2018 (3) TMI 54 - HC - Income Tax

Revision u/s 263 - assessee had sold bare shell building, which was not a permissible activity and the benefit of Section 80IAB could not be granted towards such sale/transfer - Held that - This Court has considered the submissions of the parties. The question as to whether sale of bare shell building is per se a deductable activity falling within Section 80IAB has, in the opinion of the Court, not been adequately considered or addressed. The Central Government s clarifications were issued to the assessee, at its request. The AO must have analysed the provisions of the Act, especially, the notifications governing the setting-up of the SEZs and the permissible activities in such zones with their investors (Section 80IAB) and the circumstances of the case, i.e. the agreement entered into with the co-developer, the conditions of lease etc., had to be analysed in detail. Clearly, the AO did not conduct that detailed enquiry. Furthermore, in the absence of a detailed analysis of the factual narration with respect to the transactions and the documents, having regard to the provisions of the SEZ Act and the purpose for which SEZs are set-up, to ensure that such areas develop in a sustained and consistent manner, with assured infrastructure support on a continuous basis by developers, the CIT(A) s opinion that the assessment order was erroneous in law and prejudicial to the interest of the Revenue was justified. As a result, it is held that the ITAT erred in interfering with the order of the CIT(A). Consequently, the impugned order needs to be set aside. The order of the CIT(A) under Section 263 is, therefore, upheld. - Decided against assessee ITAT held that sale of assets and buildings to the co-developer could have been treated as capital gain and not business income - Held that - ITAT s decision merely reproduced the CIT(A) s judgment and has not analysed independently, in either of the AYs, the applicability of Section 80IAB towards the deductions claimed in the light of the transactions reported and the documents disclosed. Furthermore, those facts have also to be analysed in the light of the provisions of SEZ Act, 2005, which the ITAT has not independently done. For these reasons, the impugned orders of the ITAT are set-aside and are remitted for fresh consideration

Summary

Issues:
1. Interpretation of Section 263 of the Income Tax Act regarding the application by the CIT(A).
2. Determination of whether the sale of assets and buildings to the co-developer could be treated as capital gain or business income.

Analysis:

Issue 1:
The case involved the interpretation of Section 263 of the Income Tax Act, where the CIT(A) invoked the section to question the deduction claimed by the assessee under Section 80IAB for the development of a Special Economic Zone (SEZ). The Assessing Officer (AO) initially allowed the deduction, but the CIT(A) issued a notice under Section 263, contending that the sale of the bare shell building to the co-developer was not a permissible activity for claiming the deduction. The CIT(A) held that the income from the sale of assets was not eligible for deduction under Section 80IAB as it did not qualify as business income but rather as capital gains. The High Court upheld the CIT(A)'s decision, emphasizing that the sale of assets to the co-developer was not a business activity, and the income generated should be treated as capital gains, not business income. The Court found that the AO had erred in allowing the deduction without considering the specifics of the transaction and the provisions of the SEZ Act.

Issue 2:
The second issue revolved around whether the sale of assets and buildings to the co-developer could be categorized as capital gain or business income. The ITAT initially held that the sale could be treated as capital gain and not business income, following a previous decision in a similar case. However, the High Court found that the ITAT did not independently analyze the applicability of Section 80IAB or consider the provisions of the SEZ Act in the context of the deductions claimed. Therefore, the High Court set aside the ITAT's decision and remitted the case for fresh consideration, emphasizing the need for a detailed analysis of the transactions and documents disclosed. The Court highlighted the importance of independently assessing the facts in each case to determine the nature of income generated from such transactions.

In conclusion, the judgment delves into the intricacies of tax law, specifically concerning deductions under Section 80IAB and the treatment of income derived from transactions related to SEZ development. The Court's analysis underscores the significance of a thorough examination of facts and legal provisions to determine the appropriate tax treatment, ensuring compliance with the law and fair assessment of tax liabilities.