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2008 (2) TMI 288 - HC - Income TaxDeduction to profit derived from export - Unit during the F.Y 1994-95 got converted into a 100 % EOU with the permission of the Department of Industrial Development Revenue plea that exemption is not available to a unit formed by splitting up or the reconstruction of the business already in existence not acceptable - exemption u/s 10B will be given from & after the date of approval of the unit as 100% EOU - Circular 1/05 dated 6-1-05 is clarificatory so same is binding on Department also
Issues:
1. Exemption under section 10B without claim in return of income. 2. Benefit of deduction under section 10B on unit conversion. 3. Allowance of bad debt not part of total income in earlier year. Issue 1: Exemption under section 10B without claim in return of income The Revenue appealed against the Income-tax Appellate Tribunal's decision to grant exemption under section 10B when no claim was made by the assessee in the return of income or revised return. The Tribunal observed that the unit in question was converted into a 100% export-oriented unit during the financial year relevant to the assessment year 1995-96. The Tribunal found that the circular issued in 2005 was not retrospective and that the deduction under section 10B should be restricted to profits derived from exports after the unit's approval as an export-oriented unit. The Tribunal concluded that the assessee was entitled to the benefit under section 10B, and the circular was binding on the Department. Issue 2: Benefit of deduction under section 10B on unit conversion The Revenue contested the Tribunal's decision to grant the benefit of deduction under section 10B on the conversion of an existing unit into an export-oriented unit from a subsequent date. The appellant argued that the Tribunal was not justified in granting this benefit, citing section 10B(2) of the Income-tax Act, which excludes benefits for units formed by splitting up or reconstruction of an existing business. However, the Tribunal found that the unit in question was eligible for the benefit under section 10B, considering the conversion into a 100% export-oriented unit. The Tribunal also emphasized that Circular No. 1 of 2005 was clarificatory and binding on the Department. Issue 3: Allowance of bad debt not part of total income in earlier year The Revenue challenged the Tribunal's decision to allow a bad debt of Rs. 1 lakh, which had not formed part of the total income of the assessee in an earlier year and was considered capital expenditure. The Tribunal allowed the appeal of the respondent, noting that the matter was pending before the jurisdictional High Court in another case. The Tribunal stated that if the decision in the pending case is reversed by a Larger Bench, it would be binding on the respondent. The Tribunal's decision to allow the bad debt was based on the pending case's status and the potential impact of a reversal by a Larger Bench. In conclusion, the High Court upheld the Tribunal's decision on all three issues, dismissing the Revenue's appeal. The Court found that the assessee was entitled to the benefit under section 10B, considering the unit's conversion into an export-oriented unit and the clarificatory nature of Circular No. 1 of 2005. The Court also noted the pending status of the bad debt issue and its linkage to a case before the jurisdictional High Court.
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