANDING OVER SPECIFIED BARE-SHELL BUILDINGS LOC ATED WITHIN THE PROJECT. SEVERAL CORRESPONDENCES WERE ENTERED INTO AND APPRO VAL WERE GIVEN BY BOA (BOARD OF APPROVAL) TIME TO TIME. THE TAX AUDIT RE PORT U/S 44AB AND REPORT U/S 80IA (7) OF THE ACT OBTAINED BEFORE FILING OF ITS R ETURN OF INCOME FOR THE YEAR. IN ITS AUDITED PROFIT AND LOSS ACCOUNT, THE ASSESSEE H AD DECLARED DEVELOPMENT INCOME OF RS.1677.45 CRORES AGAINST THE COST OF DEVELOPMEN T SHOWN AT RS.325.59 CRORES, LAND LEASE RENT OF RS.1.31 CRORES AND OTHER INCOME OF RS.20.33 CRORES. IN THE COMPUTATION OF INCOME THE ASSESSEE HAD CLAIMED DEDU CTION OF RS. 1352.32 CRORES U/S 80 IAB OF THE ACT AGAINST THE DEVELOPMENT INCOM E EARNED DURING THE YEAR IN RESPECT OF ITS SEZ PROJECT AT CHENNAI. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT DEDUCTION CLAIMED BY THE ASSESSEE U/S 80IAB IN RESPECT OF PROFITS DERIVED FROM SEZ AT CHENNAI W AS NOT ADMISSIBLE AS THE ASSESSEE SOLD THE BARE-SHELL BUILDINGS TO THE CO-DE VELOPER, NAMELY DLF ASSETS PVT LTD (DAPL IN SHORT) WHICH WAS NOT AN AUTHORIZED OPERATION UNDER THE SEZ ACT 2005 AND THE SEZ RULES, 2006. THE AO HELD THAT IN VIEW OF THE PROVISIONS OF SECTION 80IAB DEDUCTION OF PROFIT IS ALLOWED ONL Y FROM OPERATION AND MAINTENANCE OF SEZ AND NOT FROM THE PROFIT FROM BAR E SHELL OF ASSETS, WHICH THE ASSESSEE HAD EARNED FROM TRANSFER OF BARE SHELL BUI LDING TO THE CO-DEVELOPER. 8. THE LD. CIT(A) AFTER DISCUSSING THE CASE DIRECTE D TO DISALLOW EXCESSIVE DEDUCTION OF RS.1,74,27,13,060/- IN THE LIGHT OF PR OVISIONS OF SECTION 80IA (10) READ WITH SECTION 80IAB (10) OF THE ACT. IN RESULT, THE ASSESSEE GOT A RELIEF OF RS.11,78,5,84,337/- THUS THE PARTIES ARE IN CROSS A PPEALS. IN ITS GROUNDS THE ASSESSEE HAS QUESTIONED THE ACTION OF THE LD. CIT(A ) IN HOLDING THAT THE FAIR MARKET VALUE OF DEVELOPMENT CONSIDERATION IS RS.6,2 25 PER SQUARE FIT AS AGAINST RS.6,947 PER SQUARE FIT CLAIMED BY THE ASSESSEE AND THEREBY RESTRICTING THE DEDUCTION U/S 80IAB OF THE ACT AT RS.11,78,5,84,337 /- AS AGAINST RS.13,52,32,97,397/- CLAIMED BY THE ASSESSEE. IN A LTERNATIVE THE ACTION OF THE LD. CIT(A) HAS BEEN IMPUGNED BY THE ASSESSEE THAT THE L D. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.1,74,27,13,060/- HOLD ING THE SAME TO BE ACCESS DEDUCTION CLAIMED RATHER THAN IGNORING THE SAME. 9. IN SUPPORT OF THE GROUND OF ITS APPEAL, THE LD. AR HAS REITERATED THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE BEFORE TH E AUTHORITIES BELOW. HE SUBMITTED THAT THE ISSUE OF ALLOWABILITY OF THE CLA IMED DEDUCTION U/S 80IAB TO THE ASSESSEE UNDER THE SIMILAR SET OF FACTS HAS BEEN DE CIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN THE A. Y 2007-08 IN ITA NO. 2637 /DEL/2012 VIDE ORDER DATED 2/8/2013. THE CLAIM HAS ALSO BEEN ACCEPTED BY THE R EVENUE IN THE FIRST YEAR OUT OF 10 YEARS OF THE SCHEME. 10. THE LD. DR ON THE OTHER HAND PLACED RELIANCE ON THE ASSESSMENT ORDER. HE SUBMITTED THAT IN THE ASSESSMENT YEAR 2007-08, THE APPEAL BEFORE THE TRIBUNAL WAS PREFERRED AGAINST THE ORDER PASSED U/S 263 OF T HE ACT, HENCE THE IMMEDIATE ISSUE BEFORE THE TRIBUNAL WAS AS TO WHETHER THE ASS ESSMENT ORDER QUESTIONED BY THE LD. CIT IN THE REVISIONAL PROCEEDINGS U/S 263 O F THE ACT WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE OR NOT. THU S ANY VIEW EXPRESSED BY THE TRIBUNAL ABOUT THE ALLOWABILITY OF CLAIMING DEDUCTI ON U/S 80IAB THEREIN IS NOT RELEVANT FOR THE PRESENT CASE. THE LD. DR SUBMITTE D FURTHER THAT APPROVAL OF TRANSFER OF BUILT UP BARE SHELL STRUCTURE BY THE AS SESSEE DEVELOPER TO THE CO- DEVELOPER WAS NOT GRANTED BY THE COMPETENT AUTHORIT Y. 11. SINCE THE CONNECTED ISSUES ARE RAISED IN THE GR OUNDS OF THE APPEAL PREFERRED BY THE REVENUE IT WOULD BE JUST AND PROPER TO DEAL WITH THESE ISSUES SIMULTANEOUSLY WITH THE APPEAL OF THE ASSESSEE DISC USSED ABOVE. THE MAIN ISSUE INVOLVE IN THE GROUNDS OF THE APPEAL PREFERRED BY T HE REVENUE IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN GIVING RELIEF OF RS.11, 78,5,84,337/- TOWARDS THE ALLOWANCE OF DEDUCTION MADE BY THE AO U/S 80IAB OF THE ACT. 12. IN ITS APPEAL THE REVENUE HAS ALSO QUESTIONED F IRST APPELLATE ORDER INVOLVING THE ISSUES REGARDING ADMISSION OF ADDITIONAL EVIDEN CE I.E LETTERS/ CLARIFICATIONS DATED 18/1/2011 AND 20/1/2011 ISSUED BY MINISTRY OF COMMERCE AND IN TAKING COGNIZANCE THEREOF FOR HOLDING THAT TRANSFER OF BAR E SHELL BUILDINGS BY ASSESSEE TO ITS CO-DEVELOPER WAS AN AUTHORIZED OPERATION IGNORI NG THE FACT THAT AS PER SECTION 9(2) ONLY BOARD OF APPROVAL (IN SHORT BOA) IS EMPOW ERED TO GRANT APPROVAL OF SEZ AND NOT THE MINISTRY OF COMMERCE. IT WAS CONTE NDED BY THE LD. DR THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN OBSERVING THAT GENU INENESS OF THE LETTERS DATED 18/1/2011 & 20/1/2011 WAS NOT DISPUTED BY THE AO BE CAUSE THE LEGAL INFIRMITY AS POINTED OUT WAS CLEARLY MENTIONED IN THE REMAND REP ORT DATED 30/5/2012. IT WAS ALSO SUBMITTED THAT IT HAS BEEN WRONGLY NOTED BY TH E LD. CIT(A) THAT THE ABOVE STATED ADDITIONAL EVIDENCE WERE ALREADY AVAILABLE I N THE FILE WITH THE BOA, WHERE AS NO SUCH MATERIAL WAS SHOWN AVAILABLE ON RECORDS IN THE NOTE-SHEET OF BOA. IT WAS THUS CONTENDED BY THE LD. DR THAT CIT(A) HAS ER RED IN HOLDING THAT THE PROVISIONS OF CLAUSES (C) AND (D) OF SUB RULE (1) O F RULE 46 A OF I.T RULES 1962ARE ATTRACTED IN THE CASE OF THE ASSESSEE IN RE SPECT OF CLARIFICATIONS REFERRED ABOVE. (THESE COVER UNDER GROUND NOS. 1 TO 5 OF TH E REVENUES APPEAL). THE FURTHER ISSUE RAISED IN GROUND NOS. 6 TO 10 OF THE REVENUES APPEAL IS VALIDITY OF FINDING OF LD. CIT(A) THAT THE TRANSFER OF BARE SHE LLS BY ASSESSEE TO ITS CO- DEVELOPER WAS AN AUTHORIZED OPERATION ON THE BASIS THAT THE AGREEMENT OF ASSESSEE WITH CO-DEVELOPER REGARDING TRANSFER OF BARE SHELLS FOR THE DEVELOPMENT CONSIDERATION WAS APPROVED BY BOA IGNORING THE FACT THAT SUCH TRANSFER WAS NOT AN AUTHORIZED OPERATION AS PER NOTIFICATION NO. SO 1846 E DATED 27/10/2006, THAT THE BOA HAD ONLY ALLOWED SUCH TRANSFER SUBJECT TO T HE CONDITION THAT TAXABILITY OF SUCH TRANSACTION WOULD BE EXAMINED BY INCOME TAX AU THORITIES AND ALSO THE FACT THAT EVEN THE CLARIFICATION DATED 20/1/2011 ONLY ST ATES THAT TRANSFER OF BARE SHELLS BY ASSESSEE TO ITS CO-DEVELOPER IS ALLOWED AND IT N O WHERE SAY THAT IT WAS AN AUTHORIZED OPERATION ALLOWABLE FOR BENEFITS UNDER T HE SEZ ACT. THE VALIDITY OF THIS FINDING OF THE LD. CIT(A) HAS ALSO BEEN QUESTI ONED WITH DIFFERENT ARGUMENTS IN THE GROUND NOS. 7 TO 10. IN SUPPORT OF GROUND N O. 7, LD. DR SUBMITTED THAT THE LD. CIT(A) HAS ACCEPTED THE ALLOWABILITY OF THE ASSESSEE FOR CLAIMING DEDUCTION U/S 80IAB IN RESPECT OF PROFITS DERIVED F ROM TRANSFER OF BUILD UP BARE SHELLS BUILDINGS IGNORING THAT AS PER PROVISO TO SE CTION 80IAB (2) ONLY INCOME FROM TRANSFER OF OPERATION AND MAINTENANCE OF SEZ I S ALLOWABLE FOR DEDUCTION AND NOT THE PROFITS DERIVED FROM TRANSFER OF MERE B ARE SHELL BUILDINGS AND AS SUCH TRANSFER OF BUILT UP SPACE IS ALSO AGAINST THE SPIR IT OF SEZ ACT AS PROVISIONS OF SECTION 11(5) OF THE SEZ ACT EXPRESSLY PROHIBITS SA LE OF LAND OR BUILT UP AREA IN SEZ. IN SUPPORT OF THE GROUND NO. 8, THE LD. DR CO NTENDED THAT THE FIRST APPELLATE AUTHORITY HAS ALSO ERRED IN TREATING THE SOLARITY ACT OF CONSTRUCTION AND TRANSFER OF BUILT UP BARE SHELL BUILDINGS AS A BUSI NESS OF DEVELOPING, OPERATION AND MAINTENANCE OF SEZ. WHILE DOING SO, THE LD. CIT(A) HAS FAILED TO APPRECIATE THE SEPARATE PROVISO MADE IN THIS REGARD TO SECTION 80I AB(2) THAT THE MOMENT THE CO- DEVELOPER TRANSFERS THE OPERATION AND MAINTENANCE O F SEZ TO THE CO-DEVELOPER, THE DEDUCTION U/S 80IAB WOULD BE AVAILABLE TO THE C O-DEVELOPER FOR THE REMAINING PERIOD IN 10 CONSECUTIVE YEARS, MEANING THEREBY RIG HT OF DEVELOPER TO CLAIM BENEFITS OF SEZ WOULD CEASE ON TRANSFER OF OPERATIO N AND MAINTENANCE OF SEZ TO CO-DEVELOPER. THE LD. DR CONTENDED FURTHER THAT TH E LD. CIT(A) WAS ALSO NOT JUSTIFIED IN HOLDING THAT THE AO HAS NO JURISDICTIO N TO CHALLENGE THE VALIDITY OF APPROVAL GIVEN BY MINISTRY OF COMMERCE IGNORING THE FACT THAT APPROVAL GIVEN BY BOA OR MINISTRY OF COMMERCE WAS NOT ABSOLUTE BUT SU BJECT TO CONDITION THAT THE TREATMENT OF INCOME ARISING OUT OF TRANSACTION OF T RANSFER OF BARE SHELL BY ASSESSEE TO CO-DEVELOPER WOULD BE DECIDED AS PER RELEVANT PR OVISIONS OF I.T ACT, 1961. 13. THE LD. AR OPPOSED THE ABOVE CONTENTIONS OF THE LD. DR WITH THIS SUBMISSION THAT ADDITIONAL EVIDENCE QUESTIONED IN G ROUND NO.S 1 TO 5 I.E LETTERS/CLARIFICATION DATED 18/1/2011 AND 20/1/2011 ISSUED BY MINISTRY OF COMMERCE WAS RELEVANT FOR JUST AND PROPER DISPOSAL OF THE ISSUE AND THE LD. CIT(A) HAS ADMITTED THE SAME AFTER CALLING REMAND R EPORT OF THE AO. HAVING GONE THROUGH THE FIRST APPELLATE ORDER ON THE ISSUE OF ADMISSION OF ADDITIONAL EVIDENCE, WE FIND THAT VIDE APPLICATION DATED 11/11 /2011 THE ASSESSEE HAD SOUGHT ADMISSION OF THE FOLLOWING ADDITIONAL EVIDENCE: I) COPIES OF LETTERS DATED 10/1/2011 AND 18/1/2011 ADDRESSED TO THE CHAIRMAN, BOARD OF APPROVAL, MINISTRY OF COMMERCE A ND INDUSTRY, SEEKING CLARIFICATION REGARDING AUTHORIZED OPERATIO NS, AND (II) COPIES OF LETTER DATED 18/1/2011 BEING RE PLIES OF THE BOARD OF APPROVAL. VIDE APPLICATION DATED 16/4/2012 THE ASSESSEE HAD S OUGHT ADMISSION FOR THE FOLLOWING ADDITIONAL EVIDENCE CONCERNING INFORM ATION COLLECTED UNDER RIGHT TO INFORMATION ACT: I) COPIES OF NOTE SHEETS IN FILE F.2/1 2009 SEA OF DEP ARTMENT OF COMMERCE RUNNING IN 4 PAGES; AND II) COPIES OF LETTER DATED 8/4/2009 WRITTEN BY THE DIRE CTOR, DEPTT OF COMMERCE, MINISTRY OF COMMERCE & INDUSTRY TO THE DIRECTOR, CBDT AND LETTER DATED 26/5/2009 WRITTEN B Y SH. RAMAN CHOPRA DIRECTOR (ITA-I), CBDT TO SHRI T. SRIN IDHI, DIRECTOR, DEPTT OF COMMERCE, MINISTRY OF COMMERCE & INDUSTRY, NEW DELHI. 14. THE LD. CIT(A) FORWARDED THE ADDITIONAL EVIDENC ES TO THE AO IN COMPLIANCE OF THE REQUIREMENT OF RULE 46A (3) OF I. T. RULES 1962. THE AO OBJECTED THE SAME FOR ADMISSION. THE LD. CIT(A) HA S HOWEVER, ADMITTED THESE ADDITIONAL EVIDENCES AFTER DISCUSSING THE ISSUE IN DETAIL INCLUDING PROVISIONS LAID DOWN UNDER RULE 46A REASONS SHOWN BY THE ASSESSEE N OT FILING THESE BEFORE THE AO AND THE DECISIONS RELIED UPON. THE RELEVANT EXT RACT OF PARA 7 AT PAGE NOS. 106 TO 111 OF THE FIRST APPELLATE ORDER IS BEING RE PRODUCED HEREUNDER FOR READY REFERENCE: THE ADDITIONAL EVIDENCE WERE FORWARD TO THE AO IN TERMS OF THE REQUIREMENT OF SUB-RULE(3) OF RULE 46A FOR EXAMINAT ION OF THEIR VERACITY AND REPORT ON THEIR ADMISSIBILITY. THE AO HAS OBJE CTED TO THE ADMISSION OF ADDITIONAL EVIDENCES ON THE GROUNDS THAT THESES CLA RIFICATIONS WERE NOT IN EXISTENCE TILL THE COMPLETION OF ASSESSMENT BUT OBT AINED THEREAFTER AD, AS SUCH NOT RELEVANT FOR DECIDING THE ASSESSMENT COMPL ETED PRIOR TO COMING IN INSISTENCE OF SUCH CLARIFICATIONS; DO NOT SATISFY A ND OF THE 4 CRITERIA MENTIONED IN THE RULE 46A FOR ADMISSION AS ADDITION AL EVIDENCE; CANNOT BE LEGALLY ACCEPTED AS ADDITIONAL EVIDENCES, AND DESER VE TO BE REJECTED. THE APPELLANT HAS RAISED THE CONTENTION THAT ITS CLAIM OF DEDUCTION U/S 80IAB HAS BEEN DISALLOWED BY HOLDING THAT THE TRANSFER OF BARE SHELLS TO C0DEVELOPER FOR A CONSIDERATION WAS NOT AN AUTHORIZ ED OPERATION AS PER THE SEZ ACT. ON RECEIPT OF ASSESSMENT ORDER, THE A PPELLANT APPROACHED THE BOARD OF APPROVAL (SEZ SECTION) FOR FURTHER CLARIFI CATIONS, WHICH WERE SUBSEQUENTLY RECEIVED. THEREFORE, THE APPELLANT HA D NO OPPORTUNITY TO FILE THESE EVIDENCES DURING THE COURSE OF ASSESSMENT PRO CEEDINGS. THESE DOCUMENTS/EVIDENCES WERE, HOWEVER, FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR SUBSEQUENT A.Y 2009-10. IT IS REV EALED ON PERUSAL OF ASSESSMENT ORDER FOR A.Y 2009-10 PASSED ON 30/12/20 11 THAT THESE LETTERS DATED 18/1/2011 AND 20/1/2011, BEING REPLIED OF THE BOARD OF APPROVAL, WERE FIELD BY THE APPELLANT AND DULY DISCUSSED BY D EDUCTION U/S 80IAB ON THE STRENGTH OF A DISCLAIMER CONTAINED IN CLAUSE 3( XVII) OF THE APPROVAL LETTER DATED 1/6/2009 ISSUED BY THE BOARD OF APPROV AL TO THE CO-DEVELOPER I.E. DLP ASSETS PRIVATE LTD. THE APPELLANT HAS COL LECTED INFORMATION UNDER THE RIGHT TO INFORMATION ACT TO EXPLAIN THE E FFECT AND CONSEQUENCE OF SUCH DISCLAIMER . THE RULE 46(A) PROVIDES THAT AN ASSESSEE SHALL NOT BE ENTITLED TO PRODUCE BEFORE THE COMMISSIONER OF INCO ME TAX (APPEALS) ANY EVIDENCE WHETHER ORAL OR DOCUMENTARY OTHER THAN THE EVIDENCE PRODUCED DURING THE COURSE OF PROCEEDINGS BEFORE THE ASSESSI NG OFFICER EXCEPT IN THE FOLLOWING FOUR CIRCUMSTANCES:- A) WHERE THE AO HAS REFUSED TO ADMIT EVIDENCE WHICH OU GHT TO HAVE BEEN ADMITTED; OR B) WHERE THE APPELLANT WAS PREVENTED BY SUFFICIENT CAU SE FROM PRODUCING THE EVIDENCE WHICH HE WAS CALLED UPON TO PRODUCE BY THE ASSESSING OFFICER; OR C) WHERE THE APPELLANT WAS PREVENTED BY SUFFICIENT CAU SE FROM PRODUCING BEFORE THE ASSESSING OFFICER ANY EVIDENCE WHICH IS RELEVANT TO ANY GROUND OF APPEAL; OR D) WHERE THE ASSESSING OFFICER HAS MADE THE ORDER APPE ALED AGAINST WITHOUT GIVING SUFFICIENT OPPORTUNITY TOT THE APPEL LANT TO ADDUCE EVIDENCE RELEVANT TO ANY GROUND OF APPEAL. IT IS CLEAR THAT THE EXCEPTIONAL CIRCUMSTANCES MENT IONED IN CLAUSE (A) AND (B) OF SUB-RULE(1) ARE NOT APPLICABLE TO TPE FACTS OF THE APPLICANT'S CASE. HOWEVER, IT IS EVIDENT FROM THE ASSESSMENT ORDER TH AT THE AO, WHILE REJECTING THE CLAIM OF DEDUCTION U/S. 80IAB, HAS RE FERRED TO AND RELIED UPON THE MINUTES OF 34TH MEETING OF THE BOARD OF AP PROVAL HELD ON 19.06.2009 WITHOUT CONFRONTING THE SAME TO THE APPE LLANT. THE APPELLANT, THEREFORE, SOUGHT FURTHER CLARIFICATIONS FROM THE M INISTRY OF COMMERCE AND COLLECTED INFORMATION UNDER THE RIGHT TO INFORMATIO N ACT RELEVANT TO ISSUE IN QUESTION WHICH HAS GONE IN THE BACKGROUND BEFORE GRANTING APPROVAL TO THE CO-DEVELOPER. THE ADDITIONAL EVIDENCES FORM INT EGRAL PART OF THE DECISION MAKING PROCESS OF THE BOARD OF APPROVAL AN D ARE NECESSARY FOR ARRIVING AT CORRECT LEGAL CONCLUSION THESE EVIDENCE S ARE VERY CRUCIAL AND NECESSARY FOR DECIDING THE LEGAL STATUS OF THE APPE LLANT UNDER THE SEZ ACT AS WELL AS ITS CONSEQUENTIAL ENTITLEMENT OR OTHERWI SE OF DEDUCTION U/S. 80IAB OF THE ACT. WHILE THE APPELLANT HAS, ALL ALON G, CONTESTED ITS CLAIM OF DEDUCTION U/S. 80IAB ON 'THE STRENGTH OF APPROVAL G RANTED BY THE BOARD OF APPROVAL, THE AO HAS HELD THAT THE APPROVAL GRANTED TO THE CO-DEVELOPER WAS A CONDITIONAL APPROVAL AND THE TRANSFER OF BARE SHELL BUILDINGS TO THE CO-DEVELOPER WAS NOT AN AUTHORIZED OPERATION. IT IS SEEN FROM THE ASSESSMENT ORDER THAT THE AO HAS NOT PROVIDED ANY S PECIFIC OPPORTUNITY TO THE APPELLANT WHILE HOLDING SO AND HAS DRAWN ADVERS E INFERENCE ON THE BASIS OF DETAILS/INFORMATION PROVIDED BY THE APPELL ANT DURING THE ASSESSMENT PROCEEDINGS, WHICH IS AGAINST THE RULES OF NATURAL JUSTICE. IN THE CONTEXT OF RULE 46A, IT HAS BEEN HELD BY THE HON'BL E PUNJAB AND HARYANA HIGH COURT IN CIT VS. JIND CO-OPERATIVE SUGAR MILLS LTD. (2011) (335 ITR 43) THAT, 'WHEN THE ASSESSEE FILES ADDITIONAL EVIDE NCE BEFORE THE CIT(A), IT IS NOT NECESSARY THAT THE CIT(A) MUST REMAND THE MA TTER TO THE AO BUT IT DEPENDS ON THE NATURE OF THE EVIDENCE. THE CIT(A) I N APPROPRIATE CASE WITHOUT PREJUDICE TO EITHER PARTY CAN LOOK INTO THE EVIDENCE ITSELF. THE SPIRIT OF RULE 46A IS FOUNDED ON THE PRINCIPLES OF NATURAL JUSTICE. IN DCIT VS. DOLPHINE MARQLES PVT. LTD. (2011) 129 ITD 163 ( JB) TM, IT HAS BEEN HELD THAT WHEN CIT(A) HAD RECORDED THE REASONS FOR ADMISSION OF ADDITIONAL EVIDENCE AND HAD ALSO GIVEN AN OPPORTUNI TY TO THE AO TO STATE HIS OBJECTIONS, IF ANY, TO ADMISSION OF ADDITIONAL EVIDENCE AND THOUGH AO HAD RAISED OBJECTION TO ADMISSION OF ADDITIONAL EVI DENCE, YET HE HAD NOT STATED ANYTHING ABOUT VERACITY OF . ADDITIONAL EVID ENCE FILED BY ASSESSEE, THERE WAS NO VIOLATION OF THE PROVISIONS OF RULE 46 A. THE HON'BLE ORISSA HIGH COURT IN THE CASE OF B.L. CHOUDHURY VS. CIT (1 05 ITR 371) HAS OBSERVED THAT BY THE VIRTUE OF SECTION 250, WIDE PR OVISION HAS BEEN MADE CONFERRING JURISDICTION ON THE FIRST APPELLATE AUTH ORITY TO MAKE SUCH INQUIRY AS HE DEEMS FIT AND THAT THE CIT(A) DOES NOT EXCEED HIS JURISDICTION IF HE ASKS OR ALLOWS THE APPELLANT TO FILE ADDITIONAL EVI DENCE IN THE MATTER HE THINKS FIT. THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF SMT. PRABHAVATI SHASH VS. CIT (231 ITR 1 HAS HELD THAT RULE 46A DOE S RESTRICT THE RIGHT OF THE ASSESSEE TO PRODUCE ADDITIONAL EVIDENCES BUT IT DOES NOT RESTRAIN' THE CIT(A)'S POWERS UNDER SECTION 250(4) AND THAT THIS RULE APPEARS TO ENSURE THAT EVIDENCE IS PRIMARILY LED BEFORE THE ASSESSING OFFICER. THE HON'BLE HIGH COURT OF KERALA IN CIT VS. RAVINDRANATHAN NAIR (131 TAXMAN 743), AFTER EXAMINING THE PROVISIONS OF RULE 46A AND SECT ION 250, HAS HELD THAT 'ON A CONSIDERATION OF THE PROVISIONS OF RULE 46A, PARTICULARLY SUB-RULE (4) THEREOF AND THE PROVISIONS OF SECTION 250(1) CONFER RING POWER ON THE CIT(A), IT IS CLEAR THAT IN SPITE OF THE PROVISIONS OF RULE 46A(1), THE PROVISIONS OF SEC. 250 ENABLE THE CIT(A)S TO ACCEPT ADDITIONAL EVIDENCE IN APPROPRIATE CASES WHICH POWER HAS BEEN PRESERVED BY SUB-RULE (4) OF RULE 46A ALSO. IF THE PROVISIONS OF RULE 46A, SUB-RULE ( 4) THEREOF ARE HELD TO BE MANDATORY THAT WOULD GO AGAINST THE PROVISIONS OF S EC. 250 CONFERRING POWER ON THE FIRST APPELLATE AUTHORITY TO ENQUIRE I NTO THE MATTER AND PASS APPROPRIATE ORDERS. IN OTHER WORDS, RULE 46A WITHOU T SUB-RULE(4) WOULD BE OPEN TO CHALLENGE AS ULTRA VIRES SECTION 250'. THEREFORE, IF THE EVIDENCE IS GENUINE AND RELIABLE, THEN THE ASSESSEE SHOULD NOT BE DENIED THE OPPORTUNITY TO PRODUCE SUCH EVIDENCE AND IT WOULD B E INCORRECT TO SHUT OUT AN ASSESSEE IN THE PROCESS OF ADMINISTRATION OF JUS TICE FROM LEADING EVIDENCE TO PROVE ITS CASE. AS PER THE PROVISIONS O F CLAUSE (A) AND (B) SUB- RULE (3) OF RULE 46A, THE AO IS DUTY BOUND TO EXAMI NE THE EVIDENCE OR DOCUMENT PRODUCED BY THE APPELLANT AND/OR TO PRODUC E ANY EVIDENCE OR DOCUMENT OR ANY WITNESS IN REBUTTAL OF THE ADDITION AL EVIDENCE PRODUCED BY THE APPELLANT. THE ADDITIONAL EVIDENCES, OTHER THAN THOSE COLLECTED UNDER THE RIGHT TO INFORMATION ACT, HAVE ALREADY BEEN FUR NISHED DURING THE ASSESSMENT FOR A.Y. 2009-10 AND THEIR GENUINENESS H AS NOT AT ALL BEEN DISPUTED BY THE AO. THE GENUINENESS OF THE ADDITION AL EVIDENCE COLLECTED UNDER THE RIGHT TO INFORMATION ACT AND FILED BY THE APPELLANT HAS ALSO NOT BEEN DISPUTED BY THE AO IN THE REMAND REPORTS. I FI ND THAT THESE EVIDENCES ARE IN THE NATURE OF FURTHER CLARIFICATIONS; FORM I NTEGRAL PART OF THE CORRESPONDENCE BETWEEN DEPARTMENT OF COMMERCE AND D EPARTMENT OF REVENUE BEFORE GRANTING THE APPROVAL VIDE LETTER DA TED 01.06.2009, GO TO THE VERY ROOT OF MATTER IN DECIDING THE ELIGIBILITY OR OTHERWISE OF THE APPELLANT'S CLAIM OF DEDUCTION U/S. 80IAB OF THE AC T AND NEED TO BE TAKEN INTO ACCOUNT IN DECIDING MAJOR GROUNDS OF APPEAL. I FIND NO RATIONALITY IN THE OBJECTION OF THE AO THAT THESE ADDITIONAL EVIDE NCES CANNOT BE 'ADMITTED FOR BEING NOT IN EXISTENCE TILL COMPLETION OF ASSES SMENT. SUCH AN OBJECTION WOULD GO AGAINST THE SPIRIT OF THE PROVISIONS OF RU LE 46A AND SECTION 250(4) OF THE ACT. IT IS NOT THE CASE THAT THESE EV IDENCES HAVE BEEN CREATED AFTER THE COMPLETION OF ASSESSMENT. THE NOTE SHEETS IN THE FILE OF MINISTRY OF COMMERCE AND COPIES' OF LETTERS SHOWING CORRESPONDE NCE BETWEEN DEPARTMENT OF COMMERCE AND DEPARTMENT OF REVENUE DI D EXIST BEFORE COMPLETION OF ASSESSMENT AND THE CLARIFICATIONS HAV E BEEN ISSUED BASED ON THE EVIDENCES ALREADY AVAILABLE IN THE FILE WITH TH E BOARD OF APPROVAL. IN THE LIGHT OF FACTS DISCUSSED ABOVE, IT IS EVIDENT T HAT THE PROVISIONS OF CLAUSE (C) AND (D) OF SUB-RULE (1) OF RULE 46A ARE CLEARLY ATTRACTED IN THE APPELLANT'S CASE. SINCE THE AO HAS BEEN ALLOWED OPP ORTUNITY TO HAVE HIS SAY ON THESE ADDITIONAL EVIDENCES, THE SAME ARE ADM ITTED UNDER RULE 46A(2) AFTER FOLLOWING DUE COMPLIANCE TO THE PROVIS IONS OF RULE 46A(3) AND IN THE LIGHT OF RATIONALE LAID DOWN IN THE JUDI CIAL RULINGS CITED SUPRA. HAVING ADMITTED THE ADDITIONAL EVIDENCES, VARIOUS G ROUNDS OF APPEAL ARE ADJUDICATED HEREUNDER. 15. THE FIRST APPELLATE ORDER ON THE ISSUE IS COMPR EHENSIVE AND REASONED ONE, HENCE WE DO NOT FIND REASON TO INTERFERE THEREWITH. THE SAME IS UPHELD. IN RESULT GROUND NOS. 1 TO 5 OF THE APPEAL (DEPTT) ARE REJECT ED. 16. SO FAR AS ISSUES RAISED IN GROUND NOS. 6 TO 10 ARE CONCERNED THESE ARE RELATED TO THE SOLE ISSUE AS TO WHETHER LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR THE DEDUCTION CLAIMED U/S 80IAB OF THE ACT IN RESPECT OF PROFITS DERIVED FROM TRANSFER OF BARE SHELLS BUI LDINGS WHICH AS PER THE LD. AR IS COVERED BY THE DECISION OF THE TRIBUNAL IN THE C ASE OF THE ASSESSEE ITSELF FOR THE A.Y 2007-08, A COPY WHEREOF HAS BEEN MADE AVAILABLE AT PAGE NOS. 1 TO 47 OF THE PAPER BOOK FILED BY THE ASSESSEE AND THE RELEVANT I S PARA 9.5 THEREOF AT PAGE 46. 17. IN REJOINDER THE LD. DR POINTED OUT THAT THE ISSUE RAISED IN GROUND NO. 9 HAS NOT BEEN DISCUSSED IN THE SAID ORDER OF THIS TR IBUNAL FOR THE A.Y 2007-08 THAT THE CO-DEVELOPER CAN CLAIM DEDUCTION FOR THE REMAIN ING PERIOD IN 10 CONSECUTIVE YEARS MEANING THEREBY THE RIGHT OF DEVELOPER TO CLA IM BENEFIT OF SEZ WOULD SEIZE ON TRANSFER OF OPERATION AND MAINTENANCE OF SEZ TO CO-DEVELOPER. ON THIS, THE LD. AR CLARIFIED THAT ASSESSEE HAS NOT CLAIMED 80IAB ON THE PART OF CO-DEVELOPER. REGARDING THE ISSUE RAISED IN GROUND NO. 10 THE LD. AR SUBMITTED THAT THE TRIBUNAL IN ITS ORDER FOR THE A.Y 2007-08 HAS DEALT WITH THIS ISSUE THAT AO HAS NO JURISDICTION TO CHALLENGE THE VALIDITY OF APPROVAL GIVEN BY MINISTRY OF COMMERCE. 18. IN SUPPORT OF GROUND NO. 11 OF THE APPEAL OF TH E REVENUE, THE LD. DR SUBMITTED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN ACCEPTING RENT CAPITALIZATION METHOD AND THAT TOO BY ADOPTING RENT OF A PROPERTY OTHER THAN THE PROPERTY SOLD BY ASSESSEE TO ITS CO-DEVELOPER AS BASIS FOR DETERMINI NG DEVELOPMENT CONSIDERATION OF BARE-SHELLS AND THEREBY HOLDING DEVELOPMENT CONS IDERATION @ RS.6,225 PER SQUARE FIT CORRESPONDENCE TO THE MARKET VALUE AND B ARE SHELLS AND THUS TREATING THE SAME AS REASONABLE IGNORING THE RELEVANT CONSID ERATIONS/FACTORS SUCH AS OTHER METHODS OF DETERMINATION OF SALE CONSIDERATION, PRE VALENT RATE OF SUCH TYPE OF COMMERCIAL PROPERTIES IN THE AREA ETC AND THEREBY R ESTRICTING DISALLOWANCE TO RS.174.27 CRORE. THE LD. AR HAS POINTED OUT THAT T HIS ISSUE IS ALSO COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF ASSESSE E ITSELF FOR THE A.YS 2007-08 IN ITA NO. 2637/DEL/12 A COPY WHEREOF HAS BEEN MADE A VAILABLE AT PAGE NOS. 1 TO 46 OF THE PAPER BOOK. THE LD. AR ALSO SUBMITTED TH AT ASSESSEE HAS FOLLOWED THE FORMULA APPROVED AND REFERRED IN PARA NO. 2.9 AT PA GE NO. 130 OF THE PAPER BOOK. HE SUBMITTED FURTHER THAT THE LD. CIT(A) HAD CALLED FOR A REMAND REPORT FROM THE AO IN THIS REGARD, WHEREIN HE HAS ACCEPTED THE FORM ULA AS CORRECT FOLLOWED BY THE ASSESSEE TO WORK CAPITALIZATION. IN THIS REGARD HE REFERRED PAGE NO. 164 OF THE PAPER BOOK. 19. IN SUPPORT OF GROUND NOS. 12 & 13( REVENUES AP PEAL) THE LD. DR HAS BASICALLY PLACED RELIANCE ON THE ASSESSMENT ORDER. HE CONTENDED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING CAPITALIZATION RATE OF 9.5% AS REASONABLE IGNORING THE FACT THAT FORMULA OF CAPITALIZATION RA TE IN THE AREA OF CHENNAI IS 10.5%. HE ALSO IMPUGNED THE ACTION OF THE LD. CIT( A) QUESTIONED IN GROUND NO. 13 IN DETERMINING DEVELOPMENT CONSIDERATION OF BARE SHELLS AT RS. 1178.05 CRORE AND THEREBY RESTRICTING THE DISALLOWANCE U/S 80IAB TO RS.174.27 CRORE IGNORING THE FACTS BROUGHT ON RECORD IN THE ASSESSM ENT ORDER AS WELL AS FACTS MENTIONED IN THE REMAND REPOTS. IN SUPPORT OF GROU ND NO. 14 THE LD. DR CONTENDED THAT THE FINDING OF THE LD. CIT(A) THAT T HE BARE SHELL BUILDING TRANSFER TO CO-DEVELOPER WAS STOCK-IN-TRADE AS AGAINST CAPIT AL ASSET TREATED BY THE AO IGNORING THE FACTS MENTIONED IN THE ASSESSMENT ORDE R WAS NOT JUSTIFIED. THE LD. AR SUBMITTED THAT THE LD. CIT(A) HAS DISCUSSED THE ISSUE AT PAGE NO. 149 OF ITS ORDER AND THE ISSUE RAISED IN GROUND NO. 14 IS COVE RED BY THE ORDER OF THE TRIBUNAL IN PARA NO. 6.9 AT PAGE NO. 28 FOR THE A.Y 2007-08 REFERRED ABOVE. IT IS THUS APPARENT THAT GROUND NOS. 6,7,8,9,10 & 14 REVO LVE AROUND THE ISSUE AS TO WHETHER TRANSFER OF BARE SHELL CONSTRUCTION WAS NOT AUTHORIZED OPERATION AND SAME IS NOT IN THE NATURE OF BUSINESS INCOME. 20. IN GROUND NOS 11 TO 13 (REVENUES APPEAL) THE I SSUE RAISED IS ABOUT THE DETERMINATION OF DEVELOPMENT CONSIDERATION. WE FIN D THAT THE AO HAS NOT CONSIDERED ANY FACTUAL ASPECT OF THE CASE AS REGARD S REASONABLENESS OF DEDUCTION AND HAS DISALLOWED ENTIRE DEDUCTION AFTER CONSIDERI NG THE LEGAL ISSUES ONLY. SECTION 80IA(8) PROVIDES FOR ADJUSTMENT IN THE PROF IT IF THE VALUE OF THE GOODS OR SERVICES DOES NOT CORRESPONDENT TO THE MARKET VALUE OF SUCH GOODS OR SERVICES ON THE DATE OF SUCH TRANSACTION. THE ASSESSEE OBJECTED THE APPLICABILITY OF S. 80IA(8) ON THE REASONING THAT THERE IS NO TRANSACTION OF TR ANSFER OF GOODS OR SERVICES FROM ONE ELIGIBLE BUSINESS TO ANY OF ITS OTHER NON-ELIGI BLE BUSINESS. SINCE THE TRANSACTION IN THE PRESENT CASE HAS BEEN MADE ONLY WITH THE ELIGIBLE BUSINESS OF SEPARATE AND DISTINCT ASSESSEE I.E CO-DEVELOPER WHO IS ALSO ENTITLED TO DEDUCTION U/S 80IAB OF THE ACT, WE ARE OF THE VIEW THAT THE L D. CIT(A) HAS RIGHTLY ACCEPTED THE ABOVE CONTENTION OF THE ASSESSEE. 21. THE AO HAS NOT ONLY QUESTIONED THE APPLICABILIT Y OF RENT CAPITALIZATION METHOD FOR DETERMINING DEVELOPMENT CONSIDERATION OF BARE SHELLS, THE AO HAS ALSO POINTED OUT AS TO WHY OTHER METHODS OF VALUATI ON SHOULD NOT BE APPLIED BUT HAS NOT DISCUSSED ABOUT THE SUITABILITY OR APPLICAB ILITY OF SUCH METHODS IN THE FACTS OF THE PRESENT CASE OR ABOUT THE EFFECT AND C ONSEQUENCES OF SUCH METHOD IN DETERMINING DEVELOPMENT CONSIDERATION. IT IS ALSO NOT A CASE, WHERE REFERENCE CAN BE MADE TO THE DEPARTMENTAL VALUATION OFFICER (DVO) FOR DETERMINING THE DEVELOPMENT CONSIDERATION OF BARE SHELLS U/S 142(1) WITHOUT REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE (AS THE SAME HAS NOT BEE N REJECTED BY THE AO). AND SINCE SECTION 55A IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE, IT CAN ALSO NOT BE REFERRED THEREUNDER. THUS THE LD. CIT(A) IN OUR VI EW HAS RIGHTLY HELD THE ACTION OF THE AO IN REFERRING THE MATTER TO THE DVO AS MIS PLACED. THE LD. CIT()A HAS ALSO RIGHTLY NOT AGREED WITH THE CONTENTION OF THE AO THAT THE RENT CAPITALIZATION METHOD ADOPTED BY THE ASSESSEE IS NOT PRESCRIBED OR APPROVED BY ANY ACCOUNTING POLICY OR BY ANY METHOD OF VALUATION OF PROPERTIES. WHEREAS THE RATIONALE BEHIND RENT CAPITALIZATION METHOD IS AN INTENTIONALLY ACCE PTED METHOD OF VALUATION OF PROPERTIES AND HAS GOT LEGAL RECOGNITION IN RULE 3 OF SCHEDULE III OF THE WEALTH TAX ACT, WHEREIN VALUE OF THE PROPERTY IS DETERMINE D ON THE BASIS OF NET MAINTAINABLE RENT. 22. THE LD. CIT(A) HAS WORKED OUT VALUE OF DEVELOPM ENT CONSIDERATION ON THE BASIS OF MARKETING OF VALUE OF BARE SHELL AT RS.622 5 BY APPLYING CAPITALIZATION RATE OF 9.5% ON ANNUAL NET MAINTAINABLE RENT OF RS. 657.64 AS AGAINST ACTUAL VALUE OF DEVELOPMENT CONSIDERATION AT RS.6947. THE ASSESSEE IS GROUND NO. 2 OF ITS APPEAL HAS DISPUTED ADOPTION OF CAPITALIZATION SALE OF 9. 5% AS AGAINST 9% APPLIED BY THE ASSESSEE AND WORKING OF NET MAINTAINABLE REN T. WE FIND SUBSTANCE IN THE CONTENTION OF THE LD. AR IN THIS REGARD AS WHILE DO ING SO THE LD. CIT(A) HAS TOTALLY DISREGARDED THIS IMPORTANT AND MATERIAL ASP ECT OF THE FACT THAT THE BOA HAS APPROVED THE WORKING FORMULA AS PER AGREEMENT DATED 20/3/2008. CLAUSES 2.9 AND 2.6 (PAGE NO. 130 AND 129 OF THE PAPER BOOK) T HEREOF ARE RELEVANT, WHICH ARE BEING REPRODUCED HEREUNDER:- CLAUSE 2.9 (PAPER BOOK PAGE 130) THE PARTIES AGREE THAT THE DEVELOPMENT CONSIDERAT ION SHALL BE DETERMINED ON THE PROJECT COMPLETION DATE, ON THE B ASIS OF THE FOLLOWING FORMULA: X= (A/B)-(C+D) X - DEVELOPMENT CONSIDERATION A - AVERAGE RENTAL VALUE AS ON THE PROJECT COM PLETION DATE FOR THE WARM SHELL BUILDINGS, AS COMPUTED BY THE CO-DEVELOP ER* T B - PREVAILING CAPITALISATION RATE FOR THE WAR M SHELL BUILDINGS IN ACCORDANCE WITH INTERNATIONAL STANDARDS ON THE PROJ ECT COMPLETION DATE, AS DETERMINED BY THE DEVELOPER. C - CHARGED INCURRED BY THE CO-DEVELOPER FOR CO NVERSION OF BARE SHELL BUILDINGS D - THE RENT FOR 1 YEAR * FOR UNOCCUPIED PORTIONS OF THE WARM SHELL BUILDIN GS, THE AVERAGE RENTAL VALUE SHALL BE CALCULATED ON THE BASIS OF THE HIGHE ST RENTAL VALUE MENTIONED IN THE LAST FIVE AGREEMENTS ENTERED INTO EITH TENAN TS FOR THE OCCUPIED PORTIONS OF A WARM SHELL BUILDINGS.' HOWEVER, CONSIDERATION SO WORKED OUT SHALL BE SUBJE CT TO MINIMUM OF RS. 6550/- AS PER CLAUSE 2.6 (PAPERBOOK PAGE 129) CLAUSE 2.6 (PAPERBOOK PAGE 129) 'IN CONSIDERATION FOR THE DEVELOPER AGREEING TO EXE CUTE THIS AGREEMENT, THE CO-DEVELOPER SHALL MAKE THE PAYMENT OF SUCH AMOUNT AS DEVELOPMENT CONSIDERATION IN FAVOUR OF THE DEVELOPER AS IS AGRE ED TO BETWEEN THE PARTIES, SUBJECT TO MINIMUM PAYMENT OF RS. 6,550.00 (RUPEES SIX THOUSAND FIVE HUNDRED FIFTY ONLY) PER SQUARE FEET O F BUILDING SPACE WITHIN THE SEZ BUILDING (THE 'MINIMUM PAYMENT'). TH E PARTIES AGREE TO MAKE AND ACCEPT, SUBJECT TO APPLICABLE LAW, PART PA YMENT OF THE SAID DEVELOPMENT CONSIDERATION IN THE MANNER AGREED TO I N THIS AGREEMENT, INCLUDING ON THE RESPECTIVE TRANSFER AND HAND-OVER DATES.' RELEVANT POINTS FOR CONSIDERATION 23. WE AGREE WITH THE PLEA OF THE LD. AR THAT FOLLO WING ARE THE RELEVANT POINT FOR CONSIDERATION OF THE ISSUE:- I. THERE WAS NO DISPUTE AT THE ASSESSMENT STAGE REG ARDING REASONABLENESS OF DEVELOPMENT CONSIDERATION AND THE ISSUE WAS RAISED ONLY DURING APPELLATE PROCEEDINGS. II. THE DEVELOPMENT CONSIDERATION WAS FROM ONE ELIG IBLE BUSINESS TO ANOTHER ELIGIBLE BUSINESS AND BOTH DEVELOPER AND CO -DEVELOPER WERE APPROVED UNDER SEZ ACT FOR EXEMPTION U/S. 80IAB AND AS SUCH THERE IS NO ADVERSE REVENUE IMPLICATION. III. THAT ENTIRE INCOME WAS DERIVED FROM APPROVED P ROJECT AND IT IS NOT OPEN TO HAVE ONE INCOME FOR ASSESSMENT PURPOSES AND DIFFERENT INCOME FOR GRANTING EXEMPTION. IV. THE DEVELOPMENT CONSIDERATION IS ON THE BASIS O F APPROVED FORMULA LAID DOWN IN THE CO-DEVELOPER'S AGREEMENT DULY APPROVED BY BOARD OF APPROVALS. V. INCOME WAS ON THE BASIS OF BOOKS OF ACCOUNTS AND THERE IS NO DISPUTE ABOUT GENUINENESS OF TRANSACTION OR A CASE OF REJEC TION OF BOOKS OF ACCOUNTS. VI. AVERAGE RENT WAS NOT PROPERLY WORKED OUT AS CI T(A) HAS DISREGARDED CAR PARKING CHARGES, WHICH IS INDEPENDE NT SOURCE OF INCOME AND NOT PART OF RENT OF PREMISES AND AS SUCH SAME C ANNOT BE DISREGARDED. FURTHER, ADJUSTMENT OF VACANCY ALLOWANCE IS UNWARRA NTED IN THE CONTEXT OF WORKING OF CAPITALIZED VALUE AS CONCEPT OF VACANCY ALLOWANCE IS NOT RELEVANT FOR DETERMINATION OF VALUE OF ASSET AND SA ME IS RELEVANT ONLY FOR THE PURPOSE OF COMPUTATION OF INCOME UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY'. VII. AGREED CAPITALIZATION RATE OF 9% WAS DULY ACT ED UPON BY BOTH THE PARTIES AND SAME CANNOT BE DISREGARDED AS SAME IS I N ACCORDANCE WITH APPROVED FORMULA MENTIONED IN CLAUSE 2.9 OF THE APP ROVED CO-DEVELOPER AGREEMENT (PAPER BOOK PAGE 130) ~ FURTHER, CAPITAL IZATION RATE OF 9% IS NOT IN DISPUTE IN ASSTT. YEAR 2007-08, 1 ST YEAR OF EXEMPTION, THE SAME CANNOT BE DISPUTED IN SUBSEQUENT YEARS. VIII. RENT CAPITALIZATION RATE OF 9% IS AS PER INT ERNATIONALLY RECOGNIZED NORMS AND EVEN AS PER FORMULA LAID DOWN IN WEALTH T AX RULES. (SCHEDULE- III) CAPITALIZATION RATE OF 8% WAS PROVIDED FOR WOR KING OUT VALUE OF PROPERTY. IX. THE CIT(A) HAS EVEN DISREGARD THE FACT THAT CO -DEVELOPER'S AGREEMENT WAS FOR 49 YEARS AND CAPITALIZE VALUE WAS DETERMINED ON THE BASIS OF PRESENT AVERAGE RENT. 24. WE ARE THUS OF THE CONSIDERED VIEW THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN ADOPTING THE CAPITALIZATION SALE OF 9.5% AS AGAINST 9% ADOPTED BY THE ASSESSEE. WHILE SETTING ASIDE THIS ACTION OF THE LD. CIT(A), WE DIRECT THE AO TO ACCEPT THE APPROVED WORKING OF THE ASSESSEE IN THIS REGARD AND ALLOW THE CONSEQUENTIAL RELIEF. GROUND NO.2 OF THE APPEAL OF THE ASSESSEE IS THUS A LLOWED. THE GROUND NO. 3 IS AN ALTERNATIVE GROUND TO GROUND NO. 2, HENCE IT DOES NOT NEED ADJUDICATION. ISSUE RAISED IN GROUND NOS. 11 TO 13 OF THE REVEN UE IS THUS DECIDED AGAINST THE REVENUE. 25. WE FIND THAT THE ISSUE OF ALLOWABILITY OF THE A SSESSEE FOR CLAIMING DEDUCTION U/S 80IAB ON THE PROFITS EARNED FROM TRAN SFER OF BARE SHELL BUILDING BY IT TO ITS CO DEVELOPERS INVOLVES 3 MORE ISSUES NAME LY: (A) AS TO WHETHER THE ASSESSEE IS CARRYING OUT TH E ACTIVITIES AS MENTIONED IN THE DOCUMENTS SUBMITTED TO AND THE APPRO VAL ACCORDED BY BOARD OF APPROVAL? (B) AS TO WHETHER THE ASSESSEE IS A DEVELOPER AS PER T HE MEANING OF SECTION 80IAB? & (C) AS TO WHETHER THE INCOME ARISING OUT OF THE AFORES AID OPERATIONS AUTHORIZED BY BOARD OF APPROVAL? 24. THE ISSUE NO. (A) ARISES BECAUSE THE BENEFIT O F DEDUCTION 80IAB TO THE ASSESSEE HAS BEEN DENIED BY THE AO ONLY ON THE BASI S THAT OPERATIONS OF THE ASSESSEE CANNOT BE CONSIDERED AS AUTHORIZED OPERATI ONS IN TERMS OF SEZ ACT 2005 AND SEZ RULES, 2006. THE RELATED FACTS OF ISSUE NO . (A) ARE THAT THE ASSESSEE IN THE BUSINESS OF DEVELOPING, OPERATING AND MAINTAINI NG REAL ESTATE PROJECTS WHICH INCLUDED DEVELOPMENT OF SEZS AND ALL RELATED INFRAS TRUCTURE IN ACCORDANCE WITH THE APPLICABLE LAWS AND POLICIES OF THE GOVT. OF IN DIA, HAD APPROACHED THE GOVT. OF INDIA TO SEEK APPROVAL FOR SETTING UP OF A SECTO R SPECIFIC SPECIAL ECONOMIC ZONE (SEZ) FOR IT/ITES SECTOR ON THE LAND OWNED BY IT IN CHENNAI, WHICH WAS GRANTED AS A DEVELOPER BY THE DEPTT OF COMMERCE (EPZ SECTIO N), MINISTRY OF COMMERCE AND INDUSTRY, GOVT. OF INDIA VIDE APPROVAL LETTER F .2/124/2005-EPZ DATED 22/6/2006 FOR SETTING UP AN IT/ITES SPECIAL ECONOMI C ZONE ON THE SAID LAND OWNED BY IT. THE AUTHORIZED OPERATIONS IN RESPECT OF IT & ITES, SEZ PROPOSED TO BE DEVELOPED BY THE ASSESSEE WERE APPROVED BY TH E GOVT. OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY, DEPTT OF COMMERCE (SEZ SECTI ON), UDYOG BHAWAN, NEW DELHI VIDE ITS LETTER DATED 29/8/2006 WHICH INT ER ALIA INCLUDED CONSTRUCTION OF OFFICE AND COMMERCIAL COMPLEXES NOT LIMITED TO B ARE SHELL FACILITY AND/ OR FULLY FURNISHED OFFICE SPACE ETC IN THE PROCESSING AREA O F SEZ. THE GOVT. OF INDIA, MINISTRY OF COMMERCE AND INDUSTRIES, DEPTT OF COMME RCE VIDE NOTIFICATION DATED 27/10/2006 NOTIFIED DEFAULT AUTHORIZED OPERATION WH ICH INTER ALIA INCLUDED CONSTRUCTION OF OFFICE SPACE. 26. THE ASSESSEE COMPANY ENTERED INTO A MEMORANDUM OF UNDERSTANDING ALONG WITH ITS ADDENDUM WITH DLF ASSETS PVT. LTD AS A CO -DEVELOPER VIDE AGREEMENT DATED 29/11/2006 FOR DEVELOPING, OPERATING AND MAIN TAINING THE SEZ AS A CO- DEVELOPER BY TRANSFERRING AND HANDING OVER SPECIFIE D BARE SHELL BUILDINGS LOCATED WITHIN THE PROJECT. THE ADDENDUM HAD THE CLAUSES T HAT THE ASSESSEE BEING A DEVELOPER SHALL TRANSFER THE BARE SHELL BUILDINGS T O THE CO DEVELOPER WITHIN THE TIME SCHEDULE AND THE CO-DEVELOPER SHALL PAY THE DE VELOPMENT CHARGES TO THE ASSESSEE AT THE PRICE FIXED MUTUALLY BETWEEN THE AS SESSEE AND THE CO-DEVELOPER. THERE IS NO DOUBT THAT THE APPROVED ACTIVITIES WERE CARRIED OUT. THE ONLY QUESTION IS AS TO WHETHER THE ACTIVITIES CARRIED OUT BY THE CO-DEVELOPER WILL BE COVERED UNDER THE APPROVED ACTIVITIES WHICH WERE ASSIGNED T O BE DONE BY THE DEVELOPER ASSESSEE. THAT IS WHY, THE ISSUE NO. (B) ARISES AS TO WHETHER ASSESSEE IS A DEVELOPER WITHIN THE MEANING OF SECTION 80 IAB FOR THOSE ACTIVITIES OUT OF THE APPROVED ACTIVITIES WHICH WERE DONE BY THE CO-DEVEL OPER UNDER A MEMORANDUM OF UNDERSTANDING ARRIVED AT BETWEEN THE ASSESSEE AN D THE CO-DEVELOPER DLF ASSETS PVT. LTD VIDE AGREEMENT DATED 29/11/2006. U NDER THE SAID AGREEMENT THE ASSESSEE HAD SOLD THE BARE SHELL BUILDINGS TO THE C O-DEVELOPER AND HAD CLAIMED DEDUCTION U/S 80IAB ON THE INCOME EARNED FROM THE S AID TRANSFER OF BARE SHELL BUILDINGS TO THE CO-DEVELOPER. THUS, A FURTHER ISS UE AROSE AS TO WHETHER THE INCOME ARISING OUT OF THE AFORESAID OPERATIONS WAS AUTHORIZED BY THE BOARD OF APPROVAL TO MAKE THE ASSESSEE ELIGIBLE FOR THE CLAI MED DEDUCTION U/S 80 IAB. WHILE DENYING THE CLAIMED DEDUCTION THE AO HAS TAKE N ASSISTANCE OF THE DISCLAIMER CONTAINED IN CLAUSE 3(XVII) OF THE APPRO VAL LETTER DATED 1/6/2009 ISSUED BY BOARD OF APPROVAL (BOA) , SEZ SECTION, DE PTT OF COMMERCE, MINISTRY OF COMMERCE AND INDUSTRY, GOVT. OF INDIA, WHICH PRO VIDES THAT THE PARTICULAR TERMS AND CONDITIONS OF LEASE AGREEMENT DATED 20/3/ 2008 FORMING PART OF APPROVAL WILL NOT HAVE ANY BEARING ON THE TREATMENT OF INCOME BY WAY OF LEASE RENTALS/DOWN PAYMENT/PREMIUM ETC FOR THE PURPOSE OF ASSESSMENT UNDER THE PREVALENT INCOME TAX ACT AND RULES AND THAT THE ASS ESSING OFFICER WILL HAVE THE RIGHT TO EXAMINE THE TAXABILITY OF THESE AMOUNTS UN DER THE INCOME TAX ACT.(GROUND NO. 10 OF THE REVENUES APPEAL). THE A O WAS OF THE VIEW THAT THE BOA FOR SEZ, HAS NOT BEEN CONSIDERED THE INCOME FRO M SPECIFIED TRANSACTIONS BETWEEN DEVELOPER AND CO-DEVELOPER AS EXAMINED FROM INCOME TAX AND DISALLOWED ENTIRE CLAIM OF DEDUCTION U/S 80IAB OF T HE ACT ON THE STRENGTH OF THE SAID DISCLAIMER. THE AO WAS OF THE VIEW THAT THE I NCOME FROM TRANSFER OF ASSETS WHICH WAS NOT STOCK-IN-TRADE IN THE BOOKS OF ASSESS EE, FOR A SPECIFIC SALE CONSIDERATION TO THE CO-DEVELOPER, WHO BECAME THE A BSOLUTE OWNER OF THE BARE- SHELLS, WAS INCOME CHARGEABLE UNDER THE HEAD CAPIT AL GAIN AND NOT ELIGIBLE FOR DEDUCTION US/ 80IAB. HE HELD THAT THE DEVELOPMENT INCOME OF ASSESSEE WAS NOTHING BUT FUTURE RENTALS AS THE VALUATION OF BARE SHELL BUILDINGS HAD BEEN MADE BY THE ASSESSEE BY RENT CAPITALIZATION METHOD. THE DEDUCTION U/S 80IAB WAS PERMISSIBLE FOR A PERIOD OF 10 YEARS AND THERE WAS NO PROVISION FOR CLAIMING THE ENTIRE DEDUCTION IN ANY ONE YEAR, WHEN THE INCOME W AS ACTUALLY REFERABLE TO FUTURE RENTALS OF 49 YEARS AND HENCE THE CLAIM OF D EDUCTION U/S 80IAB WAS ADMISSIBLE ONLY TO THE EXTENT OF 1/49 TH OF THE TOTAL DEVELOPMENT INCOME RECEIVED IN ANY ONE FINANCIAL YEAR. THE CONTENTION OF THE A SSESSEE ON THE OTHER HAND REMAINED THAT THE SEZ ACT 2005 SPECIFICALLY ALLOWS OF CO-DEVELOPER IN THE MAIN DEVELOPER AND DEFINES CO-DEVELOPER UNDER SECTION 2 (F) OF THE SEZ ACT 2005, AS SUCH IN THIS DEFINITION, THE CO-DEVELOPER IS DEF INED AS DEVELOPER. IT WAS CONTENDED THAT THE MOU ALONG WITH ITS ADDENDUM ENTE RED INTO BETWEEN THE ASSESSEE AND CO-DEVELOPER FOR APPOINTMENT OF CO-DEV ELOPER AGREEMENT WAS APPROVED BY SEZ AUTHORITIES VIDE THEIR APPROVAL LET TER DATED 14/2/2007. VIDE LETTER DATED 19/6/2007 APPROVAL WAS ALSO GRANTED TO THE AUTHORIZED OPERATIONS TO BE CARRIED OUT BY THE CO-DEVELOPER BY THE DEPTT OF COMMERCE (SEZ SECTION). THE SAID APPROVAL INTER ALIA ALSO INCLUDED OFFICE S PACE (WARM SHELL) AS AN AUTHORIZED OPERATION. THE APPROVAL LETTER DATED 1/ 6/2009 ISSUED BY SEZ SECTION OF THE DEPTT OF COMMERCE ALSO CONTAINED INTERALIA A GENERAL CONDITION AT PARA 3 (VII), READ AS UNDER:- APPROVAL GIVEN BY BOA FOR CO-DEVELOPER FOR PARTIC ULAR TERMS AND CONDITIONS OF LEASE AGREEMENT WILL NOT HAVE ANY BEA RING ON THE TREATMENT OF THE INCOME BY WAY OF LEASE RENTALS/DOWN PAYMENT/ PREMIUM ETC FOR THE PURPOSE OF ASSESSMENT UNDER THE PREVALENT INCOME-TA X ACT & RULES. THE ASSESSING OFFICER WILL HAVE THE RIGHT TO EXAMINE TH E TAXABILITY OF THESE AMOUNTS UNDER THE INCOME TAX ACT. 27. THE SUBMISSION OF THE LD. AR REMAINED THAT THE APPROVAL GRANTED BY THE GOVT. OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY T O THE ASSESSEE COMPANY AS A DEVELOPER CONTINUED AND HAS NO SUCH CLAUSE THEREIN, AS IT WILL BE OBSERVED FROM THE APPROVAL GRANTED TO THE CO-DEVELOPER EARLIER (I .E APPROVAL DATED 14/2/2007, APPLICABLE THROUGHOUT THE RELEVANT PREVIOUS YEAR) D ID NOT CONTAIN ANY SUCH PARA AS MENTIONED IN THE LETTER DATED 1/6/2009. IN THAT AP PROVAL THE AGREEMENT WITH THE CO-DEVELOPER WAS APPROVED AND INFORMED AS A PART OF THE APPROVAL WHICH PERMITTED THE ASSESSEE TO TRANSFER BARE SHELL BUIL DING TO THE CO-DEVELOPER FOR FURTHER DEVELOPMENT ACTIVITIES. THE CLAUSE NO. 3 ( XVII) OF GENERAL CONDITIONS OF THE APPROVAL DATED 1/6/2009 PROVIDED WITH RESPECT T O THE TREATMENT OF INCOME RECEIVED, BY WAY OF LEASE RENTALS/DOWN PAYMENTS/PRE MIUM ETC WHICH WAS SUBSEQUENTLY ALSO MENTIONED BY BOA IN THEIR MEETING HELD ON 19/6/2009. IT WAS SUBMITTED THAT THE AUTHORIZED OPERATIONS/BUSINESS O F DEVELOPER ALSO INCLUDES THE TRANSFER OF BUILDINGS (BARE SHELL/COLD SHELL BUILDI NGS) AGAINST APPROVED DEVELOPMENT CHARGES/DEVELOPMENT CONSIDERATION TO TH E CO-DEVELOPER BUT THE LAND INFRASTRUCTURE FACILITIES ETC CONTINUED TO BE OWNED AND OPERATED BY THE ASSESSEE COMPANY/DEVELOPER. 28. TO UNDER STAND THE RELEVANT FACTS IN BRIEF CHRO NOLOGY OF VARIOUS EVENTS/APPROVALS AND IMPORTANT PROVISIONS OF THE SE Z ACT SUMMARIZED BY THE LD. CIT(A) IS BEING REPRODUCED HEREUNDER:- SI. NO. DATE PARTICULARS 1 13.12.2005 THE ASSESSEE FILED AN APPLIC ATION BEFORE THE BOARD OF APPR OVAL, SEZ SECTION, DEPARTMENT OF COMMERCE, MINI STRY OF COMMERCE AND INDUSTRY, GOVT. OF INDIA FOR APPROVAL OF IT/ITES SECTOR SPECIFIC SPECI AL ECONOMIC ZONE AT 1/124, SHIVAJI GARDENS, MOONL IGHT STOP, NANDAMPAKKAM POST, RAMAPURAM CHEN NAI- TAMIL NADU. 2 22.06.2006 THE ASSESSEE WAS GRANTED APPROVAL AS DEVELOPER BY THE DEPARTMENT OF COMMERCE (SEZ SECTION), MINISTRY OF COMMERCE & INDUSTRY, VIDE APPROVAL LETTER F. 21124 / 2005-EPZ FOR DEVE LOPMENT, OPERATION AND MA INTENANCE OF AFORESAID SEZ. 3 29.08.2006 THE AUTHORIZED OPERATIONS IN RESPECT OF IT/ITES SEZ P ROPOSED TO BE DEVELOPED BY THE ASSESS EE WERE APPROVED BY THE (SEZ SECTION), DEPARTMENT OF COMMERCE, MINISTRY OF COMM ERCE & INDUSTRY. 4 16.11.2006 THE LARD ADMEASURING 13.292 HE CTARES OWNED BY THE ASSESSE E AT NANDAMPAKKAM POST, RAMAPURAM CHENNAI WAS NOTIFIED IN THE GAZETTE OF INDIA VIDE NOTIFICATION NO. S.O. 1978 (E) DATED 16 .11.2006. 5 29.11.2006 THE ASSESSEE ENTERED INTO A ME MORANDUM OF UNDERSTANDIN G FOR CO-DEVELOPMENT , AGREEMENT WITH D LF ASSETS PRIVATE LIMITED (DAPL) AS A CO- DEVELOPER FOR CO-DEVELOPING, OPERATING AND MAINTAINING THE AFORESAID SEZ 6 08.01.2007 THE DAPL FILED AN APPLICATION BEFORE THE BOARD OF APPROV AL, SEZ SECTION FOR APPROVAL AS A CO-DEVELOPE R IN THE SAID SEZ PROJECT. 7 14.02.2007 THE DAPL WAS GRANTED APPROVAL AS A CO- DEVELOPER BY THE DEPARTMENT OF COMMERCE (SEZ SECTION), M INISTRY OF COMMERCE & INDUSTRY, VIDE A PPROVAL LETTER F.2/124/2005-EPZ FOR CO-DEVELOPME NT, OPERATION AND MAINTENANCE OF AFORESAID S EZ. 8 19.03.2007 THE LAND ADMEASURING 3.438 HECTARES OWNED BY THE ASSES SEE AT NANDAMPAKKAM POST, RAMAPURAM CHENNA I WAS FURTHER NOTIFIED IN THE GAZETTE OF INDIA VIDE NOTIFICATION NO. S.O. 396 (E) DATE D 19.03.2007. 9 19.06.2007 THE AUTHORIZED OPERATIONS TO BE CARRIED OUT BY THE DA PL IN RESPECT OF AFORESAID SEZ PROPOSED TO B E CO- DEVELOPED WERE APPROVED BY THE MINIST RY OF COMMERCE & INDUSTRY , DEPARTMENT OF COMMERCE (SEZ SECTION). 29. THE RELEVANT CLAUSES OF THE MEMORANDUM OF UNDER STANDING FOR CO- DEVELOPER AGREEMENT DATED 29/11/2006 ENTERED INTO B Y THE ASSESSEE WITH DAPL READ AS UNDER:- 1. THE DEVELOPER HAS AGREED TO APPOINT DAPL AS A CO-DEVELOPER FOR DEVELOPING, OPERATING AND MAINTAINING THE SAID SEZ BY GRANTING DAPL THE EXCLUSIVE RIGHT TO EXECUTE A PART OF THE AUTHORIZED OPERATIONS AND THE CO- DEVELOPER HAS AGREED TO FUND AND EXECUTE THE SAID A UTHORIZED OPERATIONS SPECIFICALLY ALLOCATED TO IT BY THE DEVELOPER HEREI NAFTER REFERRED TO IN THIS AGREEMENT AS A CO-DEVELOPER OPERATIONS, SUBJECT TO REQUISITE STATUTORY/REGULATORY APPROVALS. 2.2 THE DEVELOPER HEREBY APPOINTS THE CO-DEVELOPER FOR THE PURPOSE OF CO-DEVELOPING, OPERATING AND MAINTAINING THE PROJEC T BY DEVELOPING INFRASTRUCTURE FACILITIES AND UNDERTAKING THE CO-DE VELOPER OPERATIONS. THE DEVELOPER SHALL CONTINUE TO BE RESPONSIBLE FOR EXECUTING, IN RESPECT OF THE PROJECT, THE DEVELOPER OPERATIONS. 2.3 DEVELOPER WILL CREATE, IN FAVOUR OF THE CO-DEV ELOPER IN THE 'SAID PROPERTY AND THE BUILDINGS THEREUPON, A FORTY-NINE (49) YEAR LEASE' ON TERMS TO BE MUTUALLY AGREED UPON (WITH AN OPTION TO RENEW THE SAME ON MUTUALLY ACCEPTABLE TERMS AND CONDITIONS ON THE EXP IRY OF THE LEASE IN ACCORDANCE WITH THEN EXTANT LAWS AND MUTUALLY ACCEP TABLE TERMS AN D CONDITIONS). THE LEASE RENTAL SHALL BE CALCULATED O N PER SQUARE FOOT OF LEASEABLE AREA BASIS AND THE UNDERLYING LAND APPURT ENANT THERETO. 2.4 CO-DEVELOPER SHALL BE ENTITLED TO USE THE SAID PROPERTY FOR CARRYING OUT THE CO-DEVELOPER OPERATIONS. PURSUANT TO THE CO MPLETION OF BUILDINGS WITHIN THE PROJECT, THE CO-DEVELOPER WILL BE ENTITL ED TO IDENTIFY CUSTOMERS FOR OCCUPYING THE BUILT UP UNITS WITHIN THE PROJECT AND SHALL HAVE THE RIGHT TO SUB-LEASE THE UNITS IN THE PROJECT OF PART THERE OF, SUBJECT TO EXECUTION AND REGISTRATION OF THE RELEVANT SUB-LEASE DOCUMENT ATION. UPON IDENTIFICATION OF THE CUSTOMERS, THE CO-DEVELOPER W ILL BE ENTITLED TO RECOVER RENT AND RECEIVE THE NECESSARY ADVANCES, DE POSITS, ETC. ATTENDANT TO THE SUBLEASE(S) SO CREATED BY THE CO-DEVELOPER.' 3.4. THE CO-DEVELOPER SHALL BE ENTITLED TO ENTRUST THE CONSTRUCTION, MODIFICATION, FURTHER DEVELOPMENT AND PROVISION OF VARIOUS FACILITIES IN THE BUILDING THEREBY CREATING NECESSARY INFRASTRUCTURE .GRANTED BY THE GOL 6.2.1 SUBJECT TO CLAUSE 8.2 BELOW, CO-DEVELOPER CAN NOT AT ANY TIME SELL, ALIENATE OR TRANSFER BY ANY OTHER MEANS OTHER THAN SUB-LEASE ANY UNIT OR OTHER SPACE/LAND OF SEZ TO ANY THIRD PARTY ..... IN ANY MANNER WHATSOEVER. 8.1. THE CO-DEVELOPER SHALL BE TREATED AS OWNER OF THE ADDITIONS, MODIFICATIONS, EQUIPMENTS, ETC . WHICH ARE INSTALLED BY THE CO-DEVELOPER IN THE BUILDING OF TH E PROJECT. 8.2. THE CO-DEVELOPER SHALL HAVE EXCLUSI VE RIGHT TO LET, SUB-LET, MORTGAGE OR ALLOW USE OF ALL OR ANY PART OF THE FACILITIES IN THE PROJECT TO ANY UNITS OR ANY OTHER PERSONS ENTITLED TO USE T HE SAME IN ACCORDANCE WITH THE SEZ ACT, ON SUCH TERMS AND CONDITIONS AS C O-DEVELOPER MAY IMPOSE. 30. THE BOP GRANTED APPROVAL TO THE CO-DEVELOPER ( DAPL) VIDE LETTER DATED 24/2/2007, CLAUSE (2) THEREOF READS AS UNDER:- (2) YOUR AGREEMENT DATED 29 TH NOVEMBER 2006 ENTERED INTO WITH THE DEVELOPER OF THE AFORESAID SECTOR SPECIFIC IT/ITES SPECIAL ECONOMIC ZONE OF DLF INFO CITY DEVELOPERS (CHENNAI) LTD FOR PROVIDE INFRASTRUCTURE AND OTHER COMMON FACILITIES SHALL FO RM PART OF THIS APPROVAL. 31. THUS, WE FIND THAT THERE WAS CLEAR APPROVAL TO BOTH THE ASSESSEE AND THE CO-DEVELOPER FOR DEVELOPMENT, OPERATION AND MAINTEN ANCE OF THE SEZ WHEREIN THE INITIAL ARRANGEMENT BY THE ASSESSEE WAS TO CARR Y OUT PART DEVELOPMENT AND LEASE OUT THE LAND AND THE BUILDING THEREUPON TO CO -DEVELOPER FOR A LEASE PERIOD OF 49 YEARS. THE ASSESSEE AND CO-DEVELOPER LATER ON E XECUTED AN ADDENDUM TO THE CO-DEVELOPMENT AGREEMENT DATED 29/11/2006, WHEREIN THE LEASE OF LAND CONTINUED TO BE FOR 49 YEARS AND THE BARE SHELL BUILDINGS CON STRUCTED BY THE ASSESSEE WERE PROPOSED TO BE TRANSFERRED TO THE CO-DEVELOPER FOR A DEVELOPMENT CONSIDERATION OF RS.4,845 PER SQUARE FIT. SUBSEQUENT AMENDMENTS WER E MADE IN THE CO- DEVELOPMENT AGREEMENT DATED 29/11/2006 AND THE AGRE EMENT/ADDENDUM THERETO WERE SUBMITTED TO THE BOARD OF APPROVAL FOR SEEKING APPROVAL. THESE ARE AS UNDER:- S. NO. DATE AGREEMENT DEVELOPMENT CHARGES (PER SQ. FT 1. 29.11.2006 ADDENDUM TO CO- DEVELOPER AGREEMENT DATED 29.11.2006 4845 2. 01.04.2007 RATE REVISION 5125 3. 01.07.2007 RATE REVISION 6442 4. 01.01.2008 RATE REVISION 6947 32. SUBSEQUENTLY, THE ASSESSEE FILED A DEFINITIVE CO-DEVELOPER AGREEMENT EXECUTED WITH DAPL ON 20/3/2008 WHEREIN THE DEVELOP MENT CONSIDERATION FOR TRANSFER OF BARE SHELLS WAS FINALLY REVISED AT MINI MUM OF RS.6,550 PER SQUARE FIT VIDE CLAUSE 2.6 OF THE AGREEMENT. IN PRINCIPLE THE DEPARTMENT OF COMMERCE APPROVED THE REVISED CO-DEVELOPER AGREEMENT. SHRI RAMAN CHOPRA, DIRECTOR (ITA-I) CBDT VIDE LETTER DATED 26/5/2009 ADDRESSED TO SHRI T. SRINIDHI, DIRECTOR, DEPTT OF COMMERCE, COMMUNICATED THE CONCURRENCE OF CBDT WITH THE PROPOSAL TO PROVE THE REVISED CO-DEVELOPER AGREEMENT IN RESP ECT OF THE 4 CO-DEVELOPER AGREEMENTS TO DLF ASSETS PVT. LTD SUBJECT TO INCLUS ION OF THE DISCLAIMER THAT THE APPROVAL WILL HAVE NO BEARING ON TAX TREATMENT OF I NCOME ARISING OUT OF SUCH TRANSACTION WHICH WILL BE DECIDED AS PER THE RELEVA NT PROVISIONS OF THE INCOME TAX ACT, 1961 THEREAFTER THE APPROVAL LETTER WAS IS SUED TO DLF ASSETS PVT. LTD VIDE LETTER DATED 1/6/2009, RELEVANT CLAUSES THEREO F READ AS UNDER:- '(2) YOUR REVISED AGREEMENT DATED 20TH MARC H, 2008 ENTERED INTO WITH THE DEVELOPER OF THE AFORESAID SECTOR SPECIFIC ITIITES SPECIAL ECONOMIC ZONE OF DLF INFO CITY DEVELOPERS (CHENNAI) LIMITED FOR PROVIDING INFRASTRUCTURE AND OTHER COMMON FACILITIE S SHALL FORM PART OF THIS APPROVAL. 3(XVII) APPROVAL GIVEN BY BOA FOR CO-DEVELOP ER FOR PARTICULAR TERMS AND CONDITIONS OF LEASE AGREEMENT WILL NOT HAVE ANY BEARING ON THE TREATMENT OF THE INCOME BY WAY OF LEASE RENTALS/DOW N PAYMENT/PREMIUM ETC. FOR PURPOSES OF ASSESSMENT UNDER THE PREVALENT INCOME-TAX ACT AND RULES. THE ASSESSING OFFICER WILL HAVE THE RIGHT TO EXAMINE THE TAXABILITY OF THESE AMOUNTS UNDER THE INCOME-TAX ACT.' 33. THE SPECIAL ECONOMIC ZONE ACT 2005, PROVIDE FOR THE ESTABLISHMENT, DEVELOPMENT AND MANAGEMENT OF THE SPECIAL ECONOMIC ZONE FOR THE PROMOTION OF EXPORTS AND OTHER MATTERS CONNECTED THEREWITH OR INCIDENTAL THERETO. SECTION 3(3) OF THE SEZ ACT, PROVIDES THAT ANY PERSON, WHO INTENDS TO SET UP SPECIAL ECONOMIC ZONE MAY, AFTER IDENTIFYING THE AREA AT HI S OBJECTION, MAKE A PROPOSAL DIRECTLY TO THE BOARD FOR THE PURPOSE OF SETTING OF THE SPECIAL ECONOMIC ZONE. THE BOARD OF APPROVAL CONSTITUTED UNDER SUB SECTIO N (1) OF SECTION 8 OF THE SEZ ACT IS THE ITNER MINISTERIAL STATUTORY AUTHORIT Y EMPOWERED TO APPROVE THE PROPOSAL SUBJECT TO SUCH TERMS AND CONDITIONS AS IT MAY DEEM IT TO IMPOSSIBLE, OR MODIFY OR REJECT THE PROPOSAL, AS PROVIDED IN SECTI ON 3(7) OF THE SAID ACT. SECTION 3(1) OF SEZ ACT PROVIDES THAT ON RECEIPT OF COMMUNICATION FROM THE BOARD OF APPROVAL, CENTRAL GOVERNMENT SHALL GRANT, A LETTER OF APPROVAL ON SUCH TERMS AND CONDITIONS AND OBLIGATIONS AND ENTITLEMEN TS AS MAY BE APPROVED BY THE BOARD, TO THE DEVELOPER, BEING THE PERSON OR THE ST ATE GOVT. CONCERNED. THE WORD DEVELOPER HAS BEEN DEFINED IN SECTION 2(G) OF THE SEZ ACT, WHICH MEANS A PERSON WHO, OR THE STATE GOVT. WHICH, HAS BEEN GRAN TED BY THE CENTRAL GOVT LETTER OF APPROVAL UNDER SUB-SECTION (10) OF SECTION 3 AND INCLUDES AN AUTHORITY AND A CO-DEVELOPER. UNDER SECTION 2(F), CO-DEVELOPER M EANS A PERSON WHO, OR THE STATE GOVT WHICH HAS BEEN GRANTED BY THE CENTRAL G OVT, A LETTER OF APPROVAL UNDER SUB SECTION (12) OF SECTION 3 OF THE SEZ ACT. UNDER SECTION 2 OF THE SAID ACT AUTHORIZED OPERATIONS MEANS OPERATIONS W HICH MAY BE AUTHORIZED UNDER SUB SECTION (2) OF SECTION 4 BY THE BOARD OF APPROVAL AND SUB SECTION (9) OF SECTION 15 BY THE APPROVED COMMITTEE HEADED BY T HE DEVELOPMENT COMMISSIONER. SECTION 3(11) OF THE SEZ ACT PROVIDE S THAT ANY PERSON WHO OR A STATE GOVT WHICH, INTENDS TO PROVIDE ANY INFRASTRUC TURE FACILITIES IN THE IDENTIFIED AREA REFERRED TO IN SUB SECTION (2) TO (4) , OR UND ERTAKE ANY AUTHORIZED OPERATION MAY, AFTER ENTERING INTO AN AGREEMENT WITH THE DEVE LOPER REFERRED TO IN SUB SECTION (10), MAKE A PROPOSAL FOR THE SAME TO THE B OARD FOR ITS APPROVAL AND THE PROVISIONS OF SUB SECTION (5) AND SUB SECTION (7) T O (10) SHALL, AS FAR AS MAY BE , APPLY TO THE SAID PROPOSAL MADE BY SUCH PERSON OR S TATE GOVT. AS PER SECTION 3(12), EVERY PERSON OR A STATE GOVT REFER TO IN SU B SECTION (11), WHOSE PROPOSAL HAS BEEN APPROVED BY THE BOARD AND WHO, OR WHICH, H AS BEEN GRANTED LETTER OF APPROVAL BY THE CENTRAL GOVT, SHALL BE CONSIDERED A S A CO-DEVELOPER OF THE SPECIAL ECONOMIC ZONE. THE POWERS AND FUNCTIONS OF THE BOARD OF APPROVAL AS PER SECTION 9(2) (F) OF THE SEZ ACT ALSO INCLUDE TH E POWER TO INVOKE SUSPENSION OF THE LETTER OF APPROVAL GRANTED TO A DEVELOPER AN D APPOINTMENT OF AN ADMINISTRATOR UNDER SUB SECTION(1) TO SECTION (10). WE THUS FIND THAT BY INCLUDING A CO-DEVELOPER, THE SEZ ACT RECOGNISES AN D TREATS THE CO-DEVELOPER AT PAR WITH DEVELOPER FOR ALL INTEND AND PURPOSES HA VING EQUAL STATUS. THEREFORE, TO HOLD A VIEW THAT ONLY ONE DEVELOPER IS RESPONSIB LE FOR DEVELOPING, OPERATING AND MAINTAINING A PARTICULAR SEZ OR THAT A SEZ CANN OT BE TRANSFERRED UNDER THE SEZ ACT WOULD BE AN INCORRECT INTERPRETATION. THE LETTER OF APPROVAL GRANTED TO EITHER DEVELOPER OR A CO-DEVELOPER MAY BE SUSPENDED FOR VIOLATION OF ANY TERMS AND CONDITIONS OF APPROVAL OR FOR THE REASONS CONTA INED IN SECTION 10(1) OF THE SEZ ACT. IN THE PRESENT CASE, HOWEVER, THERE IS NO DISPUTE THAT NO SUCH CASE APPEARS TO EITHER WITH THE ASSESSEE OR THE DAPL SO AS TO FORFEIT THE STATUS OF A DEVELOPER GRANTED TO THE ASSESSEE UNDER THE SEZ ACT . NOW WE HAVE TO EXAMINE THE ISSUE RAISED IN THE ADDITIONAL GROUNDS IN THE APPEAL OF THE REVENUE. THE AO HAS DISALLOWED THE CLAIMED DEDUCTION U/S 80IAB MAIN LY ON THE GROUND (1) THAT THE TRANSFER OF BARE SHELL BUILDINGS BY TH E ASSESSEE TO THE CO-DEVELOPER FOR A CONSIDERATION WAS NOT AN AUTHORIZED OPERATIO NS AS PER THE LIST CONTAINED IN NOTIFICATION DATED 27/10/2006 BEING S.O 1846(E); (2) THE BOARD OF APPROVAL WHILE APPROVING THE CO-DE VELOPER AGREEMENT HAS GIVEN A CONDITIONAL APPROVAL IN AS MUCH AS THE AO HAS BEE N AUTHORIZED TO EXAMINE THE TAXABILITY OF LEASE RENTALS BY WAY OF LEASE PREMIUM / ONE TIME PAYMENT ETC BY VIRTUE OF A DISCLAIMER CONTAINED IN CLAUSE (3) (XVI I) OF THE APPROVAL LETTER DATED 1/6/2009 AND (3) THE BOARD OF APPROVAL FOR SEZ HAS NOT CONSIDER ED THE INCOME FROM SPECIFIC TRANSACTION BETWEEN DEVELOPER AND CO-DEVEL OPER AS EXEMPT FROM INCOME TAX FOR WHICH THE ASSESSING OFFICER HAS BEEN AUTHOR IZED TO EXAMINE THE TAXABILITY. SECTION 26(1)(A) TO 1(G) OF THE SEZ AC T PROVIDE FOR MAJOR TAX INCENTIVE TO A DEVELOPER OR ENTREPRENEUR IN THE SEZ WHICH INCLUDE EXEMPTION FROM CUSTOMS DUTY, EXCISE DUTIES, DUTY DRAW BACK, C ENTRAL SALES TAX AND SERVICE TAX ETC. IN CONCURRENCE WITH THE ABOVE PROVISIONS RELATING TO VARIOUS EXEMPTIONS, CONCESSIONS OR OTHER BENEFITS A CLAUSE NO. 3(XIV)WA S MENTIONED IN THE APPROVAL LETTER DATED 22/6/2006 ISSUED TO THE ASSESSES AS UN DER:- 3(XIV) THE DEVELOPER SHALL OBTAIN THE APPROVAL OF B OARD FOR SPECIFIC ACTIVITIES PROPOSED TO BE UNDERTAKEN FOR DEVELOPMEN T, OPERATION AND MAINTENANCE OF SPECIAL ECONOMIC ZONE. BASED ON THE ACTIVITIES APPROVED BY THE BOARD, THE DEVELOPER SHALL BE ENTITLED FOR DUTY FREE IMPO RT OR DOMESTIC PROCUREMENT OF GOODS FOR THE APPROVED 1ACT IVITIES UNDER RULE 10 AFTER THE SPECIAL ECONOMIC ZONE HAS BEEN NOTIFIED.' 34. IDENTICALLY WORDED CLAUSE NO. 3 (XIII) HAS BEEN INCORPORATED IN THE APPROVAL LETTER DATED 1/6/2009 GRANTED TO THE DAPL EXCEPT FOR THE REPLACEMENT OF WORD DEVELOPER WITH THE WORD CO-DEVELOPER. THE LIST OF APPROVED AUTHORIZED OPERATIONS CONTAINED IN THE NOTIFICATION DATED 27/10/2006, LIST OF AUTHORIZED OPERATIONS ENCLOSED AS AN ANNEXURE TO TH E LETTER DATED 29/8/2006 ISSUED TO THE ASSESSEE AND THE LIST OF AUTHORIZED O PERATIONS ENCLOSED AS ANNEXURE TO THE LETTER DATED 19/6/2007 ISSUED TO THE CO-DEVE LOPER BY THE BOARD OF APPROVAL APPROVING AUTHORIZED OPERATIONS REVEALING THAT ALL THE AUTHORIZED OPERATIONS CONTAINED THEREIN RELATE ONLY TO DEPARTMENTAL ACTIV ITIES REQUIRED TO BE CARRIED OUT FOR CREATION OF INFRASTRUCTURAL AND OTHER FACILITIE S FOR THE PURPOSES OF DEVELOPMENTAL OPERATION AND MAINTENANCE OF SEZS. T HE AUTHORIZED OPERATIONS ARE, THEREFORE, REQUIRED TO BE UNDERSTOOD AND CONST ITUTED IN THE CONTEXT OF CARRYING OUT DEPARTMENTAL ACTIVITIES COUPLED WITH AVAILMENT OF VARIOUS DUTIES AND CONCESSIONS. IT IS ALSO PERTINENT TO MENTION HERE THAT UNDER SECTION 9(2) (B) OF THE SEZ ACT, A BOARD OF APPROVAL HAS GOT OVER RIDING PO WERS AND EMPOWERED TO GRANT APPROVAL OF AUTHORIZED OPERATIONS TO BE CARRI ED OUT IN THE SEZ BY THE DEVELOPER. TO ACCOMMODATE SUCH POWERS OF THE BOARD OF APPROVAL, THE NOTIFICATION DATED 27/10/2006 CONTAINS A RESIDUARY CLAUSE AND PROVIDES FOR SUCH OTHER OPERATIONS WHICH THE BOARD OF APPROVAL MAY AU THORIZE FROM TIME TO TIME. THUS WE FIND THAT ADVERSE INFERENCE DRAWN BY THE AO THAT THE TRANSFER OF BEAR SHELLS BY THE ASSESSEE TO THE CO-DEVELOPER WAS NOT A NOTIFIED AUTHORIZED OPERATION IN OUR VIEW DOES NOT STAND. THE AO HAS NEITHER SOU GHT ANY FURTHER CLARIFICATION ON THIS SPECIFIC ISSUE FROM THE BOARD OF APPROVAL N OR HAS ALLOWED OPPORTUNITY TO THE ASSESSEE TO CLARIFY THE MATTER FURTHER. ON THE CONTRARY THE ASSESSEE HAD FILED ADDITIONAL EVIDENCES AFTER SEEKING TWO CLARIFICATIO NS FROM THE BOARD OF APPROVAL. THE CLARIFICATION LETTERS DATED 18/1/2011 AND 20/1/ 2011WERE ADMITTED AS ADDITIONAL EVIDENCE BY THE LD. CIT(A). THE LD. CIT (A) HAS REPRODUCED THESE CLARIFICATIONS AT PAGE NO. 125 TO 127 OF THE FIRST APPELLATE ORDER. IN THESE LETTERS BESIDES OTHER IT HAS ALSO BEEN CLARIFIED THAT ALL L EASE OF LAND ARE SUBJECTED TO THE GENERAL CONDITION CONTAINED IN PARA 3 (XVII) OF LET TER DATED 1/6/2009. IT HAS BEEN FURTHER CLARIFIED THAT GENERAL CONDITION NO. 3 (XVI I) IN THE CO-DEVELOPER APPROVAL DATED 1/6/2009 IS APPLICABLE TO THE TERMS AND COND ITIONS OF THE LEASE AGREEMENT ONLY IN PARA NO. 6 OF THE CLARIFICATION DATED 18/1/ 2011 IT HAS BEEN MADE CLEAR THAT THE DEVELOPERS BUSINESS OF DEVELOPMENT OF SEZ ALSO ENVISAGES TRANSFER AND HAND OVER OF DEVELOPED/CONSTRUCTED BUILDINGS (IN WHICH O THER FORM SUCH AS BARE SHELL/COLD SHELL) AGAINST DEVELOPMENT CHARGES/DEVEL OPMENT CONSIDERATION FORMING PART OF MOU/AGREEMENT APPROVED BY BOA. THESE ACTIV ITIES ARE AUTHORIZED OPERATIONS UNDER SEZ ACT AND THE RULES AS AMENDED. IT HAS ALSO BEEN CLARIFIED THAT THE ACTIVITIES OF THE CO-DEVELOPER SUBSEQUENT TO RECEIVING BARE SHELL/COLD SHELL BUILDING CONVERTING THE SAME INTO WARM SHELL BUILDING BY DEVELOPING/CONSTRUCTING /INSTALLATIONS OF VARIOUS E QUIPMENTS FOR ELECTRIFICATION, AIR CONDITIONING ETC. ARE AUTHORIZED OPERATIONS OF THE CO-DEVELOPER UNDER SEZ ACT AND RULES, AS AMENDED. IN THE CLARIFICATION LETTER DATED 20/1/2011 IT HAS BEEN FURTHER MADE CLEAR THAT NO SALE IS ALLOWED IN SEZ MEANS THAT SALE OF LAND IS NOT ALLOWED IN THE SEZ BUT THE SALE OF SUPER STRUCTURE (BARE SHELL/COLD SHELL) IS ALLOWED IN THE SEZ AND THE SAME IS THE AUTHORIZED O PERATIONS OF THE DEVELOPER. IN THE CLARIFICATION LETTER DATED 20/1/2011 IT HAS BE EN FURTHER CLARIFIED THAT THE SEZ BUILDINGS (BARE SHELL/COLD SHELL) WILL BE TRANSFERR ED AND HANDED OVER TO THE CO- DEVELOPER UPON EXECUTION OF A TRANSFER AND HAND OVE R DEED, AND WHICH HAS ALREADY BEEN APPROVED. IN CONSIDERATION OF SUCH TR ANSFER AND HAND OVER , THE CO- DEVELOPER SHALL MAKE PAYMENT OF SUCH AMOUNT AS DEVE LOPMENT CONSIDERATION IN FAVOUR OF THE DEVELOPER AS IS AGREED TO BETWEEN THE PARTIES. THE ABOVE MENTIONED TRANSFER AND HAND OVER IS ALLOWED IN SEZ. WE THUS DO NOT FIND SUBSTANCE IN THE FINDING OF THE AO THAT THE TRANSFER OF BARE SHELL B Y THE ASSESSEE TO THE CO- DEVELOPER WAS NOT AN APPROVED AUTHORIZED OPERATION, FOR THE PURPOSE OF DISALLOWING CLAIM OF DEDUCTION U/S 80IAB. THERE IS NO DISPUTE THAT THE CO- DEVELOPER AGREEMENT DATED 20/3/2008 WAS APPROVED BY BOTH THE DEPARTMENT OF COMMERCE AND DEPTT OF REVENUE AND THIS REVISED AGRE EMENT FORMS INTEGRAL PART OF THE APPROVAL VIDE CLAUSE (2) OF THE APPROVAL LET TER 1/6/2009 ISSUED BY THE BOARD OF APPROVAL TO THE CO-DEVELOPER (DAPL). THE APPROVAL LETTER WAS ISSUED AFTER INCLUSION OF A DISCLAIMER AS DESIRED BY CBDT VIDE LETTER DATED 26/5/2009. SUCH APPROVAL WAS LATER DISCUSSED, CONFIRMED AND RE CTIFIED IN THE 34 TH MEETING OF THE BOARD OF APPROVAL HELD ON 19/6/2009. THEREFORE , WE FULLY AGREE WITH THE FINDING OF THE LD. CIT(A) THAT THE CONTENTION OF TH E AO THAT APPROVAL WAS GIVEN BY 3 OR 4 MEMBERS OF THE SAME DEPARTMENT IS CONTRAR Y TO THE FACTS AND EVIDENCES ON RECORD WHEN SUCH APPROVAL STOOD RECTIFIED BY THE BOARD OF APPROVALS. 35. THE ONLY ISSUE NOW REMAINS TO BE DECIDED IS THE FACTS AND CONSEQUENCE OF THE DISCLAIMER CONTAINED IN CLAUSE 3 (XVII) OF THE APPROVAL LETTER DATED 1/6/2009 WHICH THE SUBJECT MATTER OF THE ADDITIONAL GROUND R AISED BY THE REVENUE IN ITS APPEAL. FROM THE CLARIFICATIONS DATED 18/1/2011 AN D 20/1/2011 ISSUED BY THE MINISTRY OF COMMERCE AS WELL AS FROM THE LETTER OF DIRECTOR CBDT THEIR REMAINS NO SCOPE FOR ANY DOUBT THAT THIS DISCLAIMER IS APPL ICABLE ONLY TO TRANSFER OF LAND IN THE GUISE OF LONG TERM LEASE BY RECEIVING LEASE REN TALS/DOWN PAYMENTS/PREMIUM ETC COMMENSURATE WITH THE SALE VALUE OF LAND AS IS EVIDENT FROM PARA 4 OF THE LETTER DATED 6/5/2009 OF THE DIRECTOR CBDT IN THIS PARA NO. 4 IT HAS BEEN MENTIONED THAT THE ISSUE REGARDING TRANSFER OF LAND BY DEVELOPERS ON AN INDEFINITE/LAND LEASE WHICH VIRTUALLY AMOUNTS TO SA LE HAS BEEN BROUGHT TO THE NOTICE OF DOC ON EARLIER OCCASIONS. AFTER PROTRACT ED DISCUSSION ON THE ISSUE AND ALSO TAKING INTO ACCOUNT THE ADVISE OF MINISTRY OF LAW, IT WAS AGREED TO APPROVE SUCH PROPOSAL SUBJECT TO THE INCLUSION OF DISCLAIME R IN THE LETTER OF APPROVAL THAT THE APPROVAL WILL HAVE NO BEARING ON TAX TREATMENT OF INCOME ARISING OUT OF SUCH TRANSACTION WILL BE DECIDED AS PER RELEVANT PROVISI ONS OF INCOME TAX ACT 1961. A REFERENCE TO PARA 3 OF THE LETTER OF THE DIRECTOR , CBDT DATED 26/5/2009 REVEALS THAT THAT HE WAS CONSCIOUS OF AND EXAMINED THE ARRA NGEMENT OF TRANSFER OF COLD SHELL BUILDING ON HAND OVER BASIS BY THE ASSESSEE T O THE CO-DEVELOPER BUT INSTEAD FOR INCLUSION OF DISCLAIMER IN THE CONTEXT OF TRANS FER OF LAND, AS ABUNDANTLY CLEAR FROM PARA 4 ABOVE OF THE SAID LETTER. THUS, THE AB OVE DISCLAIMER IS NOT APPLICABLE TO THE TRANSFER OF BARE SHELL DULY APPROVED BY THE BOARD OF APPROVAL AS AN AUTHORIZED OPERATION. THE MINISTRY OF COMMERCE IN ITS CLARIFICATION ISSUED ON 18/1/2011 HAS EXPLICITLY CLARIFIED THAT ALL LEASE O F LAND ARE SUBJECTED TO THE GENERAL CONDITION CONTAINED IN PARA 3 (XVII) OF LETTER DATE 1/6/2009 AND THIS GENERAL CONDITION IS APPLICABLE TO THE TERMS AND CONDITIONS OF THE LEASE AGREEMENT ONLY. THE GROUP OF WORDS TAX TREATMENT OF INCOME ARISING OUT OF SUCH TRANSACTION IN PARA 4 ABOVE HAS TO BE NECESSARILY READ ONLY IN THE CONTEXT OF TRANSFER OF LAND. WE THUS DULY AGREE WITH THE OBSERVATION OF THE LD. CIT (A) THAT THE AO HAS NOT TAKEN COGNIZANCE OF THE FACT THAT CLAUSE (2) OF THE APPRO VAL LETTER DATED 1/6/2009 REFERS TO THE REVISED AGREEMENT DATED 20/3/2008 DULY FOR MING PART OF APPROVAL WHEREAS THE DISCLAIMER IS CLAUSE 3(XVII) REFERS TO TERMS AND CONDITIONS OF LEASE AGREEMENT. THE SEPARATE AGREEMENTS FOR LEASE OF L AND HAVE BEEN APPROVED BY THE BOARD OF APPROVAL. THUS THE VARIOUS OBJECTIONS RAISED BY THE AO IN THE REMAND REPORT DATED 8/6/12 WERE DEVOID OF ANY MERIT . APPROVAL LETTER DATED 1/6/2009 WAS ISSUED BY BOA TO THE CO-DEVELOPER. CL AUSE 3(XVII) OF WHICH IS THE MAIN REASON FOR ENTIRE CONTROVERSY IN THE ADDITIONA L GROUND RAISED BY THE REVENUE TO ITS APPEAL, PARA 3(XVII) OF THE APPROVAL LETTERS DATE3D 14/2/2007 AND 1/6/2009 ISSUED TO THE CO-DEVELOPER ARE IDENTICALLY WORDED, PURSUANT TO SUCH CONDITIONS IN THE EARLIER APPROVAL LETTER DATED 14/2/2007, THE CO -DEVELOPER HAS ALREADY BEEN GRANTED APPROVAL OF AUTHORIZED OPERATIONS VIDE LETT ER DATED 19/6/2007, WHICH IN- FACT ARE ALSO LISTED BY THE AO IN HIS REMAND REPORT . WE THUS FULLY AGREE WITH THE FINDING OF THE LD. CIT(A) THAT ONCE THE AUTHORIZED OPERATIONS WERE APPROVED BY THE BOARD OF APPROVAL VIDE LETTER DATED 19/6/2007, THERE WAS NO FURTHER REQUIREMENT OF GETTING THE SAME AUTHORIZED OPERATIO NS APPROVED AGAIN IN TERMS OF APPROVAL LETTER DATED 1/6/2009. NO FURTHER APPR OVAL OF TRANSFER OF BARE SHELL WAS REQUIRED SINCE THE AGREEMENT DATED 20/3/2008 PR OVIDING FOR TRANSFER OF BARE SHELL TO THE CO-DEVELOPER FOR AN AGREED DEVELOPMENT CONSIDERATION FORMS INTEGRAL PART OF APPROVAL LETTER DATED 1/6/2009 ISSUED BY BO A. THE PARA NO.2 WHEREOF READS THAT YOUR REVISED AGREEMENT DATED 20/3/2008 E NTERED INTO WITH THE DEVELOPER OF THE AFORESAID SECTOR SPECIFIC IT/ITES SPECIAL ECONOMIC ZONE OF DLF INFO CITY DEVELOPERS (CHENNAI) LTD FOR PROVID ING INFRASTRUCTURE AND OTHER COMMON FACILITIES SHALL FORM PART OF THIS APPROVAL. WE ALSO AGREE WITH THE FINDING OF THE LD. CIT(A) THAT THE AO WAS HAVING NO JURISDICTION OR AUTHORITY TO SIT IN THE JUDGMENT OF THE BOARD OF APPROVAL AND CH ALLENGE THE VALIDITY OF APPROVAL GIVEN BY THE MINISTRY OF COMMERCE. THE OB JECTION OF THE AO THAT TRANSFER OF BARE SHELL IS NOT PERMITTED IN THE SEZ IS AGAIN MISPLACED AND UNJUSTIFIED IN VIEW OF THE CLARIFICATIONS DATED 18/ 1/2011 AND 20/1/2011 ISSUED BY THE MINISTRY OF COMMERCE AND INDUSTRIES. THE DEVEL OPMENT COMMISSIONER OF THE CONCERNED SEZ IS THE EX-OFFICIO MEMBER OF THE B OARD OF APPROVAL U/S 8(2) (G) OF THE SEZ ACT. THE PROVISIONS OF RULE 11 (5) OF THE SEZ RULES, 2006 READS AS UNDER:- '( 5) THE LAND OR BUILT UP SPACE IN THE PROCESSING ARE A OR FREE TRADE AND WAREHOUSING ZONE SHALL BE GIVEN ON LEASE ONLY TO TH E ENTREPRENEURS HOLDING A VALID LETTER OF APPROVAL ISSUED UNDER RUL E 19 AND THE LEASE PERIOD SHALL NOT BE LESS THAN FIVE YEARS BUT NOTWIT HSTANDING ANY OTHER CONDITION IN THE LEASE DEED, THE LEASE RIGHTS WOULD CEASE TO EXIST IN CASE OF THE EXPIRY OR CANCELLATION OF THE LETTER OF APPROVA L: PROVIDED THAT THE DEVELOPER MAY, WITH THE PRIOR APP ROVAL OF THE APPROVAL COMMITTEE, GRANT ON LEASE LAND OR BUILT UP SPACE, F OR CREATING FACILITIES SUCH AS CANTEEN, PUBLIC TELEPHONE BOOTHS, FIRST AID CENTRES, CRECHE AND SUCH OTHER FACILITIES AS MAY BE REQUIRED FOR THE EXCLUSI VE USE OF THE UNIT.' 36. THUS, AS DISCUSSED ABOVE, THE ADMITTED AND UNDI SPUTED FACT REMAIN THAT THE ASSESSEE HAS BEEN DULY APPROVED BY THE BOA AS A DEV ELOPER, THE LAND OWNED BY THE ASSESSEE AT CHENNAI WAS NOTIFIED BY THE GOVT. O F INDIA FOR ESTABLISHMENT OF SEZ, THE AUTHORIZED OPERATIONS TO BE UNDER TAKEN IN THE SAID SEZ WERE APPROVED BY BOA, THE CO-DEVELOPER AGREEMENT DATED 20/3/2008 EXECUTED WITH THE CO- DEVELOPER CONTEMPLATING TRANSFER OF BARE SHELLS T O THE CO-DEVELOPER HAS BEEN DULY APPROVED BY THE BOP; THE DAPL HAS BEEN APPROVE D AS A CO-DEVELOPER, THE TRANSFER OF BARE SHELL TO THE CO-DEVELOPER HAS BEEN APPROVED AS AN AUTHORIZED OPERATION BY THE BOP AND THE DISCLAIMER CONTAINED I N CLAUSE 3(XVII) OF THE APPROVAL LETTER DATED 1/6/2009 APPLIES ONLY TO THE LEASE OF LAND AS CLARIFIED BY THE MINISTRY OF COMMERCE IN THE CLARIFICATION DATED 18/ 1/2011 AND NOT TO THE TRANSFER OF BARE SHELLS. NOTING THESE MATERIAL FACTS WE ARE OF THE VIEW THAT THE LD. CTI(A) HAS RIGHTLY AGREED WITH THE PLEA OF THE ASSESSEE TH AT THE TAX DISCLAIMER CONDITION MENTIONED IN THE CO-DEVELOPER APPROVAL IS PRIMARILY TO BE IN BY THE BOA IN THE APPROVALS GRANTED TO PUT A CURB ON THE WRONG PRACTI CE OF LEASING THE LAND FOR LONG PERIODS AND RECEIVING ONE TIME PAYMENT IN THE FORM OF LEASE RENTALS/DOWN PAYMENTS/PREMIUM ETC WHICH TANTAMOUNT TO SALE OF LA ND IN THE GUISE OF LONG TERM LEASE. THE ASSESSEE HAS OBTAINED REQUISITE APPROVA LS FROM THE BOA IN MOST TRANSPARENT MANNER BY DISCLOSING NOT ONLY DEVELOPME NT CONSIDERATION BUT ALSO THE BASIS FOR DETERMINING THE SAME. THE ENTIRE CONTROV ERSY AS TO WHETHER TRANSFER OF BARE SHELL BUILDINGS TO THE CO-DEVELOPER WAS AN AUT HORIZED OPERATION HAS BEEN SET AT REST BY FURTHER CLARIFICATIONS DATED 18/1/2011 A ND 20/1/2011 ISSUED BY THE MINISTRY OF COMMERCE. THE BOA, BEING THE STATUTORY AUTHORITY UNDER THE SEZ ACT, HAS GRANTED VARIOUS APPROVALS BY A STATUTORY P ROCESS OF LAW AFTER DULY CONSIDERING AND EXAMINING ALL THE FACTS AND DOCUMEN TS ON RECORD IN ACCORDANCE WITH RELEVANT PROVISIONS OF SEZ ACT AND SEZ RULES. THUS, THE CONSEQUENTIAL BENEFITS THAT IS AVAILABLE TO A DEVELOPER UNDER THE INCOME TAX ACT CANNOT BE DENIED. THE AO DOES NOT HAVE ANY JURISDICTION TO Q UESTION THE VALIDITY OR THE LEGALITY OF AUTHORIZED OPERATIONS WHICH HAVE BEEN A PPROVED BY THE BOA/CENTRAL GOVERNMENT. SECTION 27 OF SEZ ACT PROVIDES FOR MODI FICATION OF INCOME TAX ACT TO THE EXTENT OF SECOND SCHEDULE OF SEZ ACT WHI CH READS AS UNDER:- '27. THE PROVISIONS OF THE INCOME TAX ACT, 1961, AS IN FORCE FOR THE TIME BEING, SHALL APPLY TO, OR IN RELATION TO, THE DEVEL OPER OR ENTREPRENEUR FOR CARRYING ON THE AUTHORIZED OPERATIONS IN A SPECIAL ECONOMIC ZONE OR UNIT SUBJECT TO THE MODIFICATIONS SPECIFIED IN THE SECON D SCHEDULE.' 37. THE SECOND SCHEDULE OF SEZ ACT CONTENDS BARE TE XT OF CERTAIN PROVISION INCLUDING SECTION 80IAB TO BE INCORPORATED IN THE I NCOME TAX ACT PRESENT TO THE SECTION 80IAB (HAVING THE SAME IN AS MENTIONED IN S EZ ACT) HAS BEEN BROADLY INCORPORATED INTO THE INCOME TAX ACT. SECTION 51 O F 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 OTHER LAW F OR THE TIME BEING IN FORCE OR IN ANY INSTRUMENT HAVING EFFECT BY VIRTUE OF ANY LAW O THER 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 INCONSISTENT IS CONTAINED IN THE INCOME TAX ACT. THE SEZ ACT HAS BEEN ENACTED CONTAINING THE S PECIFIC LEGISLATION TO BE BROUGHT IN OTHER STATUTES. WHEN THE TERMS LIKE SEZ , AUTHORIZED OPERATIONS, DEVELOPERS ETC HAVE BEEN SPECIFICALLY DEFINED UNDER THE SEZ ACT, IT IS NOT OPEN TO ANY AUTHORITY TO RELOOK AT THE MEANING OF TERMS ALR EADY DEFINED UNDER THE SEZ ACT. IN THIS REGARD, WE ALSO FIND SUPPORT FROM THE DECISION OF THE TRIBUNAL IN THE CASE OF ASSESSEE GROUP ITSELF FOR THE A.Y 2007-08, THE RELEVANT PARAGRAPHS THEREOF IS BEING REPRODUCED HEREUNDER:- PAGE 17 PARA 5.3 THE SEZ ACT 2005, AS WELL AS, INCOME TAX ACT, 1961 HAVE PLACED DEVELOPER AND THE CO-DEVELOPER AT THE SAME LEVEL I.E FOR DEVELOPMENT (CREATING INFRASTRUCTURE FACILITIES), MAINTENANCE A ND OPERATIONS. IT WAS IN THIS CONTEXT THAT SEZ BOA, UNDER THE AEGIS OF MINIS TRY OF COMMERCE, APPROVED CONVERSION OF BARE SHELL INTO WARM SHEL L BY THE CO-DEVELOPER AS AUTHORIZED OPERATIONS PAGE 21 PARA 5.15 ASSESSEE RECEIVED CLARIFICATION FROM BOA/GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY, DEPTT OF COMMERCE (SEZ SECTI ON), UDYOG BHAWAN, NEW DELHI DATED 18/1/2011 & 20/1/2011 BOA I N EXERCISE OF ITS STATUTORY POWERS APPROVED BUSINESS MODEL OF THE ASS ESSEE CLARIFIED THAT UNDER RULE 11(9) SALE OF LAND IS NOT PERMISSIBLE IN A SEZ. HOWEVER CO- DEVELOPER CAN TAKE LAND ON LEASE FROM DEVELOPER FOR DEFINITE PERIOD. FURTHER SEZ BUILDINGS I.E. BARE SHELL/COLD SHELL CA N BE TRANSFERRED AND HANDED OVER TO THE CO-DEVELOPER ON PAYMENT OF CONSI DERATION TO DEVELOPER, THIS TRANSFER IS PERMISSIBLE AND AUTHORI ZED AS PER SEZ ACT AND RULES. THE CORRESPONDENCE WITH THE SEZ AUTHORITIES ON THIS ISSUE IS PLACED ON THE P.B AT PAGES 122 TO 130 AND ITS CONTENTS ARE REFERRED TO BY THE LD. COUNSEL. THUS AS PER SPECIFIC CLARIFICATIONS BY BO A THE TRANSFER OF BARE SHELL BUILDING ON LONG TERM LEASE TO APPROVED CO-DE VELOPER ARE AUTHORIZED ACTIVITIES UNDER SEZ ACT & RULES. THUS THESE CLAR IFICATIONS ALSO DISPEL THE FINDINGS OF CIT REVISING THE ASSE4SSMENT ORDER AND SETTING ASIDE THE SAME. 263 ORDER AND FINDINGS THEREIN BEING CONTRARY TO LE GAL PROVISIONS IS LIABLE TO BE QUASHED. THE ASSESSMENT ORDER BEING IS CONFO RMITY WITH SEZ ACT, RULES AND PROVISIONS OF SECTION 80IAB CAN NEITHER B E TERMED AS ERRONEOUS OR PREJUDICIAL TO THE INTEREST OR REVENUE. PAGE 28 PARA 6.9 LD. COUNSEL CONTENDS THAT LD. CITS PROPOSITION TO T AX IT AS CAPITAL GAINS IS AGAINST THE BASIC PRINCIPLE OF TAXATION AS LARGE SC ALE REAL ESTATE BUSINESS ACTIVITIES CONTINUOUSLY CARRIED ON BY ASSESSEE AND BARE SHELL BUILDINGS DECLARED AS STOCK-IN-TRADE IN ITS BOOKS OF ACCOUNTS , AS PER ITS OBJECTS CLAUSE IN ITS MEMORANDUM AND ARTICLES OF ASSOCIATION CAN B E TAXED ONLY UNDER THE HEAD BUSINESS INCOME. PAGE 35 PARA 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 SANCTI ONING AUTHORITY, THE CONSEQUENTIAL BENEFITS THAT ARE AVAILABLE TO A DEVE LOPER CANNOT BE DENIED. THE ASSESSING OFFICER OR THE COMMISSIONER OF INCOME -TAX EXERCISING THE POWER OF REVISION UNDER THE ACT CANNOT HAVE ANY JUR ISDICTION TO QUESTION THE VALIDITY OF THE LEGALITY OF THE AUTHORIZED OPER ATIONS WHICH HAVE BEEN APPROVED BY THE REGULATORY BODY OF THE CENTRAL GOVE RNMENT I.E. BOA AND ATTEMPT TO DISPUTE THE SAME IS CONTRARY TO THE STAT UTORY PROVISIONS OF THE SEZ ACT. PARA 6.17 BOA ARE APPOINTED BY THE CENTRAL GOVERNMENT IN VAR IOUS FIELDS OF GIVING BENEFITS LIKE SEZ, CUSTOMS AND VARIOUS OTHER FISCAL LEGISLATION, THE INCOME- TAX AUTHORITIES CANNOT SIT OVER THE JUDGMENT OF THE BOA. BY CATENA OF JUDGMENTS THE COURTS HAVE HELD THAT THE APPROVAL AC CORDED BY SUCH REGULATORY BOARDS IN DEVELOPMENT SCHEMES CANNOT BE QUESTIONED BY TAX AUTHORITIES. RELINE IN THIS BEHALF IS PLACED ON: -APOLLOTYRES VS. CIT (2002) 9 SCC 1(SC) -MALAYALA MANORAMA CO. LTD VS. CIT (2008) 12 SCC 61 2 (SC) -CIT VS. HCL COMMET SYSTEM & SERVICE LTD. 305 ITR 4 09 (SC) -MARMO CLASSIC VS. COMMISSIONER OF CUSTOMS [2002 (1 43) 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 235; -TITAL MEDICAL SYSTEM PVT. LTD. VS. COLLECTOR 2003 (151) ELT 254 (SC) -CESTAT JUDGMENT IN HICO ENTERPRISES VS. COMMISSION ER 2005-(189)ELT 135 (TRIB. LB) APPROVED BY HONBLE SUPREME COURT IN 2008 (228) ELT 161 (SC); -ATUL COMMODITIES PVT. LTD. VS. COMMISSIONER OF CUS TOMS COCHIN 2009 (235) ELT 385 (SC); -M.J. EXPORTS LTD. VS. CEGAT 1992 (60) ELT 161 (SC) ; THE ASSESSEE HAS NOT SOLD ANY LAND BUT ONLY TRANSFE RRED THE BARE SHELL BUILDINGS ON LEASE. THEREFORE, THERE IS NO ERROR A S POINTED OUT BY LD. CIT. PAGE 42 PARA 9 THE CONDITION MENTIONED IN NOTIFICATION DATED 27/10 /2006 GIVING TO ASSESSING OFFICER THE RIGHT TO EXAMINE THE TAXABILI TY OF ISSUE OF 80IAB IN THE SPIRIT OF SEZ PROVISION STANDS VINDICATED. BESIDES , WE MAY HASTEN TO ADD THAT APPARENTLY THIS RIDER APPEAR TO BE MADE WHILE APPROVING THE CO- DEVELOPER AGREEMENT. THIS IS POSSIBLE APPLICABLE T O CO-DEVELOPER AND NOT THE ASSESSEE AS THE CONDITION WAS PUT DURING THE CO URSE OF APPROVAL OF THE AGREEMENT BETWEEN ASSESSEE AND THE CO-DEVELOPER. PAGE 46 PARA 9.5 APROPOS THE ISSUE OF SALE OF BARE SHELL BUILDINGS B EING AUTHORIZED ACTIVITY, IT IS AMPLY CLEAR THAT THE SEZ ACT AUTHORIZES ACTIV ITIES INCLUDE CONSTRUCTION OF BARE SHELL/COLD SHELL/WARM SHELL BUILDINGS AND T RANSFER THEREOF, BOA HAS APPROVED IT AND CLARIFIED THE SAME. THERE IS ENOUG H MATERIAL ON THE RECORD TO HOLD THAT THE TRANSFER OF BARE SHELL BUIL DINGS TO CO-DEVELOPERS CONSTITUTE AUTHORIZED ACTIVITY. THUS, WE SEE NO ER ROR ON ANY COUNT AS HELD BY CIT IN THE ORDER OF ASSESSING OFFICER ALLOWING D EDUCTION U/S 80IAB. 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 NOTI FIED ON THE FIRST DAY OF APRIL 2005 UNDER THE SPECIAL ECONOMIC ZONE ACT 2005 ; AND THE PROFITS HAVE BEEN DERIVED FROM THE BUSINESS OF DEVELOPMENT, OPERATION AND MAINTENANCE OF SEZ. WE THUS FULLY AGREE WITH THE FINDING OF THE LD. CIT (A) THAT ALL THE CONDITIONS AS REQUIRED TO BE SPECIFIED UNDER THE SEZ ACT/RULES AR E FULFILLED AND THE ASSESSEE IS APPROVED DEVELOPER FOR ALL THE INTENT AND PURPOSES OF SECTION 80 IAB I.T OF THE ACT. CONSEQUENT UPON APPROVAL GRANTED BY THE BOA F OR TRANSFER OF BARE SHELL TO THE CO-DEVELOPER, THE PROFITS ARISING TO THE ASSESS EE FROMS SUCH AN AUTHORIZED TRANSACTION ARE ELIGIBLE FOR DEDUCTION U/S 80IAB OF THE ACT. FOR A READY REFERENCE PROVISIONS LAID DOWN U/S 80IAB (1) OF THE ACT ARE B EING REPRODUCED HEREUNDER:- '80IAB( 1)- WHERE THE GROSS TOTAL INCOME OF AN ASSE SSEE, BEING A DEVELOPER, INCLUDES ANY PROFITS AND GAINS DERIVED B Y AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS OF DEVELOPING A SPECIA L ECONOMIC ZONE, NOTIFIED ON OR AFTER THE 1ST DAY OF APRIL, 2005 UND ER THE SPECIAL ECONOMIC ZONE ACT, 2 THERE SHALL, IN ACCORDANCE WITH AND SUB JECT TO THE PROVISIONS OF THIS SECT' BE ALLOWED, IN COMPUTING THE TOTAL INCOM E OF THE ASSESSEE, A DEDUCTION OF AMOUNT EQUAL TO ONE HUNDRED PER CENT, OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSECUTIV E ASSESSMENT YEARS.' 40. THUS, WE FIND THAT THE ISSUES DISCUSSED HEREINA BOVE IN THE PRECEDING PARAGRAPHS WILL COVER THE ISSUE RAISED IN ADDITIONA L GROUND OF THE APPEAL PREFERRED BY THE REVENUE AND THE ISSUES RAISED IN GROUND NOS 6, 7, 8, 9, 10 & 14 OF THE REVENUES APPEAL. IN RESULT ALL THESE GROUNDS OF THE APPEAL OF THE REVENUE ARE REJECTED. 41. CONSEQUENTLY, APPEAL PREFERRED BY THE ASSESSEE IS ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ITA NO. 5470/DEL/12 & ITA NO. 5367/DEL/12 42. IDENTICAL ISSUES HAVE BEEN RAISED IN THE AFORES AID CROSS-APPEALS PREFERRED BY THE PARTIES AS RAISED BY THEM IN THEIR CROSS-APP EALS IN THE CASE OF DLF INFO CITY DEVELOPERS (CHENNAI) LTD. ADJUDICATED HEREINAB OVE. THE ONLY DIFFERENCE IN THE GROUNDS OF THESE APPEALS IS THE QUANTUM OF ADDI TION DELETED AND SUSTAINED BY THE LD. CIT(A). THE FACTS ARE ALSO ALMOST SIMILAR TO THE FACTS OF THE CASE IN THE CASE OF DLF INFO CITY DEVELOPERS (CHENNAI) LTD. (SU PRA). WE THUS FOLLOWING THE DECISION TAKEN ON THESE ISSUES IN THE CASE OF DLF I NFO CITY DEVELOPERS (CHENNAI) LTD. (SUPRA) DECIDE THE ISSUES RAISED IN THE GROUND S AND ADDITIONAL GROUND IN THE CASE OF APPEAL PREFERRED BY THE REVENUE AGAINST THE REVENUE AND THE SAME ARE REJECTED AND THE ISSUE RAISED IN GROUND NO. 2 OF TH E APPEAL PREFERRED BY THE ASSESSEE IS ALLOWED. GROUND NO-1 RAISED THEREIN IS GENERAL IN NATURE AND GROUND NO. 3 THEREOF IS AN ALTERNATIVE GROUND TO THE ISSUE RAISED IN GROUND NO.2. 43. CONSEQUENTLY, APPEAL PREFERRED BY THE REVENUE I S DISMISSED AND THAT PREFERRED BY THE ASSESSEE IS ALLOWED. 44. IN SUMMARY THE APPEALS PREFERRED BY THE ASSESSE E ARE ALLOWED AND THOSE OF THE REVENUE ARE DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 21 ST OF FEBRUARY, 2014. SD/- SD/- ( SHAMIM YAHYA) (I. C. SUDHIR) ACCOUNTANT MEMBER JUD ICIAL MEMBER DATED: 21/02/2014 R.NAHEED/VEENA * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT N EW DELHI