INCOME TAX ACT, 1961

Section 80-IAB

Deduction under section 80-IAB - Allowability - Assessee fulfilled all conditions -

During the course of survey proceedings as well as subsequent post-survey inquiries and assessment proceedings had established beyond doubt that the claim of deduction under section 80-IAB of Rs. 41,62,61,487 was bogus and prima facie wrong. There was no development or insignificant development of Special Economic Zone by the company till financial year corresponding to assessment year 2011-12 and in subsequent years. Infringement of SEZ Act and Rules, 2005 while claiming lease rental from sister concern. Admission of wrong claim of deduction under section 80-IAB by the main person of the company, J.R. Vyas, Managing Director surrendered entire receipt shown in the profit & loss account of Rs. Rs. 41,77,29,824 for the purpose of taxation. Huge claim of capital work-in-progress (CWIP) in SEZ which had been established to be bogus and fake. The CIT(A) had also noticed arguments raised by the assessee and allowed deduction. Case of the assessee was that it had been granted formal approval by the Government of India, Ministry of Commerce and Industry, Department of Commerce (SEZ Section) vide Letter, dated 17-4-2008 bearing Formal Approval No. F. 2/455/2006-SEZ. Held: All sorts of income which was inextricably related to the carrying on the business of development of SEZ was to be considered for computing deductions under section 80-IAB. The first objection raised by the AO was, that there was no development or insignificant evelopment of SEZ by the company till financial year 2011-12, and in subsequent years. Once the approval to such activity was granted by the prescribed authority, and such approval was valid, it will no longer be open for the AO to verify the satisfaction of the conditions prescribed under rule 18DA in order to refuse deduction under section 80-IB(8A). Thus, first head under which the AO had examined the case of the assessee was not justifiable head for rejecting the claim. Assessee had submitted complete details about the procedural documentation on this aspect and as per rule 6(2)(a) of the SEZ Rules, one of the units in SEZ could start commercial production within three years from the date of letter of approval granted by the BOA. Unless the land is being purchased, how production could be started. CIT(A) had appreciated the facts in right perspective on this reasoning also, and rightly did not agree with the AO. Third fold of reasoning, the AO had observed that MD of DPCL, J.R. Vyas has accepted that a wrong claim of deduction under section 80-IBA was made. It is pertinent to note that statement made during the course of survey under section 131(1A)(3) was without administrating oath, because the authorized officer conducting survey is not empowered to administer oath, and such statement does not carry much evidentiary value. After going through the well reasoned finding of the CIT(A), Tribunal did not wish to interfere in it on this issue. In the next fold of reasoning, the AO had observed that huge claim of capital work-in-progress had been made by the assessee, which found to be bogus and fake. BOA had granted approval to the assessee. This approval had not been cancelled or suspended. It was valid. The assessee had offered a piece of land measuring 299151 sq. meters to DPCL at Rs. 1400 per sq. meter as lease rent for a period of 99 years, and Rs. 2100 per sq.meter towards development charges. This amount computed at the rate of Rs. 1400 per sq.meter has been shown by the assessee as income from SEZ. Sister concern had already applied to the BOA before the 31st March for approval. It could not be doubted by referring an aspect that capital expenditure shown and capitalized under the head work-in-progress was bogus. On the basis of such an observation, deduction otherwise admissible to the assessee cannot be denied. CIT(A) in the well reasoned order has examined all these reasonings given by the AO and thereafter observed that this aspect has been considered by the ITAT in various decisions, and the case of the assessee duly fall within the ambit of section 80-IAB for grant of deduction. After going through order of the CIT(A), there was no reason to interfere in this first fold of grievance raised by the revenue.

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