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D. Alternatively, the profit from the project should be apportioned and spread over 49 years (correct figure 30 years) and as such only the proportionate claim of deduction u/s 80IAB is allowable.

63. The 'SEZ Act, 2005' defines co-developer as a person, who has been granted by the Central Government letter of approval u/s. 3(12) and developer u/s. 3(10) of the SEZ Act. Further, the Board of Approval authorizes the developer to undertake in a SEZ such operation as Central Government may authorize after granting the approval of the authorized operation to an eligible entity, who is authorized to carry out the operation in Special Economic Zone. Now the relevant portion of Section 80IAB Act reads as under:

68. Now coming to the Assessing Officer's reasoning that transfer of a building cannot be considered as activity of development of SEZ, and therefore, profit arising from such transfer is not eligible for deduction u/s.80IAB; and lease of land for further 30 years to M/s. DLF Asset Ltd. tantamount to transfer of land. All these reasoning of the ld. Assessing Officer at the threshold cannot be entertained or appreciated, in view of series of approvals from 'Board of Approval', which is a body authorised by the statute and by the Govt. of India. Assessing Officer has mainly considered/examined the issue of disallowance of claim of deduction on the ground that activity of developing of building and subsequent transfer of bare shell to co-developer is not the authorized operation under SEZ Act. As stated above, before undertaking the activity of development of SEZ, the assessee has obtained approvals from time to time so as to comply strictly within the provisions of SEZ Act r.w.s. 80IAB of I.T. Act. The Board has granted approval not only to the assessee for building the bare shell but also to the co-developer after examining the various clauses of MOUs dated 29.01.2007 and 20.03.2008, wherein particulars of development activity are extensively laid down. The provision of Section 80IAB mandates that assessee must be a developer under the SEZ Act and income must be derived from business of developing SEZ notified under the SEZ Act, 2005. Here in this case, all the conditions stood satisfied and Assessing Officer has also not pointed out as to which of the conditions have not been fulfilled. Likewise, in the present case, it is an undisputed fact that, firstly, the area has been notified as Special Economic Zone vide notification dated 06.12.2006 and 19.03.2007; secondly, the assessee has been approved as Developer by BOA vide letter dated 25.10.2006 and 14.12.2007; and lastly, the operation of developing of building has been approved as authorized operations and as such the income has been derived from developing and sale of bare shell building in SEZ. The term 'Developing a Special Economic Zone' has to be seen in terms of authorized operations specified by BOA under the SEZ Act, 2005. Though Income Tax Act does not define the term 'Developing a Special Economic Zone', however, the meaning of the same has to be deduced from the SEZ Act. Here, in this case, not only the BOA has recognized the existence of SEZ but has also approved the activity of developing and transfer of bare shell as authorized operation of developing of SEZ and assessee has been recognized as developer. Accordingly, all the conditions spelt out in Section 80IAB stands fulfilled.

71. The entire controversy as to whether the transfer of bare shell buildings to the Co-developer was an Authorized operation or not as highlighted by the Ld. Counsel before us, has been set at rest by further clarifications dated 18.01.2011 and 20.01.2011 issued by the Ministry of Commerce. In our opinion, the Revenue authorities do not have jurisdiction to question the validity or the legality of 'authorized operations' once it has been approved by the Board of Approval/Central Government under a statute and any attempt to dispute the same would be contrary to the provisions of the SEZ Act, which has an overriding effect. In the garb of disclaimer, the AO cannot usurp the functions of the Board of Approval and sit over the judgement on what constitutes an authorized operation within the meaning of SEZ Act/SEZ Rules. Merely because a deduction is allowed to transferee developer in respect of profits derived from operation and maintenance would not lead to inference that the deduction for development of a SEZ would not be available to the developer. The mandate of Section 80IAB is that a developer is entitled to deduction in respect of "profits and gains" derived from "any business of developing a Special Economic Zone" and for what constitutes 'developing a Special Economic Zone', one has to refer to the provisions of the SEZ Act. When the assessee has been granted approval as a Developer and all the authorized operation were approved including transfer of bare shells to the Co-developer for a development consideration by the Board of Approval, the business activity carried out by the assessee pursuant to such approvals constitute business of 'Developing a Special Economic Zone' within the meaning of Section 80IAB of the Act. Under section 80IAB, the AO's authority is limited to examine whether the provisions of section 80IAB read along with the relevant Rules have been complied or not. For instance, some of the conditions as stipulated in the section which the AO may examine may include: -

73. Before us, learned Special counsel referring to the same reasoning given by the Assessing Officer had submitted that transfer of building of co-developer cannot be treated as a business activity and the income from such transfer cannot be treated as business income. In fact, it is a sale of a building in the nature of capital asset. The contention raised on behalf of the Revenue in the facts of the present case cannot be sustained because all the conditions laid down under the SEZ Act have been examined minutely by the authorized authority, i.e., Board of Approval. Once assessee has been notified as developer under the SEZ Act and his activity has been approved by BOA and the SEZ in which the assessee has carried out its business activity has been notified under the SEZ Act, 2005 then profits derived from business of development, operation and maintenance of a SEZ has to be taken from such activity and consequently is entitled for claim of deduction u/s.80IAB.