2013 (8) TMI 663 - AT - Income Tax

Deduction u/s 10B - Benefit to 100% EOU - Use of old plant and machinery - conversion of existing unit - Whether the assessee is entitled to claim benefit available to 100% EOU u/s. 10B of the Act read with Circular No. 01/2005 dated 6.1.2005 issued by the CBDT - AO s contention that the old machinery transferred to the new unit exceeded 20% limit - Held that - Revenue cannot have doubt regarding genuineness of the documents as the documents were issued by Government authorities. It was also made clear before the lower authorities that these are available at the time of survey - The assessee has taken the plant and machinery from M/s. Balaji Agro Oil Industries Pvt. Ltd. which was engaged in the business of castor oil extraction and the present assessee is engaged in chemical business. There is nothing on record to show that the assessee used the machinery used for oil extraction by Balaji Agro Oil Industries Ltd., for the purpose of manufacturing fine chemicals. Further though there was a survey action, the lower authorities not brought on record the bifurcation of the machinery which are already put in to use by Balaji Agro Oil Industries. The Assessing Officer not made an allegation that the assessee has not furnished the details of old and new plant and machinery - existing DTA (domestic tariff area) unit can be converted into 100% EOU as per Government of India policy and this is enumerated in Circular No. 1/2005 dated 6.1.2005 issued by the CBDT. Being so, an assessee cannot be denied deduction u/s. 10B of the Act. Further, the assessee in this case applied for approval of Unit-II as 100% EOU to Development Commissioner on 18.12.2002 and the assessee was granted approval as 100% EOU by the Asst. Development Commissioner, Office of Development Commissioner, Visakhapatnam SEZ and issued green card under 100% EOU scheme on 25.4.2003. Deduction u/s. 10B has to be allowed to the assessee from the date it got the approval as 100% EOU i.e., 25.4.2003 and the Assessing Officer is directed to allow deduction u/s. 10B from the date of approval as 100% EOU by the competent authority for the unexpired period of 10 consecutive assessment years commencing from the assessment year 2004-05 being regarded as second year of production in first year of commercial production being A.Y. 2003-04. This is so because, even if the new unit was commenced in the FY 2002-03 relevant to A.Y. 2003-04, the claim of deduction u/s. 10B cannot be denied in the FY 2003-04 relevant to A.Y. 2004-05 as this year would be the second year of claim of deduction u/s. 10B of the IT Act - Decided against Revenue. Jurisdiction of CIT - CIT set aside claim of 100% depreciation of capital equipment - Held that - Admittedly, the CIT(A) has no power to remit the issue back to the file of the Assessing Officer with effect from 1.6.2001 as the words or he may set aside have been removed from section 251(1)(a) of the Act. Considering this amendment, we are inclined to hold that the CIT(A) should not have sent the issue back to the file of the Assessing Officer and he should have decided the issue by himself. Accordingly, we direct the CIT(A) to decide the issue in accordance with law - Decided in favour of Revenue.

Summary

Issues Involved:
1. Allowability of deduction under Section 10B of the Income Tax Act.
2. Allocation of common expenses between EOU and domestic units.
3. Claim of 100% depreciation on capital equipment.

Issue-wise Detailed Analysis:

1. Allowability of Deduction under Section 10B of the Income Tax Act:

The primary issue revolves around whether the assessee is entitled to claim the benefit under Section 10B for its Unit-II, which was converted into a 100% Export Oriented Unit (EOU). The Assessing Officer (AO) disallowed the deduction, arguing that the unit was commercially operational before FY 2003-04 and that old machinery exceeding the permissible limit was transferred to the new unit. The AO based his conclusion on statements from the company's MD and production manager, as well as production registers and other records found during a survey.

The CIT(A) called for a remand report and additional evidence, including third-party documents from the AP Pollution Control Board and Customs authorities, which indicated no production activity before the unit's EOU status. The CIT(A) ultimately allowed the deduction from the date of EOU approval (25.04.2003) for the unexpired period of ten consecutive assessment years, starting from AY 2004-05, as per Circular No. 1/2005.

The Tribunal upheld the CIT(A)'s decision, noting that the AO did not provide a quantitative analysis of old versus new machinery and relied on assumptions. The Tribunal emphasized that the AO's assertion about old machinery exceeding the 20% limit lacked a factual basis. Therefore, the deduction under Section 10B was allowed from the date of EOU approval.

2. Allocation of Common Expenses between EOU and Domestic Units:

The AO reallocated common expenses between the EOU and domestic units based on turnover, arguing that the income shown for the EOU was disproportionately high. The CIT(A) upheld this reallocation, directing the AO to recompute the deduction under Section 10B accordingly.

The Tribunal found no infirmity in the CIT(A)'s order, stating that when expenses are not properly identifiable, apportioning them based on turnover is appropriate. Thus, the Tribunal confirmed the CIT(A)'s decision on this issue.

3. Claim of 100% Depreciation on Capital Equipment:

The assessee claimed 100% depreciation on certain R&D equipment, which the AO allowed only partially, based on certification from DSIR. The CIT(A) directed the AO to verify the nature of the equipment and allow 100% depreciation if it was used for scientific research related to the assessee's business.

The Tribunal noted that the CIT(A) no longer has the power to remit issues back to the AO post-1.6.2001. Consequently, the Tribunal directed the CIT(A) to decide the issue himself, in accordance with the law.

Conclusion:

The Tribunal upheld the CIT(A)'s decision to allow deduction under Section 10B from the date of EOU approval and confirmed the reallocation of common expenses based on turnover. However, it remanded the issue of 100% depreciation on capital equipment back to the CIT(A) for a fresh decision. The Tribunal's order provides a comprehensive analysis of the legal and factual aspects of the case, ensuring that the assessee's claims are evaluated based on substantive evidence and applicable legal provisions.