2017 (10) TMI 1207 - AT - Income Tax

Allowability of claim of deduction under section 80IAB - Held that - We find that the issue of allowability of deduction under section 80IAB on similar set of facts and reasoning was prevalent in the assessment years 2008-09 and 2009-10, wherein the Tribunal after threadbare analysis of the provisions of the Act as well as the material placed on record, has allowed the deduction. If such deduction under section 80IAB has been allowed in initial years and there is no change in the material facts in subsequent years including the year under consideration, ostensibly then, as a matter of judicial precedence, no different view or stand can be taken. This proposition is well settled by the Hon ble Delhi High Court in the case of CIT vs. International Tractors Limited reported in 2017 (7) TMI 822 - DELHI HIGH COURT wherein in the context of allowability of deduction under section 80IA, the Hon ble High Court laid down that, where assessee industrial undertaking had fulfilled the eligibility condition to claim deduction under section 80IA in the initial year, then the benefit of deduction would be extended for next 10 years irrespective of whether after initial year there was an expansion of industrial undertaking by increased investment in plant & machinery that have taken it outside ambit and scope of that provision. Here in this case, not only in the initial assessment year but also in subsequent assessment year also, the similar issue of claim of deduction under section 80IAB has been discussed and analysed in detail and thereafter the said claim has been allowed in third and fourth year, therefore, the said deduction now cannot be disallowed on same set of facts. If the Revenue is aggrieved by the order of the Tribunal in earlier years, the right recourse would be to approach the higher judicial forum, that is, Hon ble High Court under section 260A - Decided against revenue

Issues Involved:
1. Allowability of deduction under section 80IAB of the Income Tax Act, 1961.
2. Treatment of income derived from the transfer of bare shell buildings to the co-developer as capital gains.

Issue-wise Detailed Analysis:

1. Allowability of Deduction under Section 80IAB:

Summary of Facts and Arguments:
The Revenue challenged the allowability of the deduction under section 80IAB amounting to ?202,52,07,111/-. The assessee, a company involved in developing, operating, and maintaining real estate projects including SEZs, claimed this deduction for the development income related to an SEZ project in Chennai. The Assessing Officer (AO) disallowed the deduction, arguing that the profit derived from the transfer of bare shell buildings to a co-developer was not admissible under section 80IAB, as it was not an authorized operation under the SEZ Act and Rules. The AO further contended that such income should be treated as capital gains and not eligible for the deduction.

CIT(A) Findings:
The CIT(A) noted that the same issue had been decided in favor of the assessee in earlier assessment years (2008-09 and 2009-10) by the Tribunal. The CIT(A) reiterated that the assessee's activities were in line with the authorized operations approved by the Government of India, and the SEZ Act recognized co-developers as developers. The CIT(A) thus upheld the assessee's claim for deduction under section 80IAB, referencing previous Tribunal decisions that had allowed such deductions.

ITAT Decision:
The ITAT confirmed the CIT(A)'s order, emphasizing judicial precedence. It stated that since the deduction under section 80IAB had been allowed in initial years and there was no change in material facts, the same deduction could not be disallowed in subsequent years. The ITAT referenced the Delhi High Court's decision in the case of CIT vs. International Tractors Limited, which highlighted the principle of consistency in allowing deductions under Chapter VIA. The ITAT dismissed the Revenue's appeal, confirming the allowability of the deduction under section 80IAB.

2. Treatment of Income from Transfer of Bare Shell Buildings as Capital Gains:

Summary of Facts and Arguments:
The AO argued that the income derived from the transfer of bare shell buildings to the co-developer should be treated as capital gains, not business income, and thus not eligible for deduction under section 80IAB. The AO based this on the classification of assets and the nature of the transaction, suggesting that it was a transfer of capital assets rather than stock-in-trade.

CIT(A) Findings:
The CIT(A) disagreed with the AO, stating that the assessee had consistently followed the Percentage of Completion Method (POCM) for recognizing revenue from constructed properties. The CIT(A) highlighted that the assessee's method of accounting and the classification of assets were in line with accounting standards and had been regularly followed. The CIT(A) concluded that the development income from the transfer of bare shell buildings constituted profits and gains derived from the development, operation, and maintenance of SEZs, thus eligible for deduction under section 80IAB.

ITAT Decision:
The ITAT upheld the CIT(A)'s decision, noting that the AO had not rejected the assessee's method of accounting or its books of accounts. The ITAT emphasized that the development income derived from the transfer of bare shell buildings could not be treated as capital gains, as the buildings were not part of the capital work in progress or fixed assets of the assessee. The ITAT confirmed that the profits derived from such transfers were eligible for deduction under section 80IAB, dismissing the Revenue's appeal on this ground as well.

Conclusion:
The ITAT upheld the CIT(A)'s order, confirming the allowability of the deduction under section 80IAB for the assessee and rejecting the AO's treatment of the income from the transfer of bare shell buildings as capital gains. The Revenue's appeal was dismissed, reinforcing the principle of consistency in judicial decisions regarding tax deductions.

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