2005 (11) TMI 171 - AT - Income Tax

Exemption u/s 10B - deletion of addition on account of interest to GSFC - 100% export oriented undertaking (EOU) - non-satisfaction of the prerequisite conditions - HELD THAT - In the instant case it is not disputed that the assessee s produce stands sold to another EOU against relevant declaration in Form CT3 sample of which stands also adduced as an exhibit at paper book p. 39. As such we do not find any merit in this objection of the Revenue. The undertaking it may be appreciated stands recognized as an EOU and thus subject to its qualifying criteria as well as those stipulated under the Act only of and from the date on which it stands recognized as such. The assessee may in a given case export 100 per cent of its bought out goods but that would not entitle it for exemption u/s 10B; the export to be reckoned for the purpose being only in respect of goods manufactured/produced by it. Therefore as long as the profits from the trading activity are not considered for deduction u/s 10B we do not consider any adverse inference as enuring to the assessee on account of the same. This disqualification is again therefore superfluous. We fail to understand as to how this inference stands drawn in the facts and circumstances of the present case; there being no splitting-up or reconstruction involved or adverted to by the AO himself. The condition apparently is only to prevent claims where an undertaking is formed through a division reconstruction and the like of the resources already in existence while in the present case the ownership management and control of the assets of business continued to vest in the same assessee both prior to and subsequent to its being accorded approval. Rather the CBDT circular adverted to earlier clarifies this matter if at all one was required beyond any doubt. And the fact that the exemption period stands curtailed in respect of such units to the balance unexpired portion of the eligible period only ensures that no undue advantage is availed by the existing units which would otherwise qualify for exemption though only at or with reference to a future date and not from the first day of their operations. Thus we find that none of the debilitating defects in the assessee s claim u/s 10B as pointed out by the Revenue survive and hence there is no infirmity in the order of the learned CIT(A) which is hereby upheld. In the result the appeals are dismissed.

Summary

Issues:
- Appeal against orders of CIT(A) related to exemption under s. 10B of the IT Act for the assessment year 1999-2000.

Analysis:
1. The case involved two separate appeals by the Revenue challenging the orders of the CIT(A) regarding the allowance of exemption under section 10B of the IT Act for the assessment year 1999-2000. The Tribunal disposed of both appeals together as they shared a common issue.

2. The primary issue under appeal was the allowance of exemption under section 10B of the IT Act. The matter had been previously heard by the first appellate authority and was remitted back to the CIT(A) by the Tribunal for fresh adjudication. The Revenue contended that the prerequisites for a valid claim under section 10B were not satisfied by the assessee. However, the assessee argued that the deficiencies pointed out by the AO were effectively countered with evidence already on record and duly considered by the CIT(A).

3. The objections raised by the Revenue included:
- Export sales not being out of India but only to another 100% EOU.
- Trading turnover not amounting to manufacturing activity.
- Unit formed through splitting up/reconstruction of an existing unit.

4. The Tribunal found that each of the objections raised by the Revenue was effectively addressed by the assessee. The Tribunal clarified that the requirement for sale proceeds to be received in convertible foreign exchange was not a precondition for exemption under section 10B. The Tribunal also noted that the disqualification based on trading turnover was unfounded as the claim was only for profits accruing after the date of approval as an EOU. Additionally, the Tribunal found no evidence of splitting up or reconstruction of an existing unit in forming the EOU.

5. The Tribunal upheld the order of the CIT(A) as it found no merit in the Revenue's objections. It was noted that the absence of separate accounts for the eligible undertaking did not disentitle the assessee's claim, but the correct quantum of profits eligible for deduction needed to be determined. The Tribunal dismissed the appeals, emphasizing that the AO must ensure the assessee's claims are allowed in accordance with the law.

6. In conclusion, the Tribunal dismissed the appeals and upheld the order of the CIT(A) regarding the allowance of exemption under section 10B of the IT Act for the assessment year 1999-2000.