2011 (12) TMI 413 - AT - Income Tax

Revision u/s 263 - Deduction u/s 10B - 100% EOU - Held that the assessing officer had passed the order under section 143 3 of the Act on 9-11-2009 whereas the circular issued by the CBDT based on which the CIT declined the exemption under section 10B of the Act was on 6-1-2005 - Non consideration of the circular issued by the CBDT is clearly falls in the category of non-application of mind by the assessing officer in passing the assessment order under discussion. Hence it is clear that the assessing officer had not applied his mind while granting the exemption under section 10B of the Act. In the case under consideration there are no two opinions possible. Hence the action under section 263 of the Act is valid in law. There are no two possible ways of interpreting section 10B of the Act in the instant case. - Revision u/s 263 upheld. Whether the period of ten consecutive assessment years is to be reckoned from the date of commencement of the manufacturing as a DTA Unit or from the date of commencement of manufacture as a EOU Unit. - held that - since the assessee has availed deduction under section 10B of the Act for only one assessment year 2000-01 the benefit is available for balance 9 years is not correct - on plain reading of the aforesaid circular the exemption period ends at the tenth year of its commissioning whether as DTA unit or EOU unit. - in the circular certain illustrations were given to clarify the intention of the circular and even from such illustrations it is clear that the ten year period is to be reckoned from the date of its original commercial production. - Decided against the assessee. Fresh claim during the proceedings under section 263 of the Act. - held that - the CIT was right in rejecting the fresh claim made by the assessee that it has gone for massive expansion and hence the same should be considered as setting up of new unit which would be entitled for deduction under section 10B of the Act. Even otherwise on expansion such benefit cannot be claimed whatever may be the addition to plant and machinery or enhancement of the production capacity. - Decided against the assessee.

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Interpretation of the ten-year period for deduction under Section 10B.
3. Fresh claims during proceedings under Section 263.

Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act:
The Tribunal examined whether the Commissioner of Income Tax (CIT) was justified in invoking Section 263 to revise the assessment order. The CIT can exercise revision jurisdiction under Section 263 if the order is erroneous and prejudicial to the interests of the revenue. The Tribunal noted that the Assessing Officer (AO) had not considered the CBDT Circular No. 1 of 2005, which clarified the ten-year period for deduction under Section 10B. The AO's failure to consider this circular constituted non-application of mind, rendering the assessment order erroneous and prejudicial to the revenue. Thus, the CIT's action under Section 263 was valid.

2. Interpretation of the Ten-Year Period for Deduction under Section 10B:
The Tribunal addressed whether the ten-year period for claiming deduction under Section 10B should be counted from the date of commencement of manufacturing as a Domestic Tariff Area (DTA) unit or as an Export Oriented Unit (EOU). The CBDT Circular No. 1 of 2005 clarified that the ten-year period should be reckoned from the date of commercial production, irrespective of the conversion from DTA to EOU. The Tribunal upheld this interpretation, stating that the circular was clear and unambiguous, and thus binding on the AO. Consequently, the assessee's claim for a fresh ten-year period post-conversion to EOU was rejected.

3. Fresh Claims During Proceedings under Section 263:
The Tribunal considered whether the assessee could make fresh claims during the proceedings under Section 263. It is a settled law that fresh claims cannot be entertained during Section 263 proceedings, which are initiated for the benefit of revenue. The assessee's claim that substantial investments resulted in a new undertaking eligible for separate deduction under Section 10B was rejected. The Tribunal emphasized that the benefit under Section 10B is admissible only to a new undertaking and not for expansion. The CIT had rightly refused the fresh claim, and the Tribunal confirmed this decision.

Conclusion:
The Tribunal dismissed the appeal, confirming the CIT's order under Section 263. The AO's failure to consider the CBDT circular made the original assessment order erroneous and prejudicial to the revenue. The ten-year period for Section 10B deduction starts from the date of commercial production, and fresh claims cannot be raised during Section 263 proceedings. The Tribunal upheld the CIT's jurisdiction and decisions on all counts.