2016 (9) TMI 1331 - AT - Income Tax

Deduction under section 10B - Held that - The issue was set aside to the AO to find out whether the assessee has earned profit on sale of outsourced items and claimed deduction under section 10B of the Act. The profit derived by an assessee on self-manufactured item was considered to be eligible for deduction under section 10B of the Act. No such circumstances are there in the present appeals. Therefore in our opinion the ld.CIT(A) has erred in allowing deduction to the assessee in both these years. We set aside order of the ld.CIT(A) and restore that of the AO on this issue. The assessee is not entitled for any deduction under section 10B in these assessment years then whether this claim of interest income is admissible or not would be altogether an irrelevant issue. The assessee is not entitled for the deduction under section 10B of the Act because at threshold ten years have already been expired. In view of the above discussion both the appeals of the Revenue are allowed.

Summary

Issues Involved:

1. Eligibility for deduction under Section 10B of the Income Tax Act for the assessment years 2006-07 and 2007-08.
2. Deduction under Section 10B on interest income.

Issue-Wise Detailed Analysis:

1. Eligibility for Deduction under Section 10B:

The primary grievance of the Revenue is that the CIT(A) erred in granting deductions under Section 10B for the assessment years 2006-07 and 2007-08. The facts reveal that the assessee filed returns declaring substantial incomes for both years and claimed deductions under Section 10B, which the AO disputed. The AO argued that the assessee, engaged in manufacturing dyes and intermediates since the financial year 1995-96, converted its Domestic Tariff Area (DTA) unit into a 100% Export Oriented Unit (EOU). The AO contended that since the assessee was already claiming deductions under Sections 80HHC and 80IA from the assessment year 1996-97, the ten-year period for claiming deductions under Section 10B had expired by the assessment year 2006-07. The AO's findings highlighted that the assessee had claimed deductions for manufacturing activities in earlier years, thus exhausting the ten-year eligibility period for Section 10B deductions.

On appeal, the CIT(A) reversed the AO's decision, allowing the deductions. However, the Tribunal noted that the assessee had indeed claimed deductions under Sections 80HHC and 80IA in earlier years, contradicting its current stance. The Tribunal emphasized that the assessee cannot claim deductions under Section 10B after the ten-year period, which began in the assessment year 1996-97, had expired. The Tribunal concluded that the CIT(A) erred in allowing the deductions, restoring the AO's decision and denying the deductions under Section 10B for the assessment years 2006-07 and 2007-08.

2. Deduction under Section 10B on Interest Income:

Given the Tribunal's decision that the assessee is not entitled to any deduction under Section 10B for the relevant assessment years due to the expiration of the ten-year period, the issue of whether interest income qualifies for deduction under Section 10B becomes irrelevant. The Tribunal affirmed that since the primary eligibility for Section 10B deductions was not met, the question of interest income deduction does not arise.

Conclusion:

The Tribunal allowed the Revenue's appeals, setting aside the CIT(A)'s orders and restoring the AO's findings. The assessee was deemed ineligible for deductions under Section 10B for the assessment years 2006-07 and 2007-08, as the ten-year period had already expired. Consequently, the issue of interest income deduction under Section 10B was rendered moot. The order was pronounced in the Court on 6th September 2016 at Ahmedabad.