DCIT, Gurgaon V. M/s. DLF Info City Developers (Chennai) Ltd., Gurgaon

ITA 6801/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3722 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 16-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset
• Section: 143(3); 2(14)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI WASEEM AHMED, ACCOUNTANT MEMBER I.T.A. NO.6801/DEL/2014 ASSESSMENT YEAR:2010-11 DCIT CIRCLE 1(1) GURGAON V. M/S DLF INFO CITY DEVELOPERS (CEHNNAI) LIMITED NOW MERGED WITH M/S DLF HOME DEVELOPERS LIMITEED (WITH APPOINTED DATE AS 1/4/2014) 3 RD FLOOR, B-WING SHOPPING MALL ARJUN NAGAR, DLF CITY, PHASE 1 GURGAON TAN/PAN:AACCD1488Q (APPELLANT) (RESPONDENT) APPELLANT BY: MS. RACHNA SINGH, CIT (DR) RESPONDENT BY: SHRI R.S. SINGHVI, C.A. DATE OF HEARING: 26 09 2017 DATE OF PRONOUNCEMENT: 23 10 2017 O R D E R PER AMIT SHUKLA, J.M.: THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE IMPUGNED ORDER DATED 10/10/2014, PASSED BY THE LD. CIT (APPEALS), FARIDABAD FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 FOR ASSESSMENT YEAR 2010-11. 2. IN VARIOUS GROUNDS OF APPEAL, THE REVENUE HAS CHALLENGED THE ALLOWABILITY OF CLAIM OF DEDUCTION UNDER SECTION 80IAB FOR SUMS AMOUNTING TO RS.202, 52,07,111/-. I.T.A. NO.6801/DEL/2014 2 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT, THE ISSUE OF ALLOWABILITY OF DEDUCTION UNDER SECTION 80IAB HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSMENT YEARS 2008-09 AND 2009-10 WHEREIN, AFTER DETAILED DISCUSSION AND ANALYSIS, ALLOWABILITY OF DEDUCTION UNDER SECTION 80IAB HAS BEEN ALLOWED ON SIMILAR SET OF FACTS AND GROUNDS. EVEN THE LD. CIT (A) HAS FOLLOWED THE ORDER OF THE TRIBUNAL AND ASSESSING OFFICER ALSO HAS RELIED UPON HIS PREDECESSORS ORDER. HE POINTED OUT THAT IN THE GROUNDS OF APPEAL ALSO, THE REVENUE HAS STATED THAT THE TRIBUNAL HAS FAILED TO APPRECIATE THE PROVISO TO SECTION 80IAB(2), WHICH MEANS THAT THE REVENUE IS AGGRIEVED BY THE ORDER OF THE TRIBUNAL FOR EARLIER ASSESSMENT YEARS. 4. ON THE OTHER HAND, THE LD. CIT (DR), MS. RACHNA SINGH, FILED A DETAILED WRITTEN SUBMISSION BEFORE US TO HIGHLIGHT THE REVENUES STAND ON THE ISSUES INVOLVED. 5. THE BRIEF FACTS ARE THAT THE ASSESSEE-COMPANY WAS INCORPORATED ON 17/3/2005 FOR THE PURPOSE OF THE BUSINESS OF DEVELOPING, OPERATING AND MAINTAINING REAL ESTATE PROJECTS WHICH INTER-ALIA INCLUDED DEVELOPMENT OF SPECIAL ECONOMIC ZONE (SEZ) AND RELATED INFRASTRUCTURE. DURING THE YEAR, THE ASSESSEE HAS DECLARED AN INCOME OF RS.369.99 CRORES AGAINST THE COST OF RS.167.47 CRORES. BESIDES DEVELOPMENT INCOME, LAND LEASE RENT AND OTHER INCOME WERE ALSO SHOWN. THE ASSESSEE IN ITS RETURN OF INCOME HAS CLAIMED DEDUCTION UNDER SECTION 80IAB AMOUNTING TO RS.202,52,07,111/- IN RESPECT OF DEVELOPMENT INCOME RELATING TO DEVELOPMENT OF SEZ AT CHENNAI DURING THE YEAR. THE ASSESSING OFFICER, FOLLOWING THE STAND TAKEN BY THE ASSESSING OFFICER, IN ASSESSMENT YEARS 2008-09 AND 2009-10 ON SIMILAR FACTS OBSERVED I.T.A. NO.6801/DEL/2014 3 THAT THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 80IAB IS NOT ADMISSIBLE IN RESPECT OF PROFIT DERIVED FROM SEZ PROJECT AT CHENNAI, BECAUSE ASSESSEE HAD SOLD BARE SHELL BUILDING TO CO- DEVELOPER, M/S DLF ASSETS PVT. LTD., WHICH WAS NOT AN AUTHORIZED OPERATION UNDER THE SPECIAL ECONOMIC ZONES ACT, 2005 AND SPECIAL ECONOMIC ZONE RULES, 2006. THE ASSESSING OFFICER WAS OF THE VIEW THAT DEDUCTION UNDER SECTION 80IAB IS ADMISSIBLE ONLY ON PROFITS FROM OPERATION AND MAINTENANCE OF SEZ AND NOT ON PROFIT ON SALE OF ASSETS EARNED BY THE ASSESSEE FROM TRANSFER OF BARE SHELL BUILDING TO THE CO-DEVELOPER. THE ASSESSING OFFICER, WHILE COMING TO THIS CONCLUSION, HAS ALSO REFERRED TO THE DISCLAIMER CLAUSE CONTAINED IN CLAUSE 3(XVII) OF THE APPROVAL LETTER DATED 1/6/2009 ISSUED IN THE CASE OF CO- DEVELOPER BY THE BOARD OF APPROVAL, SEZ SECTION, DEPARTMENT OF COMMERCE AND INDUSTRY, GOVERNMENT OF INDIA. THE SAID DISCLAIMER MENTIONS THAT PARTICULAR TERMS AND CONDITIONS OF LEASE AGREEMENT WILL NOT HAVE ANY BEARING ON THE TREATMENT OF INCOME BY WAY OF LEASE RENTALS/DOWN PAYMENTS/PREMIUM, ETC. FOR THE PURPOSE OF ASSESSMENT UNDER THE INCOME TAX ACT AND THE ASSESSING OFFICER WILL HAVE TO EXAMINE THE TAXABILITY OF THE INCOME UNDER THE INCOME TAX ACT. ON THE STRENGTH OF SUCH DISCLAIMER, THE ASSESSING OFFICER DISALLOWED THE ENTIRE CLAIM OF DEDUCTION UNDER SECTION 80IAB MADE BY THE ASSESSEE. THE ASSESSING OFFICER FURTHER HELD THAT INCOME FROM TRANSFER OF ASSETS, WHICH WERE NOT STOCK-IN-TRADE IN THE BOOKS OF ACCOUNT, IS TO BE TREATED AS INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS AND CONSEQUENTLY, THE SAID INCOME IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IAB AS CO-DEVELOPER. LASTLY, THE ASSESSING OFFICER HELD THAT DEVELOPMENT INCOME OF THE ASSESSEE IS NOTHING BUT FUTURE RENTALS, AS THE VALUATION OF BARE SHELL BUILDING HAD I.T.A. NO.6801/DEL/2014 4 BEEN WORKED OUT BY THE ASSESSEE BY ADOPTING RENT CAPITALIZATION METHOD. THE DEDUCTION UNDER SECTION 80IAB WAS PERMISSIBLE FOR A PERIOD OF 10 YEARS AND THERE WAS NO PROVISION FOR CLAIMING DEDUCTION IN ONE YEAR WHEN THE INCOME IS REFERABLE TO FUTURE RENTAL INCOME OF 49 YEARS. THUS,, THE ASSESSING OFFICER OBSERVED THAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 80IAB IS ADMISSIBLE TO THE EXTENT OF 1/49 TH OF THE TOTAL DEVELOPMENT INCOME RECEIVED IN ONE FINANCIAL YEAR AND ACCORDINGLY, WORKED OUT DISALLOWANCE AT RS.202,52,07,111/-. 6. BEFORE THE LD. CIT (A), ASSESSEE HAS MADE DETAILED SUBMISSION GIVING THE ENTIRE BACKGROUND OF THE CLAIM AS WELL AS ORDERS OF THE TRIBUNAL FOR EARLIER ASSESSMENT YEARS. THE LD. CIT(A) HAS HIGHLIGHTED THE FOLLOWING RELEVANT FACTS QUA THIS ISSUE WHICH, FOR THE SAKE OF READY REFERENCE, ARE REPRODUCED HEREUNDER:- 15. THE MAIN ISSUE INVOLVED IN THE GROUNDS OF APPEALS PREFERRED BY THE APPELLANT IS AS TO WHETHER THE RELIEF WAS ALLOWABLE FOR THE CLAIM OF DEDUCTION U/S 80IAB OF THE ACT AT RS.202,23,69,951/-.THE RELEVANT FACTS ARE THAT THE APPELLANT DURING THE YEAR HAD BEEN ENGAGED IN THE BUSINESS OF DEVELOPING, OPERATING AND MAINTAINING REAL ESTATE PROJECTS WHICH INTER ALIA INCLUDED DEVELOPMENT OF SEZS AND ALL RELATED INFRASTRUCTURE IN ACCORDANCE WITH THE APPLICABLE LAWS AND POLICIES OF THE GOVERNMENT OF INDIA. THE APPELLANT COMPANY HAD OWNERSHIP, LEASEHOLD RIGHTS AND WAS IN POSSESSION OF LAND AD-MEASURING 17.40 HECTARES EQUIVALENT TO 43 ACRES SITUATED AT 1/24 SHIVAJI GARDENS, MOONLIGHT STOP, NANDAMPAKKAM, POST RAMAPURAM, CHENNAI-400089 (TAMILNADU). THE APPELLANT HAD APPROACHED THE GOVERNMENT OF INDIA TO SEEK APPROVAL FOR SETTING UP A SECTOR SPECIFIC SPECIAL ECONOMIC ZONE FOR IT/ITES SECTOR AT THE ABOVE SAID LAND. ACCORDINGLY THE APPELLANT COMPANY WAS GRANTED I.T.A. NO.6801/DEL/2014 5 APPROVAL AS DEVELOPER BY THE DEPTT. OF COMMERCE (SEZ SECTION), MINISTRY OF COMMERCE AND INDUSTRY, GOVT, OF INDIA VIDE APPROVAL LETTER F.2/124/2005 EPZ DATED 22/6/2006 FOR SETTING UP IT/ITES SPECIAL ECONOMIC ZONE ON THE ABOVE SAID LAND. 16. THE LAND WAS NOTIFIED IN THE GAZETTE OF INDIA VIDE NOTIFICATION NO. S.O. 1978(E) DATED 16.11.2006 WHEREIN IT WAS STATED THAT THE CENTRAL GOVERNMENT IS SATISFIED THAT THE REQUIREMENTS UNDER SUB-SECTION (8) OF SECTION 3 OF THE SPECIAL ECONOMIC ZONES ACT, 2005 AND OTHER RELATED REQUIREMENTS ARE FULFILLED AND THE APPROVAL IS GRANTED FOR DEVELOPMENT AND OPERATION OF THE SECTOR SPECIFIC SPECIAL ECONOMIC ZONE FOR INFORMATION TECHNOLOGY AND INFORMATION TECHNOLOGY ENABLED SERVICES AT THE SAID PLACE IN CHENNAI IN THE STATE OF TAMIL NADU. IN THE NOTIFICATION, LAND ADMEASURING 13.29 HECTARES WAS NOTIFIED GIVING THE DETAILS OF SURVEY NOS. ETC. FURTHER VIDE NOTIFICATION NO.S0396(E) DT.19.03.2007 AN ADDITIONAL AREA OF 3.4384 HECTARES HAD BEEN NOTIFIED FOR THE ABOVE PROJECT. 17. THE AUTHORIZED OPERATIONS IN RESPECT OF IT AND ITES SPECIAL ECONOMIC ZONE PROPOSED TO BE DEVELOPED BY THE APPELLANT WERE APPROVED BY THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE & INDUSTRY, DEPARTMENT OF COMMERCE (SEZ SECTION), UDYOG BHAWAN, NEW DELHI VIDE ITS LETTER DATED 29.08.2006 WHICH INTER ALIA INCLUDED OFFICE AND COMMERCIAL COMPLEX, ROADS WITH STREET LIGHTING, WATER TREATMENT PLAN, SEWAGE AND GARBAGE, VEHICLE PARKING, IT INFRASTRUCTURE ETC. IN THE PROCESSING AREA OF SEZ. 18. THE SEZ ACT 2005 SPECIFICALLY ALLOWS THE CO-DEVELOPER TO ENTER 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 2005. IN THIS DEFINITION THE 'CO- DEVELOPER' HAS ALSO BEEN DEFINED AS 'DEVELOPER'. THE I.T.A. NO.6801/DEL/2014 6 APPELLANT COMPANY HAD ENTERED INTO A MEMORANDUM OF UNDERSTANDING FOLLOWED WITH ITS ADDENDUM WITH M/S DLF ASSETS PVT. LTD. AS A CO-DEVELOPER VIDE AGREEMENT DATED 29/11/2006 FOR DEVELOPING, OPERATING AND MAINTAINING THE SEZ AS A CO-DEVELOPER BY TRANSFERRING AND HANDING OVER SPECIFIED BARE-SHELL BUILDINGS LOCATED WITHIN THE PROJECT. SEVERAL CORRESPONDENCES WERE ENTERED INTO AND APPROVAL WAS GIVEN BY BOA (BOARD OF APPROVAL) FROM TIME TO TIME. 19. THE TAX AUDIT REPORT U/S 44AB AND REPORT U/S 80IA (7) OF THE ACT WAS OBTAINED BY THE APPELLANT, BEFORE FILING OF ITS RETURN OF INCOME FOR THE YEAR. IN ITS AUDITED PROFIT AND LOSS ACCOUNT, THE APPELLANT HAD DECLARED DEVELOPMENT INCOME OF RS.369.99 CRORES AGAINST THE COST OF DEVELOPMENT SHOWN AT RS.167.47 CRORES, LAND LEASE RENT OF RS.0.64 CRORES AND OTHER INCOME OF RS.98.33 CRORES. IN THE COMPUTATION OF INCOME THE APPELLANT HAD CLAIMED DEDUCTION OF RS.202,52,07,111/- U/S 80IAB OF THE ACT AGAINST THE DEVELOPMENT INCOME EARNED DURING THE YEAR IN RESPECT OF ITS SEZ PROJECT AT CHENNAI. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT DEDUCTION CLAIMED BY THE APPELLANT U/S 80IAB IN RESPECT OF PROFITS DERIVED FROM SEZ AT CHENNAI WAS NOT ADMISSIBLE AS THE APPELLANT SOLD THE BARE- SHELL BUILDINGS TO THE CO-DEVELOPER, NAMELY DLF ASSETS PVT. LTD. (DAPL IN SHORT) WHICH WAS NOT AN AUTHORIZED OPERATION UNDER THE SEZ ACT 2005 AND THE SEZ RULES, 2006. THE AO HELD THAT IN VIEW OF THE PROVISIONS OF SECTION 80IAB DEDUCTION OF PROFIT IS ALLOWED ONLY FROM OPERATION AND MAINTENANCE OF SEZ AND NOT FROM THE PROFIT FROM BARE SHELL OF ASSETS, WHICH THE APPELLANT HAD EARNED FROM TRANSFER OF BARE SHELL BUILDING TO THE CO-DEVELOPER. 7. THE LD. CIT(A) ALSO TOOK NOTE OF VARIOUS TRIBUNAL DECISIONS RIGHT FROM ASSESSMENT YEARS 2007-08 TO 2009-10, NOT ONLY IN THE CASE OF THE ASSESSEE BUT ALSO IN OTHER GROUP I.T.A. NO.6801/DEL/2014 7 COMPANIES, WHEREIN EXACTLY SIMILAR ISSUE OF ALLOWABILITY OF DEDUCTION UNDER SECTION 80IAB WAS DECIDED. THE LIST OF SUCH DECISIONS CONSIDERED BY THE LD. CIT(A) ARE AS UNDER:- S.NO. NAME OF APPELLANT A.Y. RELIEF BY CIT(A) RELIEF BY ITAT 1 DLF CYBER CITY DEVELOPER PVT. LTD 2008 - 09 ALLOWED UPHELD 2009 - 10 ALLOWED UPHELD 2 DLF COMMERCIAL DEVELOPERS LTD. 2009 - 10 ALLOWED UPHELD 2010 - 11 ALLOWED APPEAL PENDING FOR DISPOSAL 3 DLF LIMITED 2008 - 09 ALLOWED APPEAL PENDING FOR DISPOSAL 8. THE LD. CIT (A), AFTER CONSIDERING THE DETAILED SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE ORDER OF THE ASSESSING OFFICER AND OTHER RELEVANT MATERIALS PLACED BEFORE HIM, ACCEPTED THAT THE FACTS AND THE ISSUES INVOLVED ARE EXACTLY IDENTICAL TO THE ASSESSMENT YEARS 2008-09 AND 2009-10, WHEREIN THESE ISSUES HAVE BEEN THRASHED OUT IN DETAIL AND NO NEW FACTS HAVE BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER OR BY THE ASSESSEE IN THIS YEAR. AFTER INCORPORATING THE RELEVANT OBSERVATIONS AND FINDING OF THE TRIBUNAL IN I.T.A. NO 5469, 5470, 5366 AND 5367/DEL/2012, ORDER DATED 21/2/2014, THE LD. CIT (A) ACCEPTED THE ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 80IAB. THE RELEVANT OBSERVATIONS AND FINDING OF THE LD. CIT(A) IN THIS REGARD READ AS UNDER:- I.T.A. NO.6801/DEL/2014 8 34. THUS FROM THE ABOVE IT IS ABUNDANTLY CLEAR THAT THE HON'BLE ITAT HAS CONSIDERED THE FINDINGS OF THE AO ON EACH AND EVERY COUNT AND AFTER DOING SO HAS PERUSED THE ORDER OF MY PREDECESSOR CAREFULLY AND REACHED THE CONCLUSION THAT THE ORDER OF THE CIT(A) STANDS GOOD. COMING TO THE FACTS OF THE PRESENT APPEAL A PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT THE APPELLANT FILED THE CLARIFICATIONS DATED 18.01.2011 AND 20.01.2011 REFERRED ABOVE BEFORE THE A.O. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. THE A.O. HAS DISCUSSED THESE CLARIFICATIONS AT PAGE 34-35 OF THE ORDER AND SHE HAS HELD FOLLOWING HER ORDER FOR THE AY 2009- 10 THAT THE AFORESAID CLARIFICATIONS WERE OF NO HELP TO THE APPELLANT BECAUSE THE DEDUCTION U/S 80 IAB OF THE ACT IS AVAILABLE FOR DEVELOPMENT, OPERATION AND MAINTENANCE OF SEZ WHILE THE APPELLANT HAS DEVELOPED AND TRANSFERRED THE COLD SHELLS TO THE CO-DEVELOPER FOR A CONSIDERATION. THE AO HAS ALSO HELD ALTERNATIVELY THAT THE TRANSFER OF THE ASSETS GIVES RISE TO CAPITAL GAINS AND HER STAND STILL REMAINS THE SAME IRRESPECTIVE OF THESE CLARIFICATIONS. THEREFORE, THE A.O. FOLLOWING THE ORDER OF THE AO FOR THE EARLIER YEARS HAS OBSERVED AND HELD THAT THE INCOME FOR THE INSTANT YEAR EMANATING FROM THE DEVELOPMENT OF SEZ WAS IN THE NATURE OF PROFIT ACCRUING TO THE APPELLANT FROM THE SALE OF ASSETS AND THUS NOT AN AUTHORISED ACTIVITY UNDER THE SEZ ACT AND CONSEQUENTLY NOT ELIGIBLE FOR DEDUCTION U/S 80IAB OF THE ACT. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 43. AS STATED EARLIER I HAVE PERUSED THE APPELLATE ORDERS PASSED BY MY PREDECESSOR FOR THE AY 2008-09 VIDE ORDER DATED 14.08.2012 IN APPEAL NO.154/GGN/2010-11 AS WELL AS FOR THE AY 2009-10 VIDE ORDER DATED 27.12.2012 IN APPEAL NO.504/GGN/2011-12 AND ALSO PURSUED THE FACTS OF THE CASE, ANALYSIS OF THE SUBMISSIONS OF THE APPELLANT, DOCUMENTS ON RECORD, AS WELL AS THE ORDER OF THE HON'BLE ITAT FOR THE AY 2008-09. IN LIGHT OF THE RELEVANT FACTS AND, RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE ITAT IN I.T.A. NO.6801/DEL/2014 9 APPELLANT'S OWN CASE FOR THE AY 2008-09, I DECIDE THE ISSUE IN FAVOUR OF THE APPELLANT REGARDING ELIGIBILITY OF DEDUCTION U/S 80 IAB OF THE ACT. IN THE RETURN FILED BY THE APPELLANT A DEDUCTION OF RS.202,52,07,111 HAS BEEN CLAIMED BY THE APPELLANT U/S 80 IAB. DURING THE ASSESSMENT PROCEEDINGS THE AO HAS DISALLOWED THE ENTIRE CLAIM OF THE APPELLANT. HOWEVER DURING THE APPELLATE HEARING THE AO HAS RAISED AN ISSUE ON THE REASONABLENESS OF DEDUCTION IN TERMS OF ITS CALCULATION. ABSOLUTELY SIMILAR SUBMISSION HAS BEEN MADE BY THE AO IN HER REMAND REPORT DURING THE APPELLATE PROCEEDINGS FOR THE ASSESSMENT YEAR 2008-09 ALSO. THE HONBLE ITAT HAS DEALT WITH THE OBSERVATIONS OF THE AO ON THIS ISSUE IN PARA 23 OF ITS ORDER (SUPRA) AND HAS HELD THAT THE ENTIRE DEDUCTION CLAIMED BY THE APPELLANT NEEDS TO BE ALLOWED U/S 80 IAB. ACCORDINGLY, IT IS HELD THAT THE APPELLANT IS ELIGIBLE FOR ITS CLAIM OF DEDUCTION U/S 80 IAB OF THE ACT AMOUNTING TO RS.202,52,07,111. 9. REGARDING THE ISSUE WITH REGARD TO THE TREATMENT OF INCOME DERIVED FROM TRANSFER OF BARE SHELL BUILDING TO THE CO- DEVELOPER FOR CONSIDERATION IN THE NATURE OF CAPITAL GAINS AS DONE BY THE ASSESSING OFFICER, THE LD. CIT(A) AGAIN AFTER REFERRING AND RELYING UPON THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEARS 2007-08 AND 2008-09, ALLOWED THIS ISSUE AFTER OBSERVING AND HOLDING AS UNDER:- 49. IN THIS BACKGROUND, IT IS OBSERVED THAT THE APPELLANT DURING THE INSTANT YEAR HAS ALSO RECOGNISED REVENUE FROM CONSTRUCTED PROPERTIES BY FOLLOWING PERCENTAGE OF COMPLETION METHOD (POCM) AS DONE IN THE PREVIOUS YEARS. THE ACCOUNTING POLICY ADOPTED BY THE APPELLANT COMPANY HAS BEEN DULY CERTIFIED BY THE AUDITORS IN THE ANNUAL ACCOUNTS AS NOTES AS UNDER: 'REVENUE FROM CONSTRUCTED PROPERTIES: I.T.A. NO.6801/DEL/2014 10 SEZ PROJECTS DEVELOPMENT INCOME FROM SEZ PROJECTS IS RECOGNIZED ON THE 'PERCENTAGE OF COMPLETION METHOD'. TOTAL SALE CONSIDERATION AS PER THE CO-DEVELOPER AGREEMENTS TO SELL CONSTRUCTED PROPERTIES ENTERED INTO IS RECOGNIZED AS REVENUE BASED ON THE PERCENTAGE OF ACTUAL PROJECT COSTS INCURRED THEREON TO TOTAL ESTIMATED PROJECT COST, SUBJECT TO SUCH ACTUAL COST INCURRED BEING 30 PER CENT OR MORE OF THE TOTAL ESTIMATED PROJECT COST. PROJECT COST INCLUDES THE ESTIMATED CONSTRUCTION AND DEVELOPMENT COST OF SUCH PROPERTIES. THE ESTIMATES OF THE SALEABLE AREA AND COSTS ARE REVIEWED PERIODICALLY AND EFFECT OF ANY CHANGES IN SUCH ESTIMATES IS RECOGNIZED IN THE PERIOD SUCH CHANGES ARE DETERMINED. HOWEVER, WHEN THE TOTAL PROJECT COST IS ESTIMATED TO EXCEED TOTAL REVENUES FROM THE PROJECT, THE LOSS IS RECOGNIZED IMMEDIATELY. LEASE RENT IS RECOGNIZED IN ACCORDANCE WITH THE TERMS OF THE CO-DEVELOPER AGREEMENTS ON ACCRUAL BASIS.' 50. THE APPELLANT HAS SUBMITTED THAT THE COST OF DEVELOPMENT INCLUDES ESTIMATED INTERNAL DEVELOPMENT COSTS, EXTERNAL DEVELOPMENT CHARGES, CONSTRUCTION COSTS AND DEVELOPMENT/ CONSTRUCTION MATERIALS, WHICH IS CHARGED TO THE PROFIT AND LOSS ACCOUNT BASED ON THE PERCENTAGE OF REVENUE RECOGNIZED AS PER ACCOUNTING POLICY, IN CONSONANCE WITH THE CONCEPT OF MATCHING COSTS AND REVENUE. FINAL ADJUSTMENT IS MADE ON COMPLETION OF THE APPLICABLE PROJECT. IT HAS BEEN POINTED OUT THAT THERE HAS BEEN NO CHANGE IN THE METHOD OF ACCOUNTING DURING THE YEAR UNDER APPEAL IN COMPARISON TO EARLIER YEARS. IN SUPPORT, THE APPELLANT HAS FURNISHED THE OPERATIONAL FIGURES AS FOLLOWS:- SR.NO. PARTICULARS A.Y, 2010 - 11 A.Y. 2009 - 10 1 REVENUE FROM OPERATION 369.35 1350.53 2 COST WRITTEN OFF 166.90 367.91 I.T.A. NO.6801/DEL/2014 11 3 POCM PROFIT 202.45 982.62 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 53. IT IS SEEN THAT IN ACCORDANCE WITH THE NOTIFIED ACCOUNTING STANDARDS AS 7 AND AS 19, THE APPELLANT HAS REGULARLY FOLLOWED THE ACCOUNTING POLICY FOR RECOGNIZING THE REVENUE FROM DEVELOPMENT AND SALE OF BARE SHELL BUILDINGS AND RECORDING OF LEASE RENTALS. IT IS ALSO OBSERVED THAT THE ASSESSING OFFICER HAS NOT REJECTED EITHER THE METHOD OF ACCOUNTING FOLLOWED BY IT OR ITS BOOKS OF ACCOUNTS. 54. THEREFORE, BY REGULARLY FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, THE APPELLANT HAS RECOGNIZED THE REVENUE AS PER AS-I NOTIFIED BY THE GOVT.; FOLLOWED PERCENTAGE OF COMPLETION METHOD (POCM) AS PER AS-7 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA IN CONFORMITY WITH ALL INTENT AND PURPOSES OF AS-I NOTIFIED VIDE NOTIFICATION DATED 25.01.1996; HAS RECOGNIZED LEASE RENTALS NOTIFIED VIDE NOTIFICATION DATED 25.01.1996; HAS RECOGNIZED LEASE RENTALS OF LAND ON ACCRUAL BASIS AFTER HANDOVER OF THE BARE SHELL BUILDINGS IN ACCORDANCE WITH ACCOUNTANT STANDARD 19 I.E. ACCOUNTING FOR LEASES; HAS BEEN MAINTAINING AND OPERATING THE SEZ AND HAS RECEIVED THE DEVELOPMENT CONSIDERATION ON TRANSFER OF BARE SHELLS TO THE CO-DEVELOPER UPON BEING SUCH TRANSACTION APPROVED BY THE BOARD OF APPROVAL. 55. THE APPELLANT HAS CARRIED OUT CONSTRUCTION ACTIVITY IN CONFORMITY WITH THE AUTHORIZED OPERATIONS, APPROVED BY THE BOARD OF APPROVALS CONSEQUENT UPON NOTIFICATION OF ITS VACANT LAND FOR THE PURPOSE OF DEVELOPMENT, OPERATION AND MAINTENANCE OF SEZ. THUS, EXPENDITURE INCURRED ON CONSTRUCTION OF BARE SHELLS UNDISPUTEDLY REMAINS WORK IN PROGRESS. THE A.O/S OBSERVATION WITH REGARD TO CO-RELATION TO THE CLASSIFICATION OF ASSETS SHOWN BY THE CO-DEVELOPER, AND ASSUMING THAT THE TRANSFER OF BARE SHELL WAS A SALE OF CAPITAL I.T.A. NO.6801/DEL/2014 12 ASSET ASSESSABLE AS CAPITAL GAINS IS DEVOID OF ANY REASONING IN AS MUCH AS AGAINST THE VERY PRINCIPLES OF ACCOUNTANCY AND PROVISIONS OF ACT, WHEN THE BARE SHELL BUILDINGS WERE NEITHER PART OF THE CAPITAL WORK IN PROGRESS NOR FIXED ASSETS OF THE APPELLANT. THE A.O. IN THE ASSESSMENT ORDER HAS NOT CATEGORICALLY HELD THE INCOME OF THE APPELLANT TO BE ASSESSED AS CAPITAL GAINS SINCE NO SUCH ADDITION HAS BEEN MADE, THE OBSERVATIONS OF THE A.O. HAVE BEEN WITHOUT PREJUDICE IN DISALLOWING THE CLAIM OF THE APPELLANT FOR DEDUCTION U/S 80 IAB, THAT IN ALTERNATIVE THE INCOME OF THE APPELLANT SHALL CONSTITUTE CAPITAL GAINS ON THE REASONING THAT IT HAD TRANSFERRED BARE SHELLS AS AN ASSET IN THE SEZ. THE OBSERVATIONS OF THE LD. A.O. LACK MERIT AS WORK IN PROGRESS IN THE BUSINESS OF CONSTRUCTION CANNOT BE TREATED AS CAPITAL ASSET. SECTION 2(14) OF THE INCOME TAX ACT SPECIFICALLY EXCLUDES STOCK IN TRADE FROM THE DEFINITION OF ASSET. THUS, DEVELOPMENT INCOME DERIVED BY THE APPELLANT FROM TRANSFER OF BARE SHELL BUILDINGS IN SEZ CANNOT BE TREATED AS SHORT TERM CAPITAL GAINS, CONSIDERING THE BUSINESS OF DEVELOPER AND ACCOUNTING TREATMENT ADOPTED IN THE BOOKS OF ACCOUNTS IRRESPECTIVE OF THE TREATMENT BY THE CO-DEVELOPER IN ITS BOOKS OF ACCOUNT AS FIXED ASSETS. THEREFORE, I AM OF THE VIEW THAT OBSERVATIONS OF THE A.O. ARE NOT ON SOUND FOOTING IN HOLDING THAT THE INCOME CAN BE ASSESSED AS CAPITAL GAINS. 56. IN VIEW OF MY ABOVE OBSERVATIONS, WHICH FIND SUPPORT FROM THE ORDER OF MY PREDECESSOR FOR THE AY 2008-09 & 2009- 10, AS WELL AS OF THE HON'BLE ITAT FOR THE AY 2007-08 AND 2008-09, IT IS HELD THAT THE PROFITS DERIVED ON ACCOUNT OF DEVELOPMENT CONSIDERATION OF BARE SHELLS WOULD CONSTITUTE THE 'PROFITS AND GAINS' DERIVED FROM DEVELOPMENT, OPERATION AND MAINTENANCE OF SEZ WITHIN THE MEANING OF SECTION 80IAB. ACCORDINGLY, IT IS HELD THAT THE APPELLANT IS ELIGIBLE FOR CLAIM OF DEDUCTION U/S 80 IAB OF THE ACT. THE GROUND NO.3 OF APPEAL IS ALLOWED. I.T.A. NO.6801/DEL/2014 13 10. THUS, THE LD. CIT (A) HAS FOLLOWED THE DECISION OF THE TRIBUNAL FOR EARLIER YEARS IN THE ASSESSEES OWN CASE ON SIMILAR SET OF FACTS, WHICH ARE ADMITTEDLY PERMEATING IN THIS YEAR ALSO. 11. HOWEVER, THE LD. CIT-D.R. IN HER WRITTEN SUBMISSION HAS HIGHLIGHTED THE POINTS WHICH HAVE BEEN RAISED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND ALSO SUMMARIZED HER SUBMISSIONS REBUTTING THE ORDER OF THE LD. CIT(A) IN THE FOLLOWING MANNER:- THE CIT(A) IS NOT JUSTIFIED IN RELYING UPON THE CLARIFICATION ISSUED BY MINISTRY OF COMMERCE (SEZ) SECTION, NEW DELHI THAT HAVE BEEN ISSUED BY THE BOA WITHOUT FOLLOWING PROPER PROCEDURE AND ALSO WITHOUT CONSULTING CBDT BEFORE ISSUE OF SUCH CLARIFICATIONS BECAUSE IT HAD THE EFFECT OF DILUTING THE DISCLAIMER CLAUSE WHICH WAS ADDED AT THE BEHEST OF CBDT. THE CIT (A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN RELYING UPON THE JUDGMENT IN THE CASE OF THE ASSESSEE FOR A.Y. 2008-09 AND 2009-10 AND ACCORDINGLY HOLDING THE TRANSFER OF BARE SHELLS BY ASSESSEE TO ITS CO-DEVELOPER WAS AN AUTHORIZED OPERATION ON THE GROUND THAT THE AGREEMENT OF ASSESSEE WITH CO-DEVELOPER REGARDING TRANSFER OF BARE SHELLS FOR DEVELOPMENT CONSIDERATION WAS APPROVED BY BOA IGNORING THE FACT THAT SUCH TRANSFER WAS NOT AN AUTHORIZED OPERATIONS AS PER NOTIFICATION NO. SO. 1846 E DATED 27.10.2016, 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 20.01.2011ONLY STATES THAT TRANSFER OF BARE SHELLS BY ASSESSEE TO THE CO- DEVELOPER IS ALLOWED AND IT NO WHERE SAYS THAT IT WAS AN AUTHORIZED OPERATION ELIGIBLE FOR BENEFITS UNDER THE SEZ ACT. I.T.A. NO.6801/DEL/2014 14 THE CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR CLAIM OF DEDUCTION U/S 80IAB IN RESPECT OF PROFITS DERIVED FROM TRANSFER FOR BUILT UP SPACE (BARE SHELLS BUILDING) COMPLETELY IGNORING THAT AS PER PROVISIONS OF PROVISO TO SEC 80IAB (2) ONLY INCOME FROM TRANSFER FOR OPERATION AND MAINTENANCE OF SEZ IS ELIGIBLE FOR DEDUCTION AND NOT THE PROFITS DERIVED FROM TRANSFER OF MERE BUILT UP SPACE (BARE SHELLS BUILDING) AND SUCH TRANSFER OF BUILT UP SPACE IS ALSO AGAINST THE SPIRIT OF SEZ ACT AS PROVISIONS OF SECTION 11(5) OF THE SEZ ACT EXPRESSLY PROHIBITS SALE OF LAND OF BUILT UP AREA IN SEZ. THE CIT(A) HAS ERRED IN LAW AND FACTS OF THE CASE IN TREATING THE SOLITARY ACT OF CONSTRUCTION AND TRANSFER OF BUILT UP SPACE (BARE SHELLS BUILDINGS) AS A BUSINESS OF DEVELOPING, OPERATION AND MAINTENANCE OF SEZ AND THEREBY HOLDING THAT ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IAB. BOTH THE CIT (A) AND ITAT FAILED TO APPRECIATE THE SPIRIT OF PROVISO TO SEC. 80IAB (2) THAT THE MOMENT THE DEVELOPER TRANSFERS THE OPERATION AND MAINTENANCE OF SEZ TO THE CO- DEVELOPER, THE DEDUCTION U/S 80IAB WOULD BE AVAILABLE TO THE CO-DEVELOPER FOR THE REMAINING PERIOD IN 10 CONSECUTIVE YEAR MEANING THEREBY RIGHT OF DEVELOPER TO CLAIM BENEFITS OF SEZ WOULD CEASE ON TRANSFER OF OPERATION AND MAINTENANCE OF SEZ TO CO-DEVELOPER. CIT (A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT AO HAS NO JURISDICTION TO CHALLENGE THE VALIDITY OF APPROVAL GIVEN BY MINISTRY OF COMMERCE IGNORING THE FACT THAT APPROVAL GIVEN BY BOA OR MINISTRY OF COMMERCE WAS NOT ABSOLUTE BUT SUBJECT TO CONDITION THAT THE TREATMENT OF INCOME ARISING OUT OF TRANSACTION OF TRANSFER OF BARE SHELLS I.T.A. NO.6801/DEL/2014 15 BY CO-DEVELOPER WOULD BE DECIDED AS PER RELEVANT PROVISIONS OF IT ACT. CIT (A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN ACCEPTING THE DEVELOPMENT CONSIDERATION RECEIVED BY THE ASSESSEE SUMMARILY ACCEPTING RENT CAPITALIZATION METHOD FOR DETERMINING DEVELOPMENT CONSIDERATION OF BARE SHELLS IGNORING THE RELEVANT CONSIDERATIONS/FACTORS SUCH AS OTHER METHOD OF DETERMINATION OF SALE CONSIDERATION, PREVALENT RATE OF SUCH TYPE OF COMMERCIAL PROPERTY IN THE AREA ETC. CIT (A) HAS FAILED TO APPRECIATE THAT MINISTRY OF COMMERCE COULD NOT HAVE ISSUED CLARIFICATION REGARDING APPROVAL GIVEN BY BOA AND WHETHER SUCH A CLARIFICATION ISSUED BY AND AUTHORITY OTHER THAT BOA HAS ANY LEGAL SANCTITY OR EVIDENTIARY VALUE PARTICULARLY WHEN RELEVANT ACTIVITIES MENTIONED IN THE CLARIFICATIONS ARE NOT MENTIONED IN THE APPROVAL GIVEN BY BOA TO THE ASSESSEE OR TO ITS CO- DEVELOPER, AND SUCH A CLARIFICATION IS ALSO CONTRAVENTION OF SPIRIT OF SEZ ACT. CIT (A) HAS ERRED IN LAW AND FACTS OF THE CASE BY HOLDING THAT THE CLARIFICATIONS HAVE BEEN ISSUED BASED ON EVIDENCES ALREADY AVAILABLE IN THE FILE WITH BOA, WHEREAS NO SUCH MATERIAL WAS AVAILABLE ON RECORD, I.E. IN THE NOTE SHEETS OF BOA AND THUS SUCH A FINDING IS AGAINST THE FACTS ON RECORD. 12. SHE FURTHER SUBMITTED THAT PROVISO TO SECTION 80IAB IS CLEAR THAT DEDUCTION UNDER SECTION 80IAB IS AVAILABLE TO A DEVELOPER WHO DEVELOPS A SEZ AND TRANSFER OPERATION AND MAINTENANCE OF SUCH SEZ TO ANOTHER DEVELOPER, THEN DEDUCTION UNDER SECTION 80IAB SHALL BE ALLOWED TO THE SAID DEVELOPER AND WILL NOT BE ALLOWABLE TO THE ASSESSEE. THUS, SHE SUBMITTED THAT IN TERMS OF PROVISO ITSELF THE CLAIM CANNOT BE ALLOWED. SHE FURTHER I.T.A. NO.6801/DEL/2014 16 MADE HER SUBMISSIONS ON INTERPRETATION OF THE STATUTE AND STRICT CONSTRUCTION OF SUCH STATUTE ESPECIALLY IN LIGHT OF THE PROVISIONS ENVISAGED IN PROVISO. 13. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT ALL THESE ISSUES WHICH HAVE BEEN RAISED BY THE LD. CIT-D.R. HAD DULY TAKEN NOTE BY THE TRIBUNAL IN EARLIER YEARS WHICH FACT TOO HAD BEEN NOTED IN DETAIL BY THE LD. CIT (A), HENCE EARLIER PRECEDENCE HAS TO BE FOLLOWED. 14. AFTER CONSIDERING THE AFORESAID SUBMISSIONS AND ON PERUSAL OF THE MATERIAL REFERRED TO BEFORE US, WE FIND THAT THE ISSUE OF ALLOWABILITY OF DEDUCTION UNDER SECTION 80IAB ON SIMILAR SET OF FACTS AND REASONING WAS PREVALENT IN THE ASSESSMENT YEARS 2008-09 AND 2009-10, WHEREIN THE TRIBUNAL AFTER THREADBARE ANALYSIS OF THE PROVISIONS OF THE ACT AS WELL AS THE MATERIAL PLACED ON RECORD, HAS ALLOWED THE DEDUCTION. IF SUCH DEDUCTION UNDER SECTION 80IAB HAS BEEN ALLOWED IN INITIAL YEARS AND THERE IS NO CHANGE IN THE MATERIAL FACTS IN SUBSEQUENT YEARS INCLUDING THE YEAR UNDER CONSIDERATION, OSTENSIBLY THEN, AS A MATTER OF JUDICIAL PRECEDENCE, NO DIFFERENT VIEW OR STAND CAN BE TAKEN. THIS PROPOSITION IS WELL SETTLED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. INTERNATIONAL TRACTORS LIMITED REPORTED IN [2017] 84 TAXMANN.COM 132 (DELHI) , WHEREIN IN THE CONTEXT OF ALLOWABILITY OF DEDUCTION UNDER SECTION 80IA, THE HON'BLE HIGH COURT LAID DOWN THAT, WHERE ASSESSEE INDUSTRIAL UNDERTAKING HAD FULFILLED THE ELIGIBILITY CONDITION TO CLAIM DEDUCTION UNDER SECTION 80IA IN THE INITIAL YEAR, THEN THE BENEFIT OF DEDUCTION WOULD BE EXTENDED FOR NEXT 10 YEARS IRRESPECTIVE OF WHETHER AFTER INITIAL YEAR THERE WAS AN EXPANSION OF INDUSTRIAL UNDERTAKING BY I.T.A. NO.6801/DEL/2014 17 INCREASED INVESTMENT IN PLANT & MACHINERY THAT HAVE TAKEN IT OUTSIDE AMBIT AND SCOPE OF THAT PROVISION. THUS, THE HON'BLE HIGH COURT HIGHLIGHTED THE PRINCIPLES OF CONSISTENCY, ESPECIALLY IN THE CASE OF ALLOWABILITY OF DEDUCTION UNDER CHAPTER VIA AND SIMILAR OTHER SECTIONS IN THE SAID CHAPTER THAT ONCE IN THE INITIAL YEAR, CLAIM HAS OF DEDUCTION HAS BEEN ALLOWED, THEN SUCH A CLAIM FOR DEDUCTION CANNOT BE DISTURBED IN SUCCEEDING YEARS IF THE SAME MATERIAL FACTS ARE PERMEATING. HERE IN THIS CASE, NOT ONLY IN THE INITIAL ASSESSMENT YEAR BUT ALSO IN SUBSEQUENT ASSESSMENT YEAR ALSO, THE SIMILAR ISSUE OF CLAIM OF DEDUCTION UNDER SECTION 80IAB HAS BEEN DISCUSSED AND ANALYSED IN DETAIL AND THEREAFTER THE SAID CLAIM HAS BEEN ALLOWED IN THIRD AND FOURTH YEAR, THEREFORE, THE SAID DEDUCTION NOW CANNOT BE DISALLOWED ON SAME SET OF FACTS. IF THE REVENUE IS AGGRIEVED BY THE ORDER OF THE TRIBUNAL IN EARLIER YEARS, THE RIGHT RECOURSE WOULD BE TO APPROACH THE HIGHER JUDICIAL FORUM, THAT IS, HONBLE HIGH COURT UNDER SECTION 260A. THUS, ON SIMILAR SET OF FACTS AND WITHOUT THERE BEING ANY CHANGE OF LAW, NO DIFFERENT VIEW CAN BE TAKEN BY THIS TRIBUNAL. ACCORDINGLY, THE ORDER OF THE LD. CIT (A) IS CONFIRMED AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 15. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD OCTOBER, 2017. SD/- SD/- [WASEEM AHMED] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 23 RD OCTOBER, 2017 JJ:1210 I.T.A. NO.6801/DEL/2014 18 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR DATE 1. DRAFT DICTATED ON 2. DRAFT PLACED BEFORE AUTHOR 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 7. FILE COMES BACK TO PS/SR. PS 8. UPLOADED ON 9. FILE SENT TO THE BENCH CLERK 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER.