Dlf Commercial Developers Ltd., New ... vs Assessee

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Income Tax Appellate Tribunal - Delhi

Dlf Commercial Developers Ltd., New ... vs Assessee

             IN THE INCOME TAX APPELLATE TRIBUNAL
                   (DELHI BENCH "B" NEW DELHI)
           BEFORE SHRI R.S. SYAL AND SHRI RAJPAL YADAV

                         ITA No. 2560/Del/2013
                        Assessment Year: 2008-09
DLF Commercial Developers Ltd., vs. Commissioner of Income-tax,
9th Floor, DLF Centre, Sansad Marg,        Delhi-IV,
New Delhi.
(PAN: AABCD9619C)
       (Appellant)                           (Respondent)

                    Appellant by: S/Sh. RS Singhvi & S. Goel, CAs
                   Respondent by: Dr. Sudha Kumari, CIT(DR)

                                   ORDER

PER RAJPAL YADAV: JUDICIAL MEMBER The present appeal is directed at the instance of assessee against the order of Learned CIT(Appeals) dated 14.03.2013 passed under section 263 of the Income-tax Act, 1961 for assessment year 2008-09. Though the assessee has taken five grounds of appeal but its grievance revolves around a single issue; that Learned Commissioner has erred in taking cognizance under sec. 263 of the Act and setting aside the assessment order on the ground that assessment order is erroneous and prejudicial to the interest of revenue.

2. The brief facts of the case are that assessee is a company engaged in the business of real estates development. It has filed its return of income on 13th September 2008 electronically, declaring an income of 2 Rs.106,26,74,013. The return was processed under sec. 143(1) of the Act on 17.3.2010. The case was selected for scrutiny assessment and a notice under sec. 143(2) dated 03.8.2009 was issued and served upon the assessee. A questionnaire dated 18.5.2010 was issued to the assessee along with notice under sec. 142(1) of the Act. In response to the notices, the authorized representative of the assessee appeared before the Assessing Officer and submitted the necessary details from time to time. Learned Assessing Officer has passed the assessment order under sec. 143(3) on 29.2.2010.

3. There were number of issues which were scrutinized by the learned Assessing Officer in the assessment order but for the purpose of present appeal, we are concerned with the issue pertaining to grant of deduction under sec. 80IAB of the Act.

4. The brief facts of the case as emerging from the record are that in order to achieve the objects of organized infra-structural development in the country, Government of India has enacted Special Economic Zone Act, 2005. The Act provides different incentives to the developers of various SEZ in the country, one of the benefits amongst others is to grant deductions under sec. 80IAB of the Act @ 100% of the income derived by an 3 undertaking from any business of developing SEZ, notified on or after 01.04.2005. According to the assessee, it had applied for development of SEZ in an area of 10.617 hectors at Village Gachi Bowli, Rangaredi District Hyderabad. The Ministry of Commerce & Industries Department has granted approval vide letter dated 23.10.2006. A notification to this effect was issued on 26.4.2007. Thus, as per the requirement under SEZ Act; that a notification of SEZ should be issued after Ist day of April 2005 of the Act has been fulfilled by the assessee. It has claimed a deduction of Rs.584,93,80,397 under sec. 80IAB of the Act.

5. Learned Assessing Officer had called for the information with respect to this issue and assessee has submitted all the details. He discussed the issue in paragraph No. 11 of the assessment order. After detailed discussion, he revised the figure at Rs.573,94,33,765 and allowed the deduction to this extent under sec. 80IAB of the Act.

6. Learned Commissioner on an analysis of the record formed an opinion that assessment order is erroneous and prejudicial to the interest of the revenue. Therefore, he took cognizance under sec. 263 of the Act and issued a show-cause notice to the assessee, inviting its explanation as to why the order of the Assessing Officer be not set aside being erroneous and 4 prejudicial to the interest of revenue. The copy of the notice is available on page 77 of the paper book, it reads as under:

"OFFICE OF THE COMMISSIONER OF INCOME-TAX DELHI-IV, NEW DELHI F.No. CIT-IV/263/2011-12/473 Dated: 5th May, 2011 To The Principal Officer, M/s. DLF Commercial Developers Ltd., 9th Floor, DLF Centre, Sansad Marg, New Delhi-110001 Sub: Proceedings u/s. 263 of the Income-tax Act, 1961 in the case of M/s. DLF Commercial Development ltd. A.Y. 2008-09 -

.......................

The examination of the income tax assessment records of M/s. DLF Commercial Developers Ltd. for A.Y. 2008-09 reveals that:-

(a) the assessee has claimed deduction of Rs.584,93,80,397 under section 80IAB of the IT Act, 1961, being profit from Hyderabad SEZ project. As per Form No. 10CCB, address of SEZ project is Gacchibowli, Rangareddi District, Hyderabad (AP). In the assessment order dated 29.12.2010, the Assessing Officer has allowed deduction u/s. 80IAB of Rs.573,94,33,765/.

(b) the claim of deduction u/s 80IAB has been made in respect of receipt on account of sale of bareshell buildings, constructed on SEZ land by the assessee, to M/s. DLF Assets Ltd. with whom a co-developer agreement has been signed by the assessee.

(c) though section 80IAB provides for deduction from the activity of developing, operating and maintaining SEZ, the assessee has wrongly claimed such deduction on the receipt of sale of bare shell buildings, which cannot be equated with the activity of developing, operating and maintaining SEZ.

(d) sale of building is not one of authorized operations in the SEZ as per the notification dated 27th October, 2006 issued by the Ministry of Commerce and Industry, Govt. of India.

(e) the co-developer agreement between M/s. DLF Commercial Developers Ltd. (i.e. assessee ) and M/s. DLF Assets Pvt. Ltd.

was considered by the SEZ Board of Approval (BoA) on 23.02.2009 and 19.06.2009. While considering the agreement, the representative of the Department of Revenue (DoR) pointed out that "the co-developer agreement refers to transfer and hand over deeds which states that co-developer shall be the owner of the SEZ buildings on payment of development consideration, which is against the spirit of SEZ Act and Rules". Taking this into consideration, the BoA put a condition that the Assessing Officer, will have the right to examine the taxability of these amounts under the Income-Tax Act.

(f) as the sale of bare shell buildings to the co-developer, i.e. DLF Commercial Developers Ltd. in accordance with the co- developer agreement, is against the spirit of SEZ Act & Rules and is not one of the authorized operations of SEZ, the assessee did not derive income from business of developing SEZ. Such isolated transaction of sale of bare shell buildings to the co- developer is nothing but sale of capital assets as the assessee has relinquished Agriculture Land rights over the buildings. Accordingly, the income from sale of bare shell buildings is capital gains on sale of buildings.

2. The above mentioned facts, arising from examination of assessment records, indicate that while finalizing the assessment order, the Assessing Officer did not consider the factual position and did not make inquiry or investigation on this issue, as a result of which the deduction u/s.80IAB has been wrongly granted. Failure to make such inquiry resulting in undue benefit to the assessee by grant of wrong deduction has made the assessment order erroneous and prejudicial to the interest of revenue.

3. I have personally examined the assessment records and have concluded that the facts mentioned above clearly indicate that the assessment order of the assessee for A.Y. 2008-09 appears to be erroneous and prejudicial to the interest of 6 revenue. Therefore, I am of the opinion that this is a fit case where provisions of sec. 263 of the Income-tax Act, 1961 are required to be invoked and the assessment order should be revised accordingly disallowing the claim of deduction for Rs.584,93,80,397 u/s. 80 IAB of the I.T. Act.

4. If you have any objections to the proposed revision in the assessment order on the lines mentioned above, you may submit the same before me at 11.30 AM on 23rd May 2011.

5. You may please note that in case no reply is received, it may be presumed that you have nothing to say in this matter and the assessment order will be revised u/s. 263 on the basis of material available before me.

Sd/-

(Amarendra K. Tewary) Commissioner of Income-tax Delhi-IV, New Delhi.

7. In response to the notice, assessee had appeared and submitted its reply. Learned CIT has extracted the brief summary of the reply in impugned order and thereafter set aside the assessment order by recording a brief findings, it is imperative upon us to take note of the findings which read as under:

"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. 80IAB amounting to Rs.573,94,33,765 was allowed by the A.O. on the basis of accounting method followed by the assessee, relevant provisions of SEZ including provision of Income Tax Act and after examining taxability 7 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 business of developing SEZ. This deduction is available for 10 consecutive assessment year and this deduction is also allowable to the co-developer on transfer collaboration and maintenance of SEZ for remaining period of 10 consecutive assessment years. Thus section 80IAB clearly refers to exemption for profit from operation and maintenance of SEZ only and not for profit from sale of assets. This section does not specifically provides for a deduction to income arising from the transfer of assets to a co-developer by a developer.

7.

(i) The detailed examination of issues involved as above in the assessee's case, established the following:

a. Rule 11(10) of SEZ Rules 2006 specifies that the developer shall not sell the land in a SEZ. As sale of land is prohibited and it was possible for the assessee to sell the building only, the land has been given to co-developer through an arrangement of lease of land which is nothing but a play to overcome this prohibition.

b. Sale of buildings to the co-developer is not an activity of development pf SEZ. It is an isolated transaction giving one time income from transfer of capital assets. It is very clear from the agreement that the intention from the very beginning was to construct and sale the buildings as a onetime activity. Such isolated transaction can never be termed as business activity. Co-developer agreement is very clearly showing that the developer losses all rights over these assets and the relinquishment of right is irrevocable.

c. There is no dispute that buildings have been sold to Co- developer.

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, the assessee's income from the sale of assets is not eligible for deduction u/s. 80IAB.

(iii) Once it is established that the transfer of buildings to co-

developer is not a business activity and the income from such transfer is not business income, it is clear that sale of such buildings, in the nature of capital assets, has generated capital gains and, therefore, income shown by the assessee on this count has to be treated as capital gains.

On examination of the assessment records for the A.Y. 2008-09, it is seen that the A.O. has allowed the deduction u/s. 80IAB wrongly without considering the above facts so as to render the assessment order not only erroneous but also prejudicial to the interest of revenue. Hence, the assessment is set aside on this limited issue to be reframed by the A.O. after considering the above facts and after giving the assessee opportunity of being heard.

Sd./-

(Haramohan Barman) Commissioner of Income-tax, Delhi-IV, New Delhi."

8. The learned counsel for the assessee while impugning the order of Learned Commissioner has contended that an identical issue was involved in the case of DLF Infocity Developers vs. ACIT, Gurgaon. In that case also, 9 Learned Commissioner has passed an order on 29.3.2012 under sec. 263 of the Act for assessment year 2007-08 and set aside the allowance of deduction under sec. 80IAB of the Act. He pointed out that all the arguments which are taken up by the assessee before the Learned Commissioner in the impugned order were also taken up in the case of DLF Infocity Developers vs. ACIT. This issue has been considered by the ITAT in ITA No. 2637/Del/2012. The ITAT has quashed the order of the Learned Commissioner vide its order dated 2.8.2013. Therefore, according to the learned counsel for the assessee, the issue in dispute is squarely covered in favour of the assessee by the order of the ITAT. He further contended, assessee has submitted all the requisite details to the Assessing Officer during the assessment proceedings and fulfilled all the conditions enumerated in sec. 80IB of the Act. He took us through the reply of the assessee submitted before the Learned Commissioner available on pages 80 to 98 of the paper book. According to the learned counsel for the assessee, it has applied for carrying out activity of developing an SEZ at Village Gachi Boali, Rangaredy, Distt. Hyderabad. The ministry of Commerce & Industries, Department of Commerce has approved the development of SEZ vide letter dated 23.10.2006 and thereafter issued a notification on 26.4.2007. Thus, the conditions regarding notification of SEZ after Ist day of 10 April, 2005 under SEZ Act 2005 has been fulfilled. The assessee company had entered into an understanding with DLF Assets Pvt. Ltd. for the co-

development of the project. This Memorandum of Understanding was filed with the Government of India for approval and the approval was received on Ist of May 2007. As per the terms of the understanding, assessee company agreed to transfer "bare shell building to the co-developers and was also responsible for creation of infra-structural facilities like internal road, security post, compound wall, diesel storage area, sewerage treatment plant, water treatment plant, electricity lines, horticultural and land escaping etc. The SEZ Act specifically allows induction of co-developers with main developers and definition of "co-developers" has been provided in clause K of the SEZ Act. As per the definition, co-developer means "developer". The claim of deduction under sec. 80IAB is based on profit derived by the assessee company through an MOU dated 29.11.2006 entered between the assessee company and co-developers for transfer of bare shell building by the developer to the co-developer duly approved by BOA through their letter dated Ist May 2007. The MOU was later on converted in a definite agreement which was also approved by the Ministry of Commerce & Industries through their letter to the co-developer dated Ist June 2009. The learned counsel for the assessee further submitted that in the show-cause 11 notice issued under sec. 263 of the Income-tax Act, 1961, the Learned Commissioner had alleged that deduction under sec. 80IAB would be admissible from the activity of developing, operating and maintaining SEZ, the assessee has wrongly claimed such deduction on the receipt of sales of bare shell building which cannot be equated with the activity of developing, operating and maintaining SEZ. To this query, contention of the assessee was that role of developers in the SEZ has been demarcated in SEZ Act. The developers is the focal and integral part of SEZ and its involvement is continuous i.e. on going as long as the SEZ exists and is in operation. It is primarily responsible for development of infra-structural facilities and thereafter maintenance and operation of the same. The assessee did not walk away after the construction of bare shell but also created other infra-

structural activities like internal rode, security post, compound wall, sewerage treatment plant, electricity, horticultural etc. The developers and co-developers are placed at the same pedestal in the SEZ Act. The sub-

rule(5) of Rule 11 of SEZ Act provides that land or built up space in the processing area or free trade and warehousing zones shall be given on lease only to the entrepreneurs holding a valid letter of approval issued under Rule

19...... Thus, the SEZ Act bars transfer of built up space to the ultimate user to whom only lease of such space is permitted. On the other hand, the SEZ 12 Act, allows co-developers to enter into a project and the co-developers would be recognized and treated at par with developers for all intent and purposes. Any transaction between these two entities would be an authorized operation. He further pointed out that in order to eliminate all sort of confusions, the assessee had approached the competent authority i.e. Board of Approval (hereinafter referred to BOA under the SEZ Act for clarification with regard to transfer of bare shell building to the co-developers. The different issues raised by the assessee have been clarified in the letter dated 18.1.2011. This letter was submitted before the Learned Commissioner and is placed on pages 106 to 108 of the paper book. The learned counsel for the assessee took us through the clarifications/confirmations issued to it by the Ministry of Commerce & Industries for transfer of bare shell building. It is worth to take note of certain questions and answers in this letter which read as under:

"2. The approved Co developer can take the land from developer on long term lease and acquire/develop/own building on the leased land to perform its authorized operations.

Ans. The Co Developer can take land on lease for a definite period. The Co-developer can also acquire, develop and own the buildings on the leased land to perform approved authorized operations as approved by the Board of Approval for SEZ.

x            x            x            x            x             x

x            x            x            x            x             x

4. The above general condition no. 3 (xvii) in the co-developer approval dated June 1, 2009 does not apply to any other authorized operation of the Developer/approved co-developer. Ans. This general condition is applicable to the "terms & conditions of the lease Agreement only.

5. The Developer is engaged in the business of development of IT/ITES SEZ by carrying out authorized operations including development/construction of buildings (in whichever form such a built-up area/office space/bare shell/cold shell) and other infrastructure such as Compound Wall, Roads with Street Lighting, Water treatment plant, sewage lines, storm water drains, water supply lines, affluent treatment plant and pipelines and other infrastructure for affluent treatment, master planning, horticulture, green belts, land scaping, vehicle parking blocks. These activities as mentioned above are authorized operations under the SEZ Act, SEZ Rules as amended.

Ans. Yes, all these are authorized operations of the developer of a SEZ as approved by the Approval Committee/Board of Approval for SEZ.

6. The developer's business of development of SEZ also envisages transfer and handover of developed/constructed buildings 14 (in whichever form such as bare shell/cold shell) against Development Charges/Development Consideration forming part of MOU/Agreement approved by BOA. These activities are authorized operations under SEZ Act and Rules as amended.

Ans. Yes, all these are authorized operations of the developer of a SEZ as approved by the Approval Committee/Board of Approval. However, no sale is allowed in SEZ."

9. The Ministry thereafter issued one more clarification on 20.1.2011.

The observations made in reply to Question No. 6 in the letter dated 18.1.2011 has been explained. In the letter dated 18.1.2011, an expression "however, no sale is allowed in SEZ" in reply to question No. 6 has been observed. This expression has been explained in the letter dated 20.1.2011 and it reads as under:

"For That the SEZ buildings (bare shell/cold shell) will be transferred and handed over to the co-developer upon execution of a transfer and handover deed and which has already been approved. In consideration of such transfer and hand over the co-developer shall make payment of such amount as development consideration in favour of the developer as is agreed to between the parties. The above mentioned transfer and hand over is allowed in SEZ."

10. With regard to the allegations of Commissioner that Assessing Officer has not appreciated the facts and certain issues in right perspective. The learned counsel for the assessee has submitted that Assessing Officer had issued detailed questionnaire under sec. 142(1) of the Act, the assessee has submitted the following documents before the Assessing Officer:

"1. Copy of letter dated 23rd October, 2006 issued by Govt. of India, Ministry of Commerce and Industry, Department of Commerce (EPZ section), Udyog Bhavan, New Delhi being the approval for setting up a sector specific Special Economic Zone for IT/ITES sector at Hyderabad.

2. Copy of Letter dated 21st June, 2007 issued by Govt. of India, Ministry of Commerce and Industry, Department of Commerce (SEZ section) Udyog Bhawan, New Delhi being the approval of authorized operations of the developer.

3. Copy of Notification dated 26th April 2007 issued by Ministry of Commerce and Industry, Department of Commerce notifying the land for development of SEZ at Gachibowli Village, rangareddy Distt:

Hyderabad.

4. Copy of Memorandum of Understanding with the co-developer M/s. DLF Assets Pvt. Ltd. dated 29th Nov. 2006.

5. Copy of letter dated 1st May 2007 issued by the Government of India, Min. of Commerce and Industry Department of Commerce 16 (SEZ section) Udyog Bhawan, New Delhi to M/s. DLF Assets Pvt.

Ltd., as a co-developer approving the MOU.

6. Copy of Letter dated 18th June 2007 issued by Government of India, Ministry of Commerce & Industry Department of Commerce (SEZ section) Udyog Bhawan, New Delhi being the approval of authorized operations of the co-developer.

7. Copy of definitive Co-developer Agreement dated 20th May 2008."

11. He also took us through the replies of the assessee submitted to the Assessing Officer available on page Nos. 384 to 396 of the paper book. He specifically drew our attention towards page No. 392 of the paper book and pointed out that copy of lease agreement dated 25.3.2008 entered into by the assessee company with M/s. DLF Assets Pvt. Ltd. was produced before the Assessing Officer. The assessee has recognized total lease income during the year at Rs.3,78,22,654. The learned counsel for the assessee further pointed out it has not sold the land to the co-developers, because that isnot permissible under the SEZ Act. The developers can only lease land to the co-developers and can receive the land lease rentals. The bare shell office space can be transferred by a developer to the co-developer and in respect of which, consideration will be received by the developer. The co-

developers will further develop the bare shell office space into warm shell office space and lease it to different entities. The co-developers cannot shell office space to different entities. The co-developers would only receive lease rentals for leasing off office space which is subject to tax. The sale of bare shell building to the co-developers has already been clarified by the Ministry of Commerce & Industries and has been accepted as an authorized operation of SEZ. The legal position has been clarified by the Ministry itself. All the buildings are held by the assessee company as a stock-in-trade. Section 2(14) of the Act defines capital assets and specifically exclude "stock-in-

trade". The learned counsel for the assessee emphasized that Learned Commissioner has erred in construing the nature of assessee's business and forming an opinion that capital assets have been sold by the assessee and whose sale consideration would not be eligible for allowance of deduction under sec. 80IAB of the Act. He pointed out that since assessee has been showing the bare shell building as a stock-in-trade, there cannot be any capital gain on transfer of bare shell building to the developers. If construction of a bare shell building is the business activity of the assessee, its sale to the co-developers has been recognized as authorized operation then how the income resulting from that activity would not be eligible for deduction under sec. 80IAB. Learned Commissioner has not addressed 18 himself towards this issue. On the strength of Hon'ble Delhi High Court's in the case of Director of Income-tax Vs. Jyoti Foundation reported in 257 ITR 388, he submitted that Learned Commissioner ought to have prima facie established on the record as to how the deduction is not admissible to the assessee. He cannot simplicitor issued a show-cause notice under sec. 263 and without touching the issue on merit, set aside the assessment order remitting the issue for further investigation. Such a step can only be taken after conducting the inquiry by the Learned Commissioner himself. The learned counsel for the assessee further submitted that as far as case law appraising the broad test for judging any action taken under sec. 263 are concerned in the case of sister concern i.e. DLF Infocity (supra), assessee has referred a large number of cases and these cases have been noticed by the ITAT on page No. 32 of the order. He relied upon the ITAT's order.

12. Learned CIT(DR) on the other hand relied upon the order of Learned Commissioner. However, she was unable to controvert the fact that a similar issue was considered by the ITAT in the case of DLF Infocity Developers vs. ACIT.

13. We have duly considered rival condition and gone through the record carefully. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy 19 Vs. ITO, Mumbai, 101 TTJ 1095, analysed in detail various authoritative pronouncements including the decision of Hon'ble Supreme Court in the case of Malabar Industries 243 ITR 83 as well as Hon'ble Bombay High Court rendered in the case of Gabriel India Ltd. and has propounded the following broader principle to judge the action of CIT taken under section 263.

"The fundamental principle which emerge from the above cases may be summarized below"

The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled.

Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted.

An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous.

If the order is passed without application of mind, such order will fall under the category of erroneous order.

Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law 20 If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO.

The AO exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion.

The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction. If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.

14. In the light of above, let us examine the facts. Learned Commissioner can take action under sec. 263 of the Income-tax Act, 1961, if the assessment order is erroneous and prejudicial to the interest of the revenue.

Both these conditions should be available on record. An order can be erroneous, when learned Assessing Officer has misconstrued or misinterpreted the provisions of Income-tax Act, 1961 or facts on the record which goad him to arrive at wrong conclusions. If such wrong conclusions 21 result into escapement of income from taxation, then, prejudice would cause to the revenue. Now, in the present case, Learned Commissioner mainly assigned two reasons for terming the assessment order as erroneous, namely,

(a) learned Assessing Officer had granted deduction under sec. 80IAB which is not admissible to the assessee; (b) that learned Assessing Officer did not carry out proper investigation.

15. Let us take the second question first. Hon'ble Delhi High Court in the case of Sunbeam Auto reported in 332 ITR 167 and CIT vs. Anil Kumar reported in 335 ITR page 1 has pointed out the distinction between lack of inquiry and inadequate inquiry. In case of no inquiry, Learned Commissioner can be justified to say that assessment order is erroneous because the Assessing Officer plays a role of investigator as well as adjudicator. He is duty bound to look into the details, verify them and then adjudicate. Learned Commissioner has observed in his order that Assessing Officer failed to conduct proper inquiry. The expression "proper inquiry" is a very subjective and vague term, it depends upon each adjudicator, what is a proper inquiry. In the impugned order, Learned Commissioner has not referred any particular fact; had that been considered then result could be different. We could appreciate the stand of the revenue, if Learned 22 Commissioner had pointed out the particular facts whose non-investigation by the Learned Assessing Officer, goad him on wrong conclusion. Learned Assessing Officer has enquired about the overhead expenditure, he has reduced the claim of the assessee, this suggests that he was aware about the claim of deduction under sec. 80IAB. The allegations by the Learned Commissioner, at the most, can be; that it is not discernible from the record whether very applicability of sec. 80IAB was examined or not. This aspect we will deal with the issue No.1, however, on the point No.2, we are of the opinion that Assessing Officer had examined the details of deduction claimed under sec. 80IAB. He had issued questionnaire and thereafter revised the claim. The alleged inadequate inquiry cannot be a ground to term the assessment order as erroneous.

16. As far as reason No.1 is concerned, the SEZ Act was enacted in 2005, offering slew of benefit to developers of various SEZ in India. The Act provides a complete mechanism and under sec. 8(1), a regulatory body called "Board of Approval" (for short BOA) is created, conferring wide powers on it, which are enshrined in SEZ Act. Simultaneously, section 80IAB has been introduced in the Income-tax Act, 1961 providing 100% deduction on the income derived from SEZ on fulfillment of various 23 conditions. It also emerges out from the record that the developers would not sell the warm shell building and the ultimate user would be a lesser only.

However, a provision has been made in the SEZ Act, whereby a co-

developer has been provided who will be treated at par with the developers.

The assessee has leased out the land to the co-developer and sold bare shell structure to the co-developer, who will convert it into the warm shell and ultimately lease rental would be earned from exploitation of developed building. When all these aspects come up then assessee approached the BOA who is a competent authority under the SEZ Act. The transfer of bare shell building has been approved by the BOA. It was held as an authorized activity. BOA has not raised any dispute. We have extracted some of the questions and replies. We have also gone through the other correspondence available on pages 106 to 113 of the paper book. In brief, co-developer is to be construed as developer. The bare shell structure can be sold by a developer to the co-developer. This activity is to be considered as an authorized activity under the SEZ Act. The assessee has treated alleged "bare shell" as stock-in-trade. It has claimed the deduction in one year on sale of stock in trade. Section 80IAB provides that income derived from the activity of developing SEZ, notified on or after Ist day of April 2005, would be eligible for deduction subject to fulfillment of conditions in sub-section 24 (5) and (7) to (12) of sec. 80IA of the Income-tax Act, 1961. As far as fulfillment of conditions with regard to provisions of sub-section (5) and (7) to (12) of sec. 80IA is concerned, Learned Commissioner has not raised any dispute. Sub-section (5) of sec. 80-IA puts certain restrictions on the quantum of admissible deduction. This aspect has been examined by the Assessing Officer while dealing with allocation of proportionate overheads expenses. Sub-section (7) talks of submission of reports in form No. 10CCB which is not in dispute. Sub-section (8) talks of transfer of service at arm's length price, so that any assessee would not claim excess deduction. This exercise has also been carried out by the Assessing Officer and no dispute has been raised. Sub-section 80(a) again restrict the quantum of deduction available where profits of the undertaking or enterprises have been claimed as deduction under this section. Since no deduction was claimed under any other section of this chapter, therefore, according to the assessee, this section is not applicable. Sub-section (10) empowers the Assessing Officer to reduce the quantum of deduction, if it was found that the transactions have been so arranged which gives higher rate of profit then ordinary profit in that line of business. Sub-section (11) deals with the notification, if any, issued by the Government denying the deduction to any particular class of industry or in any, notified area. It is also not applicable. Similarly, sub-section (12) under 25 sec. 80IA deals with a situation where the undertaking or enterprise has been amalgamated, this clause is also not applicable.

16.1 Though in the present appeal, we are not called upon to adjudicate the issue regarding admissibility of deduction under sec. 80IAB conclusively because the Learned Commissioner himself has not adjudicated this issue that a deduction would not be admissible to the assessee. He confined himself to the area that proper inquiry was not conducted before granting the deduction. Thus, our endeavor is to judge the assessment order and whether learned Assessing Officer has taken one of the possible views while granting deduction under sec. 80-IAB of the Income-tax Act, 1961. In our opinion, Learned Commissioner has failed to comprehend the complete concept of SEZ Act and confined himself to the ordinary meaning of expression "income derived from developing SEZ" provided in sec. 80IAB. He construed the limited income from developing SEZ Act, as the lease rental.

On the other hand, stand of the assessee is that if a developer transfers a bare shell structure of the building, developed by him to a co-developers then such an activity would fall within the ambit of authorized activity and the final authority to interpret whether it is an authorized activity or not is BOA.

This authority has granted its approval about the transfer of bare shell 26 structure and termed it as a authorized activity of development of SEZ. We have also noticed that assessee has not totally abandoned the project. It has still to perform number of responsibilities. Thus, Assessing Officer has taken one of the possible view or interpretation of all these provisions, somehow, his view does not match with the view of Learned Commissioner but that would not authorize the Learned Commissioner to say that assessment order is erroneous.

17. We deem it appropriate to take note of the ITAT's order in the case of sister concern, which read as under:

"Issue about lack of enquiry and inadequate inquiry:

6.13. It is pleaded by ld counsel that the assessment record, notice u/s 143(2), 142(1), questionnaire, pleadings, submissions and assessment order all together clearly demonstrate that requisite enquiries were conducted by AO while allowing the assessees claim u/s 80IAB. Assuming but not admitting in worst scenario CIT may assume that inadequate inquiries were conducted. On this count also Hon'ble Delhi High Court has repeatedly held that revisionary powers u/s 263 cannot be exercised if CIT is of the view inquiries made by AO were inadequate. Reliance is placed on

(i) CIT vs. Sunbeam Auto Ltd. 332 ITR 167 (Del.) 27 In the case of CIT vs. Sunbeam Auto Ltd., it was held by Hon'ble High Court of Delhi that where the A.O. had made an enquiry before completion of assessment, the same could not be set aside for reason of 'inadequate' enquiry. The AO had called for reasons/ explanation and had decided after considering the explanation filed. There was no lack of enquiry. The Order of CIT under section 263 was invalid, since AO had taken a possible view.

(ii) CIT vs. Honda Siel Power Products Ltd. 235 CTR 336 (Del.) In the case of CIT vs. Honda Siel Power Products Ltd., it was held by Hon'ble High Court of Delhi that there is no material to indicate that the Assessing Officer had not applied his mind to the provisions of Section 80IB(13) read with Section 80IA(9). The presumption that the assessment orders passed under Section 143(3) passed by the Assessing Officer had been passed upon an application of mind, has not been rebutted by the revenue. No additional facts were necessary before the Assessing Officer for the purpose of construing the provisions of Section 80IB(13) read with Section 80IA(9). It was only a legal consideration as to whether the deduction under Section 80HHC was to be computed after reducing the amount of deduction under Section 80IB from the profits and gains. There is no doubt that the Assessing Officer had allowed the deduction under Section 80HHC without reducing the amount of deduction allowed under Section 80IB from the profits and gains. He did not say so in so many words, but that was the end result of his assessment order. Since he was holding in favour of the assessee, as has been observed in Hari Iron Trading Company (supra) and Eicher Limited (supra), generally, the issues which are accepted by the Assessing Officer, do not find mention in the assessment order, it cannot be said that the Assessing Officer had not applied his mind. It cannot also be said that the Assessing Officer had failed to make any enquiry because no further enquiry was necessary and all the facts were before the Assessing Officer.

(iii) CIT v. Anil kumar Sharma (2011) 335 ITR 1 28 In this case the Honorable High Court was seized with the issue on conditions precedent for the revision of order and differentiated between the lack of inquiry and the inadequate inquiry by the assessing officer it is held that the finding by the tribunal that the assessing officer had made inquiry and that commissioner was not able to point out in his order, the order of revision not valid.

(iv) Vodafone Essar South Ltd. vs. C I T 2011 TIOL 417 ITAT Del.

In this case the Hon'ble Bench held that where there is due enquiry by the assessing officer ,though it has been considered to be inadequate by the CIT, recourse u/s 263 cannot be made.

Accordingly, it is submitted that the initiation of revision proceedings under Section 263 of the IT Act being to take another possible view about allowability of deduction and adequacy of enquiries is unsustainable and contrary to authority of law and the same is directly contrary to the law laid down by the said two Hon'ble Supreme Court judgments in the case of Malabar Industrial Company Ltd. vs. CIT, CIT vs. Max India Ltd and other Delhi high court judgments on these issues (supra).

6.15. Thus, it is pleaded that the ld. Assessing officer carried out proper inquiries; assessee submitted proper explanation thereon, a note whereof is recorded in the proceedings sheets. The requisite finding has been recorded in the assessment order. The order of assessing officer may be short but it contains all the relevant findings about his inquiry and satisfaction. Assessing officer is a quasi judicial 30 authority and his findings and observations given in clear terms by him in the order are conclusive. There is no profarma about the format of assessment order and length of assessment order in the Income-tax Act. The order should be based on record of proceedings and material on the files and all this should reflect the inquiries made by assessing officer and the conclusion arrived thereon. The record in the assessee's case stands testimony that a full and proper exercise of hearing during the course of assessment was carried out and the assessment order was passed giving crystal clear findings allowing the 80IAB claim of the assessee.

6.16. The letter of approval is issued by the Board 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 or 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.

6.17. The assessee has not sold the land in favour of the co-developer as wrongly alleged by CIT. As the record demonstrates assessee only leased out the bare shell buildings in favour of co-developer. The transfer or the leasing of bare shell buildings comes within the 31 purview of authorized activities and the co-developer agreement having been approved by the BOA, the income tax authorities have to allow the deduction u/s 80-IAB. As per the settled propositions of law in case 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 approvals accorded by such regulatory boards in development schemes cannot be questioned by tax authorities. Reliance in this behalf is placed on:

   -     Apollo Tyres Vs. CIT (2002) 9 SCC 1 (SC);
   -     Malayala Manorama Co. Ltd. vs. CIT (2008) 12 SCC 612
         (SC)
   -     CIT v. HCL Commet System & Services 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 Chemical Works Vs. M.S. Mehta 1981 (8) ELT 235;

- Tital Medical Systems 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);

6.18. Assessee has successfully dispelled the unfounded allegation of the CIT that the claim u/s 80IAB was not enquired by assessing officer and it was an error which was prejudicial to revenue. Under these circumstances the order of assessing officer cannot be held to be erroneous or prejudicial to the interests of revenue.

6.19. All these cases, which pertain to regulatory authorities under Customs, DGFT, State Govt. Development Boards, Import license etc., it has been held that certificate issued by Competent authorities cannot be reviewed by the lower authorities like Custom officers, Income-tax Officers etc. Why the order of CIT u/s 263 if invalid and unsustainable in law 6.20. Thus, taking into consideration all the above circumstances, allegations about assessing officer's order being erroneous and prejudicial to the interests of revenue by the CIT in 263 show cause notice and 263 order have no substance. Thus the 263 Order of the CIT is not tenable on following counts:

(i) Ld. CIT failed to apply his mind and to consider explanation and material filed by the assessee including the verifications from BOA confirming the assessee's stand. Ld. CIT has been candid enough to admit that he has not enough time to consider these submissions and the report of assessing officer which was called by ld. CIT only. Admittedly the order has been passed without considering the 33 material available on record and cross verifying of the aspects with the case record. In these circumstances, the 263 order is vitiated by lack of application of mind and proper consideration of the material, thus the order u/s 263 is bad in law.

(ii) The assessee's agreement with co-developer is approved by the BOA. The activity of transferring bare shell buildings is only an authorized activity as certified by the BOA itself and the annexure attached to the notification.

(iii) 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.

(iv) The assessing officer has conducted proper inquiries which is evident from proceedings sheets; letters; questionnaire; assessee's response and detailed notes submitted on eligibility u/s 80-IAB.

Thus assessing officer's order is neither erroneous nor prejudicial to the interests of revenue.

6.21. In view of these facts and circumstances it is pleaded by ld counsel that the impugned 263 order passed by the CIT may be quashed.

7. Ld. CIT (DR), on the other hand, supported the order of CIT u/s 263 and contends as under:

(i) The assessing officer's order is very short and does not spell out any reason for allowing relief to the assessee.

(ii) The record does not reflect that proper inquiries were conducted, except a casual reference to his being satisfied about the assessee's eligibility to claim u/s 80-IAB.

(iii) The clarifications issued by BOA subsequent to the assessment proceedings were not part of the record and were not before the assessing officer and have no relevant.

(iv) Therefore there is no error in direction given by the CIT to assessing officer to verify the same and carry out proper inquiries.

Revision proceedings are valid and deserve to be upheld.

7.1. Ld. DR then relied on following judgments:

- CIT Vs. Nagesh Knitwars P. Ltd. (2012) 345 ITR 135 (Del.)

- CIT Vs. DLF Power Ltd. (2012) 345 ITR 446 (Del.)

- CIT Vs. Harsh J. Punjabi (2012) 345 ITR 451 (Del.) 7.2. It is pleaded that ratio of these judgments is applicable to the facts of the assessee's case and considering them the 263 action exercised by the CIT, holding that the order is erroneous and prejudicial to the interests of Revenue is justified.

8. Ld. Counsel for the assessee in reply refers to the Hon'ble Delhi High Court judgment in the case of CIT vs. Vikas Polymers 236 CTR 476 (Del.), wherein it has been held that the provisions of Section 263 of the Act, when read as a composite whole make it incumbent upon the Commissioner before exercising revisional powers to: (i) call for and examine the record, and (ii) give the assessee an opportunity of being heard and thereafter to make or cause to be made such enquiry as he deems necessary. It is only on fulfillment of these twin conditions that the Commissioner may pass an order exercising his power of revision. Minutely examined, the 35 provisions of the Section envisage that the Commissioner may call for the records and if he prima facie considers that any order passed therein by the assessing officer is erroneous insofar as it is prejudicial to the interest of the revenue, he may after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify. The twin requirement of the Section is manifestly for a purpose. Merely because the Commissioner considers on examination of the record that the order have been erroneously passed so as to prejudice the interest of the revenue will not suffice. The assessee must be called, his explanation sought for and examined by the Commissioner, and thereafter if the Commissioner still feels that the order is erroneous and prejudicial to the interest of the revenue, the Commissioner may pass revisional orders. If, on the other hand, the Commissioner is satisfied, after hearing the assessee, that the orders are not erroneous and prejudicial to the interest of the revenue, he may choose not to exercise his power of revision.

In view of Hon'ble Delhi High Court judgment in the case of Vikas Polymers, CIT ought to have considered them along with written submissions, assessing officer's report and record. After due consideration thereof and application of mind, power u/s 263 should have been exercised.

8.2. This is for the reason that if a query is raised during the course of scrutiny by the assessing officer, which was answered to the satisfaction of the assessing officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the assessing officer called for interference and revision.

8.3. In the instant case, for example, the Commissioner has observed in the order passed by him that the assessee has not filed certain documents on the record at the time of assessment. Assuming it to be so, in our opinion, this does not justify the conclusion arrived at by the Commissioner that the assessing officer had shirked his responsibility of examining and investigating the case. More so, in view of the fact that the assessee explained that the capital investment made by the partners, which had been called into question by the Commissioner, was duly reflected in the respective assessments of the partners who were income-tax assessees and the unsecured loan taken from M/s. Stutee Chit and Finance (P) Ltd. was duly reflected in the assessment order of the said Chit Fund which was also an assessee.

8.4. In this case the assessee has produced everything before the CIT who failed to consider not only the record filed before the assessing officer but even the subsequent clarifications. Therefore, there is no merit in the argument of ld. CIT(DR).

9. We have heard rival contentions and perused the material available on record. The facts and arguments have been described in detail above. Apropos the issue that no inquiries were conducted by assessing officer, we are unable to agree with the ld. CIT (DR) inasmuch assessing officer asked for justification of 80-IAB claim, which is duly responded by assessee. The assessment record means the proceedings sheets, material available on record and the replies of the assessee. Considering these aspects it emerges that all the required documents were filed and considered by assessing officer and on being satisfied, deduction u/s 80-IAB was allowed which is mentioned in the assessment order. Thus, the case before us is not of lack of inquiry and the condition mentioned in Notification dated 27- 10-2006 giving to assessing officer the right to examine the taxability of issue of 80-IAB 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 possibly applicable to co-developer and not the assessee as the condition was put during the course of approval of the agreement between assessee and the co-developer. Be that as it may, in any case, the assessing officer having considered all these pleading and submissions, it cannot be held that he did not examine the allowability of the claim by proper inquiry. Therefore, we do not find any substance in this finding. Thus, 38 in our considered view the assessment neither suffers from the lack of inquiry nor any error on this count.

9.1. The Hon'ble Delhi High Court in the case of Anil Kumar Sharma (supra), makes a difference between lack of inquiry and inadequate inquiry. In any case this is not a case of lack of inquiry. The order does not become erroneous only because the CIT in his view holds that inadequate inquiries, were conducted. More particularly, in this case, where the CIT himself admits that he is not able to consider the material available on record due to lack of time.

9.2. Apropos lack of time, it is observed that we find no fault attributable to assessee for causing hiatus to the proceedings. Assessee's detailed reply covering all the aspects was filed as back as 25-7-2011 i.e. 8 months prior to the proceedings. The CIT himself called the assessing officer in hearing and asked him to submit a report and ensure that the report is filed. Non-seeking of assessing officer's remand report also is not attributable to assessee.

9.3. Coming to the case laws cited by the ld. CIT (DR) -

(i) CIT Vs. Nagesh Knitwars P. Ltd. (2012) 345 ITR 135 (Del.): This case pertains to deduction u/s 80-HHC on the issue of premium on sale of export quota being not covered by sections 28(iiia), (iiic), which should not have been taken into consideration while computing the deduction. The assessing officer's action was found to be not in conformity with the ratio of decisions in the cases of ACG Associated Capsules (2012) 343 ITR 89 (SC); CIT Vs. Kalpataru Colours and Chemicals (2010) 328 ITR 451 (Bom.); and 39 Topman Exports Vs. CIT (2012) 342 ITR 49 (SC) and the interpretation of CBDT Circular in this behalf. The 263 action was upheld accordingly. The facts of this case will not be applicable to assessee's case. In case before us the issue pertains to a simple question whether the assessee's claim u/s 80-IAB was inquired into by the assessing officer or not, which is found to be correct. Thus, there is neither the question of applicability of any relevant Supreme Court judgment nor interpretation of a CBDT circular. Therefore, this judgment cannot be applied to assessee's case.

(ii) CIT Vs. DLF Power Ltd. (2012) 345 ITR 446 (Del.): In this case the CIT u/s 263 held that there was lack of inquiry on the part of the assessing officer. Besides, the ITAT went into the bifurcation of interest expenses submitted by the assessee at appellate stage after 263 action in respect of two units - one engaged in power generation and another energy system unit about the claim of deduction u/s 80-IA. The matter was partly set aside back to the CIT to consider whether the issue in question was raised before assessing officer and properly considered. The order further stipulates a condition that if that is correct then the CIT's jurisdiction would be ascribed to the limited extent of deciding whether the finding was erroneous. Besides, in this case the ITAT at appellate stage on 263 action itself went into the bifurcation of figures of interest. This judgment refers to a different set of facts and partly sets aside the revision to CIT with further conditions and as the ITAT's consideration of bifurcation at appellate level was found to be not appropriate.

In contradistinction, in the case before us there are no such complex issues. The issue is limited i.e. whether 80-IAB claim was considered by the assessing officer or not. We have already held that it clearly emerges from assessment record that relevant queries were raised by assessing officer, detailed submissions, developers and co-developers agreements were filed, justification of 80-IAB claim as provided by the assessee and the nature of debts owed by DLF Assets consequent to such transfer was also asked for by assessing officer. In our considered view, the ratio of this judgment also does not apply to assessee's case.

(iii) CIT Vs. Harsh J. Punjabi (2012) 345 ITR 451 (Del.) - In this case the issue pertains to inquiry into the allowability of commission of Rs. 3.33 crorres debited to the P&L A/c. No bifurcation of commission about Chennai and Gurgaon unit by assessee, though the commission was paid to the same parties. Both the units were eligible for 10A deduction separately. Since the bifurcation of expenditure relatable to respective units was not made, it was held that assessing officer's order was erroneous and prejudicial to the interests of Revenue.

This case also will not be applicable to assessee's case inasmuch as the issue of any bifurcation of commission to different units is not involved and relates only to a question of inquiry and satisfaction by assessing officer about assessee's claim u/s 80-IAB. In our considered view, the issue has been inquired, the relevant material, agreement is on record, proceedings sheets and the order of assessing officer. Therefore, this case does not help the case of the revenue.

9.4. It 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 sec. 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 authorizes activities include construction of bare shell/ cold shell/ warm shall buildings and transfer 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 order of assessing officer allowing deduction u/s 80-IAB.

9.6. Even if the worst is assumed against assessing officer, his allowability of claim u/s 80-IAB to assessee may be held to be a possible and plausible view. In such eventuality also, merely because CIT in his perception held another possible view about claim u/s 80- IAB, the assessment order does neither become erroneous nor prejudicial to the interests of revenue as held by Hon'ble Supreme 42 Court in the host of cases including Malabar Industrial Company Ltd. (supra) and Max India Ltd. (supra). Respectfully following the Hon'ble Supreme Court judgments on this count also we hold that the assessment order is neither erroneous nor prejudicial to the interests of revenue. Therefore, the CIT's impugned order u/s 263 deserves to be quashed.

9.7. Our views on all other observations are also fortified by the case laws mentioned above, which we respectfully follow.

9.8. In view of the circumstances mentioned above, we quash 263 order passed by the CIT and allow the assessee's appeal.

10. In the result, assessee's appeal is allowed. Issue about lack of enquiry and inadequate inquiry:

6.13. It is pleaded by ld counsel that the assessment record, notice u/s 143(2), 142(1), questionnaire, pleadings, submissions and assessment order all together clearly demonstrate that requisite enquiries were conducted by AO while allowing the assessees claim u/s 80IAB. Assuming but not admitting in worst scenario CIT may assume that inadequate inquiries were conducted. On this count also Hon'ble Delhi High Court has repeatedly held that revisionary powers u/s 263 cannot be exercised if CIT is of the view inquiries made by AO were inadequate. Reliance is placed on 43

(i) CIT vs. Sunbeam Auto Ltd. 332 ITR 167 (Del.) In the case of CIT vs. Sunbeam Auto Ltd., it was held by Hon'ble High Court of Delhi that where the A.O. had made an enquiry before completion of assessment, the same could not be set aside for reason of 'inadequate' enquiry. The AO had called for reasons/ explanation and had decided after considering the explanation filed. There was no lack of enquiry. The Order of CIT under section 263 was invalid, since AO had taken a possible view.

(iii) CIT v. Anil kumar Sharma (2011) 335 ITR 1 In this case the Honorable High Court was seized with the issue on conditions precedent for the revision of order and differentiated between the lack of inquiry and the inadequate inquiry by the assessing officer it is held that the finding by the tribunal that the assessing officer had made inquiry and that commissioner was not able to point out in his order, the order of revision not valid.

(iv) Vodafone Essar South Ltd. vs. C I T 2011 TIOL 417 ITAT Del.

In this case the Hon'ble Bench held that where there is due enquiry by the assessing officer ,though it has been considered to be inadequate by the CIT, recourse u/s 263 cannot be made.

6.14. The entire transaction i.e. activity of transfer of bare shell buildings by developer to co developer including the documentation of the same has been approved by BOA under SEZ Act. In such circumstances there is no scope for presuming that such activity is not 45 an authorized activity. Consequently, the interest of revenue as expressed by BOA while approving the co developers agreement has been taken care of by assessing officer by examining the allow ability of deduction u/s 80IAB of the Income-tax Act. It is not open to the CIT under section 263, to sit in judgment on the valid view as to whether the transfer of bare shell building in SEZ for a development consideration is an authorized operation or not as long as it is approved by the BOA and duly enquired by AO. Such powers are vested exclusively, lawfully and solely with the Board of approvals (BOA) under SEZ act. A perusal of the record in our case shows that the BOA has expressly and consciously exercised such power vested in it and approved the transfer of bare shell from developer to co- developer to be an authorized operation. This understanding is once again confirmed in clarifications of Ministry of commerce dated 18th of January 2011 and 20th January 2011, copies of which are contained in the paper book part of annexure to this submission. These clarifications were obtained by assessee when CIT raised these issues. In this behalf BOA unequivocally clarified that the co-developers agreement was an authorized agreement and the transfer of bare shell buildings to co-developers was also an authorized activity. 6.15. Thus, it is pleaded that the ld. Assessing officer carried out proper inquiries; assessee submitted proper explanation thereon, a note whereof is recorded in the proceedings sheets. The requisite finding has been recorded in the assessment order. The order of assessing officer may be short but it contains all the relevant findings 46 about his inquiry and satisfaction. Assessing officer is a quasi judicial authority and his findings and observations given in clear terms by him in the order are conclusive. There is no profarma about the format of assessment order and length of assessment order in the Income-tax Act. The order should be based on record of proceedings and material on the files and all this should reflect the inquiries made by assessing officer and the conclusion arrived thereon. The record in the assessee's case stands testimony that a full and proper exercise of hearing during the course of assessment was carried out and the assessment order was passed giving crystal clear findings allowing the 80IAB claim of the assessee.

6.17. The assessee has not sold the land in favour of the co-developer as wrongly alleged by CIT. As the record demonstrates assessee only leased out the bare shell buildings in favour of co-developer. The transfer or the leasing of bare shell buildings comes within the purview of authorized activities and the co-developer agreement having been approved by the BOA, the income tax authorities have to allow the deduction u/s 80-IAB. As per the settled propositions of law in case 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 approvals accorded by such regulatory boards in development schemes cannot be questioned by tax authorities. Reliance in this behalf is placed on:

   -     Apollo Tyres Vs. CIT (2002) 9 SCC 1 (SC);
   -     Malayala Manorama Co. Ltd. vs. CIT (2008) 12 SCC 612
         (SC)
   -     CIT v. HCL Commet System & Services 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 Chemical Works Vs. M.S. Mehta 1981 (8) ELT 235;

- Tital Medical Systems Pvt. Ltd. Vs. Collector 2003 (151) ELT 254 (SC) 48

- 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);

(v) Ld. CIT failed to apply his mind and to consider explanation and material filed by the assessee including the verifications from BOA confirming the assessee's stand. Ld. CIT has been candid enough to admit that he has not enough time to consider these submissions and the report of assessing officer which was called by ld. CIT only. Admittedly the order has been passed without considering the material available on record and cross verifying of the aspects with the case record. In these circumstances, the 263 order is vitiated by lack of application of mind and proper consideration of the material, thus the order u/s 263 is bad in law.

(vi) The assessee's agreement with co-developer is approved by the BOA. The activity of transferring bare shell buildings is only an authorized activity as certified by the BOA itself and the annexure attached to the notification.

(vii) 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.

(viii) The assessing officer has conducted proper inquiries which is evident from proceedings sheets; letters; questionnaire; assessee's response and detailed notes submitted on eligibility u/s 80-IAB.

Thus assessing officer's order is neither erroneous nor prejudicial to the interests of revenue.

6.21. In view of these facts and circumstances it is pleaded by ld counsel that the impugned 263 order passed by the CIT may be quashed.

7. Ld. CIT (DR), on the other hand, supported the order of CIT u/s 263 and contends as under:

(v) The assessing officer's order is very short and does not spell out any reason for allowing relief to the assessee.

(vi) The record does not reflect that proper inquiries were conducted, except a casual reference to his being satisfied about the assessee's eligibility to claim u/s 80-IAB.

(vii) The clarifications issued by BOA subsequent to the assessment proceedings were not part of the record and were not before the assessing officer and have no relevant.

(viii) Therefore there is no error in direction given by the CIT to assessing officer to verify the same and carry out proper inquiries.

Revision proceedings are valid and deserve to be upheld.

7.1. Ld. DR then relied on following judgments:

- CIT Vs. Nagesh Knitwars P. Ltd. (2012) 345 ITR 135 (Del.)

- CIT Vs. DLF Power Ltd. (2012) 345 ITR 446 (Del.)

- CIT Vs. Harsh J. Punjabi (2012) 345 ITR 451 (Del.) 7.2. It is pleaded that ratio of these judgments is applicable to the facts of the assessee's case and considering them the 263 action exercised by the CIT, holding that the order is erroneous and prejudicial to the interests of Revenue is justified.

8. Ld. Counsel for the assessee in reply refers to the Hon'ble Delhi High Court judgment in the case of CIT vs. Vikas Polymers 236 CTR 476 (Del.), wherein it has been held that the provisions of Section 263 of the Act, when read as a composite whole make it incumbent upon the Commissioner before exercising revisional 51 powers to: (i) call for and examine the record, and (ii) give the assessee an opportunity of being heard and thereafter to make or cause to be made such enquiry as he deems necessary. It is only on fulfillment of these twin conditions that the Commissioner may pass an order exercising his power of revision. Minutely examined, the provisions of the Section envisage that the Commissioner may call for the records and if he prima facie considers that any order passed therein by the assessing officer is erroneous insofar as it is prejudicial to the interest of the revenue, he may after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify. The twin requirement of the Section is manifestly for a purpose. Merely because the Commissioner considers on examination of the record that the order have been erroneously passed so as to prejudice the interest of the revenue will not suffice. The assessee must be called, his explanation sought for and examined by the Commissioner, and thereafter if the Commissioner still feels that the order is erroneous and prejudicial to the interest of the revenue, the Commissioner may pass revisional orders. If, on the other hand, the Commissioner is satisfied, after hearing the assessee, that the orders are not erroneous and prejudicial to the interest of the revenue, he may choose not to exercise his power of revision.

8.1. The judgment mandates that the assessee must be called, his explanation sought for and examined by the Commissioner and if, on the other hand, the Commissioner is satisfied, after hearing the 52 assessee, that the order is not erroneous and prejudicial to the interest of the revenue, he has an option not to exercise his power of revision. In this case the BOA clarified the transfer and co-developer agreement to be an authorized activity, referring to the documents already filed with assessing officer. These clarifications are relevant. In view of Hon'ble Delhi High Court judgment in the case of Vikas Polymers, CIT ought to have considered them along with written submissions, assessing officer's report and record. After due consideration thereof and application of mind, power u/s 263 should have been exercised.

8.3. In the instant case, for example, the Commissioner has observed in the order passed by him that the assessee has not filed certain documents on the record at the time of assessment. Assuming it to be so, in our opinion, this does not justify the conclusion arrived at by the Commissioner that the assessing officer had shirked his responsibility of examining and investigating the case. More so, in view of the fact that the assessee explained that the capital investment made by the partners, which had been called into question by the Commissioner, was duly reflected in the respective assessments of the 53 partners who were income-tax assessees and the unsecured loan taken from M/s. Stutee Chit and Finance (P) Ltd. was duly reflected in the assessment order of the said Chit Fund which was also an assessee.

9. We have heard rival contentions and perused the material available on record. The facts and arguments have been described in detail above. Apropos the issue that no inquiries were conducted by assessing officer, we are unable to agree with the ld. CIT (DR) inasmuch assessing officer asked for justification of 80-IAB claim, which is duly responded by assessee. The assessment record means the proceedings sheets, material available on record and the replies of the assessee. Considering these aspects it emerges that all the required documents were filed and considered by assessing officer and on being satisfied, deduction u/s 80-IAB was allowed which is mentioned in the assessment order. Thus, the case before us is not of lack of inquiry and the condition mentioned in Notification dated 27- 10-2006 giving to assessing officer the right to examine the taxability of issue of 80-IAB 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 possibly applicable to co-developer and not the assessee as the condition was put during the course of approval of the agreement between assessee 54 and the co-developer. Be that as it may, in any case, the assessing officer having considered all these pleading and submissions, it cannot be held that he did not examine the allowability of the claim by proper inquiry. Therefore, we do not find any substance in this finding. Thus, in our considered view the assessment neither suffers from the lack of inquiry nor any error on this count.

9.3. Coming to the case laws cited by the ld. CIT (DR) -

(iv) CIT Vs. Nagesh Knitwars P. Ltd. (2012) 345 ITR 135 (Del.): This case pertains to deduction u/s 80-HHC on the issue of premium on sale of export quota being not covered by sections 28(iiia), (iiic), which should not have been taken into consideration while 55 computing the deduction. The assessing officer's action was found to be not in conformity with the ratio of decisions in the cases of ACG Associated Capsules (2012) 343 ITR 89 (SC); CIT Vs. Kalpataru Colours and Chemicals (2010) 328 ITR 451 (Bom.); and Topman Exports Vs. CIT (2012) 342 ITR 49 (SC) and the interpretation of CBDT Circular in this behalf. The 263 action was upheld accordingly. The facts of this case will not be applicable to assessee's case. In case before us the issue pertains to a simple question whether the assessee's claim u/s 80-IAB was inquired into by the assessing officer or not, which is found to be correct. Thus, there is neither the question of applicability of any relevant Supreme Court judgment nor interpretation of a CBDT circular. Therefore, this judgment cannot be applied to assessee's case.

(v) CIT Vs. DLF Power Ltd. (2012) 345 ITR 446 (Del.): In this case the CIT u/s 263 held that there was lack of inquiry on the part of the assessing officer. Besides, the ITAT went into the bifurcation of interest expenses submitted by the assessee at appellate stage after 263 action in respect of two units - one engaged in power generation and another energy system unit about the claim of deduction u/s 80-IA. The matter was partly set aside back to the CIT to consider whether the issue in question was raised before assessing officer and properly considered. The order further stipulates a condition that if that is correct then the CIT's jurisdiction would be ascribed to the limited extent of deciding whether the finding was erroneous. Besides, in this case the ITAT at appellate stage on 263 action itself went into the bifurcation of figures of interest. This judgment refers to a different set of facts 56 and partly sets aside the revision to CIT with further conditions and as the ITAT's consideration of bifurcation at appellate level was found to be not appropriate.

(vi) CIT Vs. Harsh J. Punjabi (2012) 345 ITR 451 (Del.) - In this case the issue pertains to inquiry into the allowability of commission of Rs. 3.33 crorres debited to the P&L A/c. No bifurcation of commission about Chennai and Gurgaon unit by assessee, though the commission was paid to the same parties. Both the units were eligible for 10A deduction separately. Since the bifurcation of expenditure relatable to respective units was not made, it was held that assessing officer's order was erroneous and prejudicial to the interests of Revenue.

This case also will not be applicable to assessee's case inasmuch as the issue of any bifurcation of commission to different units is not involved and relates only to a question of inquiry and satisfaction by assessing officer about assessee's claim u/s 80-IAB. In our considered view, the issue has been inquired, the relevant 57 material, agreement is on record, proceedings sheets and the order of assessing officer. Therefore, this case does not help the case of the revenue.

9.6. Even if the worst is assumed against assessing officer, his allowability of claim u/s 80-IAB to assessee may be held to be a possible and plausible view. In such eventuality also, merely because 58 CIT in his perception held another possible view about claim u/s 80- IAB, the assessment order does neither become erroneous nor prejudicial to the interests of revenue as held by Hon'ble Supreme Court in the host of cases including Malabar Industrial Company Ltd. (supra) and Max India Ltd. (supra). Respectfully following the Hon'ble Supreme Court judgments on this count also we hold that the assessment order is neither erroneous nor prejudicial to the interests of revenue. Therefore, the CIT's impugned order u/s 263 deserves to be quashed.

9.7. Our views on all other observations are also fortified by the case laws mentioned above, which we respectfully follow.

9.8. In view of the circumstances mentioned above, we quash 263 order passed by the CIT and allow the assessee's appeal.

10. In the result, assessee's appeal is allowed."

18. On due consideration of the facts and circumstances, we do not find any disparity on facts, therefore, respectfully following the order of Co-

ordinate Bench, we allow the appeal of assessee and quash the order of Learned Commissioner passed under sec. 263 of the Income-tax Act, 1961.

Decision pronounced in the open court on 13.12.2013 Sd/- Sd/-

                ( R.S. SYAL )                          ( RAJPAL YADAV )
            ACCOUNTANT MEMBER                          JUDICIAL MEMBER
Dated: 13/12/2013
Mohan Lal
                                        59




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