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 initial year of positive income, rather than from A.Y. 2001-02. It was held that the requirement to file a declaration under Section 10B(8) was not mandatory in the absence of positive income. The revenue's appeal was dismissed, affirming the CIT(A)'s decision to grant the exemption for A.Y. 2011-12.

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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 10B

The 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 Year

The 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.

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