2015 (10) TMI 475 - AT - Income Tax

Deduction under Section 80IB(4)(iii) denied - eligibility of functional test of an independent unit - Held that - In the instant case, even though the assessee company had leased out the five/four floors to particular tenants, the tenants were carrying on their operation as independent units as the activities were functionally different. Each floor was physically identified for all functional purposes. Facilities and instrumentations were provided independently. Activities were carried on as independent units.In such circumstances, it was very difficult to ignore the contention of the assessee. The assessee had constructed multistoried buildings for the purpose of developing infrastructure facilities as approved by the Ministry of Commerce & Industry itself was a testimony that the assessee company had developed the infrastructure facility in the form of multi-storied structure to accommodate independent units to operate for themselves. Those identities and indualities did not disappear only for the reason that the entire developed area had been leased out to a single company. It was not possible to insist that every floor of the structure should be leased out to different companies. The test is not that who operates the independent units run in the multi-storied structure. It is also not the question whether all the stories are occupied by one tenant or different tenants. The test to be applied is the functional test. The unit must physically independent with physically independent with independent facilities and instrumentation, power connection, door number and the facility of functioning independently i.e every unit must be in a position to carry on its activities without depending upon other units even though all the units are situated under the same roof but in different floors. The assessee had successfully satisfied the above stated functional test of an independent unit - we uphold the impugned orders of the learned CIT (Appeals) in allowing the assessee s claim for deduction under Section 80IA(4)(iii) of the Act for Assessment Years 2005-06 and 2011-12 - Decided in favour of assessee.

Summary

Issues Involved:
1. Deduction under Section 80IA(4)(iii) of the Income Tax Act, 1961.

Detailed Analysis:

1. Deduction under Section 80IA(4)(iii) of the Income Tax Act, 1961:

Facts of the Case:
The assessee, a private limited company engaged in real estate development, filed returns for Assessment Years (A.Y.) 2005-06 and 2011-12. For A.Y. 2005-06, the assessee declared an income of Rs. 2,60,575, which was later assessed at Rs. 5,42,02,182 due to the denial of deductions under Section 80IA(4)(iii) and 80IB(10) of the Act. The Tribunal allowed the deduction under Section 80IB(10) but remanded the issue of Section 80IA(4)(iii) back to the Assessing Officer (AO) for fresh examination, which was subsequently denied. For A.Y. 2011-12, the declared income was Rs. 25,04,250, assessed at Rs. 3,54,23,189 due to the denial of deduction under Section 80IA(4)(iii).

Appeal to CIT (Appeals):
The Commissioner of Income Tax (Appeals) [CIT (A)] allowed the assessee's claim for deduction under Section 80IA(4)(iii) for both assessment years. The Revenue appealed against these orders.

Revenue's Grounds of Appeal:
The grounds raised by the Revenue included:
- The CIT (A) erred in directing the AO to allow the deduction under Section 80IA(4)(iii) by relying on previous orders for A.Y. 2007-08 and 2004-05, which were under appeal.
- The CIT (A) failed to appreciate that the assessee did not meet the conditions laid down by the Ministry of Commerce and Industry.
- There were fewer tenants than required, and a significant portion of the area was leased to a single tenant, M/s. I-Flex Solutions Ltd.
- Two of the companies were amalgamated, reducing the number of tenants.
- Reliance on previous orders without considering the specific facts of the case.

Tribunal's Findings:
- The Tribunal noted that different co-ordinate benches had upheld the assessee's claim for deduction under Section 80IA(4)(iii) for earlier years, including A.Y. 2004-05, 2006-07, 2008-09, and 2009-10.
- The Tribunal found that the assessee met the functional test of having independent units with separate facilities, as held in previous decisions.
- The Tribunal emphasized consistency in decisions and upheld the CIT (A)'s orders allowing the deduction.

Conclusion:
The Tribunal dismissed the Revenue's appeals for both assessment years, affirming the CIT (A)'s decision to allow the deduction under Section 80IA(4)(iii) of the Income Tax Act, 1961. The Tribunal relied on the principle of consistency and previous decisions in the assessee's favor, finding no merit in the Revenue's contentions.

Order Pronouncement:
The order was pronounced in the open court on 4th September 2015.