2021 (8) TMI 464 - AT - Income Tax

Deduction u/s 80IA(4)(iii) - claim denied as there ought to be 4 tenants in the industrial park of assessee, whereas in this case there is only three tenants - HELD THAT - The assessee had constructed multistoried buildings for the purpose of developing infrastructure facilities as approved by the Ministry of Commerce and Industry. As mentioned earlier, the test to be applied is the functional test, i.e., the unit must be 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 has to successfully satisfy the above stated functional test of an independent unit, which has not undertaken by the A.O. nor the CIT(A) in this case. Even for A.Y. 2004-2005, though the A.O. in his remand report, had stated that the case of the assessee and of Primal Projects Private Limited are identical had not entered a factual finding of the claim of the assessee that each of the five floors in the industrial park is separate and independent units, capable of function on its own. Therefore, the assessee has to factually establish that it has 4 units or more and that no unit has occupied more than 50% allocable area. No unit should occupy more than 50% of the allocable area, whereas in this case one tenant, namely M/s.I-Flex Solutions is occupying more than 50% of the total constructed area - The criteria relating to restriction of leasing of allocable area to any particular tenant is redundant in view of the functionality test prescribed in the case of CIT v. M/s.Primal Projects Pvt. Ltd. 2020 (11) TMI 778 - KARNATAKA HIGH COURT - we are of the view that the matter needs to be examined afresh by the A.O. Accordingly, the cases are restored to the files of the A.O. The A.O. is directed to come to a factual finding that assessee s claim of five floors of the industrial park are independent and separate units as prescribed in the judgment of Hon ble High Court in the case of CIT v. M/s.Primal Projects Private Limited. The assessee is directed to co-operate with the revenue for expeditious disposal of the matter - Appeals filed by the Revenue are allowed for statistical purposes.

Summary

Issues Involved:

1. Compliance with conditions laid down in the Industrial Park Scheme, 2002.
2. Eligibility to claim deduction under Section 80IA(4)(iii) of the Income Tax Act.
3. Number of tenants in the industrial park.
4. Allocation of more than 50% of the total allocable area to a single tenant.

Detailed Analysis:

1. Compliance with Conditions Laid Down in the Industrial Park Scheme, 2002:

The Hon'ble High Court directed the ITAT to determine whether the assessee had complied with the conditions of the Industrial Park Scheme, 2002. The Tribunal's previous order was found to be "cryptic" and lacking in factual findings regarding the assessee's fulfillment of the scheme's conditions. The High Court quashed the Tribunal's order and mandated a fresh examination with detailed reasons.

2. Eligibility to Claim Deduction under Section 80IA(4)(iii) of the Income Tax Act:

The High Court instructed the ITAT to ascertain the eligibility of the assessee to claim deductions under Section 80IA(4)(iii). The Tribunal needed to verify if the assessee met the conditions stipulated in the scheme and the relevant notifications. The Tribunal's task was to ensure that the assessee adhered to the terms of the Industrial Park Scheme, 2002, and the CBDT Notification No.212/2007.

3. Number of Tenants in the Industrial Park:

The Assessing Officer (AO) denied the deduction on the grounds that the industrial park had only three tenants instead of the required four. The AO's physical verification revealed that only two companies occupied the premises, while the six-monthly return (IPS-2) listed three companies. The CIT(A) and Tribunal had previously allowed the deduction, but the High Court's directive necessitated a re-examination of whether the industrial park indeed had four independent functional units.

4. Allocation of More Than 50% of the Total Allocable Area to a Single Tenant:

The AO also denied the deduction because one tenant, M/s I-Flex Solutions, occupied more than 50% of the total allocable area. The Tribunal had to determine if the assessee's arrangement violated the condition that no single unit should occupy more than 50% of the allocable area. The assessee argued that M/s I-Flex Solutions occupied three separate units, each less than 50% of the allocable area, which needed factual verification.

Factual Findings and Functional Test:

The Tribunal referred to the jurisdictional High Court's decision in CIT v. M/s. Primal Projects Pvt. Ltd., which laid down the "functional test." This test assesses whether each unit can function independently with separate facilities, instrumentation, power connection, and door number. The Tribunal needed to verify if the assessee's units met this functional test.

Conclusion and Directions:

The Tribunal concluded that the matter required a fresh examination by the AO to establish the factual findings. The AO was directed to verify if the five floors of the industrial park were independent and separate units as per the functional test. The assessee was instructed to cooperate with the revenue authorities for an expeditious resolution.

Outcome:

The appeals filed by the Revenue were allowed for statistical purposes, and the cases were restored to the files of the AO for a detailed factual examination.

Order Pronouncement:

The order was pronounced on the 10th day of August, 2021.