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2015 (10) TMI 319 - ITAT HYDERABAD

2015 (10) TMI 319 - ITAT HYDERABAD - TMI - Revision u/s 263 - assessee’s claim of deduction u/s 80IA(4)(iii) in respect of Capella Industrial Park not considered by AO - Held that:- There is no dispute to the fact that assessee has developed industrial park, which is an eligible business activity u/s 80IA(4)(iii), hence, assessee is entitled to avail deduction in respect of the profit derived from such eligible business. There is also no dispute to the fact that industrial park developed by asse .....

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The only rational conclusion would be, Capella industrial park developed by assessee having been approved by Ministry of Commerce and Industry, govt. of India under non-automatic route, the condition imposed under para 4 of CBDT notification stipulating that no single unit should have more than 50% of the allocable industrial area is not applicable to present assessee. Moreover, as held in case of Creative Infocity Ltd. Vs. Under Secretary [2012 (4) TMI 117 - GUJARAT HIGH COURT] Commerce Minis .....

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para 4 of CBDT notification, but, assessee also submitted a detailed reply explaining why such condition will not apply to assessee. Thus, AO after conducting necessary enquiry and applying his mind to the issue having taken a decision allowing assessee’s claim of deduction u/s 80IA(4)(iii) in respect of Capella industrial park, the decision so taken, cannot be considered to be erroneous and prejudicial to the interests of revenue. In fact, though, ld. CIT accepts the fact that AO did make enqui .....

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issue and has taken a decision after proper application of mind and if such view taken by AO is one of the possible view, then, even if it is not discussed elaborately in the assessment order, it cannot be said assessment order passed is erroneous and prejudicial to the interests of revenue.

Moreover, as could be seen, the coordinate bench in case of L&T Infocity (2015 (1) TMI 1065 - ITAT HYDERABAD) after going through the conditions imposed under automatic and non-automatic route hel .....

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y because he does not agree with the view expressed by AO and wants to substitute his view. - Decided in favour of assessee. - ITA No. 729/Hyd/2015 - Dated:- 4-9-2015 - SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER For The Assessee : Shri Raghunathan S For The Revenue : Shri Konda Ramesh ORDER PER SAKTIJIT DEY, J.M.: This appeal by assessee is directed against the order dated 27/03/2015 passed u/s 263 of the IT Act by ld. CIT - 5, Hyderabad for the AY 2009-10. 2. Ass .....

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ii) of the Act for an amount of ₹ 33,36,38,229. Assessee s case was selected for scrutiny and AO after verifying the books of account as well as other details and making necessary enquiry completed assessment u/s 143(3) of the Act vide order dated 28/03/13. While completing assessment, AO made a number of additions/disallowances, as a result of which gross income was determined at ₹ 46,17,01,813 after allowing deduction under Chapter-VA, taxable income was determined at ₹ 20,54 .....

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ng, AO accepting assessee s submission that it has complied to the conditions prescribed by Department of Industrial Policy and Promotion (DIPP), Govt. of India has allowed assessee s claim of deduction u/s 80IA(4)(iii). He observed, while doing so AO did not verify whether assessee has violated conditions laid down in the notification No. 244/07 dated 28/09/07 issued by CBDT. Thus, ld. CIT was of the opinion that because of failure on the part of AO to verify the fact whether assessee has compl .....

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the conditions while claiming deduction u/s 80IA(4)(iii). Assessee also submitted, it has obtained necessary approval from DIPP and CBDT as required under Rule 18C of Income-tax Rules. It was submitted by assessee that as far as industrial park named Capella is concerned, assessee has applied for approval of DIPP under non-automatic route and the Central Govt. through DIPP has approved industrial park Capella through notification dated 10/04/07. It was submitted that in consequence to the notif .....

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he assessment allowing assessee s claim of deduction u/s 80IA(4)(iii) after proper enquiry, assessment order cannot be considered to be erroneous and prejudicial to the interests of revenue. For the proposition that condition imposed in CBDT notification to the extent that no single unit shall occupy more than 50% of allocable industrial area of an industrial park is not applicable to approval granted under nonautomatic route, assessee relied upon a number of decisions including the decision of .....

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on India Pvt. Ltd. occupies more than 50% of the industrial space, hence, assessee has violated the conditions imposed in the CBDT Notification. Ld. CIT observed, though, assessee has violated the aforesaid condition as per the notification issued by CBDT, but, AO without verifying this aspect has completed the assessment allowing assessee s claim of deduction u/s 80IA(4)(iii). He held that decision taken by AO without requisite verification or enquires cannot constitute formation of an opinion. .....

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both orally as well as through writing. Primary contention of ld. AR is, assessee has applied for approval of Capella Industrial Park through non-automatic route as per the Industrial Park Scheme, 2002. He submitted, the condition in para 4 of the CBDT notification, which stipulates that no single unit should occupy more than 50% of the allocable industrial area is applicable only in case of approval granted under automatic route. Ld. AR submitted, as per Rule 18C of IT Rules the competent auth .....

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e industrial area. That being the case, condition imposed by CBDT in its notification is not valid. In this context, ld. AR relied upon the decision of ITAT, Hyderabad Bench in case of Meenakshi Infrastructure Pvt. Ltd. Vs. CIT, ITA No. 313 /H/10. Ld. AR submitted, once the central govt. approves the project under the industrial park scheme, the conditions u/s 80IA(4)(iii) are satisfied and the notification from CBDT is only a procedural formality. In this context, he relied upon the following d .....

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others, dated 22/01/2015. 4.2 Challenging the assumption of jurisdiction u/s 263 of the Act by ld. CIT, ld. AR submitted, AO in course of assessment proceeding has conducted extensive enquiry with regard to assessee s claim of deduction u/s 80IA(4)(iii) of the Act in respect of Capella Industrial Park. In this context, he drew our attention to the notice issued by AO on 26/07/11 during the assessment proceeding. Referring to the said notice, ld. AR submitted, AO specifically enquired into the c .....

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ered to be erroneous and prejudicial to the interests of revenue. Ld. AR submitted, the fact that the view taken by AO is one of the possible view is also proved from the fact that ITAT Hyderabad Bench in case of L&T Infocity Vs. CIT (supra) held that condition imposed in para 4 of CBDT notification would not apply to approval granted under non-automatic route. Thus, it was submitted by ld. AR when AO has taken a possible view after proper enquiry and application of mind, ld. CIT cannot hold .....

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igarh Trib.) 5. CIT Vs. Leisure Wear Exports Ltd. [2012] 341 ITR 166/202, Taxman 130 (Del.) 6. DIT Vs. Jyoti Foundation [ 2013], 357 ITR 388/219 4.3 Ld. AR submitted, only because AO has not discussed in detail all these facts in assessment order will not lead to a conclusion that he has not made enquiry on the issue. Ld. AR also challenged the impugned order of ld. CIT on various other issues such as (i) ld. CIT cannot set aside the entire assessment order, but, has to confine the issue on whic .....

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the materials on record as well as the orders of revenue authorities. We have also applied our mind to the decisions cited by ld. AR. There is no dispute to the fact that assessee has developed industrial park, which is an eligible business activity u/s 80IA(4)(iii), hence, assessee is entitled to avail deduction in respect of the profit derived from such eligible business. There is also no dispute to the fact that industrial park developed by assessee is in terms with industrial parks scheme, 2 .....

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ic route are different. As far as automatic route is concerned, conditions imposed are as under: "5. Automatic approval - (1) An undertaking shall make an application in the Form-IPS-1 along with an affidavit certifying the details given in such application for obtaining approval for setting up an industrial park. (2) An application under sub-paragraph (1) shall be made to the Entrepreneurial Assistance Unit of the Secretariat for Industrial Assistance, Department of Industrial Policy and P .....

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Industrial Development payable at State Bank of India, Nirman Bhawan Branch, New Delhi-110011. (5) All applications made under sub-paragraph (1) and eligible for Automatic approval in accordance with paragraph 6 shall be disposed of within fifteen days of making such application and the decision for such approval shall be communicated to the applicant immediately on disposal of such application. 6. Criteria for automatic approval - An undertaking which seeks approval under paragraph 5, shall fu .....

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ovided in the Industrial Model Town/Industrial Park/Growth Centre (1) (2) (i) Industrial Model Town referred to in clause (a) of paragraph 4. 50 units; (ii) Industrial park referred to in clause (b) of paragraph 4. 30 units; (iii) Growth centre referred to in clause (c) of paragraph 4. 30 units; (c) The minimum percentage of the area to be allocated for industrial use shall not be less than sixty six percent of the total allocable area. Explanation: For the purpose of this clause, the Industrial .....

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n case of an Industrial Model Town, Industrial Park and Growth Centre, the minimum investment on infrastructure development shall not be less than 50% of the total project cost. In the case of an Industrial Park and Growth Centre which provides built up space for industrial use, the minimum expenditure on infrastructure development including cost of construction of industrial space, shall not be less than 60% of the total project cost; (f) No single unit referred to in column (2) of the Table gi .....

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val under non-automatic route are as under: 7. Non Automatic Approval: (1) All applications not eligible for Automatic approval under paragraph 6 shall require the approval of Empowered Committee, constitute by the Central Government and all such applications shall be placed before the Empowered Committee within fifteen days of receipt of applications. (2) The Empowered Committee shall consist of the following, namely:- (a) Secretary, Department of Industrial Policy and Promotion, Government of .....

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s of financial institutions, banks and professional experts from Industry and Commerce as Co-opted members of the Committee and such coopted members, however, shall not have any voting right. (3) The Empowered Committee shall consider each application on a case to case basis, subject to its complying with the statutory requirements as prescribed by the Ministry of Finance under the Income Tax, 1961, and other applicable statutory rules/obligations. The Committee will consider each case on its me .....

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ceived shall be placed before the Committee within 15 days of receipt. The Committee, as far as possible, would ensure that the Government decision on each proposal is communicated to the applicant within six weeks. The Committee will adopt its own mode and working procedure, keeping in view the requirement of each proposal. 6.2 Thus, a comparative analysis of the automatic approval route and non-automatic approval route, would clearly suggest that conditions imposed therein are different. Claus .....

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ed under non-automatic route. At this stage, it would be relevant to note that rule 18C of the IT Rules, prescribes the conditions for granting benefit u/s 80IA(4)(iii). As per sub-rule (2) of Rule 18C, the undertaking shall have to be duly approved by the Ministry of Commerce and Industry in the central govt. under scheme for industrial park. It is seen from the record that the Ministry of Commerce and Industry vide notification dated 10/04/07, has granted approval to Capella Industrial park un .....

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g of sub-rule (4) of Rule 18C of IT Rules, it is seen that on approval by the central govt., CBDT is only required to notify the industrial park for benefit u/s 80IA(4)(iii). Therefore, in our view, when the central govt. in the Ministry of Commerce and Industry is the competent authority to grant approval to an industrial park u/s 80IA(4)(iii) and such authority having not imposed any condition, stipulating that no single unit shall occupy more than 50% of the allocable industrial area, CBDT be .....

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rms and conditions envisaged in the scheme. Since the power of grant of approval has been conferred upon the Commerce Ministry, in the absence of any express provision in the Rules, it should be presumed that the authority, which has given approval, has the power of revocation and examination of compliance of the conditions upon which the approval has been accorded. Therefore, it is the duty of the Commerce Ministry to decide whether an industrial undertaking is complying with the conditions env .....

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expressed similar view as under: 3………….The CIT(A) as well as the Tribunal have held that the Ministry of Commerce and Industry had finally by letter dated 31st December, 2004 approved the industrial park and a copy of the same was forwarded to the CBDT. In terms of Rule 18C(4) of the Rules, once the indusrrial park is approved by the Ministry of Commerice and Industry, the CBDT has to suomotto issue the notification. The Tribunal, on examination of all facts conclude .....

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Taxes in issuing the notification would not warrant the respondent - assessee being denied the benefit of Section 80IA(4)(iii). " 6.4 The other decisions of ITAT referred to by ld. AR also express similar view. In fact, ITAT, Hyderabad Bench while considering identical issue in case of L&T Infocity Ltd. (supra) after analyzing the scheme for approval both under automatic and non-automatic route, held that condition imposed in para 4 of CBDT notification is not applicable to approval gr .....

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Government of India to your proposal for claiming Income Tax benefit of your Industrial Park, in terms of the Industrial Park Scheme, 2002, notified by this Department in exercise of power under section 80 IA, Sub Section 4(iii) of the Income Tax Act, 1961, subject to the following terms and conditions: i) Name of the Industrial undertaking M/s. L&T Infocity Ltd., Hyderabad ii) Address of the proposed location of the Industrial Park Madhapur Village, Serilingampalli Municipality, District - .....

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lt up space for industrial use Rs.1,55,29,28,658/- x) Investment on Infrastructure Development including investment on built up space for industrial use Rs.1,60,79,28,658/- xi) Expected date of commencement of the Industrial Park 31-03-2006 Not only that, the CBDT has also notified vide notification dt.28th September, 2007, extracting the same table, which was in the approval letter, with a further condition as under: "4. No single unit referred to in column (2) of the Table given in subpar .....

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nder Non-automatic Approval Scheme. In view of this, since there is already approval from the relevant authorities and also from the CBDT, we direct the Assessing Officer to grant the deduction u/s.80IA subject to verification of computation. Assessee's ground on this issue is allowed. 6.5 Thus, considering the facts of assessee s case in the light of judicial precedents referred to above, the only rational conclusion would be, Capella industrial park developed by assessee having been approv .....

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nd so, only they can withdraw the benefit. Therefore, for aforesaid reasons, assessee s claim of deduction u/s 80IA(4)(iii) cannot be rejected. 6.6 On merit having held that assessee is eligible for claim of deduction u/s 80IA(4)(iii) in respect of Capella industrial park, now we will proceed to examine whether assumption of jurisdiction u/s 263 by ld. CIT while holding assessment order to be erroneous and prejudicial to the interests of revenue is valid. As could be seen from the show cause not .....

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g has specifically enquired into assessee s claim of deduction u/s 80IA(4)(iii). Letter dated 26/07/11 issued by AO clearly bears testimony to this fact. Further, in reply to the said query raised by AO, assessee in its reply submitted before AO, has stated as under: The Industrial Park Scheme, 2002 (r Policv") dared I April 2002 issued by the Ministry of Commerce and Industry, under which the Capella IP has been approved, is attached as Enclosure lB. The Policy prescribes the following two .....

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l area to a single occupant. However, the said condition does not find any mention in Paragraph 7 of the Policy which is applicable to industrial Parks seeking approval under non-automatic route. The Company has made application for approval of the Capella IP under lIoll-automatic route in FormIPS-l dated 12 October 2006. Accordingly, the above mentioned condition is not applicable to the Capella IF. Copy of the application seeking approval is attached herewith and marked as Enclosure 1 C. The s .....

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ject to complying with terms and conditions as mentioned therein. Copy of the letter of approval is attached herewith and marked as Enclosure ID. The DIPP has granted the said approval based 011 the same parameters as requested by the Company in the application, as mentioned above. The Company would like to draw your attention to the following relevant points as mentioned in the said DIPP approval- "4. The conditions mentioned in Para J above are as per the proposal made by the undertaking .....

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oj Section 80IA of the Income Tax Act. 1961 'will be available only after the proposed number of industrial units mentioned in Para 1 (vi) of this approval letter, are located in the Industrial Park. The benefit will be available only after notification of the Industrial Park by Central Board of Direct Taxes. " Further, the Company would like to submit that in the said approval, the DIPP did not prescribe any condition restricting the Company from allotting more than fifty percent of th .....

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ication- "And whereas the Central Government has approved the said Industrial Park vide Ministry of Commerce and Industry letter No. 15/112/2006-1 D dated 10-4-2007 subject to the terms and conditions mentioned in the annexure to this notification; However, while reproducing the said terms and conditions as provided by the DIPP, the CBDT had erroneously referred to one of the condition which is applicable for Industrial parks seeking approval under automatic route, which reads as under- &qu .....

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The same is apparent from the reading of the CBDT notification which states that the terms and conditions as approved by DIPP is being reproduced in the Annexure to the CBDT notification. Further, it may be noted that the conditions as mentioned by the CBDT as reproduced above refers to Paragraph 6(b) of the scheme which is applicable for approval under the automatic route as already mentioned earlier. The prerogative to approve and stipulate any conditions while approving any Industrial park wa .....

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uot;(f) All applications not eligible for Automatic approval under paragraph 6 shall require the approval of the Empowered Committee, constituted by the Central Government (2) ..... (3) The Empowered Committee shall consider each application on a case to case basis, subject to its complying with the statutory requirements as prescribed by the Ministry of Finance under the Income Tax Act, 1961, and other applicable statutory rules/obligations. The Committee will consider each case on its merit an .....

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as under: "I am directed to refer to your application dated 12 October 2006 and letter dated 29 September 2006. This is to convey the approval of the Government of India to your proposal for claiming Income Tax benefit of your Industrial Park. Scheme, 2002, notified by this Department in exercise of powers under Section 80-lA, Sub Section 4 (iii) of the Income Tax Act, I961, subject to the following terms and conditions .... " In this regard, the Company would like to submit mat the p .....

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to prescribe the said condition then the very purpose of getting the approval under non-automatic route would get defeated. As discussed above, the right to approve and put any conditions while granting approval for setting up any Industrial park was always with the DIP? The CBDT was only authorized to notify the park as per the approval provided by the DIPP. It did not have any power to put additional conditions while notifying the Industrial Park. Reliance in this regard is placed on the foll .....

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that it is not permissible for CBDT to whittle down the rule and alter the limits of contributions whether annual or initial, that would qualify as deduction under section 36(1)(iv) of the Act. Based on the above facts and judicial precedent, we submit that the CBDT has erroneously included an additional condition (of not allotting more than fifty percent of the allocable industrial area to a single occupant) while notifying the Capella IP which was approved under non-automatic route. Even othe .....

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t that not only AO enquired into the issue of claim of deduction u/s 80IA(4)(iii) in respect of Capella industrial park with reference to the condition imposed in para 4 of CBDT notification, but, assessee also submitted a detailed reply explaining why such condition will not apply to assessee. Thus, AO after conducting necessary enquiry and applying his mind to the issue having taken a decision allowing assessee s claim of deduction u/s 80IA(4)(iii) in respect of Capella industrial park, the de .....

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