The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has ruled that a SEZ developer is not entitled to a deduction on the sale of food and beverages under section 80IAB of the Income Tax Act, 1961and held that the sale of food and beverages is not one of the activities that are specifically listed in the Act as eligible for deduction.
The assessee, M/s Seaview Developers Pvt Ltd, a SEZ developer in Noida, claimed a deduction under section 80IAB of the Act for income from developing and operating a SEZ. The Assessing Officer denied the deduction on two grounds: the sale of food and beverages and adding back interest expense. The assessee argued that the sale was an ancillary activity and should be eligible for deduction. The Assessing Officer denied the deduction, and the assessee appealed to the ITAT.
The assessee argued that the sale of food and beverages should be eligible for deduction under section 80IAB, as it is an ancillary activity to its main SEZ development and operation. They used Instruction No. 50, which authorizes activities for approved company developers, including cafeteria/canteen for staff.
The Assessing Officer denied the deduction for the sale of food and beverages, stating it wasn’t eligible for deduction under the Act. They also argued that the added back interest expense was income in the current year, as it was a reversal of a previous year’s deduction.
TheTribunal observed that the sale of food and beverages is not one of the activities that are specifically listed in the Act as eligible for deduction under section 80IAB and also observed that the Assessing Officer was wrong to treat the added back interest expense as income under section 68 of the Act
In the case of M/s Unitech Developers & Projects Ltd., the ITAT ruled that the sale of food and beverages is not eligible for deduction under the Act, making Unitech one of the largest real estate developers in India.
The Two-member bench comprising Anubhav Sharma (Judicial Member) and N.K. Billaiya (Accountant Member) held that the assessee was not allowed to claim a deduction on the sale of food and beverages, but the interest expense should have been reduced from the eligible profit before computing the deduction under section 80IAB and also held that the Assessing Officer cannot treat the interest expense as income under section 68 of the Act.
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