2013 (8) TMI 330 - AT - Income Tax

Deduction u/s 80IAB - transfer of bare shell building as an unauthorized operation under the SEZ Act. - co-developer agreement - A.O. and ACIT allowed deduction to assessee - CIT exercising power u/s 263 reversed order of ACIT holding that it is pre-judicial to Revenue s interest and proper inquiry was not done by A.O. - Held that - assessing officer asked for justification of 80-IAB claim, which is duly responded by assessee. The assessment record means the proceedings sheets, material available on record and the replies of the assessee. Considering these aspects it emerges that all the required documents were filed and considered by assessing officer and on being satisfied, deduction u/s 80-IAB was allowed which is mentioned in the assessment order -Order is appear to be made while approving the co- developer agreement. This is possibly applicable to co-developer and not the assessee as the condition was put during the course of approval of the agreement between assessee and the co-developer. Be that as it may, in any case, the assessing officer having considered all these pleading and submissions, it cannot be held that he did not examine the allowability of the claim by proper inquiry - It clearly emerges from assessment record that relevant queries were raised by assessing officer, detailed submissions, developers and co-developers agreements were filed, justification of 80-IAB claim as provided by the assessee and the nature of debts owed by DLF Assets consequent to such transfer was also asked for by assessing officer - Following decision of CIT v. Anil kumar Sharma 2010 (2) TMI 75 - DELHI HIGH COURT - Decided in favour of assessee. No fault attributable to assessee for causing hiatus to the proceedings was found. Assessee s detailed reply covering all the aspects was filed as back as 25-7-2011 i.e. 8 months prior to the proceedings. The CIT himself called the assessing officer in hearing and asked him to submit a report and ensure that the report is filed. Non-seeking of assessing officer s remand report also is not attributable to assessee. CIT failed to discharge his statutory duty and instead of taking a clear call and demonstrating errors made by assessing officer and prejudice caused to the revenue, the buck has been passed on to assessing officer by setting aside assessment order, which is against the letter and spirit of provisions of sec.263. Where the authority fails to carry out its statutory obligation, the order cannot be held as tenable and is liable to be quashed. SEZ Act authorizes activities include construction of bare shell/ cold shell/ warm shall buildings and transfer thereof. BOA has approved it and clarified the same. There is enough material on the record to hold that the transfer of bare shell buildings to co- developers constitute authorized activity. Merely because CIT in his perception held another possible view about claim u/s 80-IAB, the assessment order does neither become erroneous nor prejudicial to the interests of revenue - Following decision of Malabar Industrial Company Ltd vs. CIT 2000 (2) TMI 10 - SUPREME Court and CIT vs. Max India Ltd. 2007 (11) TMI 12 - Supreme Court of India - Decided in favour of assessee.

Issues Involved:
1. Whether the order of the Assessing Officer (AO) was erroneous and prejudicial to the interest of the revenue.
2. Interpretation of the SEZ Act and its applicability to the assessee's activities.
3. Examination of the assessee's claim for deduction under section 80-IAB of the Income Tax Act, 1961.
4. Whether the transfer of bare shell buildings constituted an authorized operation under the SEZ Act.
5. Adequacy of inquiries conducted by the AO during the assessment proceedings.
6. Validity of the CIT's exercise of revisionary powers under section 263 of the Income Tax Act.

Detailed Analysis:

1. Whether the order of the Assessing Officer (AO) was erroneous and prejudicial to the interest of the revenue:
The CIT held that the AO's order was erroneous and prejudicial to the interest of the revenue because the AO allowed the assessee's claim under section 80-IAB without proper examination. The CIT argued that the AO did not consider the observations of the Board of Approval (BOA) and the conditions stipulated in the BOA's approval. The Tribunal, however, found that the AO had conducted proper inquiries and considered all relevant materials, including the BOA's approval and the co-developer agreement. Therefore, the AO's order was not erroneous or prejudicial to the interest of the revenue.

2. Interpretation of the SEZ Act and its applicability to the assessee's activities:
The SEZ Act was enacted to boost infrastructural development in India, and it has an overriding effect over other laws. The Act created the BOA, which has the authority to approve operations in SEZs. The BOA had approved the assessee's activities, including the transfer of bare shell buildings to a co-developer. The Tribunal found that the SEZ Act and the BOA's approval were correctly interpreted and applied by the AO in the assessment order.

3. Examination of the assessee's claim for deduction under section 80-IAB of the Income Tax Act, 1961:
The assessee claimed a deduction under section 80-IAB for profits derived from authorized activities in the SEZ. The AO allowed this claim after verifying the BOA's approval and the co-developer agreement. The CIT argued that the AO did not properly examine the claim, but the Tribunal found that the AO had conducted adequate inquiries and considered all relevant materials. Therefore, the assessee's claim for deduction under section 80-IAB was correctly allowed by the AO.

4. Whether the transfer of bare shell buildings constituted an authorized operation under the SEZ Act:
The CIT argued that the transfer of bare shell buildings was not an authorized operation under the SEZ Act. However, the BOA had approved the transfer as an authorized activity. The Tribunal found that the BOA's approval was binding on the income tax authorities, and the transfer of bare shell buildings was indeed an authorized operation under the SEZ Act.

5. Adequacy of inquiries conducted by the AO during the assessment proceedings:
The CIT claimed that the AO did not conduct proper inquiries before allowing the assessee's claim under section 80-IAB. The Tribunal, however, found that the AO had issued a detailed questionnaire, conducted multiple hearings, and verified all relevant documents, including the BOA's approval and the co-developer agreement. Therefore, the AO had conducted adequate inquiries during the assessment proceedings.

6. Validity of the CIT's exercise of revisionary powers under section 263 of the Income Tax Act:
The Tribunal held that the CIT's exercise of revisionary powers under section 263 was not valid. The CIT failed to consider the detailed submissions and materials provided by the assessee, including the BOA's clarifications. The CIT also did not provide sufficient time to the AO to submit a report on the assessee's submissions. The Tribunal found that the AO had taken a possible and plausible view based on the materials available, and the CIT's revisionary powers could not be exercised merely because the CIT held a different view. Therefore, the CIT's order under section 263 was quashed.

Conclusion:
The Tribunal quashed the CIT's order under section 263, holding that the AO's assessment was not erroneous or prejudicial to the interest of the revenue. The AO had conducted adequate inquiries and correctly allowed the assessee's claim for deduction under section 80-IAB based on the BOA's approval and the SEZ Act. The Tribunal allowed the assessee's appeal.

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