TMI Blog2018 (3) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... -up of the SEZs and the permissible activities in such zones with their investors (Section 80IAB) and the circumstances of the case, i.e. the agreement entered into with the co-developer, the conditions of lease etc., had to be analysed in detail. Clearly, the AO did not conduct that detailed enquiry. Furthermore, in the absence of a detailed analysis of the factual narration with respect to the transactions and the documents, having regard to the provisions of the SEZ Act and the purpose for which SEZs are set-up, to ensure that such areas develop in a sustained and consistent manner, with assured infrastructure support on a continuous basis by developers, the CIT(A)’s opinion that the assessment order was erroneous in law and prejudici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BHAT (OPEN COURT) 1. The following questions of law arise for consideration: In ITA 507/2014 (i) Did the Income Tax Appellate Tribunal (ITAT) fall into error in holding that the application of Section 263 by the CIT(A) in the circumstances of the case was not warranted? (ii) Did the ITAT fall into error in holding, on the merits, that sale of assets and buildings to the co-developer could have been treated as capital gain and not business income? 2. The brief facts are that the assessee/respondent sought to take advantage of provisions of Section 80IAB of the Income Tax Act, 1961 [hereafter the 1961 Act ] for the development of a Special Economic Zone (SEZ) on the basis of land acquired/allotted to it. It claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SEZ Act, i.e. the Board of Approval. The CIT(A) rejected the assessee s contentions and held as follows: 6. As enumerated above the assessee company is a developer of SEZ, during the year claimed deduction u/s 80IAB on the development income receipt from the co-developer which is also a company of same group. Deduction u/s 801AB amounting ₹ 573,94,33,765/- was allowed by the AO on the basis of accounting method followed by the assessee, relevant provisions of SEZ Act including provision of Income Tax Act and after examining taxability of the development income claimed exempt by the assessee company. Section 80IAB of the IT Act inserted by SEZ Act gives assessee deduction of 100% of profit and gains derived from the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s irrevocable. c. There is no dispute that buildings have been sold to Codeveloper. d. Though SEZ Act prohibits for sale of land thereby implicitly denying any benefit to a developer who is basically interested in deriving income by transfer of assets, the assessee has found a way to overcome this prohibition by creating 49 years lease in favour of co-developer, renewable further, thus effectively transferring the land also. e. SEZ Act notifies specific authorized operations which alone would qualify for exemptions, concessions and drawbacks. Therefore income from sale or transfer or such operation would not be eligible for exemption as per notification no. S.O.1846(E) dated 27th October, 2006. (ii) In view of the above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity falling within Section 80IAB has, in the opinion of the Court, not been adequately considered or addressed. The Central Government s clarifications were issued to the assessee, at its request. The AO must have analysed the provisions of the Act, especially, the notifications governing the setting-up of the SEZs and the permissible activities in such zones with their investors (Section 80IAB) and the circumstances of the case, i.e. the agreement entered into with the co-developer, the conditions of lease etc., had to be analysed in detail. Clearly, the AO did not conduct that detailed enquiry. On the other hand, the AO s order merely indicates that the analysis, if at all, it could be characterized as such of the assessee s claimed SEZ a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transactions and the documents, having regard to the provisions of the SEZ Act and the purpose for which SEZs are set-up, to ensure that such areas develop in a sustained and consistent manner, with assured infrastructure support on a continuous basis by developers, the CIT(A) s opinion that the assessment order was erroneous in law and prejudicial to the interest of the Revenue was justified. As a result, it is held that the ITAT erred in interfering with the order of the CIT(A). Consequently, the impugned order needs to be set aside. The order of the CIT(A) under Section 263 is, therefore, upheld. The CIT(A) s observations, however, shall not be construed as conclusive or as binding; the discussion with respect to the permissibility of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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