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TMI Blog2014 (5) TMI 960X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction, but can be considered only in the year of formation of the business – there was no error in the action of the CIT(A) in setting aside the disallowance of deduction u/s 80 IB of the Act - The order of the CIT(A) is upheld – Decided against Revenue. - I.T.A. No. 2503Del/2013 - - - Dated:- 17-4-2014 - Shri G. D. Agrawal And Shri A. D. Jain,JJ. For the Appellant : Dr. Sudha Kumari, CIT DR For the Respondent : Sh. R. S. Singhvi, CA ORDER Per A. D. Jain, JM This is Department s Appeal for A.Y 2009-10 contending that the Ld. CIT(A) was not justified in deleting the addition of Rs.4003367733/- made on account of disallowance of deduction u/s 80IAB of the I.T Act and in treating the income from sale of assets as business income against the capital gain assessed by the AO. 2. The facts as per the record are that the assessee company was incorporated on 1/1/2002. This company has been engaged in the business of developing, operating and maintaining real estate projects, which includes development of SEZ and all related infrastructure. The assessee company filed its return of income showing an income of Rs.291,48,67,717/-. Thereafter, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been recognizing the revenue in accordance with the Accounting Standard AS-7 AS-19 issued by the Institute of Chartered Accountants of India. It is now a judicially recognized preposition that in case of contracts or business of construction, in order to ascertain the income, one need not wait till the contract is completed. The Assessing Officer however cannot apply any other method for recognizing the revenue and has to accept the accounting policy followed by the appellant, therefore, when the appellant has recognized the income following percentage of completion method as per AS-7 issued by the Institute of Chartered Accountants of India, the profits derived on account of development considerations of bare shells would constitute the profits and gains derived from business of developing Special Economic Zone within the meaning of Section 80IAB of the Act. The accounting treatment of warm shells by the co-developer in its books of accounts as an asset would not make any difference as far as the appellant is concerned. The admitted fact remains tht the appellant has computed its income under the Percentage of Completion Method (POCM) which is prescribed for calculating p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls granted to the appellant by the Board of Approvals constituted under the SEZ Act. In this regard, it is noticed that:- The appellant was granted approval by the Ministry of Commerce Industry (SEZ Section) for setting up a sector specific SEZ for IT/ITES sector at Rangareddy District, Hyderabad (Andhra Pradesh). An area of 10.617 Hectares situated in Gachibowli Village, Shirlingampali Mandal, Rangareddy District in state of Andhra Pradesh was notified by the Ministry of Commerce Industry vide notification dated 26/4/2007. The authorized operations to be undertaken by the appellant were also approved by a separate approval by the Govt. of India, Ministry of Commerce Industry (SEZ Section) vide letter dated 21/6/2007. The appellant entered into a MoU dated 29/11/2006 (wrongly mentioned as 29/11/2007 in the MOU which was rectified by corrigendum dated 6/11/2007) with the co-developer and filed the same for approval before the Board of Approvals. An addendum thereto was also entered into amending the terms of the original MOU on 29/11/2006. The appointment of co-developer M/s DLF Assets Pvt. Ltd. was approved by the Ministry of Commerce vide their letter dated 1/5/2007. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lese out the land and building thereon to co-developer for a lease period of 49 years. However, it has been stated that, in the addendum to the MOU certain amendments were made to the MOU which inter alia include clause 2.3 wherein the phrase Developer will create, in favour of the co-developer in the said property and the buildings there upon, a 49 years lease....... was replaced by lease....... and the bare shell buildings constructed by the appellant were proposed to be handed over to the co-developer for a development charge which was fixed at Rs.4845/- per Sq. Ft. In the 32nd meeting of the Board of Approvals held on 23/2/2009 four proposals of DLF Group were discussed. In this meeting, the representative of department of revenue pointed out that these proposals have already been approved and the amendments in the earlier approvals are now being filed after a gap of considerable time. The fresh approval may be sought if any material changes are made in the agreements. Accordingly, the Board decided to defer the proposals and decided that these cases can be examined on file. Subsequently, the appellant filed a definitive co-developer agreement executed with the co-dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of substantial amount of consideration being paid on lump sum basis. The owner proposes to transfer cold shell of the building on handover basis which would be further developed and maintained it by the co-developer. 4. The issue regarding transfer of land by developers on an indefinite/long lease which virtually amounts to a sale has been brought to the notice of DOC on earlier occasions. After protracted discussion on the issue and also taking into account the advice of Ministry of Law, it was agreed to approve such proposals subject to the inclusion of disclaimer in the letter of approval that the approval will have no bearing on tax treatment of income arising out of such transaction which will be decided as per the relevant provisions of the Income Tax Act, 1961. After taking into account the above correspondences the approval letter was issued to DLF Assets Pvt. Ltd. on 1/6/2009 conveying the approval, relevant clauses of which read as under:- (2) Your revised agreement dated 20/3/2008 entered into with the developer of the aforesaid sector specific special economic zone of DLF Commercial Developer Limited for providing common facilities shall form part of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clarification dated 18/1/2011 explicitly clarified that all leases of land were subject to the general condition contained in Para 3 (XVII) of letter dated 1/6/2009 and this general condition was applicable to the terms and conditions of the land lease agreement only. 8. It was on the basis of the above that the Ld. CIT(A) observed as under:- Keeping in view, the discussions above it is clear that the appellant has been duly approved by the Board of Approvals as a developer, the land in Village Gachibowli Shirilingampalli Mandal, Rangareddy District in the state of Andhra Pradesh was notified. The contents of letter dated 1/6/2009 applies only to transfer of land or one time lease rental/one time down payment/premium etc. received against eh land as clarified by the Ministry of Commerce in the clarification dated 18/1/2011 and correspondence made between the Ministry of Commerce and Department of Revenue as filed by the appellant during the course of appellate proceedings as additional evidence. In view of the facts discussed above, I agree with the submission of the appellant that the disclaimer condition mentioned in the co-developer approval letter dated 1/6/2009 is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal decisions, one in the case of the assessee itself, for the immediately preceding assessment year and the other in the case of DLF Info City Developers (Chennai Ltd.) a sister concern of the assessee. In the assessee s own case for A. Y 2008-09, the Tribunal has, interalia, observed as follows:- 9.4. It is clearly emerges that by the end of the 263 hearing the CIT brushed aside the consideration of issue by holding that he has no sufficient time to go into the material, therefore, the assessment is set aside to the assessing Officer who will carry out detailed inquiry. In our considered view, 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 Section 263. Where the authority fails to carry out its statutory obligation, the order cannot be held as tenable and is liable to be quashed. 9.5 Apropos the issue of sale of bare shell buildings being authorized activity, it is amply clear that the SEZ Act authorized activiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utory process of law after duly considering and examining all the facts and documents on record in accordance with relevant provisions of SEZ Act and SEZ Rules. Thus, the consequential benefits that is available to a developer under the Income Tax Act cannot be denied. The AO does not have any jurisdiction to question the validity or the legality of authorized operations which have been approved by the BOA/Central Government Section 27 of SEZ Act provides for modification of Income Tax Act to the extent of second schedule of SEZ Act. Page 42. 37. The second schedule of SEZ Act contends bare text of certain provision including Section 80IAB to be incorporated in the Income Tax Act present to the Section 80IAB (having the same in as mentioned in SEZ Act) has been broadly incorporated into the Income Tax Act. Section 51 of SEZ Act having an over riding effect over any other law, reads as under:- 51.(1) The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. 38. Thus, it is clear from the above that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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