2011 (11) TMI 775 - AT - Income Tax

Entitled to the benefit of exemption u/s. 80IA(4)(iii) - assessee has received approval and notification from the Central Government and the same has not been withdrawn till date - Held that - Since the assessee had developed the industrial park duly approved and notified by the Central Government and the same has not been withdrawn for any reasons, the assessee would be entitled to the benefit of deduction u/s. 80IA(4)(iii).

Issues Involved:
1. Whether the assessee received valid 'approval' and 'notification' from the Central Government for the Industrial Park and if such approval was withdrawn.
2. Whether the assessee complied with the conditions laid down by the Ministry of Commerce/CBDT, specifically the requirement that 90% of the allocable area be earmarked for industrial use.
3. The relevance and application of the ITAT decision in the case of M/s. Meenakshi Infrastructure P. Ltd. vs. DCIT.
4. The validity of the CIT(A)'s decision regarding the minor variation in the constructed area and the sale of a portion of the Industrial Park.
5. The accuracy of the usage of premises by various tenants as per the conditions of approval.

Detailed Analysis:

1. Approval and Notification from the Central Government:
The CIT(A) held that the assessee received 'approval' and 'notification' from the Central Government and that such approval had not been withdrawn. The CIT(A) noted, "the appellant had 'developed' the Industrial Park duly approved and notified by the Central Government and the same has not been withdrawn for any reason," thereby entitling the assessee to the benefit of deduction under Section 80IA(4)(iii) of the Act.

2. Compliance with Conditions Laid Down by Ministry of Commerce/CBDT:
The Assessing Officer (AO) argued that the assessee failed to comply with the conditions specified by the Ministry of Commerce, particularly the requirement that 90% of the allocable area be earmarked for industrial use. The AO noted discrepancies in the usage of the premises by tenants, which did not align with the proposed industrial activities. However, the CIT(A) found that the total constructed area was 272,829 sq. ft. against the proposed 281,273.97 sq. ft., and this minor variation did not constitute a violation of the terms of approval. The CIT(A) also concluded that even if the area sold (5,293 sq. ft.) was considered, the commercial usage remained within the permissible 10%.

3. Relevance of ITAT Decision in M/s. Meenakshi Infrastructure P. Ltd. vs. DCIT:
The CIT(A) relied on the decision of the Hyderabad Bench of the Tribunal in the case of M/s. Meenakshi Infrastructure P. Ltd. vs. DCIT, which held that "when the Central Government approves the assessee's project under Industrial Park Scheme framed by the Central Government, the conditions under Sec. 80IA(4)(iii) are satisfied." This precedent supported the CIT(A)'s conclusion that the approval and notification by the Central Government were sufficient to entitle the assessee to the deduction under Section 80IA(4)(iii).

4. Minor Variation in Constructed Area and Sale of Portion:
The CIT(A) observed that a slight variation in the total constructed area after actual measurement vis-a-vis the proposed area could not be considered a violation of the terms of approval. The CIT(A) also held that the sale of 5,293 sq. ft. of constructed area did not violate the conditions laid down in the approval, as long as the other conditions regarding the number of units operating were satisfied and the commercial usage remained within the permissible limit.

5. Accuracy of Usage of Premises by Tenants:
The AO noted discrepancies in the usage of premises by tenants such as M/s. India Cement Ltd. and M/s. Dr. Reddy's Laboratories Ltd. The CIT(A), however, found that the subsequent verification of facts showed that the said tenants were carrying out approved activities, and thus, the objections raised by the AO were not sustainable. The CIT(A) determined that the total allocable area used for specified industrial purposes was 89.92%, which was almost 90%, thereby meeting the condition.

Conclusion:
The CIT(A) concluded that the assessee was entitled to the benefit of deduction under Section 80IA(4)(iii) of the Act. The Tribunal upheld this decision, dismissing the Revenue's appeal and affirming that the conditions for the deduction were met, and the approval and notification by the Central Government had not been withdrawn. The Tribunal also emphasized that minor variations and the sale of a small portion of the area did not constitute violations of the approval conditions.

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