2016 (7) TMI 1016 - AT - Income Tax

Tribunal allows deduction under Section 10B from initial year of positive income. Revenue's appeal dismissed.

The Tribunal upheld the CIT(A)'s decision, allowing the assessee's deduction under Section 10B for ten consecutive years starting from A.Y. 2002-03, the ... Eligibility of deduction U/s 10B - Held that:- Admittedly, the assessee was not having any positive income from the export of articles on account of activities in the export oriented unit, therefore, in our view, there is no occasion for the assessee to claim deduction U/s 10B of the Act. Since there is no positive income, there was no occasion for the assessee to file certificate in terms of Section 10B(8) of the Act. Even otherwise, though, the assessee can withdraw the declaration given at any time. Therefore, in our opinion, furnishing of the declaration in terms of Section 10B(8) of the Act is merely a formality and declaratory in nature and is not mandatory. If the assessee is having positive income then only there is occasion to claim the deduction. Admittedly, the positive income accrued to the assessee in the assessment year 2002-03 and from there onward the assessee has claimed the deduction U/s 10B of the Act for a period of 10 years. In view thereof, the order passed by the ld CIT(A) is confirmed and the appeal of the revenue is dismissed. - Decided in favour of assessee Issues Involved:1. Whether the CIT(A) erred in allowing deduction under Section 10B of the Income Tax Act.2. Whether the exemption under Section 10B is available to the assessee starting from the Assessment Year (A.Y.) 2002-03 or from A.Y. 2001-02.3. Whether the assessee fulfilled the conditions stipulated in sub-section (8) of Section 10B for A.Y. 2001-02.Detailed Analysis:Issue 1: Deduction under Section 10BThe revenue argued that the CIT(A) erred in allowing the deduction under Section 10B amounting to Rs. 1,34,31,888/-. The assessee firm, engaged in manufacturing and trading of precious and semi-precious stones, claimed this exemption for the A.Y. 2011-12. The Assessing Officer (AO) declined the benefit, stating that the exemption under Section 10B is available for ten consecutive assessment years starting from the year the manufacturing begins, which in this case was A.Y. 2001-02. Thus, the AO concluded that the exemption period ended in A.Y. 2010-11.Issue 2: Exemption Start YearThe CIT(A) allowed the appeal by the assessee, noting that no deduction under Section 10B was claimed in A.Y. 2001-02 due to a loss in the export-oriented unit (EOU). The CIT(A) observed that the assessee had claimed the deduction starting from A.Y. 2002-03, when it first had positive income, and thus the ten-year period should end in A.Y. 2011-12. The CIT(A) relied on the judgment in Tamilnadu Jai Bharat Mills Ltd., which stated that the exemption period can start from the year the assessee opts to claim it, provided there is no positive income in the initial years.Issue 3: Conditions under Section 10B(8)The revenue contended that the assessee did not file the required declaration under Section 10B(8), which mandates informing the AO in writing if the provisions of Section 10B are not to be applied. However, the CIT(A) and the assessee argued that this requirement is directory and not mandatory, especially when there is no positive income. The assessee cited the case of Moser Baer India Ltd., where it was held that the declaration for opting out is not mandatory.Tribunal's Decision:The Tribunal upheld the CIT(A)'s decision, emphasizing that the primary condition for deduction under Section 10B is the existence of positive income from exports. Since the assessee had no positive income in A.Y. 2001-02, there was no requirement to file the declaration under Section 10B(8). The Tribunal noted that the deduction period should start from A.Y. 2002-03, when the assessee first had positive income, and thus the ten-year period would end in A.Y. 2011-12. The Tribunal dismissed the revenue's appeal, confirming that the CIT(A) rightly allowed the exemption for the A.Y. 2011-12.Conclusion:The Tribunal concluded that the assessee is entitled to the deduction under Section 10B for ten consecutive years starting from A.Y. 2002-03, as the initial year of positive income, and not from A.Y. 2001-02. The requirement to file a declaration under Section 10B(8) was deemed directory and not mandatory in the absence of positive income. The revenue's appeal was dismissed, and the CIT(A)'s order was confirmed.