2011 (6) TMI 173 - AT - Income Tax

Exemption under section 10B - Rule 46A of Income-tax Rules, 1962 - 100% EOU - assessee executed the legal agreement in the prescribed form which was furnished to SEZ authorities vide letter dated 17-4-2006 - It is a case where a letter of communication issued by SEZ authorities Noida dated 5-5-2005 while processing assessee s application for approval under 100 per cent EOU scheme has been projected by the assessee as a final approval certificate - Held that there was a definite distinction in the way the industrial undertaking owned by the appellant firm operated in the current assessment year as compared to the earlier years - Assessing Officer did not care to furnish the same despite a period of 15 months. In our view, the Assessing Officer did not discharge its duties properly for which CIT(A) cannot be blamed Coming to the issue about assessee s activity not amounting to manufacture or production or article or things - It is pleaded that individual components are ordered as raw/semi-finished components, which are carved, polished, finished putting various emblems and designs thereon - The scope and meaning of words manufacture and production of article or thing , as used in section 10B has close relationship with the definition of manufacture in SEZ Act and the meaning referred to in Foreign Trade Policy of India assessee s activities having come into existence from 22-9-2006, in our view the learned counsel for the assessee has referred to various documents and RTI applications which clarify the issue and demonstrates that the assessee s LOP was granted by the Development Commissioner w.e.f. 5-5-2005 which has been ratified by 21-7-2005 and the commencement of unit by this ratification dates back to 5-5-2005 - Decided in favour of the assessee

Issues Involved:
1. Reasonable opportunity to the Assessing Officer to examine additional evidences.
2. Eligibility for claiming exemption under Section 10B of the Income-tax Act, 1961.
3. Reconstruction of business.
4. Manufacturing or production of articles or things.
5. Date of commencement of production and approval as 100% EOU.

Detailed Analysis:

1. Reasonable opportunity to the Assessing Officer to examine additional evidences:
The revenue argued that the CIT(A) did not provide the Assessing Officer with a reasonable opportunity to examine additional evidence as required under Rule 46A of the Income-tax Rules, 1962. However, it was found that the CIT(A) had forwarded the additional evidence to the Assessing Officer, who did not furnish a remand report despite a period of 15 months. The CIT(A) proceeded to decide the appeal after waiting for a considerable time, which was deemed reasonable. Therefore, the argument that no reasonable opportunity was given to the Assessing Officer was rejected.

2. Eligibility for claiming exemption under Section 10B of the Income-tax Act, 1961:
The Assessing Officer denied the deduction under Section 10B on the grounds that the assessee did not satisfy the conditions necessary for the exemption. The CIT(A) held that the assessee was eligible for the exemption as it had a valid letter of permission issued by the Development Commissioner, which was ratified by the Board of Approval. The procedural formalities, such as custom bonding, were deemed relevant for the competent authority but not for the purpose of claiming the deduction. Consequently, the assessee was considered a 100% EOU from the date the letter of permission was issued.

3. Reconstruction of business:
The Assessing Officer contended that the introduction of a new partner amounted to the reconstruction of the business, thus disqualifying the assessee from claiming the deduction. However, the CIT(A) and subsequent judgments clarified that a mere change in the constitution of the firm does not amount to the splitting or reconstruction of the business. The business structure and continuity of the business activity remained unaffected, and the reconstituted firm carried on new manufacturing activities. Hence, it was held that the business was not reconstructed.

4. Manufacturing or production of articles or things:
The Assessing Officer argued that the assessee's activities of carving, polishing, assembling, and finishing did not amount to manufacturing. However, the CIT(A) and subsequent judgments emphasized that the term "manufacture" should be interpreted in a liberal sense, as defined in the Foreign Trade Policy and SEZ Act. The assessee's activities resulted in the creation of distinct commercial commodities, such as multiple indoor games, which were exported. The processes carried out by the assessee were deemed to qualify as manufacturing under Section 10B.

5. Date of commencement of production and approval as 100% EOU:
The Assessing Officer claimed that the date of commencement of production was communicated by the assessee as 22-9-2006, which was beyond the relevant financial year. However, the CIT(A) found that the letter of permission was issued on 5-5-2005 and ratified on 21-7-2005, making the assessee eligible for the deduction from the earlier date. The requirement for custom bonding was also clarified, stating that it was not necessary for the assessee as it did not import goods. Therefore, the adverse inference drawn by the Assessing Officer was incorrect.

Conclusion:
The assessee was found eligible for the deduction under Section 10B for the assessment years under consideration. The revenue's appeals were dismissed, and the order of the CIT(A) was upheld on all issues.

← Previous Next →