Income Tax Appellate Tribunal - Ahmedabad
Income Tax Officer vs Anita Synthetics (P) Ltd. [Alongwith ... on 23 November, 2005
Equivalent citations: (2006)100TTJ(AHD)277
ORDER
Sanjay Arora, A.M.
1. These are two separate appeals by the Revenue directed against two separate orders of the learned CIT(A)-I, Surat, of even date, i.e., 28th Feb., 2005, and the assessment year under reference is 1999-2000.
2. As these appeals were heard together and involve a common issue, these are being disposed of by a common order.
3. The only issue under appeal relates to the allowance of exemption under Section 10B of the IT Act, 1961 ("Act" hereinafter), at Rs. 19,57,116 (ITA No. 1263/Ahd/2005) and Rs. 16,00,825 (ITA No. 1264/Ahd/2005), i.e., as claimed by the assessee(s) which stood earlier disallowed by the AO vide his order under Section 143(3) of the Act, dt. 28th March, 2002 and 29th March, 2002, respectively.
4. The facts of the case in brief are that this matter had been earlier heard by the first appellate authority and the assessee's appeal allowed vide order dt. 9th Sept., 2002. In second appeal, the Tribunal (Ahmedabad Bench 'C') in Appeal No. 3660 and 3662/Ahd/2002 (for the two respondent-assessees), vide its order dt. 30th Sept., 2004, remitted the matter back to the file of the CIT(A) for fresh, adjudication in terms of Section 250(6) on the two issues under appeal, i.e., the grant of exemption under Section 10B, and the deletion of addition on account of interest to GSFC, being, in its opinion, rendered without the necessary recording of the reasons (refer paras 4 and 5 of the said order). The learned CIT(A), however, vide the impugned order stated that this earlier order was not rendered per incuriam, but supported by reasons, placing reliance, through reproduction of his earlier order dt. 9th Sept., 2002 for the purpose.
5. Before us, the learned Departmental Representative relied upon the order of the AO, adverting to the various deficiencies observed by the AO in the assessee's claim under Section 10B of the Act. The learned Authorised Representative, on the other hand, stated that the CBDT has since, i.e., subsequent to the impugned order, vide its Circular No. 1 of 2005, dt. 6th Jan., 2005 [(2005) 193 CTR (St) 85] clarified, in response to the various representations received by it from various quarters, that an undertaking set, up in a Domestic Tariff Area (DTA) which is subsequently approved as a 100 per cent export- oriented undertaking (EOU) by the competent authority, would be eligible for deduction under Section 10B of the Act. Copy of the relevant circular stands placed at paper book (PB) pp. 71 to 72. He further contended that each of the three objections, as raised by the AO, with regard to the non-satisfaction of the prerequisite conditions by the assessee (for a valid claim under Section 10B), is properly countered with evidence, already placed on record and which stands duly cognized and appreciated by the learned CIT(A) while adjudicating in the matter. Specifically :
(a) The assessee's export sales being not out of India but only to another 100 per cent EOU:
Reference in this context was made to paras 9.10(c), 9.11, 10.2(b) of Chapter IX of the Exim Policy 1992-1997, which deems the sale by EOU to another EOU as export, to be counted towards the fulfillment of its obligation in respect of Net Foreign Exchange Earning (NFEE) and Export Performance (EP), provided the same (goods sold) are permissible for procurement in terms of para 9.2 of the policy.
(b) Trading turnover:
The turnover of the assessee-company during the relevant previous year is in respect of weaving of grey cloth (Rs. 407 lakhs) and trading in yarn (Rs. 280 lakhs). As the said trading does not amount to manufacturing activity, it defeats assessee's claim of being EOU involved only in manufacturing activity. The learned Authorised Representative, however, points out that no trading has taken place after the date of approval for EOU by the competent authority, i.e., 20th Sept., 1998. And further, no claim in respect of such trading profits stands claimed for deduction under Section 10B. As such, the activity prior to the cut-off date, i.e., with reference to which the assessee becomes eligible for deduction under the said section, cannot be construed against the assessee.
(c) Unit formed through splitting up/reconstruction of an existing unit:
As no new investment in plant and machinery was observed by the AO during the relevant previous year, he inferred the conversion of the existing unit, upon its approval as an EOU, as a conversion of an existing unit as a 100 per cent EOU, and which would clearly disqualify the same for the benefits, which, presumably, stands reserved only for new units. The learned Authorised Representative, in this regard, refers to the aforesaid circular of the CBDT which is clearly on the point, i.e., the approval as a 100 per cent EOU being accorded by the competent authority subsequent to the date the said unit commenced its production, and simultaneously restricting the exemption to the unexpired period of the 10 successive years therefrom.
6. We have heard the parties before us and also perused the material on record. We find, for the reasons aforestated, as also noted hereafter, that each of the three basic defects in the assessee's claim for exemption under Section 10B stands effectively met by the assessee, 6.1 As regards the objection No. 1, the section does not stipulate the requirement for the sale proceeds of the goods produced by the assessee's undertaking to be received in convertible foreign exchange and as a necessary precondition for being exigible as a qualifying unit, as, for example, is in the case of some other sections relating to export income, viz., Sections 80HHC and 80HHE. Further, Section 10B stands amended w.e.f. 1st April, 2001 to provide for the same, and which, therefore, by implication, only proves the assessee's contention, i.e., of no such requirement being in place as the law stood at the relevant time. Further, the word "export", in the absence of any specific definition under the Act, would necessarily have to be interpreted in accordance with the meaning ascribed to the said word under the relevant exim policy, and which, as stated earlier, deems the sale by one EOU to another as export. 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.
6.2 The next objection relates to the trading turnover of the assessee, and which has been construed as disqualifying the assessee's undertaking for exemption under Section 10B. The said deduction, as stated, and which appears to be not in dispute, stands claimed only in respect of profits accruing to the assessee from the said undertaking after the date of grant of approval as EOU. As such, it is difficult to see as to how its activities prior thereto could be regarded as disentitling it in respect of its otherwise valid claim in respect of its operations subsequent to that date. 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. Further, sub-section (2) of 10B which enumerates the qualifying criteria, vide Clause (ia) thereof, requires the export of at least 75 per cent of the sale of goods manufactured or produced by the EOU. As such, the criteria of minimum level of export is only with reference to the goods manufactured/ produced by the undertaking, and independent of any other activity, including the trading activity, engaged in by the assessee. The assessee may, in a given case, export 100 per cent of its bought out goods, but that would not entitle it for exemption under Section 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 under Section 10B, we do not consider any adverse inference as enuring to the assessee on account of the same. This disqualification is, again, therefore, superfluous.
6.3 The third disqualification that the assessee purportedly suffers from is, that its undertaking, being not a new one, thus, stands formed by the splitting up, or the reconstruction of a business already in existence, and, therefore, excluded by virtue of Section 10B(2)(ii). 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.
7. In view of the foregoing, we find that none of the debilitating defects in the assessee's claim under Section 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. The learned Departmental Representative has also, during the course of hearing, pointed out that the assessee has not substantiated its claim by maintaining separate accounts in respect of its eligible undertaking. While we admit this objection of the Revenue as valid, it would not, thereby, disentitle the assessee's claim, which factor would only facilitate the determination of the correct quantum of profits as eligible for deduction. In its absence, therefore, the onus to prove that no income, i.e., apart from that earned by the assessee's eligible undertaking, stands included for deduction under Section 10B, is clearly on the assessee. And which aspect of the matter is definitely be looked into by the AO, who is duty-bound to allow the assessee's claims only in accordance with law. As such, we do not consider it necessary or relevant to issue any specific directions on this account, We order accordingly.
8. In the result, the appeals are dismissed.