2019 (2) TMI 57 - HC - Income Tax

Revision u/s 263 - violation of conditions stipulated u/s 10A(2)(ii) and (iii) as assessee's undertaking claiming exemption for the first time under Section 10A for the assessment year 2000-01 - Held that - As decided in the case of Super Auto Forge Ltd., Vs. Additional Commissioner of Income Tax 2014 (4) TMI 897 - MADRAS HIGH COURT the assessee was engaged in the business of manufacturing of Auto parts and it has four units. One of the units was registered as Domestic Tariff Area Unit with the Central Excise Authorities during November, 1999. Subsequently, an application was submitted by the assessee therein before the Madras Export Processing Zone (MEPZ) to treat the Domestic Tariff Area unit as 100% Export Oriented Unit. Permission was granted and the Unit came into existence from 31.03.2000 as an Export Oriented Unit. For the assessment year 2001-02, the assessee showed net profit and claimed exemption under Section 10B of the Act, in respect of the 100% Export Oriented Unit. The claim was rejected by the Assessing Officer and the Tribunal. On appeal to this Court, the appeal filed by the assessee was allowed and it was held that the assessee was entitled to the exemption in respect of 100% Export Oriented Unit. - Decided in favour of the assessee and against the Revenue. Revision u/s 263 - Held that - As decided Principal Commissioner of Income Tax Vs. H.Nagarajain 2018 (6) TMI 105 - KARNATAKA HIGH COURT the conclusion reached by the Commissioner, while exercising revisional jurisdiction, tantamount to directly interfering with the conclusions reached by the appellate Commissioner and such power of the Revisional authority cannot be conceded to enable him to interfere with the orders passed by the appellate Commissioner, in view of the doctrine of merger and therefore, it was held that the Revisional Authority acted without jurisdiction in passing the said order. We concur with the view taken by the Tribunal in holding that the Revisional Authority has exceeded in jurisdiction in invoking the provisions of Section 263 of the Act when the assessment order with regard to claim of deduction under Section 10A of the Act has merged with the order passed by the CIT(A) dated 25.10.2005. - Decided in favour of assessee.

Summary

Issues:
1. Whether the Commissioner of Income Tax (Appeals) could invoke power under Section 263 of the Income Tax Act after granting relief to the assessee?
2. Whether there was a violation of conditions under Section 10A(2)(ii) and (iii) in the case of the assessee's undertaking claiming exemption for the first time under Section 10A for the assessment year 2000-01?

Issue 1:
The first issue revolves around whether the Commissioner of Income Tax (Appeals) had the authority to exercise power under Section 263 of the Income Tax Act after granting relief to the assessee. The judgment cites the case of Super Auto Forge Ltd., where it was established that the conversion of a DTA unit into a 100% EOU unit did not constitute a transfer or creation of a new business. This decision supported the assessee's entitlement to exemption under Section 10B of the Act. The Doctrine of merger was also discussed, emphasizing that the Revisional Authority exceeded its jurisdiction in invoking Section 263 when the assessment order had merged with the order passed by the CIT(A) on the claim of deduction under Section 10A. Legal precedents from Gujarat and Karnataka were cited to support the conclusion that the Revisional Authority cannot interfere with orders passed by the appellate Commissioner due to the doctrine of merger.

Issue 2:
The second issue pertains to whether there was a violation of conditions stipulated under Section 10A(2)(ii) and (iii) in the matter of the assessee's undertaking claiming exemption for the first time under Section 10A for the assessment year 2000-01. The judgment extensively discussed the legal interpretations and precedents related to the conditions under Section 10A(2)(iii). It highlighted that the formation of a new business by transfer was distinct from the transfer of an entire business unit, as seen in the case of Heartland KG Information Ltd. The judgment referred to circulars issued by the Board to clarify eligibility for deduction under Section 10B of the Act in cases where a DTA unit is converted into a 100% EOU unit. The Tribunal's decision was upheld, emphasizing that the Revenue had no valid grounds to interfere with the order based on the factual and legal analysis presented.

In conclusion, the judgment addressed the two primary issues comprehensively, providing detailed legal reasoning and citing relevant case law to support the decisions made. The Tribunal's decision was upheld, and the appeal by the Revenue was dismissed, with the Substantial Questions of Law being answered against the Revenue.