2011 (9) TMI 652 - HC - Income Tax

DTA converted into 100% EOU - Deduction under 10B - Authority of Board to grant approval - Held That - Government in a series of measures aimed at speeding up the approval process, had delegated the powers for approval to the Development Commissioner. - Decided in favour of assssee in view of CBDT Circular F.N. 178/19/2008-ITA dated 09.3.2009 .

Summary

Issues:
1. Denial of exemption under Section 10B of the Income Tax Act by the Assessing Officer.
2. Appeal filed by the assessee before the CIT (A) and subsequent decision.
3. Appeal by the Revenue before the Income Tax Appellate Tribunal.
4. Final appeal by the Revenue before the High Court challenging the Tribunal's decision.

Issue 1: Denial of exemption under Section 10B by the Assessing Officer:
The assessee company filed a return of income for the Assessment Year 2007-08 claiming exemption under Section 10B of the Income Tax Act. The Assessing Officer (AO) observed that the necessary conditions for claiming the exemption were not fulfilled by the assessee. The AO denied the exemption and made a disallowance in the total income of the assessee. The reasons given by the AO included the failure to fulfill conditions related to EOU status, use of old machinery, and maintenance of separate books of accounts.

Issue 2: Appeal before the CIT (A) and decision:
The assessee appealed before the CIT (A) challenging the AO's order. The CIT (A) allowed the appeal, stating that the assessee fulfilled all conditions for claiming the benefit of Section 10B. The CIT (A) emphasized that the assessee's claim for deduction under Section 10B was valid as it was made consequent upon the conversion to 100% EOU, and there was no requirement to maintain separate books of accounts as per Section 10B(2) of the Act.

Issue 3: Appeal before the Income Tax Appellate Tribunal:
The Revenue challenged the CIT (A)'s decision by filing an appeal before the Income Tax Appellate Tribunal, which dismissed the appeal. The Tribunal upheld the CIT (A)'s decision, leading the Revenue to file an appeal before the High Court.

Issue 4: Appeal before the High Court and final decision:
The Revenue appealed before the High Court, arguing that only the Board constituted under Section 14 of the Industries (Development & Regulation) Act could grant approval for claiming Section 10B benefits. However, the High Court held that the approval granted by the Development Commissioner was valid for claiming the deduction under Section 10B. Referring to a CBDT circular, the Court emphasized that the approval by the Development Commissioner, ratified by the Board of Approval for EOU scheme, was sufficient for claiming the exemption. Consequently, the High Court dismissed the appeal, affirming the validity of the approval granted by the Development Commissioner.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved, the decisions made at each stage, and the final ruling by the High Court, addressing the key legal aspects and arguments presented by the parties involved.