ITAT allows the Deduction of Rs. 1.78 Billion on Profit and Gains in development of SEZ to DLF Limited

DLF - development SEZ - ITAT - Taxscan

The Income Tax Appellate Tribunal (ITAT), New Delhi Bench allowed the deduction of Rs. 1.78 Billion in respect of profit and gains in the development of the Special Economic Zone (SEZ) under section 80 IA B of the income tax act to DLF Limited.

The assessee, DLF Limited is a company that is engaged in the business of realistic development. It filed its return of income declaring an income of Rs.4,743,424,620.

The assessment was completed by the AO under section 143 (3) of the act. The total income of the assessee was assessed at Rs.1,473,850,810.

The CIT (A) held that the lease is only in respect of land and the same cannot be applied to the transfer of the building. In any case, the recognition of revenue relating to real estate projects is governed by AS-7 and the assessee has been consistently following POCM which has been accepted by the Tribunal in the assessee’s own case for Assessment Year 2006-07. Hence, such a reasoning of the AO to disallow proportionate deduction cannot be sustained.

Aggrieved by the order of the AO, the appellant preferred an appeal before the CIT(A) passed an order partly allowing the appeal of the assessee.

The ground of the appeal is with respect to allowing the deduction of Rs 1,78,61,73,799 under section 80 IA B of the income tax act.

Both the parties agreed that the same is covered by the decision of the coordinate bench in the assessee’s own case for assessment year 2008–09 wherein ground number two of that appeal covers this issue.

Section 80-IAB provides for deduction from the activity of developing, operating and maintaining SEZ.

As per SEZ Rules, 2006, the developer of an SEZ cannot sell land in the Special Economic Zone under rule 11(9). In view of the same, you are required to explain how the sale of buildings can take place without the sale of land. Also, explain how any income arising from such transfer of assets is covered under section 80-IAB and eligible for deduction.

The assessee submitted that the approval granted by the Board of Approval (BOA) for SEZ has remained untouched despite the High Court order, and therefore, the assessee under the law was entitled to claim of deduction under section 80IAB.

The tribunal consisting of Judicial Member K.Narasimaha Chary and Accountant Member Prashant Maharshi after analyzing the provision of the SEZ Act, 2005 and on exactly similar set of activities have held that assessee is eligible for deduction under Section 80IAB because they were in consonance not only under the SEZ but also BOA has approved such activities.

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