Addl. CIT, Gurgaon v. M/s. DLF Info City Developers (Chennai) Ltd., Gurgaon

ITA 1315/DEL/2013 | 2009-2010
Pronouncement Date: 13-11-2014 | Result: Dismissed

Appeal Details

RSA Number 131520114 RSA 2013
Assessee PAN AACCD3572H
Bench Delhi
Appeal Number ITA 1315/DEL/2013
Duration Of Justice 1 year(s) 8 month(s) 7 day(s)
Appellant Addl. CIT, Gurgaon
Respondent M/s. DLF Info City Developers (Chennai) Ltd., Gurgaon
Appeal Type Income Tax Appeal
Pronouncement Date 13-11-2014
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 13-11-2014
Date Of Final Hearing 05-11-2014
Next Hearing Date 05-11-2014
Assessment Year 2009-2010
Appeal Filed On 06-03-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER AND SHRI CM GARG JUDICIAL MEMBER ITA NO. 1315/DEL/2013 AY 2009 - 10 & ITA NO. 1316/DEL/2013 AY 2009 - 10 ACIT RANGE I VS. M/S DLF INFO CITY DEVELOPERS (CHENNAI) LTD. GURGAON GURGAON ITA NO. 1475/DEL/2013 AY 2009 - 10 & ITA NO. 1467/DEL/2013 AY 2009 - 10 M/S DLF INFO CITY DEVELOPERS (CHENNAI) LTD. VS. ACIT RANGE I 3 RD FLOOR SHOPPING MALL COMPLEX GURGAON ARJUN MARG DLF CITY PHASE I GURGAON PAN: AACCD 3572 H (APPELLANT) (RESPONDENT) ASSESSEE BY : MR.R.S.SINGHVI C.A. DEPARTMENT BY : SMT.SUDHA KUMARI CIT D.R. ORDER PER J. SUDHAKAR REDDY JM THESE CROSS - APPEALS ARE DIRECTED AGAINST THE ORDER OF LD.CIT(APPEALS) FARIDABAD DT. 27.12.2012 PERTAINING TO THE ASSESSMENT YEAR 2009 - 10. 2 . FACTS IN BRIEF: - THE FACTS OF THE CASE ARE BROUGHT OUT AT PARA 4 OF THE LD.CIT(APPEALS) S ORDER WHICH IS EXTRACTED FOR READY REFERENCE. 4. THE BRIEF FACTS OF THE CA SE ARE THAT THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.43 68 57 675/ - WAS E - FILED BY THE ASSESSEE ON 30.09.2009. THE CASE WAS SELECTED FOR 2 SCRUTINY THROUGH CASS AND A STATUTORY NOTICE U/S 143(2) WAS ISSUED AND DULY SERVED UPON THE ASSESSEE. THE ASSE SSEE COMPANY WAS INCORPORATED ON 17.03.2005 UNDER THE COMPANIES ACT 1956. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LEASING OF CONSTRUCTED PROPERTIES; DEVELOPING OPERATING AND MAINTAINING REAL ESTATE PROJECTS WHICH INTER - ALIA INCLUDE DEVELOPMENT OF A SPECIAL ECONOMIC ZONE (SEZ) AT CHENNAI. AND OTHER RELATED INFRASTRUCTURAL DEVELOPMENTS. THE TAX AUDIT REPORT U/S 44AB AND REPORT U/S 80IA(7) OF THE ACT OBTAINED BEFORE FILING OF RETURN WERE FILED BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS. IN THE AUD ITED PROFIT & LOSS ACCOUNT THE ASSESSEE HAS DECLARED DEVELOPMENT INCOME OF RS.1350.52 CRORES AGAINST THE COST OF DEVELOPMENT SHOWN AT RS.367.91 CRORES. THE ASSESSEE HAS ALSO SHOWN LAND LEASE RENT LEASE RENT FROM CONSTRUCTED PROPERTIES AND OTHER INCOME DU RING THE YEAR. IN THE COMPUTATION OF INCOME THE ASSESSEE CLAIMED DEDUCTION OF RS.981.64 CRORES U/S 80IAB OF THE ACT AGAINST THE DEVELOPMENT INCOME EARNED DURING THE YEAR IN RESPECT OF ITS SEZ PROJECT AT CHENNAI. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT DEDUCTION CLAIMED BY THE ASSESSEE U/S 80IAB IN RESPECT OF PROFITS DERIVED FROM SEZ AT CHENNAI WAS NOT ADMISSIBLE AS THE ASSESSEE SOLD THE BARE SHELL BUILDINGS TO THE CO - DEVELOPER NAMELY DLF ASSETS PRIVATE LIMITED ('DAPL' OR 'CO - DEV ELOPER' HEREINAFTER FOR SHORT) WHICH WAS NOT AN AUTHORIZED OPERATION UNDER THE SPECIAL ECONOMIC ZONES ACT 2005 (SEZ ACT) AND THE SPECIAL ECONOMIC ZONES RULES 2006. THE AO HAS HELD THE VIEW THAT PROVISIONS OF SECTION 80IAB ALLOW DEDUCTION OF PROFITS ONLY FROM OPERATION AND MAINTENANCE OF SEZ AND NOT OF PROFITS FROM SALE OF ASSETS WHICH THE ASSESSEE HAD EARNED FROM TRANSFER OF BARE SHELL BUILDINGS TO THE CO - DEVELOPER. THE AO EXAMINED THE EFFECT AND CONSEQUENCES OF A DISCLAIMER CONTAINED IN CLAUSE 3(XVII) O F THE APPROVAL LETTER DATED 01.06.2009 ISSUED IN THE CASE OF DAPL BY THE BOARD OF APPROVAL SEZ SECTION DEPARTMENT OF COMMERCE MINISTRY OF COMMERCE AND INDUSTRY GOVT. OF INDIA. THE SAID DISCLAIMER PROVIDED THAT THE PARTICULAR TERMS AND CONDITIONS OF LEA SE AGREEMENT WILL NOT HAVE ANY BEARING ON THE TREATMENT OF INCOME BY WAY OF LEASE RENTALS/DOWN PAYMENT/PREMIUM ETC. FOR THE PURPOSE OF ASSESSMENT UNDER THE PREVALENT INCOME TAX ACT AND RULES; AND THE ASSESSING OFFICER WILL HAVE THE RIGHT TO EXAMINE THE TAX ABILITY OF THESE AMOUNTS UNDER THE INCOME TAX ACT. THE AO HAS THEREFORE HELD THAT THE BOARD OF APPROVAL FOR SEZ HAS NOT CONSIDERED THE INCOME FROM SPECIFIED TRANSACTIONS BETWEEN DEVELOPER AND CO - DEVELOPER AS EXEMPT FROM INCOME TAX AND DISALLOWED ENTIRE C LAIM OF DEDUCTION U/S 80IAB OF THE ACT ON THE STRENGTH 3 OF SUCH DISCLAIMER. IT WAS FURTHER NOTED THAT THE PROFITS ON SALE OF BARE SHELL BUILDINGS .IN SEZ WERE INCLUDED IN THE BOOK PROFIT/DEEMED TOTAL INCOME U/S 115JB OF THE ACT BY ANOTHER GROUP CONCERN NAM ELY DLF CYBER CITY DEVELOPERS LIMITED IN A.Y 2008 - 09 AND NOT CLAIMED EXEMPT. THE INCOME FROM TRANSFER OF ASSETS WHICH WAS NOT STOCK - IN - TRADE IN THE BOOKS OF ASSESSEE FOR A SPECIFIC SALE CONSIDERATION TO THE CO - DEVELOPER WHO BECAME THE ABSOLUTE OWNE R OF THE BARE SHELLS WAS INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAIN' AND NOT ELIGIBLE FOR DEDUCTION U/S 80IAB. THE DEVELOPMENT INCOME OF ASSESSEE WAS NOTHING BUT FUTURE RENTALS AS THE VALUATION OF BARE SHELL BUILDINGS HAD BEEN MADE BY THE ASSESSEE BY RENT CAPITALIZATION METHOD. THE DEDUCTION U/S 80IAB WAS PERMISSIBLE FOR A PERIOD OF TEN YEARS AND THERE WAS NO PROVISION FOR CLAIMING THE ENTIRE DEDUCTION IN ANYONE YEAR WHEN THE INCOME WAS ACTUALLY REFERABLE TO FUTURE RENTALS OF 49 YEARS AND HENCE THE CL AIM OF DEDUCTION U/S 80IAB WAS ADMISSIBLE ONLY TO THE EXTENT OF 1I49TH OF THE TOTAL DEVELOPMENT INCOME RECEIVED IN ANYONE FINANCIAL YEAR. WITH THESE FINDINGS AND OBSERVATIONS MADE IN THE ASSESSMENT ORDER THE AO HAS DISALLOWED ENTIRE CLAIM OF DEDUCTIONS OF RS.981 64 29 656/ - U/S 80IAB OF THE ACT. AGGRIEVED WITH THE ORDER APPELLANT FILED THE PRESENT APPEAL . 3. ON APPEAL BEFORE THE FIRST APPELLATE AUTHORITY THE LD.CIT(APPEALS) GRANTED PART RELIEF. AGGRIEVED BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL BEFORE US. 4. WE HAVE HEARD MR.R.S.SINGHVI THE LD.COUNSEL FOR THE ASSESSEE AND SMT.SUDHA KUMARI THE LD.CIT D.R. ON BEHALF OF THE REVENUE. 5. THE SUBMISSIONS OF THE LD.COUNSEL FOR THE ASSESSEE THAT ALL THE ISSUES ARISING IN BOTH THESE APPEALS ARE NO MORE RES INTEGRA AS THE B BENCH OF THE TRIBUNAL IN THE ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2008 - 09 IN ITA NO.54 69 /DEL/2012 AND 536 6 /DEL/2 012 VIDE ORDER DT. 21 ST FEB. 2014 HAS ADJUDICATED THE MATTER IN FAVOUR OF THE ASSESSEE WHICH COULD NOT BE CONTROVERTED BY THE LD.CIT D.R. ON A PERUSAL OF THE 4 PAPERS ON RECORD ORDERS OF THE AUTHORITIES BELOW AND THE DECISIONS OF THE DELHI B BENCH OF THE TRIBUNAL IN THE ASSESSEE S OWN CASE WE HOLD THAT THE ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL. 6. THE REVENUE HAS FILED APPEAL ON THE FOLLOWING GROUNDS. 1. THAT THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN ADMITTING THE LETTERS/CLAR IFICATIONS DATED 18 - 1 - 2011 & 20 - 1 - 2011 ISSUED BY MINISTRY OF COMMERCE AS ADDITIONAL EVIDENCE AND IN TAKING COGNIZANCE THEREOF FOR HOLDING THAT TRANSFER OF BARE SHELL BUILDINGS BY ASSESSEE TO ITS CO DEVELOPER WAS A AUTHORIZED OPERATION IGNORING THE ) FACT T HAT AS PER SEC. 9(2) ONLY BOARD OF APPROVAL IS EMPOWERED TO GRANT APPROVAL OF SEZ OR AUTHORIZED OPERATIONS IN THE SEZ AND NOT THE MINISTRY OF COMMERCE AND THE FACT THAT I THE ABOVE CLARIFICATIONS/ LETTERS HAVE NO LEGAL SANCTITY AS THESE WERE NOT ISSUED BY THE COMPETENT AUTHORITY OF BOARD OF APPROVAL BUT BY THE UNDER SECRETARY AND J. S MINISTRY ( OF COMMERCE RESPECTIVELY WHO WERE NOT COMPETENT TO ISSUE ANY SUCH CLARIFICATION AS PER PROVISION OF SEC 8(8) OF THE SEZ ACT. 2. THAT IN DOING SO THE LD CIT (A) HAS ALSO FAILED TO APPRECIATE WHETHER MINISTRY OF COMMERCE CAN ISSUE CLARIFICATION REGARDING APPROVAL GIVEN BY BOA AND WHETHER SUCH A CLARIFICATION ISSUED BY AN AUTHORITY OTHER THAN BOA HAS ANY LEGAL SANCTITY OR EVIDENCIARY VALUE PARTICULARLY WHEN RELEVAN T ACTIVITIES MENTIONED IN THE CLARIFICATION ARE NOT MENTIONED IN THE APPROVAL GIVEN BY BOA TO THE ASSESSEE OR TO ITS CO DEVELOPER AND SUCH A CLARIFICATION IS ALSO IN CONTRAVENTION OF SPIRIT OF SEZ ACT. 3. THAT THE LD CIT(A) IS NOT JUSTIFIED IN OBSERVING T HAT GENUINENESS OF THE LETTER DATED 18 - 1 - 2011 AND 20 - 1 - 2011 WAS NOT DISPUTED BY AO BECAUSE THE LEGAL INFIRMITY AS POINTED OUT IN ABOVE GROUNDS WAS CLEARLY MENTIONED IN THE' REMAND REPORT DATED 04.12. 2012. 4. THAT THE LD CIT (A) HAS ERRED IN LAW AND ON FA CTS OF THE CASE IN ADMITTING THE CLARIFICATIONS REFERRED ABOVE AS ADDITIONAL EVIDENCE BY HOLDING THAT THE C1ARIFJCATION HAVE BEEN ISSUED BASED ON EVIDENCES ALREADY AVAILABLE IN THE FILE WITH BOA WHEREAS NO SUCH MATERIALS WAS AVAILABLE ON RECORDS I.E. IN T HE NOTE SHEETS OF BOA AND THUS SUCH A FINDINGS IS AGAINST THE FACTS ON RECORDS. 5. WHETHER THE LD.CIT (A) IS JUSTIFIED IN RELYING UPON THE CLARIFICATIONS ISSUED BY MINISTRY OF COMMERCE (SEZ) SECTION NEW DELHI WITHOUT VERIFYING THAT SAME HAS BEEN ISSUED BY BOARD OF APPROVAL BY FOLLOWING PROPER PROCEDURE AND ALSO WHETHER CBDT WAS CONSULTED BEFORE ISSUE OF SUCH CLARIFICATIONS BECAUSE IT HAD THE EFFECT OF DILUTING THE DISCLAIMER CLAUSE WHICH WAS ADDED ON BEHEST OF CBDT. 6. THAT THE LD.COMMISSIONER OF INCOME TAX (APPELAS) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN RELYING UPON HIS JUDGEMENT IN THE CASE OF THE ASSESSEE FOR THE 5 ASSESSMENT YEAR 2008 - 09 AND ACCORDINGLY HOLDING THE TRANSFER OF BARE SHELLS BY ASSESSEE TO ITS CO - DEVELOPER WAS AN AUTHORIZED OPERATION ON THE GROUND THAT THE AGREEMENT OF ASSESSEE WITH CO DEVELOPER REGARDING TRANSFER OF BARE SHELLS FOR DEVELOPMENT CONSIDERATION WAS APPROVED BY BOA IGNORING THE FACT THAT SUCH TRANSFER WAS NOT AN AUTHORIZED OPERATION AS PER NOTIFICATION NO. SO 1846 E DATED 27.10.2006 THAT THE BOA ;HAD ONLY ALLOWED SUCH TRANSFER SUBJECT TO THE CONDITION THAT TAXABILITY OF SUCH TRANSACTION WOULD BE EXAMINED BY IT AUTHORITIES AND ALSO THE FACT THAT EVEN THE CLARIFICATION DATED 20.1.2011 ONLY STATES THAT TRANSFER OF BARE SHELLS BY ASSESSEE TO ITS CO DEVELOPERS IS ALLOWED AND IT NO WHERE SAYS THAT IT WAS AN AUTHORIZED OPERATION ELIGIBLE FOR BENEFITS UNDER THE SEZ ACT. 7. THAT THE LD CIT (A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN HO LDING THAT THE ASSESSEE IS ELIGIBLE FOR CLAIM OF DEDUCTION U/S 80LA B IN RESPECT OF PROFITS DERIVED FROM TRANSFER OF BUILT UP SPACE( BARE SHELLS BUILDINGS) COMPLETELY IGNORING THAT AS PER PROVISIONS OF PROVISO TO SE C. 80 IA B (2) ONLY INCOME FROM TRANSFER O F OPERATION AND MAINTENANCE OF SEZ IS ELIGIBLE FOR DED UCTION AND NOT THE PROFITS DERIVED FROM TRANSFER OF MERE BUILT UP SPACE( BARE SHELLS BUILDINGS) AND SUCH TRANSFER OF BUILT UP SPACE IS ALSO AGAINST THE - SPIRIT OF SEZ ACT AS PROVISIONS OF SECTION 11 (5 ) OF THE SEZ ACT EXPRESSLY PROHIBITS SALE OF LAND OR BUILT UP AREA IN SEZ. 8. THAT THE LD CIT (A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN TREATING THE SOLITARY ACT OF CONSTRUCTION AND TRANSFER OF BUILT UP SPACE( BARE SHELLS BUILDINGS) AS A BUSINESS OF DEVELOPING OPERATION AND MAINTENANCE OF SEZ AND THEREBY HOLDING THAT ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 801AB. 9. IN DOING SO THE LD. CIT (A) HAS FAILED TO APPRECIATE THE SPIRIT OF PROVISO TO SEC. 80LA B (2) THAT THE MOMENT THE CO DEVELOPER TRANSF ERS THE OPERATION & MAINTENANCE OF SEZ TO THE CO - DEVELOPER THE DED UCTION U/S 80LA B WOULD BE AVAILABLE TO THE CO DEVELOPER FOR THE REMAINING PERIOD IN 10 CONSECUTIVE YEARS MEANING THEREBY RIGHT OF DEVELOPER TO CLAIM BENEFITS OF SEZ WOULD CEASE ON TRANSFER OF OPERATION & MAINTENANCE OF SEZ TO CO - DEVELOPER. 10. THAT THE LD CIT (A) HAS ERRED IN LAW & ON FACTS IN HOLDING THAT AO HAS NO JURISDICTION TO CHALLENGE THE VALIDITY OF APPROVAL GIVEN BY MINISTRY OF COMMERCE IGNORING THE FACT THAT APPROVAL GIVEN BY B O A OR MINISTRY OF COMMERCE WAS NOT ABSOLUTE BUT SUBJECT TO CONDITION THAT THE TREATMENT OF INCOME ARISING OUT OF TRANSACTION OF TRANSFER OF BARE SHELLS BY ASSESSEE TO CO - DEVELOPER WOULD BE DECIDED AS PER RELEVANT PROVISIONS OF IT ACT. 11. THAT THE LD CIT( A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN ACCEPTING RENT CAPITALIZATION METHOD AND THAT TOO BY ADOPTING RENT OF A PROPERTY OTHER THAN THE PROPERTY SOLD BY ASSESSEE TO ITS CO - DEVELOPER AS BASIS FOR DETERMINING DEVELOPMENT CONSIDERATION OF BARE SHELLS AND THEREBY HOLDING DEVELOPMENT CONSIDERATION @ RS. 6 225 PER SQ.FEET CORRESPONDS TO THE MARKET VALUE OF BARE SHELLS AND THUS TREATING THE SAME AS REASONABLE IGNORING THE RELEVANT CONSIDERATIONS/FACTORS SUCH AS OTHER METHODS OF DETERMINATION OF SALE 6 CONSID ERATION PREVALENT RATE OF SUCH TYPE OF COMMERCIAL PROPERTIES IN THE AREA ETC AND THEREBY RESTRICTING DISALLOWANCE TO RS. 37.82 CR. 12. THAT THE LD CIT (A) HAS ERRED IN LAW & ON FACTS IN HOLDING CAPITALIZATION RATE OF 10% AS REASONABLE IGNORING THE FACT THAT NORMAL CAPITALIZATION RATE IN CHENNAI IS 10.5 %. 13. THAT THE LD CIT (A) IS NOT JUSTIFIED IN DETERMINING DEVELOPMENT CONSIDERATION OF BARE SHELLS AT RS. 1312.71 C R AND THEREBY RESTRICTING THE DISALLOWANCE U/S 80LA B TO RS. 37.82 CR IGNORING THE FACTS BROUGHT ON RECORD IN THE ASSESSMENT ORDER AS WELL AS FACTS MENTIONED IN THE REMAND REPORTS. 14. THAT THE LD CIT (A) HAS ERRED IN LAW & ON FACTS IN HOLDING THAT THE BARE SHELL BUILDINGS TRANSFERRED TO CO - DEVELOPER WAS STOCK IN TRADE AS AGAINST CAPITAL ASSET TREATED BY THE AO IGNORING THE FACTS MENTIONED IN THE ASSESSMENT ORDER. 15. THAT THE APPELLANT CRAVES FOR THE PERMISSION TO ADD DELETE OR AMEND THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF AP PEAL. 7. THE ASSESSEE HAS FILED APPEAL ON THE FOLLOWING GROUNDS. 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD.CIT(APPEALS) HAS ERRED IN LAW IN HOLDING THAT THE FAIR MARKET VALUE OF DEVELOPMENT CONSIDERATION IS RS.9100/ - PER SQ FE ET AS AGAINST RS.11109/ - PER SQ FEET CLAIMED BY THE APPELLANT AND THEREBY RESTRICTING THE DEDUCTION U/S 80 IAB OF THE ACT AT RS.6 525 543 300 AS AGAINST RS.8 587 499 121 CLAIMED BY THE APPELLANT. 2. WITHOUT PREJUDICE THE LD.CIT(APPEALS) ERRED IN LAW ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ADDITION OF RS.2 061 955 821 HOLDING THE SAME TO BE EXCESS DEDUCTION CLAIMED RATHER THAN IGNORING THE SAME. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE IMPUGNED ORDER PASS ED BY THE LD.CIT(APPEALS) IS BAD IN LAW AND WRONG ON FACTS. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD ALTER AMEND SUBSTITUTE WITHDRAW AND/OR VARY ANY GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. 8. THESE GROUNDS ARE ALSO VERBATIM IDENTICAL TO THE GROUNDS RAISED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2009 - 10. THE TRIBUNAL IN ITA NO.54 69 AND 536 6 /DEL/2012 HAS AT PARAS 24 TO 44 AT PAGES 24 TO 46 HELD AS FOLLOWS. 7 24. WE ARE THUS OF THE CONSIDERED VIEW THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN ADOPTING THE CAPITALIZATION SALE OF 9.5% AS AGAINST 9% ADOPTED BY THE ASSESSEE. WHILE SETTING ASIDE THIS ACTION OF THE LD. CIT(A) WE DIRECT THE AO TO ACCEPT THE APPROVED WORKING O F THE ASSESSEE IN THIS REGARD AND ALLOW THE CONSEQUENTIAL RELIEF. GROUND NO.2 OF THE APPEAL OF THE ASSESSEE IS THUS ALLOWED. THE GROUND NO. 3 IS AN ALTERNATIVE GROUND TO GROUND NO. 2 HENCE IT DOES NOT NEED ADJUDICATION. ISSUE RAISED IN GROUND NOS. 11 T O 13 OF THE REVENUE IS THUS DECIDED AGAINST THE REVENUE. 25. WE FIND THAT THE ISSUE OF ALLOWABILITY OF THE ASSESSEE FOR CLAIMING DEDUCTION U/S 80IAB ON THE PROFITS EARNED FROM TRANSFER OF BARE SHELL BUILDING BY IT TO ITS CO DEVELOPERS INVOLVES 3 MORE ISSUE S NAMELY: (A) AS TO WHETHER THE ASSESSEE IS CARRYING OUT THE ACTIVITIES AS MENTIONED IN THE DOCUMENTS SUBMITTED TO AND THE APPROVAL ACCORDED BY BOARD OF APPROVAL? ( B ) AS TO WHETHER THE ASSESSEE IS A DEVELOPER AS PER THE MEANING OF SECTION 80IAB? & ( C ) AS TO WHETHER THE INCOME ARISING OUT OF THE AFORESAID OPERATIONS AUTHORIZED BY BOARD OF APPROVAL? 2 5 . THE ISSUE NO. (A) ARISES BECAUSE THE BENEFIT OF DEDUCTION 80IAB TO THE ASSESSEE HAS BEEN DENIED BY THE AO ONLY ON THE BASIS THAT OPERATIONS OF THE ASSESSEE CANNOT BE CONSIDERED AS AUTHORIZED OPERATIONS IN TERMS OF SEZ ACT 2005 AND SEZ RULES 2006. THE RELATED FACTS OF ISSUE NO. (A) ARE THAT THE ASSESSEE IN THE BUSINESS OF DEVELOPING OPERATING AND MAINTAINING REAL E STATE PROJECTS WHICH INCLUDED DEVELOPMENT OF SEZS AND ALL RELATED INFRASTRUCTURE IN ACCORDANCE WITH THE APPLICABLE LAWS AND POLICIES OF THE GOVT. OF INDIA HAD APPROACHED THE GOVT. OF INDIA TO SEEK APPROVAL FOR SETTING UP OF A SECTOR SPECIFIC SPECIAL ECONO MIC ZONE (SEZ) FOR IT/ITES SECTOR ON THE LAND OWNED BY IT IN CHENNAI WHICH WAS GRANTED AS A DEVELOPER BY THE DEPTT OF COMMERCE (EPZ SECTION) MINISTRY OF COMMERCE AND INDUSTRY GOVT. OF INDIA VIDE APPROVAL LETTER F.2/124/2005 - EPZ DATED 22/6/2006 FOR SETTI NG UP AN IT/ITES SPECIAL ECONOMIC ZONE ON THE SAID LAND OWNED BY IT. THE AUTHORIZED OPERATIONS IN RESPECT OF IT & ITES SEZ PROPOSED TO BE DEVELOPED BY THE ASSESSEE WERE APPROVED BY THE GOVT. OF INDIA MINISTRY OF COMMERCE AND INDUSTRY DEPTT OF COMMERCE (SEZ SECTION) UDYOG BHAWAN NEW DELHI VIDE ITS LETTER DATED 29/8/2006 WHICH INTER ALIA INCLUDED CONSTRUCTION OF OFFICE AND COMMERCIAL 8 COMPLEXES NOT LIMITED TO BARE SHELL FACILITY AND/ OR FULLY FURNISHED OFFICE SPACE ETC IN THE PROCESSING AREA OF SEZ. THE GOVT. OF INDIA MINISTRY OF COMMERCE AND INDUSTRIES DEPTT OF COMMERCE VIDE NOTIFICATION DATED 27/10/2006 NOTIFIED DEFAULT AUTHORIZED OPERATION WHICH INTER ALIA INCLUDED CONSTRUCTION OF OFFICE SPACE. 26. THE ASSESSEE COMPANY ENTERED INTO A MEMORANDUM OF U NDERSTANDING ALONG WITH ITS ADDENDUM WITH DLF ASSETS PVT. LTD AS A CO - DEVELOPER VIDE AGREEMENT DATED 29/11/2006 FOR DEVELOPING OPERATING AND MAINTAINING THE SEZ AS A CO - DEVELOPER BY TRANSFERRING AND HANDING OVER SPECIFIED BARE SHELL BUILDINGS LOCATED WIT HIN THE PROJECT. THE ADDENDUM HAD THE CLAUSES THAT THE ASSESSEE BEING A DEVELOPER SHALL TRANSFER THE BARE SHELL BUILDINGS TO THE CO DEVELOPER WITHIN THE TIME SCHEDULE AND THE CO - DEVELOPER SHALL PAY THE DEVELOPMENT CHARGES TO THE ASSESSEE AT THE PRICE FIXE D MUTUALLY BETWEEN THE ASSESSEE AND THE CO - DEVELOPER. THERE IS NO DOUBT THAT THE APPROVED ACTIVITIES WERE CARRIED OUT. THE ONLY QUESTION IS AS TO WHETHER THE ACTIVITIES CARRIED OUT BY THE CO - DEVELOPER WILL BE COVERED UNDER THE APPROVED ACTIVITIES WHICH WE RE ASSIGNED TO BE DONE BY THE DEVELOPER ASSESSEE. THAT IS WHY THE ISSUE NO. (B) ARISES AS TO WHETHER ASSESSEE IS A DEVELOPER WITHIN THE MEANING OF SECTION 80 IAB FOR THOSE ACTIVITIES OUT OF THE APPROVED ACTIVITIES WHICH WERE DONE BY THE CO - DEVELOPER UNDE R A MEMORANDUM OF UNDERSTANDING ARRIVED AT BETWEEN THE ASSESSEE AND THE CO - DEVELOPER DLF ASSETS PVT. LTD VIDE AGREEMENT DATED 29/11/2006. UNDER THE SAID AGREEMENT THE ASSESSEE HAD SOLD THE BARE SHELL BUILDINGS TO THE CO - DEVELOPER AND HAD CLAIMED DEDUCTION U/S 80IAB ON THE INCOME EARNED FROM THE SAID TRANSFER OF BARE SHELL BUILDINGS TO THE CO - DEVELOPER. THUS A FURTHER ISSUE AROSE AS TO WHETHER THE INCOME ARISING OUT OF THE AFORESAID OPERATIONS WAS AUTHORIZED BY THE BOARD OF APPROVAL TO MAKE THE ASSESSEE ELIGIBLE FOR THE CLAIMED DEDUCTION U/S 80 IAB. WHILE DENYING THE CLAIMED DEDUCTION THE AO HAS TAKEN ASSISTANCE OF THE DISCLAIMER CONTAINED IN CLAUSE 3(XVII) OF THE APPROVAL LETTER DATED 1/6/2009 ISSUED BY BOARD OF APPROVAL (BOA) SEZ SECTION DEPTT OF CO MMERCE MINISTRY OF COMMERCE AND INDUSTRY GOVT. OF INDIA WHICH PROVIDES THAT THE PARTICULAR TERMS AND CONDITIONS OF LEASE AGREEMENT DATED 20/3/2008 FORMING PART OF APPROVAL WILL NOT HAVE ANY BEARING ON THE TREATMENT OF INCOME BY WAY OF LEASE RENTALS/DOWN PAYMENT/PREMIUM ETC FOR THE PURPOSE OF ASSESSMENT UNDER THE PREVALENT INCOME TAX ACT AND RULES AND THAT THE ASSESSING OFFICER WILL HAVE THE RIGHT TO EXAMINE THE TAXABILITY OF THESE AMOUNTS UNDER THE INCOME TAX ACT.(GROUND NO. 10 OF THE REVENUE S APPEAL). THE AO WAS OF THE VIEW 9 THAT THE BOA FOR SEZ HAS NOT BEEN CONSIDERED THE INCOME FROM SPECIFIED TRANSACTIONS BETWEEN DEVELOPER AND CO - DEVELOPER AS EXAMINED FROM INCOME TAX AND DISALLOWED ENTIRE CLAIM OF DEDUCTION U/S 80IAB OF THE ACT ON THE STRENGTH OF THE SAID DISCLAIMER. THE AO WAS OF THE VIEW THAT THE INCOME FROM TRANSFER OF ASSETS WHICH WAS NOT STOCK - IN - TRADE IN THE BOOKS OF ASSESSEE FOR A SPECIFIC SALE CONSIDERATION TO THE CO - DEVELOPER WHO BECAME THE ABSOLUTE OWNER OF THE BARE - SHELLS WAS INCOME CH ARGEABLE UNDER THE HEAD CAPITAL GAIN AND NOT ELIGIBLE FOR DEDUCTION US/ 80IAB. HE HELD THAT THE DEVELOPMENT INCOME OF ASSESSEE WAS NOTHING BUT FUTURE RENTALS AS THE VALUATION OF BARE SHELL BUILDINGS HAD BEEN MADE BY THE ASSESSEE BY RENT CAPITALIZATION M ETHOD. THE DEDUCTION U/S 80IAB WAS PERMISSIBLE FOR A PERIOD OF 10 YEARS AND THERE WAS NO PROVISION FOR CLAIMING THE ENTIRE DEDUCTION IN ANY ONE YEAR WHEN THE INCOME WAS ACTUALLY REFERABLE TO FUTURE RENTALS OF 49 YEARS AND HENCE THE CLAIM OF DEDUCTION U/S 80IAB WAS ADMISSIBLE ONLY TO THE EXTENT OF 1/49 TH OF THE TOTAL DEVELOPMENT INCOME RECEIVED IN ANY ONE FINANCIAL YEAR. THE CONTENTION OF THE ASSESSEE ON THE OTHER HAND REMAINED THAT THE SEZ ACT 2005 SPECIFICALLY ALLOWS OF CO - DEVELOPER IN THE MAIN DEVELOPE R AND DEFINES CO - DEVELOPER UNDER SECTION 2 (F) OF THE SEZ ACT 2005 AS SUCH IN THIS DEFINITION THE CO - DEVELOPER IS DEFINED AS DEVELOPER . IT WAS CONTENDED THAT THE MOU ALONG WITH ITS ADDENDUM ENTERED INTO BETWEEN THE ASSESSEE AND CO - DEVELOPER FOR APPOINTMENT OF CO - DEVELOPER AGREEMENT WAS APPROVED BY SEZ AUTHORITIES VIDE THEIR APPROVAL LETTER DATED 14/2/2007. VIDE LETTER DATED 19/6/2007 APPROVAL WAS ALSO GRANTED TO THE AUTHORIZED OPERATIONS TO BE CARRIED OUT BY THE CO - DEVELOPER BY THE DEPTT OF COM MERCE (SEZ SECTION). THE SAID APPROVAL INTER ALIA ALSO INCLUDED OFFICE SPACE (WARM SHELL) AS AN AUTHORIZED OPERATION. THE APPROVAL LETTER DATED 1/6/2009 ISSUED BY SEZ SECTION OF THE DEPTT OF COMMERCE ALSO CONTAINED INTERALIA A GENERAL CONDITION AT PARA 3 (VII) READ AS UNDER: - APPROVAL GIVEN BY BOA FOR CO - DEVELOPER FOR PARTICULAR TERMS AND CONDITIONS OF LEASE AGREEMENT WILL NOT HAVE ANY BEARING ON THE TREATMENT OF THE INCOME BY WAY OF LEASE RENTALS/DOWN PAYMENT/PREMIUM ETC FOR THE PURPOSE OF ASSESSMENT UNDER THE PREVALENT INCOME - TAX ACT & RULES. THE ASSESSING OFFICER WILL HAVE THE RIGHT TO EXAMINE THE TAXABILITY OF THESE AMOUNTS UNDER THE INCOME TAX ACT. 27. THE SUBMISSION OF THE LD. AR REMAINED THAT THE APPROVAL GRANTED BY THE GOVT. OF INDIA MINIST RY OF COMMERCE AND INDUSTRY TO THE ASSESSEE COMPANY AS A DEVELOPER CONTINUED AND HAS NO SUCH CLAUSE THEREIN AS IT WILL BE OBSERVED FROM THE APPROVAL 10 GRANTED TO THE CO - DEVELOPER EARLIER (I.E APPROVAL DATED 14/2/2007 APPLICABLE THROUGHOUT THE RELEVANT PREV IOUS YEAR) DID NOT CONTAIN ANY SUCH PARA AS MENTIONED IN THE LETTER DATED 1/6/2009. IN THAT APPROVAL THE AGREEMENT WITH THE CO - DEVELOPER WAS APPROVED AND INFORMED AS A PART OF THE APPROVAL WHICH PERMITTED THE ASSESSEE TO TRANSFER BARE SHELL BUILDING TO THE CO - DEVELOPER FOR FURTHER DEVELOPMENT ACTIVITIES. THE CLAUSE NO. 3 (XVII) OF GENERAL CONDITIONS OF THE APPROVAL DATED 1/6/2009 PROVIDED WITH RESPECT TO THE TREATMENT OF INCOME RECEIVED BY WAY OF LEASE RENTALS/DOWN PAYMENTS/PREMIUM ETC WHICH WAS SUBS EQUENTLY ALSO MENTIONED BY BOA IN THEIR MEETING HELD ON 19/6/2009. IT WAS SUBMITTED THAT THE AUTHORIZED OPERATIONS/BUSINESS OF DEVELOPER ALSO INCLUDES THE TRANSFER OF BUILDINGS (BARE SHELL/COLD SHELL BUILDINGS) AGAINST APPROVED DEVELOPMENT CHARGES/DEVELOP MENT CONSIDERATION TO THE CO - DEVELOPER BUT THE LAND INFRASTRUCTURE FACILITIES ETC CONTINUED TO BE OWNED AND OPERATED BY THE ASSESSEE COMPANY/DEVELOPER. 28. TO UNDER STAND THE RELEVANT FACTS IN BRIEF CHRONOLOGY OF VARIOUS EVENTS/APPROVALS AND IMPORTANT PROV ISIONS OF THE SEZ ACT SUMMARIZED BY THE LD. CIT(A) IS BEING REPRODUCED HEREUNDER: - SI. NO. DATE PARTICULARS 1 13.12.2005 THE ASSESSEE FILED AN APPLICATION BEFORE THE BOARD OF APPROVAL SEZ SECTIO N DEPARTMENT OF COMMERCE MINISTRY OF COMMERCE AND INDUSTRY GOVT. OF INDIA FOR APPROVAL OF IT/ITES SECTOR SPECIFIC SPECIAL ECONOMIC ZONE AT 1 /124 SHIVAJI GARDENS MOONLIGHT STOP NANDAMPAKKAM POST RAMAPURAM CHENNAI - TAMIL NADU. 2 22.06.2006 THE ASSESSEE WAS GRANTED APPROVAL AS DEVELOPER BY THE DEPARTMENT OF COMMERCE (SEZ SECTION) MINISTRY OF COMMERCE & INDUSTRY VIDE APPROVAL LETTER 11 F. 21124 / 200 5 - EPZ FOR DEVELOPMENT OPERATION AND MAINTENANCE OF AFORESAID SEZ. 3 29.08.2006 THE AUTHORIZED OPERATIONS IN RESPECT OF IT/ITES SEZ PROPOSED TO BE DEVELOPED BY THE ASSESSEE WERE APPROVED BY THE (SEZ SECTION) DEPARTMENT OF COMMERCE MINISTRY OF COMMERCE & INDUSTRY. 4 16.11.2006 THE LARD ADMEASURING 13.292 HECTARES OWNED BY THE ASSESSEE AT NANDAMPAKKAM POST RAMAPURAM CHENNAI WAS NOTIFIED IN THE G AZETTE OF INDIA VIDE NOTIFICATION NO. S.O. 1978 (E) DATED 16.11.2006. 5 29.11.2006 THE ASSESSEE ENTERED INTO A MEMORANDUM OF UNDERSTANDING FOR CO - DEVELOPMENT AGREEMENT WITH DLF ASSETS PRIVATE LIMITED (DAPL) AS A CO - DEVELOPER FOR CO - DEVELOPING OPERATING AND MAINTAINING THE AFORESAID SEZ 6 08.01.2007 THE DAPL FILED AN APPLICATION BEFORE THE BOARD OF APPROVAL SEZ SECTION FOR APPROVAL AS A CO - DEVELOPER IN THE SAID SEZ PROJECT. 7 14.02.20 07 THE DAPL WAS GRANTED APPROVAL AS A CO - DEVELOPER BY THE DEPARTMENT OF COMMERCE (SEZ SECTION) MINISTRY OF COMMERCE & 12 INDUSTRY VIDE APPROVAL LETTER F.2/124/2005 - EPZ FOR CO - DEVELOPMENT OPERATION AND MAINTENANCE OF AFORESAID SEZ. 8 19.03.2007 THE LAND ADMEASURING 3.438 HECTARES OWNED BY THE ASSESSEE AT NANDAMPAKKAM POST RAMAPURAM CHENNAI WAS FURTHER NOTIFIED IN THE GAZETTE OF INDIA VIDE NOTIFICATION NO. S.O. 396 (E) DATED 19.03.2007. 9 19.06.2007 THE AUTHORIZED OPERATIONS TO BE CARRIED OUT BY THE DAPL IN RESPECT OF AFORESAID SEZ PROPOSED TO BE CO - DEVELOPED WERE APPROVED BY THE MINISTRY OF COMMERCE & INDUSTRY DEPARTMENT OF COMMERCE (SEZ SECTION). 29. THE RELEVAN T CLAUSES OF THE MEMORANDUM OF UNDERSTANDING FOR CO - DEVELOPER AGREEMENT DATED 29/11/2006 ENTERED INTO BY THE ASSESSEE WITH DAPL READ AS UNDER: - 1. THE DEVELOPER HAS AGREED TO APPOINT DAPL AS A CO - DEVELOPER FOR DEVELOPING OPERATING AND MAINTAINING THE SAID SEZ BY GRANTING DAPL THE EXCLUSIVE RIGHT TO EXECUTE A PART OF THE AUTHORIZED OPERATIONS AND THE CO - DEVELOPER HAS AGREED TO FUND AND EXECUTE THE SAID AUTHORIZED OPERATIONS SPECIFICALLY ALLOCATED TO IT BY THE DE VELOPER HEREINAFTER REFERRED TO IN THIS AGREEMENT AS A CO - DEVELOPER OPERATIONS SUBJECT TO REQUISITE STATUTORY/REGULATORY APPROVALS. 2.2 THE DEVELOPER HEREBY APPOINTS THE CO - DEVELOPER FOR THE PURPOSE OF CO - DEVELOPING OPERATING AND MAINTAINING THE PROJ ECT BY DEVELOPING INFRASTRUCTURE FACILITIES AND UNDERTAKING THE CO - DEVELOPER OPERATIONS. THE 13 DEVELOPER SHALL CONTINUE TO BE RESPONSIBLE FOR EXECUTING IN RESPECT OF THE PROJECT THE DEVELOPER OPERATIONS. 2.3 DEVELOPER WILL CREATE IN FAVOUR OF THE CO - DE VELOPER IN THE ' SAID PROPERTY AND THE BUILDINGS THEREUPON A FORTY - NINE (49) YEAR LEASE' ON TERMS TO BE MUTUALLY AGREED UPON (WITH AN OPTION TO RENEW THE SAME ON MUTUALLY ACCEPTABLE TERMS AND CONDITIONS ON THE EXPIRY OF THE LEASE IN ACCORDANCE WITH THEN EX TANT LAWS AND MUTUALLY ACCEPTABLE TERMS AND CONDITIONS). THE LEASE RENTAL SHALL BE CALCULATED ON PER SQUARE FOOT OF LEASEABLE AREA BASIS AND THE UNDERLYING LAND APPURTENANT THERETO. 2.4 CO - DEVELOPER SHALL BE ENTITLED TO USE THE SAI D PROPERTY FOR CARRYING OUT THE CO - DEVELOPER OPERATIONS. PURSUANT TO THE COMPLETION OF BUILDINGS WITHIN THE PROJECT THE CO - DEVELOPER WILL BE ENTITLED TO IDENTIFY CUSTOMERS FOR OCCUPYING THE BUILT UP UNITS WITHIN THE PROJECT AND SHALL HAVE THE RIGHT TO SUB - LEASE THE UNITS IN THE PROJECT OF PART THEREOF SUBJECT TO EXECUTION AND REGISTRATION OF THE RELEVANT SUB - LEASE DOCUMENTATION. UPON IDENTIFICATION OF THE CUSTOMERS THE CO - DEVELOPER WILL BE ENTITLED TO RECOVER RENT AND RECEIVE THE NECESSARY ADVANCES DEPO SITS ETC. ATTENDANT TO THE SUBLEASE(S) SO CREATED BY THE CO - DEVELOPER.' 3.4. THE CO - DEVELOPER SHALL BE ENTITLED TO ENTRUST THE CONSTRUCTION MODIFICATION FURTHER DEVELOPMENT AND PROVISION OF VARIOUS FACILITIES IN THE BUILDING THEREBY CREATING NECESSA RY INFRASTRUCTURE .GRANTED BY THE GOL 6.2.1 SUBJECT TO CLAUSE 8.2 BELOW CO - DEVELOPER CANNOT AT ANY TIME SELL ALIENATE OR TRANSFER BY ANY OTHER MEANS OTHER THAN SUB - LEASE ANY UNIT OR OTHER SPACE/LAND OF SEZ TO ANY THIRD PARTY ..... IN ANY MANNER WHATS OEVER. 8.1. THE CO - DEVELOPER SHALL BE TREATED AS OWNER OF THE ADDITIONS MODIFICATIONS EQUIPMENTS ETC. WHICH ARE INSTALLED BY THE CO - DEVELOPER IN THE BUILDING OF THE PROJECT. 8.2. THE CO - DEVELOPER SHALL HAVE EXCLUSIVE RIGHT TO LET SUB - LET MORTGAGE OR ALLOW USE OF ALL OR ANY PART OF THE FACILITIES IN THE PROJECT TO ANY UNITS OR ANY OTHER PERSONS ENTITLED TO USE THE SAME IN ACCORDANCE WITH THE SEZ ACT ON SUCH TERMS AND CONDITIONS AS CO - DEVELOPER MAY IMPOSE. 30. THE BOP GRANTED APPROVAL TO THE CO - DEVELOPER (DAPL) VIDE LETTER DATED 24/2/2007 CLAUSE (2) THEREOF READS AS UNDER: - 14 (2) YOUR AGREEMENT DATED 29 TH NOVEMBER 2006 ENTERED INTO WITH THE DEVELOPER OF THE AFORESAID SECTOR SPECI FIC IT/ITES SPECIAL ECONOMIC ZONE OF DLF INFO CITY DEVELOPERS (CHENNAI) LTD FOR PROVIDE INFRASTRUCTURE AND OTHER COMMON FACILITIES SHALL FORM PART OF THIS APPROVAL . 31. THUS WE FIND THAT THERE WAS CLEAR APPROVAL TO BOTH THE ASSESSEE AND THE CO - DEVELOPER FOR DEVELOPMENT OPERATION AND MAINTENANCE OF THE SEZ WHEREIN THE INITIAL ARRANGEMENT BY THE ASSESSEE WAS TO CARRY OUT PART DEVELOPMENT AND LEASE OUT THE LAND AND THE BUILDING THEREUPON TO CO - DEVELOPER FOR A LEASE PERIOD OF 49 YEARS. THE ASSESSEE AND CO - DEVELOPER LATER ON EXECUTED AN ADDENDUM TO THE CO - DEVELOPMENT AGREEMENT DATED 29/11/2006 WHEREIN THE LEASE OF LAND CONTINUED TO BE FOR 49 YEARS AND THE BARE SHELL BUILDINGS CONSTRUCTED BY THE ASSESSEE WERE PROPOSED TO BE TRANSFERRED TO THE CO - DEVELOPER F OR A DEVELOPMENT CONSIDERATION OF RS.4 845 PER SQUARE FIT. SUBSEQUENT AMENDMENTS WERE MADE IN THE CO - DEVELOPMENT AGREEMENT DATED 29/11/2006 AND THE AGREEMENT/ADDENDUM THERETO WERE SUBMITTED TO THE BOARD OF APPROVAL FOR SEEKING APPROVAL. THESE ARE AS UNDE R: - S. NO. DATE AGREEMENT DEVELOPMENT CHARGES (PER SQ. FT 1. 29.11.2006 ADDENDUM TO CO - DEVELOPER AGREEMENT DATED 29.11.2006 4845 2. 01.04.2007 RATE REVISION 5125 3. 01.07.2007 RATE REVISION 6442 4. 01.01.2008 RATE REVISION 6947 32. SUBSEQUENTLY THE ASSESSEE FILED A DEFINITIVE CO - DEVELOPER AGREEMENT EXECUTED WITH DAPL ON 20/3/2008 WHEREIN THE DEVELOPMENT CONSIDERATION FOR TRANSFER OF BARE SHELLS WAS FINALLY REVISED AT MINIMUM OF RS.6 550 PER SQUARE FIT VIDE CLAUSE 2.6 OF THE AGREEMEN T. IN PRINCIPLE THE DEPARTMENT OF COMMERCE APPROVED THE REVISED CO - DEVELOPER AGREEMENT. SHRI RAMAN CHOPRA DIRECTOR (ITA - I) CBDT VIDE LETTER DATED 26/5/2009 ADDRESSED TO SHRI T. SRINIDHI DIRECTOR DEPTT OF COMMERCE COMMUNICATED THE 15 CONCURRENCE OF CBDT WITH THE PROPOSAL TO PROVE THE REVISED CO - DEVELOPER AGREEMENT IN RESPECT OF THE 4 CO - DEVELOPER AGREEMENTS TO DLF ASSETS PVT. LTD SUBJECT TO INCLUSION OF THE DISCLAIMER THAT THE APPROVAL WILL HAVE NO BEARING ON TAX TREATMENT OF INCOME ARISING OUT OF SUCH TR ANSACTION WHICH WILL BE DECIDED AS PER THE RELEVANT PROVISIONS OF THE INCOME TAX ACT 1961 THEREAFTER THE APPROVAL LETTER WAS ISSUED TO DLF ASSETS PVT. LTD VIDE LETTER DATED 1/6/2009 RELEVANT CLAUSES THEREOF READ AS UNDER: - '(2) YOUR REVISED AGREEMENT DATED 20TH MARCH 2008 ENTERED INTO WITH THE DEVELOPER OF THE AFORESAID SECTOR SPECIFIC ITIITES SPECIAL ECONOMIC ZONE OF DLF INFO CITY DEVELOPERS (CHENNAI) LIMITED FOR PROVIDING INFRASTRUCTURE AND OTHER COMMON FACILITIES SHALL FORM PART OF THIS APP ROVAL. 3(XVII) APPROVAL GIVEN BY BOA FOR CO - DEVELOPER FOR PARTICULAR TERMS AND CONDITIONS OF LEASE AGREEMENT WILL NOT HAVE ANY BEARING ON THE TREATMENT OF THE INCOME BY WAY OF LEASE RENTALS/DOWN PAYMENT/PREMIUM ETC. FOR PURPOSES OF AS SESSMENT UNDER THE PREVALENT INCOME - TAX ACT AND RULES. THE ASSESSING OFFICER WILL HAVE THE RIGHT TO EXAMINE THE TAXABILITY OF THESE AMOUNTS UNDER THE INCOME - TAX ACT.' 33. THE SPECIAL ECONOMIC ZONE ACT 2005 PROVIDE FOR THE ESTABLISHMENT DEVELOPMENT AND M ANAGEMENT OF THE SPECIAL ECONOMIC ZONE FOR THE PROMOTION OF EXPORTS AND OTHER MATTERS CONNECTED THEREWITH OR INCIDENTAL THERETO. SECTION 3(3) OF THE SEZ ACT PROVIDES THAT ANY PERSON WHO INTENDS TO SET UP SPECIAL ECONOMIC ZONE MAY AFTER IDENTIFYING THE A REA AT HIS OBJECTION MAKE A PROPOSAL DIRECTLY TO THE BOARD FOR THE PURPOSE OF SETTING OF THE SPECIAL ECONOMIC ZONE. THE BOARD OF APPROVAL CONSTITUTED UNDER SUB SECTION (1) OF SECTION 8 OF THE SEZ ACT IS THE ITNER MINISTERIAL STATUTORY AUTHORITY EMPOWERE D TO APPROVE THE PROPOSAL SUBJECT TO SUCH TERMS AND CONDITIONS AS IT MAY DEEM IT TO IMPOSSIBLE OR MODIFY OR REJECT THE PROPOSAL AS PROVIDED IN SECTION 3(7) OF THE SAID ACT. SECTION 3(1) OF SEZ ACT PROVIDES THAT ON RECEIPT OF COMMUNICATION FROM THE BOARD OF APPROVAL CENTRAL GOVERNMENT SHALL GRANT A LETTER OF APPROVAL ON SUCH TERMS AND CONDITIONS AND OBLIGATIONS AND ENTITLEMENTS AS MAY BE APPROVED BY THE BOARD TO THE DEVELOPER BEING THE PERSON OR THE STATE GOVT. CONCERNED. THE WORD DEVELOPER HAS BE EN DEFINED IN SECTION 2(G) OF THE SEZ ACT WHICH MEANS A PERSON WHO OR THE STATE GOVT. WHICH HAS BEEN GRANTED BY THE CENTRAL GOVT LETTER OF APPROVAL UNDER SUB - SECTION (10) OF SECTION 3 AND INCLUDES AN AUTHORITY AND A CO - DEVELOPER. UNDER SECTION 2(F) C O - 16 DEVELOPER MEANS A PERSON WHO OR THE STATE GOVT WHICH HAS BEEN GRANTED BY THE CENTRAL GOVT A LETTER OF APPROVAL UNDER SUB SECTION (12) OF SECTION 3 OF THE SEZ ACT. UNDER SECTION 2 OF THE SAID ACT AUTHORIZED OPERATIONS MEANS OPERATIONS WHICH MAY B E AUTHORIZED UNDER SUB SECTION (2) OF SECTION 4 BY THE BOARD OF APPROVAL AND SUB SECTION (9) OF SECTION 15 BY THE APPROVED COMMITTEE HEADED BY THE DEVELOPMENT COMMISSIONER. SECTION 3(11) OF THE SEZ ACT PROVIDES THAT ANY PERSON WHO OR A STATE GOVT WHICH INTENDS TO PROVIDE ANY INFRASTRUCTURE FACILITIES IN THE IDENTIFIED AREA REFERRED TO IN SUB SECTION (2) TO (4) OR UNDERTAKE ANY AUTHORIZED OPERATION MAY AFTER ENTERING INTO AN AGREEMENT WITH THE DEVELOPER REFERRED TO IN SUB SECTION (10) MAKE A PROPOSAL FOR THE SAME TO THE BOARD FOR ITS APPROVAL AND THE PROVISIONS OF SUB SECTION (5) AND SUB SECTION (7) TO (10) SHALL AS FAR AS MAY BE APPLY TO THE SAID PROPOSAL MADE BY SUCH PERSON OR STATE GOVT. AS PER SECTION 3(12) EVERY PERSON OR A STATE GOVT REFER TO IN SUB SECTION (11) WHOSE PROPOSAL HAS BEEN APPROVED BY THE BOARD AND WHO OR WHICH HAS BEEN GRANTED LETTER OF APPROVAL BY THE CENTRAL GOVT SHALL BE CONSIDERED AS A CO - DEVELOPER OF THE SPECIAL ECONOMIC ZONE. THE POWERS AND FUNCTIONS OF THE BOARD OF APPROVAL AS PER SECTION 9(2) (F) OF THE SEZ ACT ALSO INCLUDE THE POWER TO INVOKE SUSPENSION OF THE LETTER OF APPROVAL GRANTED TO A DEVELOPER AND APPOINTMENT OF AN ADMINISTRATOR UNDER SUB SECTION(1) TO SECTION (10). WE THUS FIND THAT BY INCLUDING A CO - DEV ELOPER THE SEZ ACT RECOGNISES AND TREATS THE CO - DEVELOPER AT PAR WITH DEVELOPER FOR ALL INTEND AND PURPOSES HAVING EQUAL STATUS. THEREFORE TO HOLD A VIEW THAT ONLY ONE DEVELOPER IS RESPONSIBLE FOR DEVELOPING OPERATING AND MAINTAINING A PARTICULAR SEZ OR THAT A SEZ CANNOT BE TRANSFERRED UNDER THE SEZ ACT WOULD BE AN INCORRECT INTERPRETATION. THE LETTER OF APPROVAL GRANTED TO EITHER DEVELOPER OR A CO - DEVELOPER MAY BE SUSPENDED FOR VIOLATION OF ANY TERMS AND CONDITIONS OF APPROVAL OR FOR THE REASONS CON TAINED IN SECTION 10(1) OF THE SEZ ACT. IN THE PRESENT CASE HOWEVER THERE IS NO DISPUTE THAT NO SUCH CASE APPEARS TO EITHER WITH THE ASSESSEE OR THE DAPL SO AS TO FORFEIT THE STATUS OF A DEVELOPER GRANTED TO THE ASSESSEE UNDER THE SEZ ACT. NOW WE HA VE TO EXAMINE THE ISSUE RAISED IN THE ADDITIONAL GROUNDS IN THE APPEAL OF THE REVENUE. THE AO HAS DISALLOWED THE CLAIMED DEDUCTION U/S 80IAB MAINLY ON THE GROUND (1) THAT THE TRANSFER OF BARE SHELL BUILDINGS BY THE ASSESSEE TO THE CO - DEVELOPER FOR A CON SIDERATION WAS NOT AN AUTHORIZED OPERATIONS AS PER THE LIST CONTAINED IN NOTIFICATION DATED 27/10/2006 BEING S.O 1846(E); 17 (2) THE BOARD OF APPROVAL WHILE APPROVING THE CO - DEVELOPER AGREEMENT HAS GIVEN A CONDITIONAL APPROVAL IN AS MUCH AS THE AO HAS BEEN AU THORIZED TO EXAMINE THE TAXABILITY OF LEASE RENTALS BY WAY OF LEASE PREMIUM/ ONE TIME PAYMENT ETC BY VIRTUE OF A DISCLAIMER CONTAINED IN CLAUSE (3) (XVII) OF THE APPROVAL LETTER DATED 1/6/2009 AND (3) THE BOARD OF APPROVAL FOR SEZ HAS NOT CONSIDERED THE I NCOME FROM SPECIFIC TRANSACTION BETWEEN DEVELOPER AND CO - DEVELOPER AS EXEMPT FROM INCOME TAX FOR WHICH THE ASSESSING OFFICER HAS BEEN AUTHORIZED TO EXAMINE THE TAXABILITY. SECTION 26(1)(A) TO 1(G) OF THE SEZ ACT PROVIDE FOR MAJOR TAX INCENTIVE TO A DEVELO PER OR ENTREPRENEUR IN THE SEZ WHICH INCLUDE EXEMPTION FROM CUSTOMS DUTY EXCISE DUTIES DUTY DRAW BACK CENTRAL SALES TAX AND SERVICE TAX ETC. IN CONCURRENCE WITH THE ABOVE PROVISIONS RELATING TO VARIOUS EXEMPTIONS CONCESSIONS OR OTHER BENEFITS A CLAUSE NO. 3(XIV)WAS MENTIONED IN THE APPROVAL LETTER DATED 22/6/2006 ISSUED TO THE ASSESSES AS UNDER: - 3(XIV) THE DEVELOPER SHALL OBTAIN THE APPROVAL OF BOARD FOR SPECIFIC ACTIVITIES PROPOSED TO BE UNDERTAKEN FOR DEVELOPMENT OPERATION AND MAINTENANCE OF SPECIA L ECONOMIC ZONE. BASED ON THE ACTIVITIES APPROVED BY THE BOARD THE DEVELOPER SHALL BE ENTITLED FOR DUTY FREE IMPORT OR DOMESTIC PROCUREMENT OF GOODS FOR THE APPROVED 1ACTIVITIES UNDER RULE 10 AFTER THE SPECIAL ECONOMIC ZONE HAS BEEN NOTIFIED.' 34. IDENTICALLY WORDED CLAUSE NO. 3 (XIII) HAS BEEN INCORPORATED IN THE APPROVAL LETTER DATED 1/6/2009 GRANTED TO THE DAPL EXCEPT FOR THE REPLACEMENT OF WORD DEVELOPER WITH THE WORD CO - DEVELOPER . THE LIST OF APPROVED AUTHORIZED OPERATIONS CONTAINED IN THE NOTIFICATION DATED 27/10/2006 LIST OF AUTHORIZED OPERATIONS ENCLOSED AS AN ANNEXURE TO THE LETTER DATED 29/8/2006 ISSUED TO THE ASSESSEE AND THE LIST OF AUTHORIZED OPERATIONS ENCLOSED AS ANNEXURE TO THE LETTER DATED 19/6/2007 ISSUED TO THE CO - DEVELOPER B Y THE BOARD OF APPROVAL APPROVING AUTHORIZED OPERATIONS REVEALING THAT ALL THE AUTHORIZED OPERATIONS CONTAINED THEREIN RELATE ONLY TO DEPARTMENTAL ACTIVITIES REQUIRED TO BE CARRIED OUT FOR CREATION OF INFRASTRUCTURAL AND OTHER FACILITIES FOR THE PURPOSES O F DEVELOPMENTAL OPERATION AND MAINTENANCE OF SEZS. THE AUTHORIZED OPERATIONS ARE THEREFORE REQUIRED TO BE UNDERSTOOD AND CONSTITUTED IN THE CONTEXT OF CARRYING OUT DEPARTMENTAL ACTIVITIES COUPLED WITH AVAILMENT OF VARIOUS DUTIES AND CONCESSIONS. IT IS ALSO PERTINENT TO MENTION HERE THAT UNDER SECTION 9(2) (B) OF THE SEZ ACT A BOARD OF APPROVAL HAS GOT OVER RIDING POWERS AND EMPOWERED TO GRANT APPROVAL OF AUTHORIZED 18 OPERATIONS TO BE CARRIED OUT IN THE SEZ BY THE DEVELOPER. TO ACCOMMODATE SUCH POWERS OF THE BOARD OF APPROVAL THE NOTIFICATION DATED 27/10/2006 CONTAINS A RESIDUARY CLAUSE AND PROVIDES FOR SUCH OTHER OPERATIONS WHICH THE BOARD OF APPROVAL MAY AUTHORIZE FROM TIME TO TIME. THUS WE FIND THAT ADVERSE INFERENCE DRAWN BY THE AO THAT THE TRANSFER OF BEAR SHELLS BY THE ASSESSEE TO THE CO - DEVELOPER WAS NOT A NOTIFIED AUTHORIZED OPERATION IN OUR VIEW DOES NOT STAND. THE AO HAS NEITHER SOUGHT ANY FURTHER CLARIFICATION ON THIS SPECIFIC ISSUE FROM THE BOARD OF APPROVAL NOR HAS ALLOWED OPPORTUNITY TO TH E ASSESSEE TO CLARIFY THE MATTER FURTHER. ON THE CONTRARY THE ASSESSEE HAD FILED ADDITIONAL EVIDENCES AFTER SEEKING TWO CLARIFICATIONS FROM THE BOARD OF APPROVAL. THE CLARIFICATION LETTERS DATED 18/1/2011 AND 20/1/2011WERE ADMITTED AS ADDITIONAL EVIDENC E BY THE LD. CIT(A). THE LD. CIT(A) HAS REPRODUCED THESE CLARIFICATIONS AT PAGE NO. 125 TO 127 OF THE FIRST APPELLATE ORDER. IN THESE LETTERS BESIDES OTHER IT HAS ALSO BEEN CLARIFIED THAT ALL LEASE OF LAND ARE SUBJECTED TO THE GENERAL CONDITION CONTAINE D IN PARA 3 (XVII) OF LETTER DATED 1/6/2009. IT HAS BEEN FURTHER CLARIFIED THAT GENERAL CONDITION NO. 3 (XVII) IN THE CO - DEVELOPER APPROVAL DATED 1/6/2009 IS APPLICABLE TO THE TERMS AND CONDITIONS OF THE LEASE AGREEMENT ONLY IN PARA NO. 6 OF THE CLARIFIC ATION DATED 18/1/2011 IT HAS BEEN MADE CLEAR THAT THE DEVELOPERS BUSINESS OF DEVELOPMENT OF SEZ ALSO ENVISAGES TRANSFER AND HAND OVER OF DEVELOPED/CONSTRUCTED BUILDINGS (IN WHICH OTHER FORM SUCH AS BARE SHELL/COLD SHELL) AGAINST DEVELOPMENT CHARGES/DEVELOP MENT CONSIDERATION FORMING PART OF MOU/AGREEMENT APPROVED BY BOA. THESE ACTIVITIES ARE AUTHORIZED OPERATIONS UNDER SEZ ACT AND THE RULES AS AMENDED. IT HAS ALSO BEEN CLARIFIED THAT THE ACTIVITIES OF THE CO - DEVELOPER SUBSEQUENT TO RECEIVING BARE SHELL/COL D SHELL BUILDING CONVERTING THE SAME INTO WARM SHELL BUILDING BY DEVELOPING/CONSTRUCTING /INSTALLATIONS OF VARIOUS EQUIPMENTS FOR ELECTRIFICATION AIR CONDITIONING ETC. ARE AUTHORIZED OPERATIONS OF THE CO - DEVELOPER UNDER SEZ ACT AND RULES AS AMENDED. IN THE CLARIFICATION LETTER DATED 20/1/2011 IT HAS BEEN FURTHER MADE CLEAR THAT NO SALE IS ALLOWED IN SEZ MEANS THAT SALE OF LAND IS NOT ALLOWED IN THE SEZ BUT THE SALE OF SUPER STRUCTURE (BARE SHELL/COLD SHELL) IS ALLOWED IN THE SEZ AND THE SAME IS THE AUT HORIZED OPERATIONS OF THE DEVELOPER. IN THE CLARIFICATION LETTER DATED 20/1/2011 IT HAS BEEN FURTHER CLARIFIED THAT THE SEZ BUILDINGS (BARE SHELL/COLD SHELL) WILL BE TRANSFERRED AND HANDED OVER TO THE CO - DEVELOPER UPON EXECUTION OF A TRANSFER AND HAND OV ER DEED AND WHICH HAS ALREADY BEEN APPROVED. IN CONSIDERATION OF SUCH TRANSFER AND HAND OVER THE CO - DEVELOPER SHALL MAKE PAYMENT OF 19 SUCH AMOUNT AS DEVELOPMENT CONSIDERATION IN FAVOUR OF THE DEVELOPER AS IS AGREED TO BETWEEN THE PARTIES. THE ABOVE MENT IONED TRANSFER AND HAND OVER IS ALLOWED IN SEZ. WE THUS DO NOT FIND SUBSTANCE IN THE FINDING OF THE AO THAT THE TRANSFER OF BARE SHELL BY THE ASSESSEE TO THE CO - DEVELOPER WAS NOT AN APPROVED AUTHORIZED OPERATION FOR THE PURPOSE OF DISALLOWING CLAIM OF DE DUCTION U/S 80IAB. THERE IS NO DISPUTE THAT THE CO - DEVELOPER AGREEMENT DATED 20/3/2008 WAS APPROVED BY BOTH THE DEPARTMENT OF COMMERCE AND DEPTT OF REVENUE AND THIS REVISED AGREEMENT FORMS INTEGRAL PART OF THE APPROVAL VIDE CLAUSE (2) OF THE APPROVAL LETT ER 1/6/2009 ISSUED BY THE BOARD OF APPROVAL TO THE CO - DEVELOPER (DAPL). THE APPROVAL LETTER WAS ISSUED AFTER INCLUSION OF A DISCLAIMER AS DESIRED BY CBDT VIDE LETTER DATED 26/5/2009. SUCH APPROVAL WAS LATER DISCUSSED CONFIRMED AND RECTIFIED IN THE 34 TH MEETING OF THE BOARD OF APPROVAL HELD ON 19/6/2009. THEREFORE WE FULLY AGREE WITH THE FINDING OF THE LD. CIT(A) THAT THE CONTENTION OF THE AO THAT APPROVAL WAS GIVEN BY 3 OR 4 MEMBERS OF THE SAME DEPARTMENT IS CONTRARY TO THE FACTS AND EVIDENCES ON RECOR D WHEN SUCH APPROVAL STOOD RECTIFIED BY THE BOARD OF APPROVALS. 35. THE ONLY ISSUE NOW REMAINS TO BE DECIDED IS THE FACTS AND CONSEQUENCE OF THE DISCLAIMER CONTAINED IN CLAUSE 3 (XVII) OF THE APPROVAL LETTER DATED 1/6/2009 WHICH THE SUBJECT MATTER OF THE ADDITIONAL GROUND RAISED BY THE REVENUE IN ITS APPEAL. FROM THE CLAR IFICATIONS DATED 18/1/2011 AND 20/1/2011 ISSUED BY THE MINISTRY OF COMMERCE AS WELL AS FROM THE LETTER OF DIRECTOR CBDT THEIR REMAINS NO SCOPE FOR ANY DOUBT THAT THIS DISCLAIMER IS APPLICABLE ONLY TO TRANSFER OF LAND IN THE GUISE OF LONG TERM LEASE BY RECE IVING LEASE RENTALS/DOWN PAYMENTS/PREMIUM ETC COMMENSURATE WITH THE SALE VALUE OF LAND AS IS EVIDENT FROM PARA 4 OF THE LETTER DATED 6/5/2009 OF THE DIRECTOR CBDT IN THIS PARA NO. 4 IT HAS BEEN MENTIONED THAT THE ISSUE REGARDING TRANSFER OF LAND BY DEVELOP ERS ON AN INDEFINITE/LAND LEASE WHICH VIRTUALLY AMOUNTS TO SALE HAS BEEN BROUGHT TO THE NOTICE OF DOC ON EARLIER OCCASIONS. AFTER PROTRACTED DISCUSSION ON THE ISSUE AND ALSO TAKING INTO ACCOUNT THE ADVISE OF MINISTRY OF LAW IT WAS AGREED TO APPROVE SUCH PROPOSAL 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 WILL BE DECIDED AS PER RELEVANT PROVISIONS OF INCOME TAX ACT 1961. A REFERENCE TO P ARA 3 OF THE LETTER OF THE DIRECTOR CBDT DATED 26/5/2009 REVEALS THAT THAT HE WAS CONSCIOUS OF AND EXAMINED THE ARRANGEMENT OF TRANSFER OF COLD SHELL BUILDING ON HAND OVER BASIS BY THE ASSESSEE TO THE 20 CO - DEVELOPER BUT INSTEAD FOR INCLUSION OF DISCLAIMER I N THE CONTEXT OF TRANSFER OF LAND AS ABUNDANTLY CLEAR FROM PARA 4 ABOVE OF THE SAID LETTER. THUS THE ABOVE DISCLAIMER IS NOT APPLICABLE TO THE TRANSFER OF BARE SHELL DULY APPROVED BY THE BOARD OF APPROVAL AS AN AUTHORIZED OPERATION. THE MINISTRY OF COM MERCE IN ITS CLARIFICATION ISSUED ON 18/1/2011 HAS EXPLICITLY CLARIFIED THAT ALL LEASE OF LAND ARE SUBJECTED TO THE GENERAL CONDITION CONTAINED IN PARA 3 (XVII) OF LETTER DATE 1/6/2009 AND THIS GENERAL CONDITION IS APPLICABLE TO THE TERMS AND CONDITIONS OF THE LEASE AGREEMENT ONLY. THE GROUP OF WORDS TAX TREATMENT OF INCOME ARISING OUT OF SUCH TRANSACTION IN PARA 4 ABOVE HAS TO BE NECESSARILY READ ONLY IN THE CONTEXT OF TRANSFER OF LAND. WE THUS DULY AGREE WITH THE OBSERVATION OF THE LD. CIT(A) THAT THE AO HAS NOT TAKEN COGNIZANCE OF THE FACT THAT CLAUSE (2) OF THE APPROVAL LETTER DATED 1/6/2009 REFERS TO THE REVISED AGREEMENT DATED 20/3/2008 DULY FORMING PART OF APPROVAL WHEREAS THE DISCLAIMER IS CLAUSE 3(XVII) REFERS TO TERMS AND CONDITIONS OF LEASE AGREEMENT . THE SEPARATE AGREEMENTS FOR LEASE OF LAND HAVE BEEN APPROVED BY THE BOARD OF APPROVAL. THUS THE VARIOUS OBJECTIONS RAISED BY THE AO IN THE REMAND REPORT DATED 8/6/12 WERE DEVOID OF ANY MERIT. APPROVAL LETTER DATED 1/6/2009 WAS ISSUED BY BOA TO THE CO - DEVELOPER. CLAUSE 3(XVII) OF WHICH IS THE MAIN REASON FOR ENTIRE CONTROVERSY IN THE ADDITIONAL GROUND RAISED BY THE REVENUE TO ITS APPEAL PARA 3(XVII) OF THE APPROVAL LETTERS DATE3D 14/2/2007 AND 1/6/2009 ISSUED TO THE CO - DEVELOPER ARE IDENTICA LLY WORDED PURSUANT TO SUCH CONDITIONS IN THE EARLIER APPROVAL LETTER DATED 14/2/2007 THE CO - DEVELOPER HAS ALREADY BEEN GRANTED APPROVAL OF AUTHORIZED OPERATIONS VIDE LETTER DATED 19/6/2007 WHICH IN - FACT ARE ALSO LISTED BY THE AO IN HIS REMAND REPORT. WE THUS FULLY AGREE WITH THE FINDING OF THE LD. CIT(A) THAT ONCE THE AUTHORIZED OPERATIONS WERE APPROVED BY THE BOARD OF APPROVAL VIDE LETTER DATED 19/6/2007 THERE WAS NO FURTHER REQUIREMENT OF GETTING THE SAME AUTHORIZED OPERATIONS APPROVED AGAIN IN TERM S OF APPROVAL LETTER DATED 1/6/2009. NO FURTHER APPROVAL OF TRANSFER OF BARE SHELL WAS REQUIRED SINCE THE AGREEMENT DATED 20/3/2008 PROVIDING FOR TRANSFER OF BARE SHELL TO THE CO - DEVELOPER FOR AN AGREED DEVELOPMENT CONSIDERATION FORMS INTEGRAL PART OF AP PROVAL LETTER DATED 1/6/2009 ISSUED BY BOA. THE PARA NO.2 WHEREOF READS THAT YOUR REVISED AGREEMENT DATED 20/3/2008 ENTERED INTO WITH THE DEVELOPER OF THE AFORESAID SECTOR SPECIFIC IT/ITES SPECIAL ECONOMIC ZONE OF DLF INFO CITY DEVELOPERS (CHENNAI) LTD FOR PROVIDING INFRASTRUCTURE AND OTHER COMMON FACILITIES SHALL FORM PART OF THIS APPROVAL. WE ALSO AGREE WITH THE FINDING OF THE LD. CIT(A) THAT THE AO WAS 21 HAVING NO JURISDICTION OR AUTHORITY TO SIT IN THE JUDGMENT OF THE BOARD OF APPROVAL AND CHALLENGE T HE VALIDITY OF APPROVAL GIVEN BY THE MINISTRY OF COMMERCE. THE OBJECTION OF THE AO THAT TRANSFER OF BARE SHELL IS NOT PERMITTED IN THE SEZ IS AGAIN MISPLACED AND UNJUSTIFIED IN VIEW OF THE CLARIFICATIONS DATED 18/1/2011 AND 20/1/2011 ISSUED BY THE MINISTR Y OF COMMERCE AND INDUSTRIES. THE DEVELOPMENT COMMISSIONER OF THE CONCERNED SEZ IS THE EX - OFFICIO MEMBER OF THE BOARD OF APPROVAL U/S 8(2) (G) OF THE SEZ ACT. THE PROVISIONS OF RULE 11 (5) OF THE SEZ RULES 2006 READS AS UNDER: - '( 5) THE LAND OR BUILT UP SPACE IN THE PROCESSING AREA OR FREE TRADE AND WAREHOUSING ZONE SHALL BE GIVEN ON LEASE ONLY TO THE ENTREPRENEURS HOLDING A VALID LETTER OF APPROVAL ISSUED UNDER RULE 19 AND THE LEASE PERIOD SHALL NOT BE LESS THAN FIVE YEARS BUT NOTWITHSTANDING ANY OTHER CONDITION IN THE LEASE DEED THE LEASE RIGHTS WOULD CEASE TO EXIST IN CASE OF THE EXPIRY OR CANCELLATION OF THE LETTER OF APPROVAL: PROVIDED THAT THE DEVELOPER MAY WITH THE PRIOR APPROVAL OF THE APPROVAL COMMITTEE GRANT ON LEASE LAND OR BUILT UP SPACE FOR CREATING FACILITIES SUCH AS CANTEEN PUBLIC TELEPHONE BOOTHS FIRST AID CENTRES CRECHE AND SUCH OTHER FACILITIES AS MAY BE REQUIRED FOR THE EXCLUSIVE USE OF THE UNIT.' 36. THUS AS DISCUSSED ABOVE THE ADMITTED AND UNDISPUTED FACT REMAIN THAT THE ASS ESSEE HAS BEEN DULY APPROVED BY THE BOA AS A DEVELOPER THE LAND OWNED BY THE ASSESSEE AT CHENNAI WAS NOTIFIED BY THE GOVT. OF INDIA FOR ESTABLISHMENT OF SEZ THE AUTHORIZED OPERATIONS TO BE UNDER TAKEN IN THE SAID SEZ WERE APPROVED BY BOA THE CO - DEVELOPE R AGREEMENT DATED 20/3/2008 EXECUTED WITH THE CO - DEVELOPER CONTEMPLATING TRANSFER OF BARE SHELLS TO THE CO - DEVELOPER HAS BEEN DULY APPROVED BY THE BOP; THE DAPL HAS BEEN APPROVED AS A CO - DEVELOPER THE TRANSFER OF BARE SHELL TO THE CO - DEVELOPER HAS BEEN APPROVED AS AN AUTHORIZED OPERATION BY THE BOP AND THE DISCLAIMER CONTAINED IN CLAUSE 3(XVII) OF THE APPROVAL LETTER DATED 1/6/2009 APPLIES ONLY TO THE LEASE OF LAND AS CLARIFIED BY THE MINISTRY OF COMMERCE IN THE CLARIFICATION DATED 18/1/2011 AND NOT TO T HE TRANSFER OF BARE SHELLS. NOTING THESE MATERIAL FACTS WE ARE OF THE VIEW THAT THE LD. CTI(A) HAS RIGHTLY AGREED WITH THE PLEA OF THE ASSESSEE THAT THE TAX DISCLAIMER CONDITION MENTIONED IN THE CO - DEVELOPER APPROVAL IS PRIMARILY TO BE IN BY THE BOA IN TH E APPROVALS GRANTED TO PUT A CURB ON THE WRONG PRACTICE OF LEASING THE LAND FOR LONG PERIODS AND RECEIVING ONETIME PAYMENT IN THE FORM OF LEASE RENTALS/DOWN 22 PAYMENTS/PREMIUM ETC WHICH TANTAMOUNT TO SALE OF LAND IN THE GUISE OF LONG TERM LEASE. THE ASSESSE E HAS OBTAINED REQUISITE APPROVALS FROM THE BOA IN MOST TRANSPARENT MANNER BY DISCLOSING NOT ONLY DEVELOPMENT CONSIDERATION BUT ALSO THE BASIS FOR DETERMINING THE SAME. THE ENTIRE CONTROVERSY AS TO WHETHER TRANSFER OF BARE SHELL BUILDINGS TO THE CO - DEVELO PER WAS AN AUTHORIZED OPERATION HAS BEEN SET AT REST BY FURTHER CLARIFICATIONS DATED 18/1/2011 AND 20/1/2011 ISSUED BY THE MINISTRY OF COMMERCE. THE BOA BEING THE STATUTORY AUTHORITY UNDER THE SEZ ACT HAS GRANTED VARIOUS APPROVALS BY A STATUTORY 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 SCHE DULE OF SEZ ACT WHICH READS AS UNDER: - '27. THE PROVISIONS OF THE INCOME TAX ACT 1961 AS IN FORCE FOR THE TIME BEING SHALL APPLY TO OR IN RELATION TO THE DEVELOPER OR ENTREPRENEUR FOR CARRYING ON THE AUTHORIZED OPERATIONS IN A SPECIAL ECONOMIC ZONE O R UNIT SUBJECT TO THE MODIFICATIONS SPECIFIED IN THE SECOND SCHEDULE.' 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 SA ME IN AS MENTIONED IN SEZ ACT) HAS BEEN BROADLY INCORPORATED INTO THE INCOME TAX ACT. SECTION 51 OF SEZ ACT HAVING AN OVERRIDING EFFECT OVER ANY OTHER LAW READS AS UNDER: - '51.( 1) THE PROVISIONS OF THIS ACT SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING IN CONSISTENT 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 PROVISIONS OF SEZ ACT SHALL HAVE OVER RIDING EFFECT EVE N IF ANYTHING INCONSISTENT IS CONTAINED IN THE INCOME TAX ACT. THE SEZ ACT HAS BEEN ENACTED CONTAINING THE SPECIFIC LEGISLATION TO BE BROUGHT IN OTHER STATUTES. WHEN THE TERMS LIKE SEZ AUTHORIZED OPERATIONS DEVELOPERS ETC HAVE BEEN SPECIFICALLY DEFINED UNDER THE SEZ ACT IT IS NOT OPEN TO ANY AUTHORITY TO RELOOK AT THE MEANING OF TERMS ALREADY DEFINED UNDER THE SEZ ACT. IN THIS REGARD WE ALSO FIND SUPPORT FROM THE 23 DECISION OF THE TRIBUNAL IN THE CASE OF ASSESSEE GROUP ITSELF FOR THE A.Y 2007 - 08 THE R ELEVANT PARAGRAPHS THEREOF IS BEING REPRODUCED HEREUNDER: - PAGE 17 PARA 5.3 THE SEZ ACT 2005 AS WELL AS INCOME TAX ACT 1961 HAVE PLACED DEVELOPER AND THE CO - DEVELOPER AT THE SAME LEVEL I.E FOR DEVELOPMENT (CREATING INFRASTRUCTURE FACILITIES) MAIN TENANCE AND OPERATIONS. IT WAS IN THIS CONTEXT THAT SEZ BOA UNDER THE AEGIS OF MINISTRY OF COMMERCE APPROVED CONVERSION OF BARE SHELL INTO WARM SHELL BY THE CO - DEVELOPER AS AUTHORIZED OPERATIONS PAGE 21 PARA 5.15 ASSESSEE RECEIVED CLARIFICATION FROM BOA/GOVERNMENT OF INDIA MINISTRY OF COMMERCE AND INDUSTRY DEPTT OF COMMERCE (SEZ SECTION) UDYOG BHAWAN NEW DELHI DATED 18/1/2011 & 20/1/2011 BOA IN EXERCISE OF ITS STATUTORY POWERS APPROVED BUSINESS MODEL OF THE ASSESSEE CLARIFIED THAT UNDER RULE 11(9) SALE OF LAND IS NOT PERMISSIBLE IN A SEZ. HOWEVER CO - DEVELOPER CAN TAKE LAND ON LEASE FROM DEVELOPER FOR DEFINITE PERIOD. FURTHER SEZ BUILDINGS I.E. BARE SHELL/COLD SHELL CAN BE TRANSFERRED AND HANDED OVER TO THE CO - DEVELOPER ON PAYMENT OF CONSID ERATION TO DEVELOPER THIS TRANSFER IS PERMISSIBLE AND AUTHORIZED AS PER SEZ ACT AND RULES. THE CORRESPONDENCE WITH THE SEZ AUTHORITIES ON THIS ISSUE IS PLACED ON THE P.B AT PAGES 122 TO 130 AND ITS CONTENTS ARE REFERRED TO BY THE LD. COUNSEL. THUS AS PE R SPECIFIC CLARIFICATIONS BY BOA THE TRANSFER OF BARE SHELL BUILDING ON LONG TERM LEASE TO APPROVED CO - DEVELOPER ARE AUTHORIZED ACTIVITIES UNDER SEZ ACT & RULES. THUS THESE CLARIFICATIONS ALSO DISPEL THE FINDINGS OF CIT REVISING THE ASSE4SSMENT ORDER AND SETTING ASIDE THE SAME. 263 ORDER AND FINDINGS THEREIN BEING CONTRARY TO LEGAL PROVISIONS IS LIABLE TO BE QUASHED. THE ASSESSMENT ORDER BEING IS CONFORMITY WITH SEZ ACT RULES AND PROVISIONS OF SECTION 80IAB CAN NEITHER BE TERMED AS ERRONEOUS OR PREJUDI CIAL TO THE INTEREST OR REVENUE. PAGE 28 PARA 6.9 LD. COUNSEL CONTENDS THAT LD. CITS PROPOSITION TO TAX IT AS CAPITAL GAINS IS AGAINST THE BASIC PRINCIPLE OF TAXATION AS LARGE SCALE REAL ESTATE BUSINESS ACTIVITIES CONTINUOUSLY CARRIED ON BY ASSESSEE AND BA RE SHELL BUILDINGS DECLARED 24 AS STOCK - IN - TRADE IN ITS BOOKS OF ACCOUNTS AS PER ITS OBJECTS CLAUSE IN ITS MEMORANDUM AND ARTICLES OF ASSOCIATION CAN BE TAXED ONLY UNDER THE HEAD BUSINESS INCOME. PAGE 35 PARA 6.16 THE LETTER OF APPROVAL IS ISSUED BY THE BOAR D BY A STATUTORY PROCESS OF LAW AND ONCE IT HAS BEEN ISSUED BY THE EXCLUSIVE SANCTIONING AUTHORITY THE CONSEQUENTIAL BENEFITS THAT ARE AVAILABLE TO A DEVELOPER CANNOT BE DENIED. THE ASSESSING OFFICER OR THE COMMISSIONER OF INCOME - TAX EXERCISING THE POWER OF REVISION UNDER THE ACT CANNOT HAVE ANY JURISDICTION TO QUESTION THE VALIDITY OF THE LEGALITY OF THE AUTHORIZED OPERATIONS WHICH HAVE BEEN APPROVED BY THE REGULATORY BODY OF THE CENTRAL GOVERNMENT I.E. BOA AND ATTEMPT TO DISPUTE THE SAME IS CONTRARY TO THE STATUTORY PROVISIONS OF THE SEZ ACT. PARA 6.17 BOA ARE APPOINTED BY THE CENTRAL GOVERNMENT IN VARIOUS FIELDS OF GIVING BENEFITS LIKE SEZ CUSTOMS AND VARIOUS OTHER FISCAL LEGISLATION THE INCOME - TAX AUTHORITIES CANNOT SIT OVER THE JUDGMENT OF THE BOA. BY CATENA OF JUDGMENTS THE COURTS HAVE HELD THAT THE APPROVAL ACCORDED BY SUCH REGULATORY BOARDS IN DEVELOPMENT SCHEMES CANNOT BE QUESTIONED BY TAX AUTHORITIES. RELINE IN THIS BEHALF IS PLACED ON: - APOLLOTYRES VS. CIT (2002) 9 SCC 1(SC) - MALAYALA MANO RAMA CO. LTD VS. CIT (2008) 12 SCC 612 (SC) - CIT VS. HCL COMMET SYSTEM & SERVICE LTD. 305 ITR 409 (SC) - MARMO CLASSIC VS. COMMISSIONER OF CUSTOMS [2002 (143) ELT 153 (TRIB. - - MUMBAI] AFFIRMED BY HON BLE SUPREME COURT IN [2003 (152) ELT A85 (SC)]; - LOKASH C HEMICAL WORKS VS. M. S. MEHTA 1981 (8) ELT 235; - TITAL MEDICAL SYSTEM PVT. LTD. VS. COLLECTOR 2003 (151) ELT 254 (SC) - CESTAT JUDGMENT IN HICO ENTERPRISES VS. COMMISSIONER 2005 - (189)ELT 135 (TRIB. LB) APPROVED BY HON BLE SUPREME COURT IN 2008 (228) ELT 161 (SC); - ATUL COMMODITIES PVT. LTD. VS. COMMISSIONER OF CUSTOMS COCHIN 2009 (235) ELT 385 (SC); - M.J. EXPORTS LTD. VS. CEGAT 1992 (60) ELT 161 (SC); 25 THE ASSESSEE HAS NOT SOLD ANY LAND BUT ONLY TRANSFERRED THE BARE SHELL BUILDINGS ON LEASE. THEREFORE THERE IS NO ERROR AS POINTED OUT BY LD. CIT. PAGE 42 PARA 9 THE CONDITION MENTIONED IN NOTIFICATION DATED 27/10/2006 GIVING TO ASSESSING OFFICER THE RIGHT TO EXAMINE THE TAXABILITY OF ISSUE OF 80IAB IN THE SPIRIT OF SEZ PROVISION STANDS VINDICATED. BESIDES WE MAY HASTEN TO ADD THAT APPARENTLY THIS RIDER APPEAR TO BE MADE WHILE APPROVING THE CO - DEVELOPER AGREEMENT. THIS IS POSSIBLE APPLICABLE TO CO - DEVELOPER AND NOT THE ASSESSEE AS THE CONDITION WAS PUT DURING THE COURSE OF APPROVAL OF THE AGREEMENT BETWEEN AS SESSEE AND THE CO - DEVELOPER. PAGE 46 PARA 9.5 APROPOS THE ISSUE OF SALE OF BARE SHELL BUILDINGS BEING AUTHORIZED ACTIVITY IT IS AMPLY CLEAR THAT THE SEZ ACT AUTHORIZES ACTIVITIES INCLUDE CONSTRUCTION OF BARE SHELL/COLD SHELL/WARM SHELL BUILDINGS AND TRANS FER 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. THUS WE SEE NO ERROR ON ANY COUNT AS HELD BY CIT IN THE OR DER OF ASSESSING OFFICER ALLOWING DEDUCTION U/S 80IAB. 39. WE THUS FIND THAT ASSESSEE IS A DEVELOPER UNDER THE SEZ ACT AND IS IN THE BUSINESS OF DEVELOPING A SEZ THE SEZ HAS BEEN NOTIFIED ON THE FIRST DAY OF APRIL 2005 UNDER THE SPECIAL ECONOMIC ZONE ACT 2005 ; AND THE PROFITS HAVE BEEN DERIVED FROM THE BUSINESS OF DEVELOPMENT OPERATION AND MAINTENANCE OF SEZ. WE THUS FULLY AGREE WITH THE FINDING OF THE LD. CIT(A) THAT ALL THE CONDITIONS AS REQUIRED TO BE SPECIFIED UNDER THE SEZ ACT/RULES ARE FULFILL ED AND THE ASSESSEE IS APPROVED DEVELOPER FOR ALL THE INTENT AND PURPOSES OF SECTION 80 IAB I.T OF THE ACT. CONSEQUENT UPON APPROVAL GRANTED BY THE BOA FOR TRANSFER OF BARE SHELL TO THE CO - DEVELOPER THE PROFITS ARISING TO THE ASSESSEE FROMS SUCH AN AUTHO RIZED TRANSACTION ARE ELIGIBLE FOR DEDUCTION U/S 80IAB OF THE ACT. FOR A READY REFERENCE PROVISIONS LAID DOWN U/S 80IAB (1) OF THE ACT ARE BEING REPRODUCED HEREUNDER: - '80IAB( 1) - WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE BEING A DEVELOPER INCLUDES AN Y PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM 26 ANY BUSINESS OF DEVELOPING A SPECIAL ECONOMIC ZONE NOTIFIED ON OR AFTER THE 1ST DAY OF APRIL 2005 UNDER THE SPECIAL ECONOMIC ZONE ACT 2 THERE SHALL IN ACCORDANCE WITH AND SUBJECT TO TH E PROVISIONS OF THIS SECT' BE ALLOWED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE A DEDUCTION OF AMOUNT EQUAL TO ONE HUNDRED PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSECUTIVE ASSESSMENT YEARS.' 40. THUS WE FIND THAT THE ISSUES DISCUSSED HEREINABOVE IN THE PRECEDING PARAGRAPHS WILL COVER THE ISSUE RAISED IN ADDITIONAL GROUND OF THE APPEAL PREFERRED BY THE REVENUE AND THE ISSUES RAISED IN GROUND NOS 6 7 8 9 10 & 14 OF THE REVENUE S APPEAL. IN RESULT ALL THESE GROU NDS OF THE APPEAL OF THE REVENUE ARE REJECTED. 41. CONSEQUENTLY APPEAL PREFERRED BY THE ASSESSEE IS ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ITA NO. 5470/DEL/12 & ITA NO. 5367/DEL/12 42. IDENTICAL ISSUES HAVE BEEN RAISED IN THE AFORESAID CROSS - APPEA LS PREFERRED BY THE PARTIES AS RAISED BY THEM IN THEIR CROSS - APPEALS IN THE CASE OF DLF INFO CITY DEVELOPERS (CHENNAI) LTD. ADJUDICATED HEREINABOVE. THE ONLY DIFFERENCE IN THE GROUNDS OF THESE APPEALS IS THE QUANTUM OF ADDITION DELETED AND SUSTAINED BY TH E LD. CIT(A). THE FACTS ARE ALSO ALMOST SIMILAR TO THE FACTS OF THE CASE IN THE CASE OF DLF INFO CITY DEVELOPERS (CHENNAI) LTD. (SUPRA). WE THUS FOLLOWING THE DECISION TAKEN ON THESE ISSUES IN THE CASE OF DLF INFO CITY DEVELOPERS (CHENNAI) LTD. (SUPRA) D ECIDE THE ISSUES RAISED IN THE GROUNDS AND ADDITIONAL GROUND IN THE CASE OF APPEAL PREFERRED BY THE REVENUE AGAINST THE REVENUE AND THE SAME ARE REJECTED AND THE ISSUE RAISED IN GROUND NO. 2 OF THE APPEAL PREFERRED BY THE ASSESSEE IS ALLOWED. GROUND NO - 1 RAISED THEREIN IS GENERAL IN NATURE AND GROUND NO. 3 THEREOF IS AN ALTERNATIVE GROUND TO THE ISSUE RAISED IN GROUND NO.2. 43. CONSEQUENTLY APPEAL PREFERRED BY THE REVENUE IS DISMISSED AND THAT PREFERRED BY THE ASSESSEE IS ALLOWED. 44. IN SUMMARY THE APPEA LS PREFERRED BY THE ASSESSEE ARE ALLOWED AND THOSE OF THE REVENUE ARE DISMISSED. 8.1 . WE RESPECTFULLY FOLLOW THE ORDER OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEE S OWN CASE. 27 9. THE LD.COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE ISSUE AROSE FOR THE FIRST TIME IN ASSESSMENT YEAR 2007 - 08. THE ASSESSING OFFICER ACCEPTED THE CLAIM U/S 143(3) ON THE BASIS OF APPROVAL GRANTED BY DESIGNATED BOARD OF APPROVAL UNDER SEZ ACT. HOWEVER CIT SET ASIDE THE ASSESSMENT ORDER U/S 263. THE ORDER OF CIT WAS QUASHED BY HON BLE ITAT VIDE ITA NO.2637/DEL/2012 DATED 2.8.2013 AND THE BENEFIT OF STATUTORY DEDUCTION GRANTED BY ASSESSING OFFICER WAS RESTORED. FURTHER THE ASSESSING OFFICER DISPUTED THE CLAIM OF DEDUCTION IN ASSESSMENT YEAR 2008 - 09 AND CLAIM OF STATUTORY DEDUCTION U/S 80 IAB WAS ACCEPTED BY CIT(A) AND ORDER OF CIT(A) WAS ACCEPTED BY HON BLE ITAT VIDE ORDER DT. 21.2.2014. 9.1. IT WAS FURTHER SUBMITTED THAT AS PER PROVISIONS OF SECTION 80IAB(1) THE BENEFIT IS AVAILABLE FOR 10 CONSECUTIV E YEARS AND ACCORDINGLY BENEFIT ONCE GRANTED SHALL BE AVAILABLE FOR TEN CONSECUTIVE YEARS . IN THIS CASE AS PER ORDER OF ITAT FOR ASSESSMENT YEAR 2007 - 08 AND 2008 - 09 BENEFIT AHS BEEN GRANTED AND THE SAME SHALL BE AVAILABLE FOR SUBSEQUENT YEARS WITHIN A BLOCK OF 10 YEARS. 9.2. FOR THIS PROPOSITION HE RELIED ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TATA COMMUNICATION INTERNET SERVICES IN ITA 531/2011 JUDGEMENT DATED 8 TH AUGUST 2011. THE LD.CIT D.R. COULD NOT CITE ANY CONTRAR Y DECISION. 10. WE FIND THAT THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. TATA COMMUNICATION INTERNET SERVICES LTD. ITA 531/2011 HAS CONSIDERED THE FOLLOWING QUESTION OF LAW. WHETHE R THE ITAT ERRED IN LAW AND ON MERITS IN HOLDING THAT DEDUCTION U/S 80IA OF THE INCOME TAX ACT 1961 CANNOT BE DENIED AFTER HAVING BEEN GRANTED IN THE 1 ST YEAR OF CLAIM? THE HON BLE HIGH COURT AT PARA 10 HELD AS FOLLOWS: SINCE THE ASSESSEE HAD BEEN GRANTED CLAIM OF DEDUCTION RIGHT FROM THE ASSESSMENT YEAR 2004 - 05 U/S 80IA CONSEQUENTLY IT CANNOT BE DENIED DEDUCTION FOR THE SUBSEQUENT YEAR IN AS MUCH AS RESTRAIN OF S.80IA(3) CANNOT BE CONSIDERED FOR EVERY YEAR OF CLAIM OF DEDUCTION BUT CAN BE CONSIDERED ONLY IN THE YEAR OF FORMATION OF BUSINESS. 28 10.1 . RESPECTFULLY FOLLOWING THE BINDING JUDGEMENT OF THE JURISDICTIONAL HIGH COURT AND THE ORDER OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEE S OWN CASE WE ALLOW THE APPEAL S OF THE ASSESSEE AND DISMISS THE GROUNDS OF REVENUE. 1 1 . IN THE RESUL T THE APPEAL S OF THE ASSESSEE ARE ALLOWED AND THE APPEAL S OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH NOVEMBER 2014. SD/ - SD/ - ( C.M. GARG ) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 13 TH NOVEMBER 2014 *MANGA COPY OF THE ORDER FORWAR DED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR