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TMI Blog2020 (10) TMI 1053X X X X Extracts X X X X X X X X Extracts X X X X ..... the new plant erected and the new machinery installed amounts to adding to an existing unit or amounts to a separate unit on its own is a matter of fact. On that, the Tribunal supplied cogent reasons and concluded in a particular way: The unit is separate, distinct, and new. The old unit has not been expanded; a new unit was established. We agree. Approval from an official amounted to approval from the Central-Government appointed Board under section 14 of the Industrial (Development and Regulation) Act 1951 and the Rules made thereunder - HELD THAT:- Assessee, to begin with, had the approval in December 1985 as 100% EOU to claim deduction under section 10B of the Act. That approval held the field from 1990-91 to 1994-95. After that, the Assessee had the approval renewed, and the period stood extended by five more years-up to March 2001. Finally, in October 2001, the Assessee had the approval renewed once again for another five years - Tribunal has held that though it was termed a renewal , the benefit was applied to a new unit. And the Ministry has been well aware of that. Within the given window of the extended period, the Assessee claimed the exemption for the first time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Shri Nishant Thakkar Shri P. Talaulikar, Advocates for the Respondent. JUDGMENT : (Per Dama Seshadri Naidu, J.) Introduction : All these appeals are at the Revenue s behest. In this batch, an identical question of law calls for consideration. That concerns the exemption under section 10B of the Income Tax Act ( IT Act ). In a couple of appeals, an additional issue has arisen, though. So we have taken up Tax Appeal No.23 of 2012 for discussion and applied the decision in that case to other appeals, too, where the question under section 10B of the IT Act is common. The additional issue-about the disallowance under section 14A of the IT Act read with Rule 8D of the Income Tax Rules ( IT Rules )-has been dealt with separately. (I) Tax Appeal No.25 of 2012: Facts: 2. The Respondent-Assessee has set up a 100% Export Oriented Unit (EOU) with the approval of all the ministries and departments concerned. It was in 1985. The company claimed exemption under section 10B of the IT Act from the Assessment Year (AY) 1990-91 onwards. This company has been engaged in the business of extraction, processing, and sale of iron ore. For the AY 2006-2007, the company clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g total income of ₹51,07,81,675/-. The same year, the case was selected for scrutiny assessment, which was completed in December 2008 under section 143 (3) of the IT Act. The Assessing Officer held the total income as ₹1,41,87,780,771/-, by making these additions: (a) Disallowance of ₹ 64,000/-, said to have been the expenditure incurred on repairs to the bungalow. (b) Disallowance of retainer fee of ₹1,08,000/- (c) Disallowance of ₹3,12,700/- out of Donations and charities. (d) Disallowance of ₹90,75,14,396, claimed as deduction under section 10B. Statutory Appeal: Aggrieved by the assessment order, dated 30/12/2008, the Assessee appealed to the CIT (A), who has dismissed the appeal. The Findings of the CIT (A): Disallowance (a): On the disallowance of ₹64,000/- said to be the expenditure incurred on repairs to the bungalow, the CIT (A) has upheld the AO's view. The addition was sustained. Disallowance (b): On the question of retainer fee ₹1,08,000/-, the addition was upheld. Disallowance (c): On the question of donations and charities of ₹3,12,700/-, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 10B of the IT Act, too, the findings went against the Revenue. Under the above circumstances, the Revenue has filed this Tax Appeal before this Court. The Appeal before This Court: 9. As we have already noted, before us there are two substantial questions of law. According to the Revenue, the Assessee merely expanded the capacity of an existing unit; it has installed new plant and machinery . Then, can the Assessee be allowed the deduction of ₹90,74,14,396/- under section 10B of the IT Act? 10. And for the second substantial question of law, the Revenue relies on explanation to section 10B (7) of the IT Act. It insists that the Assessee did not secure separate approval from the Board appointed by the Central Government. Then, has the approval from an official amounted to approval from the Central-Government appointed Board under section 14 of the Industrial (Development and Regulation) Act 1951 and the Rules made thereunder? The First Substantial Question of Law: 11. Simply stated, has the Assessee increased the production capacity of the existing unit or as he established a new unit? We reckon the answer to this question is factual. Let us see h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefit, the new undertaking must have been a simple reconstructed old unit, with at least 20% of the assets from the old unit transferred to the new unit. But the Assessee did not face any allegation of transferring the assets from the old unit to the new unit. It did construct a new unit adjacent to the old unit. And the Tribunal refused to accept the Revenue's contention that the adjacent unit should be termed an expanded old unit. 16. We find no reason to disagree. We reckon the Tribunal's findings are in accord with the established industrial practice. In fact, the Revenue argued that the Assessee has installed new plant and machinery . Regrettably, plant and machinery are not synonymous; the plant is where machinery is installed. And the plant is erected, not installed. In the end, whether the new plant erected and the new machinery installed amounts to adding to an existing unit or amounts to a separate unit on its own is a matter of fact. On that, the Tribunal supplied cogent reasons and concluded in a particular way: The unit is separate, distinct, and new. The old unit has not been expanded; a new unit was established. We agree. Second Substantial Ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained in the foregoing provisions of this section, where the Assessee, before the due date for furnishing the return of his income under sub-section (1) of section 139, furnishes to the Assessing Officer a declaration in writing that the provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for any of the relevant assessment years. Explanation : For the purposes of this section,- (i) hundred per cent export-oriented undertaking means an undertaking which has been approved as a hundred per cent export-oriented undertaking by the Board appointed in this behalf by the Central Government in the exercise of the powers conferred by saction 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act; (ii) relevant assessment years means the five consecutive assessment years specified by the Assessee at his option under sub- section (3) or sub-section (5), as the case may be; (iii) manufacture includes any- (a) process, or (b) assembling, or (c) recording of programmes on any disc, tape, perforated media or other information storage devi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to satisfy itself as to the legality or propriety of any order passed by that officer under that Act. It is revisional power. Similarly, section 21 (4) of the Act confers appellate powers on the Government. But the Government delegated this appellate power to an officer. Once that officer passed an order in an appeal under section 21 (4), the Government wanted to exercise its revisional powers under section 42 of the Act. In that context, the Supreme Court by majority (3:2) has held that when the Government delegated its appellate power under section 21 (4) to an officer, an order passed by that delegate-officer is an order passed by the State Government itself. It is not an order passed by any officer under this Act within the meaning of section 42. In other words, the order contemplated by section 42 is an order passed by an officer in his own right and not as a delegate. 21. In the above context, Roop Chand has held that the word 'delegate' means little more than an agent. An agent exercises no powers of his but only the powers of his principal. Therefore, an order passed by an officer on a delegation to him is an order by the principal himself. 22. Here, under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377;27,71,710/-. In October 2010, the Assessee objected to the reopening, but the AO rejected the objections and completed the assessment on the total income of ₹3,40,76,813/-. On appeal, the CIT(A), through order, dated 27.09.2013, partly allowed the appeal. Still aggrieved, in March 2014, both the Assessee and the Revenue filed appeals before ITAT. The Tribunal, through its order, dated 28 March 2014, dismissed the Revenue's appeal and allowed the Assessee s appeal in part. So the Revenue has filed this Tax Appeal. While admitting the Tax Appeal, this Court has noted thus: [W]e find it appropriate to defer the hearing of the above appeal on admission as the appeals in connection with the other Assessment Years of the respondents have been admitted. 2. The above appeal shall as such be considered for admission only after the said appeals are decided. 3. To be placed along with Tax Appeal Nos. 69, 70, 73 and 74 of 2014. 28. In view of the judgment in Tax Appeal No.25 of 2012, we need not adjudicate separately the issues raised in this Tax Appeal. (III) Tax Appeal No.72 of 2014 (AY 2002-03): The same as above. (IV) Tax Appeal No.23 of 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold technical issue renders itself academic and calls for no specific adjudication. (V) Tax Appeal No.70 of 2014 (2007-08): 33. The Assessee filed its return of income in October 2007 for the AY 2007-08, declaring its income of ₹57,26,22,760/-. The Assessee claimed exemption of ₹131,18,76,592/- under section 10B of the Act. Besides, it also claimed exemption over ₹5,13,22,125/- said to be the income from dividends from other companies and mutual funds. In February 2009, the assessment was processed under section 143(1), but no assessment was made under section 143(3) of the Act. Yet the AO felt that certain income chargeable to tax escaped assessment. So he initiated proceedings under section 147 of the Act and issued a notice under section 148. It was in January 2012. 34. In February 2012, the Assessee requested the AO to treat its return of income filed in September 2008 as the one submitted in response to notice under section 148. It has also objected to the reopening of the assessment. In March 2012, the AO rejected the objections and completed the assessment. He disallowed the following exemptions: ₹131,18,76,592/- under section 10B and S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 272,29,91,220/- under section 10B and ₹1,28,75,357/- expenses under section 14A read with Rule 8D. 39. Aggrieved, the Assessee appeal to the CIT (A). Through the order, dated 27 September 2013, the appellate authority partly allowed the appeal. Still aggrieved, in March 2014, both the Assessee and the Revenue filed appeals before ITAT. The Tribunal, through its order, dated 20 March 2014, dismissed the Revenue s appeal and allowed the Assessee s in part. So the Revenue has filed this Tax Appeal. 40. While admitting the Tax Appeal, this Court framed the following issues: 1. In the facts and circumstances, has the ITAT been correct in deleting the disallowance made under section 14A of the IT Act in accordance with Rule 8D of IT Rules, as provided by the decision by Income Tax Appellate Tribunal (the Mumbai Special Bench) in ITO v. Daga Capital Management Capital Pvt. Ltd. (2009) 117 ITD 169? 2. Has the ITAT been justified in allowing the deduction under Section 10B of the IT Act, particularly, in the light of the fact that the Assessee Company has expanded its existing processing capacity with new plant and machinery installed in the factory? 3. Was the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar relevant to the assessment year under consideration, the Assessee has earned exempted income under section 10(35) of the IT act. That was ₹11,03,36,341/- from the investments made in mutual funds. The Assessee has not disallowed any expenses under section 14 A of the IT Act. As on 31 March 2008, the Assessee s investments in various mutual funds was ₹353,64,17,461/-; and as on 31 March 31 2007, it was ₹161,37,25,618/-. True, the Assessee has not disallowed any common indirect expenditure to earn such exempted income as required under section 14 A read with Rule 8D of the IT Rules, 1962. 46. In the above context, the AO has called for the Assessee s objections why a portion of the common indirect expenditure should not be disallowed as per the principal provided in Rule 8 D. The Assessee replied. It has contended that during the year under reference, the Assessee had received dividend income of ₹13,85,03,376/- from various mutual funds. The Assessee has, indeed, stressed that it earned the dividend by investing surplus money on the advice of various mutual fund managers who are normally attached to the banks with whom the Assessee deals. It has also m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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