2015 (6) TMI 755 - AT - Income Tax

Eligibility of for deduction u/s 10B - whether approval of the EOU does not automatically make the assessee eligible for deduction u/s 10B of the Act and the deduction is available only after verification? - AO came to the conclusion that it is the reconstruction of the business of FFIPL and hence the assessee was not eligible for deduction u/s 10B - CIT(A) allowed claim - Held that - There was no transfer of old plant and machinery during the financial year 2004-05, 2005-06 and 2006-07 and further that the plant and machinery purchased by the assessee from FFIPL in the financial year 2007-08 also did not exceed 20% of the total plant and machinery of the assessee during the said financial year. Since there was no purchase of old plant and machinery from FFIPL in the earlier assessment year even as per contemporaneous records of the EOU/Customs authorities. The relevant date of the plant and machinery purchased by the assessee over the years is reproduced in order of the CIT(A). Thus, CIT(A) held that the manufacturing activity carried on by the assessee in the assessment years earlier to assessment year 2008-09 was by use of new plant and machinery. As regards the transfer of business premises, employees and the customers of FFIPL to the assessee, the CIT(A) observed that there was no prohibition in the use of the business premises of FFIPL by the assessee and also of the employees and customers of FFIPL and further that the transfer of employees and customers of the assessee was only a small percentage of the total employees and customers of the assessee respectively. Thus holding, the CIT(A) set aside the finding of the AO and allowed the deduction u/s 10B of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Eligibility for deduction u/s 10B of the Income-tax Act, 1961.
2. Disallowance of expenditure claimed by the assessee.

Eligibility for deduction u/s 10B:
The case involved cross-appeals by the assessee and the revenue against the order of the CIT(A) for the assessment year 2007-08. The AO initially disallowed the deduction u/s 10B, alleging that the assessee's business was a reconstruction of another company's business. The AO questioned the timing of the deduction claim and the transfer of assets between the companies. However, the CIT(A) set aside the AO's finding, concluding that there was no transfer of old plant and machinery in previous years and that the manufacturing activity was carried out using new machinery. The CIT(A) also noted that the transfer of business premises, employees, and customers was minimal. The ITAT upheld the CIT(A)'s decision, as the revenue failed to provide evidence to rebut the findings. Consequently, the revenue's appeal was dismissed.

Disallowance of Expenditure:
Regarding the disallowance of claimed expenditure, the AO disallowed certain expenses under various sections of the Act. The CIT(A) refrained from deciding on this issue, as allowing deduction u/s 10B would render the decision on expenditure academic. The ITAT concurred with the CIT(A)'s approach, stating that the decision on expenditure was now academic following the dismissal of the revenue's appeal. Thus, both cross-appeals were dismissed by the ITAT.

In conclusion, the ITAT upheld the CIT(A)'s decision to allow the deduction u/s 10B, finding no basis to interfere with the findings. The ITAT also agreed that the decision on the disallowance of expenditure was academic after dismissing the revenue's appeal. Therefore, both cross-appeals were dismissed, and the judgment was pronounced on 17.4.2015.