2016 (1) TMI 577 - AT - Income Tax

Eligibility for section 10B deduction - Held that - The assessee has converted its undertaking to that from DTA to 100% export oriented undertaking. This crucial fact has gone unrebutted. There is further no dispute that the Board Circular No.1/2005 dated 06.01.2005 already treats such an undertaking to be eligible for section 10B deduction on getting approval as 100% export oriented undertaking. We draw support from all of the above stated facts and case law as well as the Board s Circular to conclude that the CIT(A) has rightly held assessee s section 10B deduction claim allowable as per law. - Decided in favour of assessee

Summary

Issues involved:
- Challenge to the lower appellate order allowing section 10B deduction
- Interpretation of conditions under section 10B(2)(ii) and (iii) of the Income Tax Act
- Eligibility of the assessee for deduction under section 10B
- Quantum of deduction claimed by the assessee

Detailed Analysis:
1. The Revenue's appeal challenged the lower appellate order allowing a section 10B deduction of Rs. 34,87,738 without appreciating the facts related to the reconstruction of the business of manufacturing software. The assessing authority established that the assessee had reconstructed its business by transferring plant and machinery. The CIT(A) accepted the deduction claim based on the CBDT Circular No.1/2005, which clarified the eligibility for deduction under section 10B for undertakings converted from DTA to 100% EOU. The conditions under section 10B(2)(ii) and (iii) were analyzed, and it was concluded that the assessee met the criteria for claiming the deduction. The judgment referenced various decisions supporting the eligibility of the assessee for the deduction under section 10B.

2. The second objection raised by the assessing officer was regarding the transfer of old plant and machinery to the new business in excess of 20% of the total plant and machinery. It was clarified that there was no actual transfer of assets but a conversion from DTA to 100% EOU. The ownership and control of assets remained with the same assessee, and the action of the assessing officer was deemed unjustified. The judgment highlighted that the CBDT Circular supported the eligibility for deduction under section 10B in such cases. The conditions under section 10B(2)(iii) were found not to be violated, and the judgment referenced several authorities to support this conclusion.

3. The issue of the quantum of deduction claimed by the assessee was also addressed. The assessee initially claimed a deduction of Rs. 41,76,779 but revised it to Rs. 34,87,738 during the assessment proceedings. The deduction was calculated based on the proportionate basis of export turnover to total turnover, in line with the Act and CBDT Circular. The judgment allowed the deduction of Rs. 34,87,738 but disallowed the balance amount claimed in the return of income. The decision was based on the facts presented and the provisions of the law.

4. The final decision dismissed the Revenue's appeal, affirming the lower appellate order's decision to allow the section 10B deduction of Rs. 34,87,738 to the assessee. The judgment cited relevant case law, including a co-ordinate bench decision and a previous tax appeal dismissal, to support the conclusion that the assessee was eligible for the deduction as per the law and the CBDT Circular.

Overall, the judgment thoroughly analyzed the issues related to the section 10B deduction claim, interpretation of statutory conditions, eligibility criteria, and quantum of deduction, providing a detailed and comprehensive legal analysis leading to the dismissal of the Revenue's appeal.