2011 (10) TMI 622 - HC - Income Tax

Summary

Issues involved:
1. Interpretation of Section 10B of the Income Tax Act, 1961 for claiming exemption.
2. Treatment of conversion of Domestic Tariff Area (DTA) Unit into Export Orient Unit (EOU) for deduction u/s 10B.
3. Addition of RS.93,29,573 on account of low GP from transactions with associated parties.

Interpretation of Section 10B:
The case involved the benefit of Section 10B of the Income Tax Act, 1961 to the respondent assessee unit, which was previously receiving deductions under Section 80HHC. The Assessing Officer contended that the assessee did not fulfill the conditions for claiming benefits under Section 10B, specifically condition no.(iii) regarding the transfer of machinery or plant previously used for any purpose. The issue was appealed by the assessee, and the CIT(Appeals) granted the benefit. The Tribunal, relying on CBDT circulars and a decision of the Punjab and Haryana High Court, dismissed the appeal, leading to the current appeal.

Conversion of DTA Unit into EOU:
The Assessing Officer argued that the conversion of the assessee into an EOU from an existing export unit did not fulfill the conditions of Section 10B. However, the Tribunal, supported by a circular issued by CBDT, clarified that an undertaking set up in a domestic tariff area, subsequently approved as a 100% EOU, is eligible for deduction under Section 10B. The Tribunal's decision was upheld, stating that the assessee was entitled to the benefit under Section 10B, and the circular was binding upon the Department.

Addition on Account of Low GP:
Regarding the addition of RS.93,29,573 on account of low GP from transactions with associated parties, the Tribunal deleted the addition, emphasizing that the assessee failed to discharge its onus of declaring low profit due to non-availability of deduction from export profit. The Tribunal's decision was based on the fact that the sole buyer and shareholders were the same, and the assessee had a motive to declare low profit.

In conclusion, the High Court upheld the Tribunal's decision, stating that the issue was correctly decided in favor of the assessee based on the interpretation of Section 10B and relevant circulars. Therefore, the Tax Appeal was dismissed, and no question of law arose in this case.