Section 10B relief and Section 14A disallowance depend on distinct undertaking status, delegated approval, and proven exempt-income .

A distinct new industrial unit qualifies for Section 10B deduction where the facts show fresh approval, substantial investment in new plant and machinery, and an undertaking separate from mere expansion or reconstruction of an existing business. Delegated approval by the Development Commissioner satisfies the statutory approval requirement under the Section 10B framework when granted within authorised powers, so separate board approval is not necessary on those facts. Disallowance under Section 14A read with Rule 8D is not justified where the record does not establish borrowed funds or identifiable expenditure incurred to earn exempt income beyond what the assessee has already worked out.

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Issues: (i) Whether the assessee was entitled to deduction under Section 10B of the Income-tax Act, 1961 on the footing that it had set up a new undertaking and not merely expanded an existing unit; (ii) whether approval granted by the Development Commissioner satisfied the requirement of approval by the Board appointed under Section 14 of the Industries (Development and Regulation) Act, 1951 for the purposes of Section 10B of the Income-tax Act, 1961; (iii) whether disallowance of expenditure under Section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962 was sustainable.

Issue (i): Whether the assessee was entitled to deduction under Section 10B of the Income-tax Act, 1961 on the footing that it had set up a new undertaking and not merely expanded an existing unit?

Analysis: The materials showed that the assessee had obtained approval for a fresh unit, had invested substantially in new plant and machinery, had established an undertaking adjacent to the old one, and had increased capacity in the course of a distinct industrial setup. The finding of the Tribunal was that the new undertaking was separate and distinct and was not a case of mere reconstruction or expansion of the existing business. That finding was supported by facts and by the statutory conditions governing Section 10B, including the requirement that the undertaking should not be formed by splitting up or reconstruction of an existing business or by transfer of previously used machinery.

Conclusion: The assessee was entitled to deduction under Section 10B of the Income-tax Act, 1961.

Issue (ii): Whether approval granted by the Development Commissioner satisfied the requirement of approval by the Board appointed under Section 14 of the Industries (Development and Regulation) Act, 1951 for the purposes of Section 10B of the Income-tax Act, 1961?

Analysis: The statutory scheme treated the Development Commissioner as acting under delegated authority of the Board. Once delegation is accepted, the act of the delegate is attributable to the principal. The approval was granted within the framework of the delegated procedure and therefore answered the statutory requirement embedded in the Explanation to Section 10B. The absence of a separate approval by the Board did not defeat eligibility where the delegated approval was validly granted and the exemption period continued to subsist.

Conclusion: The approval granted by the Development Commissioner satisfied the statutory requirement, and no separate board approval was necessary on these facts.

Issue (iii): Whether disallowance of expenditure under Section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962 was sustainable?

Analysis: The exempt income arose from investments in mutual funds, but the record did not support a finding that the assessee had borrowed funds for the investments or incurred identifiable expenditure relatable to such exempt income beyond the amounts already worked out by the assessee. The Tribunal's view that the Revenue had not established a proper basis for the disallowance was upheld. The broad and speculative assumption that internal staff time or incidental interaction with fund managers must necessarily create disallowable expenditure was not accepted.

Conclusion: The disallowance under Section 14A read with Rule 8D was not sustained.

Final Conclusion: The substantial questions of law were answered in favour of the assessee, and the Revenue's appeals failed.

Ratio Decidendi: A validly approved new undertaking is entitled to Section 10B relief where the facts show a distinct unit and not a mere expansion of an existing business, and delegated approval by the competent authority satisfies the statutory approval requirement when the delegate acts within authorised powers.

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