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2014 (5) TMI 960 - AT - Income TaxDeduction u/s 80IAB of the Act Income from sale of assets construction of bare shell/ cold shell/ warm shell buildings and transfer thereof - Business income treated as capital gain Held that - Following DLF Info city Developers (Chennai) Ltd. Versus Asstt. Commissioner of Income-tax 2014 (5) TMI 737 - ITAT DELHI - The issue of sale of bare shell buildings being authorized activity, it is amply clear that the SEZ Act authorized activities include construction of bare shell/cold shell/warm shell buildings and transfer thereof - There is enough material on the record to hold that the transfer of bare shell buildings to co-developers constitute authorized activity - the provisions 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 specific legislation to be brought in other statutes - deduction u/s 80IA of the Act cannot be denied after having been granted in the first year of claim, as the restraint of Section 80 IA (3) cannot be considered for every year of claim of deduction, but can be considered only in the year of formation of the business there was no error in the action of the CIT(A) in setting aside the disallowance of deduction u/s 80 IB of the Act - The order of the CIT(A) is upheld Decided against Revenue.
Issues Involved:
1. Disallowance of deduction under Section 80IAB of the Income Tax Act. 2. Classification of income from the sale of assets as business income or capital gains. Issue-wise Detailed Analysis: 1. Disallowance of Deduction under Section 80IAB of the Income Tax Act: The Department's appeal contended that the CIT(A) was not justified in deleting the disallowance of Rs. 400,33,67,733/- claimed as a deduction under Section 80IAB. The assessee company, engaged in developing SEZs, filed a revised return declaring an income of Rs. 3,50,69,770/- after claiming the deduction. The Assessing Officer (AO) disallowed this deduction, but the CIT(A) deleted the disallowance. The CIT(A) observed that the assessee had been following the Percentage of Completion Method (POCM) for revenue recognition, which was accepted by the department since its inception. The AO's disallowance was based on an incorrect appreciation of facts, as the appellant's work in progress could not be treated as a capital asset. The CIT(A) highlighted that the stock in trade is specifically excluded from the definition of 'Capital Asset' under Section 2(14) of the Act. The transfer of bare shell buildings in the SEZ was considered a business activity, and the income derived was eligible for deduction under Section 80IAB. The CIT(A) also considered approvals and notifications from the Ministry of Commerce & Industry, which supported the appellant's claim. The Ministry's letters clarified that the transfer of bare shells and cold shells for consideration was an authorized operation, and the disclaimer in the approval letter dated 1/6/2009 applied only to land lease agreements, not to the transfer of buildings. 2. Classification of Income from Sale of Assets as Business Income or Capital Gains: The Department argued that the CIT(A) wrongly treated the income from the sale of assets as business income instead of capital gains. The CIT(A) noted that the appellant followed the mercantile system of accounting and recognized revenue per Accounting Standards AS-7 and AS-19. The AO's classification of the income as capital gains was erroneous, as the bare shell buildings were part of the business's stock in trade, not capital assets. The CIT(A) emphasized that the appellant had obtained requisite approvals from the Board of Approvals (BOA) by disclosing all facts transparently. The transfer of bare shells to the co-developer for a consideration was an authorized operation, and the income derived from such transfers was eligible for deduction under Section 80IAB. The Tribunal's decisions in the assessee's own case for the preceding assessment year and in the case of DLF Info City Developers (Chennai Ltd.), a sister concern, supported the CIT(A)'s findings. The Tribunal had held that the transfer of bare shell buildings to co-developers constituted an authorized activity under the SEZ Act, and the profits from such transfers were eligible for deduction under Section 80IAB. Conclusion: The Tribunal upheld the CIT(A)'s order, rejecting the Department's appeal. The Tribunal found no error in the CIT(A)'s action of deleting the disallowance of the deduction under Section 80IAB and treating the income from the sale of assets as business income. The Department's appeal was dismissed, and the CIT(A)'s order was upheld.
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