2012 (5) TMI 309 - AT - Income Tax

Tribunal grants exemption under Section 10B, finding new Export-Oriented Unit eligible.

Taurus Merchandising (P) Ltd. Versus ITO

Taurus Merchandising (P) Ltd. Versus ITO - TMI Issues Involved:1. Reopening of the assessment.2. Non-allowance of exemption under Section 10B of the IT Act for the new eligible Export-Oriented Unit (EOU).Detailed Analysis:1. Reopening of the Assessment:The assessee did not press this ground, and it was rejected as not pressed.2. Non-allowance of Exemption under Section 10B:The primary contention revolved around the non-grant of exemption under Section 10B of the IT Act for the new EOU. The Assessing Officer (AO) disallowed the exemption, claiming that the assessee had merely reconstructed the existing business to avail of the deduction under Section 10B. The AO noted that the business was carried on using old infrastructure without any new plant and machinery, utilized the infrastructure of its sister concern, and carried forward old stock as opening stock.3. Formation of the New EOU:The assessee argued that the new EOU was established for the business of manufacturing and exporting hand-made quilts and bed spreads, registered as a 100% EOU by the Development Commissioner, NEPZ. The assessee contended that the old unit had no business activity for over five years before the new EOU commenced, thus negating the claim of mere reconstruction or splitting up of the existing business.4. Use of Old Infrastructure and Plant & Machinery:The assessee maintained that the manufacture of hand-made quilts and bed spreads did not require heavy plant and machinery, only needles and scissors, which were debited as consumable stores. The old machinery worth Rs. 26,190 was neither transferred nor used in the new unit. The AO's observation that the business was carried on using old infrastructure without any new plant and machinery was found to be based on conjecture and surmise.5. Utilization of Sister Concern's Infrastructure:The assessee clarified that it operated from separate premises, having its own expenses and operations, and did not utilize the infrastructure of its sister concern, M/s Taurus Exports. The CIT(A)'s observation in this regard was found to be unsupported by any concrete evidence.6. Carry Forward of Old Stock:The old stock was carried forward as obsolete and not used in the new EOU. The new EOU maintained separate and independent accounts, and the old stock was part of the head office assets, not transferred to the new unit.7. Compliance with Conditions Laid Down by the Development Commissioner:The CIT(A) observed that the assessee violated conditions laid down by the Development Commissioner, but failed to specify which conditions were violated. The assessee's new EOU was registered and approved under the 100% EOU scheme, and no objections were raised by the Development Commissioner regarding any non-compliance.8. Manufacturing or Processing of Articles/Things:The CIT(A) questioned the proof of manufacturing or processing of articles/things. The assessee outsourced much of the manufacturing process, which is permissible under the law. The assessee was allowed deduction under Section 80HHC as a manufacturer-exporter, thereby admitting the assessee to be a manufacturer.Conclusion:The Tribunal concluded that the CIT(A) erred in sustaining the non-allowance of the exemption under Section 10B. The assessee fulfilled all conditions laid down in Section 10B(2), including manufacturing or producing articles or things, not being formed by splitting up or reconstruction of a business already in existence, and not being formed by the transfer of old machinery to the new business. The assessee's appeals for both assessment years were allowed, and the orders under appeal were set aside.