DEPUTY COMMISSIONER OF INCOME-TAX,, BANGALORE vs. M/S GOPALAN ENTERPRISES INDIA P LTD, BANGALORE

Per Shri Jason P. Boaz, A.M. : These appeals by Revenue are directed against the orders of the Commissioner of Income Tax (Appeals)-I, Bangalore dt.30.4.2014 for Assessment Years 2005-06 and 2011-12. 2. The facts of the case, briefly, are as under :- 2.1 The assessee is a private limited company engaged in the building, construction, promotion and development of real estate. For A.Y. 2005-06, the assessee filed its return of income on 31.10.2005 declaring income of R.2,60,575. The assessment was completed under Section 143(3) of the Income Tax Act, 1961 (in short 'the Act') wherein the income was determined at Rs.5,42,02,182 due to the denial of the assessee's claim for deduction under Section 80IA(4)(iii) and 80IB(10) of the Act aggregating to Rs.4,65,70,805 (i.e. Rs.2,32,51,080 and Rs.2,33,19,725 respectively). A co-ordinate bench of the Tribunal in its order in dt.2.1.2013 allowed the assessee's claim for deduction under Section 80IB(10) of the Act but restored the assessee's claim for deduction under Section 2 & 1059/Bang/2014 80IB(4)(iii) to the file of the Assessing Officer for fresh examination. The Assessing Officer after examining the assessee's claim passed an order under Section 143(3) rws 254 of the Act rejecting the assessee's claim for deduction under Section 80IB(4)(iii) of the Act. For Assessment Year 2011-12, the assessee filed its return of income on 19.11.2011 declaring income of Rs.25,04,250. The case was taken up for scrutiny and the assessment was completed under Section 143(3) of the Act vide order dt.29.11.2013 wherein the income of the assessee was determined at Rs.3,54,23,189 due to the denial of deduction of Rs.3,29,18,939 claimed under Section 80IA(4)(iii) of the Act. 2.2 On appeal, the learned CIT (Appeals)-I, Bangalore disposed off the assessee's appeal for Assessment Year 2005-06 and 2011-12 vide orders dt.30.4.2014 allowing the assessee's claim for deduction under Section 80IA(4)(iii) of the Act.

for Assessment Year 2005-06 :- “

2. The learned CIT (Appeals) erred in directing the Assessing Officer to allow the deduction claimed by the assessee under Section 80IA(4)(iii) of Rs.2,32,51,080 with regard to the income by way of lease received by relying on the order of the CIT (Appeals) for the A.Y. 2007-08 in ITA No.191/DC-11(3)/A-I/12-13 dtd.30.08.2013 and A.Y. 2004-05 in ITA No.182/DC-11(3)/A- I/2009-10 dated 28.3.2013 in order to follow the rule of consistency without appreciating the fact that the orders relied upon have not been accepted and appeals to the ITAT have been preferred as the assessee had not fulfilled the conditions laid down by the Ministry of Commerce and Industry while granting the approval.

3. The learned CIT (Appeals) erred in not appreciating the objections of the Assessing Officer that there were three tenants in the industrial park as against the first condition that 4 units should be located in the industrial park and the super built up area of 1,38,000 sq. ft. was leased to one tenant viz. M/s. I-Flex Solutions Ltd., which is more than 60% of the total allocable area.

4. The learned CIT (Appeals) erred in not appreciating the fact that out of the three companies found to be available, M/s. Transworks Information Services Ltd. and M/s. Transworks IT Services were actually one and same as these companies were amalgamated into one by an order of the Hon'ble High Court of Mumbai.

5. The learned CIT (Appeals) erred in allowing relief by relying on the order dt.30.8.2013 for the A.Y. 2007-08 wherein reliance was placed on the order for the A.Y. 2004-05 in the assessee's own case without appreciating the averment in the order for A.Y. 2004-05 that the assessee started with one tenant in the period relevant to the assessment year 2004-05.

3 & 1059/Bang/2014 6. The learned CIT (Appeals) erred in directing to grant deduction 80IA(4)(iii) of the IT Act in view of the decision of the jurisdiction Bench of the ITAT in the case of Primal Projects PVt. Ltd. (139-TTJ-233) which has not yet reached finality.

at S.Nos.2 to 6. (supra) are in respect of a single issue of assailing the impugned orders of the learned CIT (Appeals) for allowing the assessee the deduction claimed under Section 80IA(4)(iii) of the Act by placing reliance on the orders of the CIT (Appeals) for Assessment Years 2007-08 and 2010-11 in the assessee's own case. 5.2 At the outset of the hearings before us itself, the learned Authorised Representative of the assessee submitted different co-ordinate benches of this Tribunal in the assessee's own case in ITA No.921 to 924/Bang/2013 dt.18.7.2014 for Assessment Years 2004-05, 2006-07, 2008-09 and 2009- 10 dt.18.7.2014 and in ITA No.1502/Bang/2013 dt.22.1.2015 for Assessment Year 2007-08 had upheld the grant of deduction under Section 80IA(4)(iii) of the Act claimed by the assessee. The learned Authorised Representative submitted that in view of the above orders of the co-ordinate bench, Revenue’s appeals are liable to be dismissed. 5.3 Per contra, the learned Departmental Representative supported the orders of the Assessing Officer wherein the defects had been pointed out in the assessee's claim. It was also submitted that the Department must have challenged the cited orders of the Tribunal (supra) befor the Hon'ble High Court and therefore the issue is to be kept alive. 5.4.1 We have heard both parties and perused and carefully considered the material on record, including the decisions of the co-ordinate bench in the assessee's own case for earlier years (supra) relied on by the assessee. We find that the co-ordinate bench of the Tribunal in the assessee's own 4 & 1059/Bang/2014 case in ITA No.1502/Bang/2013 dt.22.1.2015 for Assessment Year 2007-08, has upheld the assessee's claim for deduction under Section 80IA(4)(iii) of the Act following the decision of another co-ordinate bench in the assessee's own case in ITA Nos.921 to 924/Bang/2013 dt.18.7.2014 for Assessment Years 2004-05, 2006-07, 2008-09 and 2009-10. At paras 7 & 8 of its order, the co- ordinate bench in its order for Assessment Year 2007-08 has held as under :- “ 07. We have duly considered the rival contentions and gone through the record carefully. We find that deduction u/s.80IA(4)(iii) of the Act has been allowed in two earlier years namely, 2004-05 and 2006-07 by the CIT (A). This deduction has also been allowed in A. Y. 2008-09 and 2009-10, i.e., two subsequent years of the present assessment year. These orders of the CIT (A) have been upheld by the Tribunal vide its order dt 18.07.2014. The finding of the Tribunal in order dt 18.07.2014 on this issue read as under : 3.Aggrieved by the order of the AO,the assessee filed an appeal before the First Appellate Authority(FAA).Relying upon the decisions of the ITAT,Bangalore Bench in the case of Primal Projects Pvt. Ltd.(139ITJ233),the assessee argued that it was entitled to claim deduction u/s.80IA4(iii).FAA called for a remand report from the AO. as the same was never brought to the notice of the AO, who sent his report by his letter dated 14-03-2013. The assessee filed further submission by its letter dated 27-03-2013 and reiterated that their case is squarely covered by the decision of the ITAT in the case of Primal Projects Pvt. Ltd., cited above, that even otherwise the company satisfied the other conditions, that while working out the allocable area, the AO had considered the super built up area as allocated area, that there was difference between ‘super built up area’ and ‘allocable area’, that it was arrived at by reducing 26.52% from the super built-up area, that if the said formula was considered, more than 50% of allocable area was not leased to I- Flex Solutions Ltd., as made out by the AO. The assessee also furnished the details unit-wise allocable area and super built-up are leased to the various tenants. After considering the facts and reasons given by the AO in the assessment order as well as remand report and the submissions made by the assessee,FAA held that the assesse had fulfilled the first set of statutory condition for claiming deduction u/s. 80IA(4)(iii) of the Act,that the AO had 5 & 1059/Bang/2014 denied the deduction mainly on the following two grounds; i) That there should be 4 tenants in the Industrial Park and ii) No unit should occupy more than 50% of the allocable area. He further held that the AO found that there were less than 4 tenants in the Industrial Park and the super built-up area of 1,38,000/-sq.ft was leased to M/s I Flex Solutions Ltd., which was more than 50% of the total allocable area. Objections raised by the AO were found to be invalid by the FAA, in view of the decision of the jurisdictional Bench of the ITAT in the case of Primal Projects Pvt. Ltd.(supra).Referring to the decision of the Primal Projects Pvt. Ltd.(supra),he held that the test was not who operated the independent units run in the multistoried structure, that it was also not in question whether all the stories were occupied by one tenant or different tenants, that the test to be applied was functional test, that the unit must be physically independent with independent facilities and instrumentation, power connection, door number and the facility of functioning independently, that if the test laid down by the Tribunal was applied, the assessee satisfied the test and would become eligible for deduction u/s. 80IA(4)(iii) of the Act. 4.Before us, Departmental Representative(DR)relied upon the order of the AO. Authorised representative(AR)supported the order of the FAA.We have heard the rival submissions and perused the material before us. We find that the identical issue has been decided by the Bangalore Tribunal in the case of Primal Projects Pvt. Ltd. (supra)and the AO in his remand report has stated that fact of both the cases are similar. We would like to reproduce the order of Primal Projects Pvt. Ltd. . “Therefore, the issue to be decided was whether the units working in different floors should be treated as a single unit or to be treated as several units. For the purpose of the approval granted by the Ministry of Commerce & Industry, ‘unit’ means a separate unit recognized for any purpose by any of the laws of the Centre or the State. In the instant case, even though the assessee company had leased out the five/four floors to particular tenants, the tenants were carrying on their operation as independent units as the activities were functionally different. Each floor 6 & 1059/Bang/2014 was physically identified for all functional purposes. Facilities and instrumentations were provided independently. Activities were carried on as independent units.In such circumstances, it was very difficult to ignore the contention of the assessee. The assessee had constructed multi- storied buildings for the purpose of developing infrastructure facilities as approved by the Ministry of Commerce & Industry itself was a testimony that the assessee company had developed the infrastructure facility in the form of multi-storied structure to accommodate independent units to operate for themselves. Those identities and indualities did not disappear only for the reason that the entire developed area had been leased out to a single company. It was not possible to insist that every floor of the structure should be leased out to different companies. The test is not that who operates the independent units run in the multi-storied structure. It is also not the question whether all the stories are occupied by one tenant or different tenants. The test to be applied is the functional test. The unit must physically independent with physically independent with independent facilities and instrumentation, power connection, door number and the facility of functioning independently i.e every unit must be in a position to carry on its activities without depending upon other units even though all the units are situated under the same roof but in different floors. The assessee had successfully satisfied the above stated functional test of an independent unit” (para-15). Respectfully,following the above order, we decide the effective ground of appeal against the AO. ITA/922,923,924/Bang/2013-AY.s.2006-07,2008-09 & 2009-10: As stated earlier,effective ground of appeal for the remaining three AY.s.is similar to the effective ground for the AY.2004-05.As the fact,circumstances and issue for the AY.s. 2006-07,2008-09 & 2009-10 are same as of the AY.2004-05,so,following the order for that year we decided effective ground of appeal against the AO for above mentioned three assessment years.

8. We do not find any disparity on facts. The CIT (A) has allowed the claim of the assessee on the basis of its order passed in A. Y. 2004-05. That order has already been 7 & 1059/Bang/2014 confirmed by the ITAT. Therefore, we do not see any reason to deviate from the earlier stand of the Tribunal. We do not find any merit in this appeal.” 5.4.2 Following the decision of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.1502/Bang/2013 dt.22.1.2015, in which it followed the decision of an earlier bench in ITA Nos.921 to 924/Bang/2013 for dt.18.7.2014 for Asst. Years 2004-05, 2006-07, 2008-09 and 2009-10, we uphold the impugned orders of the learned CIT (Appeals) in allowing the assessee's claim for deduction under Section 80IA(4)(iii) of the Act for Assessment Years 2005-06 and 2011-12. 6. In the result, Revenue’s appeals for Assessment Years 2005-06 and 2011-12 are dismissed. Order pronounced in the open court on 4th September, 2015.