TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 1016
X X X X Extracts X X X X
X X X X Extracts X X X X
....ances of the case and in law the ld CIT(A) has erred in allowing the deduction U/s 10B for eleventh year when the assessee had admittedly not fulfilled the condition stipulated in sub-section (8) of Section 10B in A.Y. 200-102, which was mandatory in nature." 2. The assessee firm is engaged in the business of manufacturing and trading of precious and semi precious stones and studded gold and silver. Return for the year under consideration was e-filed on 29/09/2011 declaring total income of Rs. 3,80,100/-. The case was scrutinized U/s 143(3) of the Income Tax Act, 1961 (in short the Act). In the year 2001, the assessee was registered with appropriate authority U/s 10B of the Act. Section 10B(i) of the Act provides as under:- "SPECIAL PROVISIONS IN RESPECT OF NEWLY ESTABLISHED HUNDRED PERCENT- EXPORTORIENTED UNDERTAKINGS. 10B (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred percent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0B is available on the profits and gains derived by an 100% EOU from the export of articles and things or computer software for a period of ten consecutive assessment years only. Accordingly, the A/R of the assessee, vide order sheet entry dated 13.12.2013 was required to furnish justification as to why exemption u/s 10B should not be disallowed. In response thereto, the A/R of the assessee submitted vide his letter dated 18.12.2013 as under: "that the assessee claimed deduction u/s 10B for the first time w.e.f. in A.Y.2002-03 and ten consecutive years will complete in the assessment year 2011-12. Though, the registration of EOU unit was effective from 09.02.2001. The arguments put-forth by the A/R of the assessee are considered and found not acceptable in view of subsection (1) of section 10B of the I.T. Act, 1961 which is reproduced hereunder: "10B. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urpose. Moreover electricity bills of Rs. 13147/- were paid by the assessee & claimed as expenses for business. All these factors clearly prove that manufacturing activity had begun in A. Y.2001 -02(Depreciation chart for A.Y.2001-02 forms part of this order). In view of the above discussion, it is held that the assessee firm had commenced manufacturing activities in its EOU unit eligible for 10B exemption in the A.Y.2001-02 and therefore, exemption u/s 10B of the Act is available to the assessee firm up to A.Y.2010-11 only. Hence, the exemption claimed u/s 10B of the I.T. Act, 1961 for the year under consideration of Rs. 1,34,31,888/- is disallowed and added back to the total income of the assessee. Penalty proceedings u/s 271(1)(c) have been initiated separately for furnishing inaccurate particulars by claiming wrong exemption u/s 10B as discussed above. 3. Being aggrieved by the order of the ld Assessing Officer, the assessee carried the matter before the ld CIT(A), who had allowed the appeal by observing as under:- "4. I have considered the facts of the case. It is noted that the appellant is engaged in the business of manufacturing and trading of precious and semi-precious ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ound that section 10B (8) itself suggests an option by making a declaration not to avail of the same. Section 10B would have application only if the EOU had a positive income, so that the issue whether the assessee had opted out of section 10B can arise only in the year when the income turned positive. In the case of Expo Packaging (ITA No. 3005/AHD/1990), it has been held with respect to section 10A that in case there were no profits and gains, the assessee cannot be fastened with the provisions which were, prima facie, not beneficial to him. Provisions of section 10A (8) are analogous to those of section 10B (8). As mentioned above, there was a loss in the export oriented unit i.e., Unit II, in the AY 2001-02. The claim of exemption shall, therefore, be redundant for the assessment year 2001-02. 4.3 Apart from this, it has been held in the case of Moser Baer India Ltd. [295 ITR (AT) 148 Del.], that the requirement of filing declaration for opting out was directory in nature, and not mandatory. As mentioned above, in the present case it is clear from the return and computation of income that there was no positive income in unit II (EOU) in the assessment year 2001-02. Hence, it i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....port-oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act ; (v) "relevant assessment years" means any assessment year falling within a period of ten consecutive assessment years, referred to in this section. Explanation 3.- For the removal of doubts, it is hereby declared that the profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India. Explanation 4.- For the purposes of this section, "manufacture or produce" shall include the cutting and polishing of precious and semi-precious stones." On the basis of the above, it was contended by the ld DR that the assessee has not filed declaration as required U/s 10B(8) of the Act, therefore, initial year shall commence w.e.f. the date of establishment and registration to EOU i.e. 09/02/2011 and 10 years should be counted from 09/02/2011. 5. At the outset, the ld AR of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t prescribed any specific mode for excesing the option. The intention of the legislature was to bring it to the knowledge of AO of the option for not claiming deduction u/s 10B. If in the return of income if it is exercised it is sufficient information. He relied on the following decisions:- (i) CIT Vs G.R. Govindarajulu & Sons 280 CTR 303. (ii) ITO Vs Expo Packages 51 TTJ (Ahd) 174. (iii) Kwal Pro Exports v. ITO, Jodhpur, (2009) (Tax world, Vol. 41, Pg. No. 179). (iv) Bajaj Temp Ltd. v. CIT, 188 ITR 196(SC) (v) CIT v. Krishna Cooper and Steel Rolling Mills 193 ITR 281 (SC). (vi) CIT v. Baby Marine Exports 290 ITR 323 (SC) He further submitted that as per the spirit of the incentive scheme as given in Sec. 10B the assessee has rightly claimed the deduction u/s 10B for a period of 10 years starting from A.Y. 2002-03 to A.Y. 2011-12, since tenth years expire on 31/03/2011. Learned CIT(A) considering the above facts has allowed the appeal of the assessee relying on the judgment of Delhi ITAT Bench in the case of Moser Baer India Ltd. (295 ITR (AT) 148) (Delhi) in which it was held that requirement of filing declaration for opting out as directory in nature and not mandatory. Th....