K. Raheja IT Park (Hyderabad) Pvt. Ltd., Vs DCIT (ITAT Hyderabad)
Conclusion: When deduction u/s 80IA(4) had been granted in first year of claim the same could not be denied in subsequent years, unless assessee had changed the original terms and conditions in the first year while fulfilling for the granting deduction in the first year of operation.
Held: Assessee company, engaged in the business of developing industrial and non-industrial parks, filed its return of income for the AY 2011-12 declaring total income of Rs. 15,30,02,887/- after claiming deduction under section 80IA(4) amounting to Rs. 14,97,83,693/-. Subsequently, the case was selected for scrutiny and the assessment was completed under section 143(3) by determining the total income at Rs. 28,18,46,030/-. By exercising powers vested u/s 263, CIT observed that, prima facie, assessment order passed u/s 143(3) was erroneous and prejudicial to the interests of revenue as AO while passing the impugned order allowing the deduction u/s 80IA(4)(iii), had not verified all relevant facts in respect of satisfaction or otherwise of all conditions regarding its claim for deduction u/s 80IA(4) (assessee claimed this deduction for the first time in AY 2009-10). It was held that when deduction u/s 80IA(4) has been granted in first year of claim the same could not be denied in subsequent years, unless assessee had changed the original terms and conditions in the first year while fulfilling for the granting deduction in the first year of operation. On perusal of the documents, there was no deviation from the first year of operation. AO also could not bring any such deviation to establish that assessee had changed the original terms and conditions from the first year of operation. Even the coordinate benches of this Tribunal in assessee’s own case in earlier AYs had allowed the assessee’s claim of deduction u/s 80IA(4). Therefore, the order passed by AO was not erroneous and prejudicial to the interests of revenue as alleged by CIT. The order passed by CIT u/s 263 was quashed and order of AO was restored.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
O R D E R
PER L.P. SAHU, A.M.:
This appeal filed by the assessee is directed against Pr. CIT – 2, Hyderabad’s order dated 30/03/2016 involving proceedings u/s 263 of the Income- Tax Act, 1961; in short “the Act.
2. Briefly the facts of the case are that the assessee company, engaged in the business of developing industrial and non-industrial parks, filed its return of income for the AY 2011-12 on 29/11/2011 declaring total income of Rs. 15,30,02,887/- after claiming deduction u/s 80IA(4) amounting to Rs. 14,97,83,693/-. Subsequently, the case was selected for scrutiny and the assessment was completed u/s 143(3) on 27/03/2014 by determining the total income at Rs. 28,18,46,030/-.
3. By exercising powers vested u/s 263 of the Act, the Pr. CIT called for assessment records of the assessee and on perusal of the same, he observed that, prima facie, assessment order passed u/s 143(3) dated 27-03-2014 is erroneous and prejudicial to the interests of revenue as the Assessing Officer while passing the impugned order allowing the deduction u/s 80IA(4)(iii), has not verified all relevant facts in respect of satisfaction or otherwise of all conditions regarding its claim for deduction u/s 80IA(4). He further observed that while completing the assessment, the Assessing Officer treated the lease rentals received from industrial park as business income and allowed deduction u/s 80IA(4) amounting to Rs.13,67,23,850/- by relying on the decision of the Hon’ble ITAT, Hyderabad in the case of M/s Janapriya Properties Pvt. Ltd. Also he observed that assessment orders for the A.Ys 2006-07, 2007-08 and 2009-10 had been reviewed by the CIT-2, Hyderabad and orders u/s 263 were passed on 28-03-2014 wherein the CIT-2, Hyderabad held that the income from lease rentals is income from business but not income from house property and also held in respect of AY 2009-10 that the assessee is not entitled for deduction u/s 80IA for A.Y 2009-10 as it did not fulfill the eligibility conditions (The assessee claimed this deduction for the first time in AY 2009-10).
3.1 In view of the above observations, he issued a show cause notice dated 23/01/2015 to the assessee proposing to revise the assessment specifying the above issue. Against the show cause notice, the assessee furnished written submissions, which were extracted by the Pr. CIT in his order at pages 2 & 3. After considering the submissions of the assessee, the Pr. CIT directed the AO to revise the assessment order by disallowing the deduction claim u/s 80IA (4)(iii), by, inter-alia, observing as under:
“18. It is trite law that the beneficial provisions provided in the statute rendering certain benefits to certain eligible assessees are to be strictly construed so as not to fritter away those benefits to ineligible persons, Since, the condition that the date of commencement of the industrial park should not be beyond one year from 31.01.2006, is not satisfied atleast in respect of 2 buildings out of the proposed 8 buildings in which all the proposed 30 units are to be located. The assessee is clearly ineligible to claim and to be allowed the deduction u/s 80IA(4)(iii). As the Assessing Officer, while completing the impugned Assessment Order has not verified these aspects which are at the root of the assessee’s claim u/s 80IA(4)(iii), the impugned Order allowing the said deduction is clearly erroneous and as substantial amount of deduction u/s 80IA(4)(iii) was allowed incorrectly, the impugned Order is also prejudicial to the interest of revenue. Therefore, the impugned Assessment Order dated 27.03.2014 is revised u/s 263 and the Assessing Officer is directed to revise the Assessment Order by disallowing the deduction claim u/s 80IA(4)(iii) and issue the revised demand notice to the assessee.”
4. Aggrieved by the order of the Pr. CIT, the assessee is in appeal before the ITAT raising two grounds of appeal on validity of jurisdiction u/s 263 of the Act and denial of deduction u/s 80IA of the Act.
5. Before us, the ld. AR of the assessee filed elaborate written submissions in support of his oral arguments which are as under:
“2. The Appellant company is engaged in the business of developing Industrial and Non-Industrial Park in Cyberabad located in Hyderabad.
3. The appellant company, through Form No. IPS-1 dated 20.10.2004, had made an application under the Industrial Park Scheme, 2002 (IPS, 2002). The Ministry of Commerce and Industry (MCI) vide order dated 24 November 2004 (A copy of the same is at pages 27-30 of the paper book), accorded it’s approval to the appellant company for setting up an Industrial Park, in terms of the IPS 2002. Thereafter, the Central Board of Direct Taxes (CBDT), acting on behalf of the Ministry of Finance, vide notification dated 22 August 2006 notified the appellant as an Industrial Park eligible for deduction u/s 80-IA(4)(iii) of the Act (a copy of the said notification is available at pages 31-35 of the paper book).
4. As per this approval and the notification, the date of commencement of the Industrial Park was prescribed as 2006 and in case of delay by more than a year, i.e to say after 31.01.2007, the Appellant company ought to approach the Ministry of Commerce and Industry for a fresh approval. One more note worthy point mentioned in the MCI approval as well as the CSDT notification was that the benefit of deduction u/s 80 – IA(4)(iii) of the Act would only be available after 30 units would be located in the Industrial Park. The appellant had, though, commenced the operation of the Industrial Park from AY. 2004-05, the criteria of locating 30 units in the Industrial Park was satisfied only in AY. 2009-10. Therefore, the appellant company made a claim of deduction u/s 80-IA(4)(iii) of the Act for the first time only in AY. 2009-10.
5. The major streams of income from the operation of Industrial Park are as under:
a. Income from leasing of space and
b. Income from maintenance activities.
6. While filing the return of income for the year under consideration, the appellant had offered income from leasing of space under the head ‘Income from House Property’ while the Income from maintenance activities was offered under the head ‘Profits and gains of business or profession’. It shall be pertinent to note that while furnishing it’s return of income, the appellant had claimed a deduction u/s 80-IA(4)(iii) of the Act of Rs 14,97,83,669.
7. The said return of income was subject to scrutiny proceedings. Vide the assessment order passed u/s 143(3) of the Act dated 27.03.2014, the Ld AD. taxed the Income from leasing of space under the head ‘Profits and gains of business or profession’ as against ‘Income from House Property’ offered by the Appellant.
Thereafter, the Ld AO., after discussing and verifying the eligibility of the deduction u/s 80-IA(4)(iii) of the Act allowed a deduction under that section to the extent of Rs 13,67,23,850. The matter pertaining to head of taxation of the Income from leasing activities was then subject to litigation. Since the same is not a subject matter of dispute before Your Honours, it has not been discussed in detail in the present written submission. Suffice to state that the CIT(A) confirmed the action of the Ld AG. and thereafter before the Tribunal, the appellant had conceded it’s ground of appeal. The Hon’ble Tribunal vide order dated 22.01.2021 upheld the treatment given by the Ld AG. Thus, finally, the income from leasing activities is taxed under the head ‘Profits and Gains from business or profession’ .
8. In the meanwhile, vide show cause notice issued u/s of the Act dated 23.01.2015 (enclosed in the paper book at pages 148-149) the Ld. PCIT, on the basis of the order passed u/s 263 of the Act for AY. 2006-07, 2007- and 2009-10, proposed to hold the assessment order passed for AY. 201112 u/s 143(3) of the Act as prejudicial to the interest of revenue and sought to revise u/s 263 of the Act. The Ld. PCIT further mentioned that in the proceedings u/s 263 of the Act for A Y. 2009-10, it was seen that the appellant had not fulfilled the eligibility conditions for claiming deduction u/s 80-IA of the Act. ,
9. Thereafter, submissions along with documentary evidences were made before the Ld. PCIT. However, the Ld. PCIT rejected all the submissions made by the appellant and vide his order dated 30.03.2016 withdrew the claim of deduction u/s 80-IA of the Act. The observations as well as the decision of the Ld. PCIT will be dealt more elaborately by the appellant in subsequent paragraphs. Broadly, the Ld. PCIT held as under:
a. The appellant has not commenced the Industrial park before the cut off date, which is 31-01-2007 as per the approval from the MCI as well as notification of the CBDT. Thus, the appellant has violated the terms of approval.
b. As per the Industrial Park Scheme 2008, a Park can be said to have commenced when completion certificate in respect of the building has been obtained from the local authority. In the case of the appellant, since full Occupation Certificates in respect of 4 out of 8 buildings were not obtained before 31-01-2007, these 4 buildings were incomplete. Further, out of these 4 incomplete buildings, 2 buildings were not having NOC from the fire department before 3101-2007.
10. For the sake of convenience, the appellant would like to draw Your Honours’ attention to the details of buildings constructed by the appellant, the date on which the OC was received, the date on which the Fire NOC was received and the remarks made by the Ld. PCIT, if any.
