TaxTMI 
TaxTMI 
2020 (10) TMI 1053
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....Rules")-has been dealt with separately. (I) Tax Appeal No.25 of 2012: Facts: 2. The Respondent-Assessee has set up a 100% Export Oriented Unit (EOU) with the approval of all the ministries and departments concerned. It was in 1985. The company claimed exemption under section 10B of the IT Act from the Assessment Year (AY) 1990-91 onwards. This company has been engaged in the business of extraction, processing, and sale of iron ore. For the AY 2006-2007, the company claimed tax exemption on the income of Rs.90,75,14,396/-. So it declared a total income of Rs.43,05,76,415/- through its return of income. 3. After that, in March 2008, the Assessee filed its revised return of income, declaring total income of Rs.51,07,81,675/-. But later, the case was selected for scrutiny assessment. In December 2008, the assessment was completed under section 143(3) of the IT Act, on a total income of Rs.141,87,780,771/- 4. The Assessing Authority disallowed deductions under these heads of expenditure: (a) expenditure of Rs.64,000 incurred on repairs to bungalow; (b) donations and charities of Rs.312,700/-; (c) claim for deduction under section 10B amounting t....
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....he appeal. The Findings of the CIT (A): Disallowance (a): On the disallowance of Rs.64,000/- said to be the expenditure incurred on repairs to the bungalow, the CIT (A) has upheld the AO's view. The addition was sustained. Disallowance (b): On the question of retainer fee Rs.1,08,000/-, the addition was upheld. Disallowance (c): On the question of donations and charities of Rs.3,12,700/-, again the addition was upheld. Disallowance (d): On the question of exemption of Rs.90,75,14,396/- under section 10B of the IT Act, the CIT (A) concurred with the AO. The appellate authority split this question into three issues and answered all against the Assessee. So, further, aggrieved, the Assessee has filed the second appeal before the ITAT. Before the ITAT: Disallowance (a): On the disallowance of Rs.64,000/-, the expenditure incurred on repairs to the bungalow, the Tribunal has noted that earlier it considered a similar issue in Assessee's own case for AYs 2001-02 and 2002-03. It has further noted that on 21 January 2011, by order in the appeals for the AYs, 21-....
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....pointed by the Central Government. Then, has the approval from an official amounted to approval from the Central-Government appointed Board under section 14 of the Industrial (Development and Regulation) Act 1951 and the Rules made thereunder? The First Substantial Question of Law: 11. Simply stated, has the Assessee increased the production capacity of the existing unit or as he established a new unit? We reckon the answer to this question is factual. Let us see how the Tribunal dealt with this issue. Undisputed is the fact that the Assessee set up a 100% EOU in 1985-86. The Ministry of Industry, Department of Industrial Development approved that EOU through the licence, dt.26.12.1985. It was for ten years. The Assessee claimed exemption under section 10B of the IT Act from the AY 1990-91 onwards. 12. Since the quality of ore deteriorated and was not saleable, the Assessee decided to set up "a new unit"; so it applied for modernization and substantial expansion of the undertaking with an initial investment of Rs.20 crore. It wanted to increase the annual production capacity to 15 lakh tons. In November 1994, the Ministry of Industry approved the proposal, and that led to ....
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....achinery is installed. And the plant is erected, not installed. In the end, whether the new plant erected and the new machinery installed amounts to adding to an existing unit or amounts to a separate unit on its own is a matter of fact. On that, the Tribunal supplied cogent reasons and concluded in a particular way: The unit is separate, distinct, and new. The old unit has not been expanded; a new unit was established. We agree. Second Substantial Question of Law: Has the approval from an official amounted to approval from the Central-Government appointed Board under section 14 of the Industrial (Development and Regulation) Act 1951 and the Rules made thereunder? 17. First, let us examine section 10B of the IT Act, to the extent relevant for us. That provision, as it was existing then, reads thus: 10B. Special Provision in respect of newly established hundred per cent export-oriented undertakings. (1) Subject to the provisions of this section, any profits and gains derived by an Assessee from a hundred per cent export-oriented undertaking (hereafter in this section referred to as the undertaking) to which this section applies shall not be included in the....
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....s conferred by saction 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act; (ii) "relevant assessment years" means the five consecutive assessment years specified by the Assessee at his option under sub- section (3) or sub-section (5), as the case may be; (iii) "manufacture" includes any- (a) process, or (b) assembling, or (c) recording of programmes on any disc, tape, perforated media or other information storage device. (italics supplied) 18. If we keep the scope of this appeal in view, from Section 10B of the IT Act, the following aspects emerge: (a) It is a special provision that applies to a "newly established 100% export-oriented undertaking"; (b) the undertaking must be (i) manufacturing or producing an article or thing and (ii) must not have formed by splitting up or by reconstructing an existing business; (c) the undertaking must not have been formed by the transfer to a new business of machinery or plant previously used for any purpose; (d) the profits and gains shall not be included in the total income of the Assessee for any five....
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....vernment itself. It is not an "order passed by any officer under this Act" within the meaning of section 42. In other words, the order contemplated by section 42 is an order passed by an officer in his own right and not as a delegate. 21. In the above context, Roop Chand has held that the word 'delegate' means little more than an agent. An agent exercises no powers of his but only the powers of his principal. Therefore, an order passed by an officer on a delegation to him is an order by the principal himself. 22. Here, under the statutory scheme, the Development Commissioner, on his own, has no power to act but for the power delegated to him by the Board or Government. Thus, the Development Commissioner has acted as the Board's delegate. Once we have accepted that the Assessee established a new unit and secured all permissions from a competent authority, then section 10B of the IT Act springs into operation on its own. 23. If we summarise, the Assessee, to begin with, had the approval in December 1985 as 100% EOU to claim deduction under section 10B of the Act. That approval held the field from 1990-91 to 1994-95. After that, the Assessee had the approval ren....
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....dmission as the appeals in connection with the other Assessment Years of the respondents have been admitted. 2. The above appeal shall as such be considered for admission only after the said appeals are decided. 3. To be placed along with Tax Appeal Nos. 69, 70, 73 and 74 of 2014. 28. In view of the judgment in Tax Appeal No.25 of 2012, we need not adjudicate separately the issues raised in this Tax Appeal. (III) Tax Appeal No.72 of 2014 (AY 2002-03): The same as above. (IV) Tax Appeal No.23 of 2012 (AYs 2003-04 to 2005-06): 29. This appeal covers three AYs: 2003-04, 2004-05, and 2005-06. If we briefly note the facts, the Commissioner of Income Tax called and examined the records of the Assessee for these three years. In February 2008, he noticed, as the record reveals, that the AO had allowed the exemption under section 10B of the Act "without examining the allowability". 30. The exemption for AY 2003-04 was Rs.6,02,76,566/-; for AY 2004-05, Rs.28,27,75,770/-; and for AY 2005-06, Rs.54,46,45,124/-. The Commissioner of Income Tax prima facie felt that the AO's assessment orders for all these three years were erroneous and prejudicial to the Reven....
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....e initiated proceedings under section 147 of the Act and issued a notice under section 148. It was in January 2012. 34. In February 2012, the Assessee requested the AO to treat its return of income filed in September 2008 as the one submitted in response to notice under section 148. It has also objected to the reopening of the assessment. In March 2012, the AO rejected the objections and completed the assessment. He disallowed the following exemptions: Rs.131,18,76,592/- under section 10B and Rs.1,02,64,234/- expenses under section 14A read with Rule 8D. 35. Aggrieved, the Assessee appeal to the CIT (A). Through the order, dated 27 September 2013, the appellate authority partly allowed the appeal. Still aggrieved, in March 2014, both the Assessee and the Revenue filed appeals before ITAT. The Tribunal, through its order, dated 28 March 2014, dismissed the Revenue's appeal and allowed the Assessee's in part. So the Revenue has filed this Tax Appeal. 36. While admitting the Tax Appeal, this Court framed the following issues: "1. Has the ITAT been justified in allowing the deduction under Section 10B of the IT Act, particularly, in the light of the fact that the Asse....
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....the IT Act in accordance with Rule 8D of IT Rules, as provided by the decision by Income Tax Appellate Tribunal (the Mumbai Special Bench) in ITO v. Daga Capital Management Capital Pvt. Ltd. (2009) 117 ITD 169? 2. Has the ITAT been justified in allowing the deduction under Section 10B of the IT Act, particularly, in the light of the fact that the Assessee Company has expanded its existing processing capacity with new plant and machinery installed in the factory? 3. Was the ITAT right in holding that the requirement of explanation 2(iv) of Section l0B of the Act has been satisfied and no separate approval of the Board appointed by the Central Government, in the exercise of powers conferred by Section 14 of the Industrial (Development and Regulation) Act 1951 and the Rules made thereunder, needs to be obtained or granted? 41. This Tax Appeal presents an additional substantial question of law, besides those under section 10B of the IT Act. So we will address it. Among other things, the Assessee claimed exemption over Rs.11,03,36,341/- said to be the income from dividends from other companies and mutual funds. 42. To rule in Assessee's favour, the Tribunal has r....
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....ndirect expenditure should not be disallowed as per the principal provided in Rule 8 D. The Assessee replied. It has contended that during the year under reference, the Assessee had received dividend income of Rs.13,85,03,376/- from various mutual funds. The Assessee has, indeed, stressed that it earned the dividend by investing "surplus money" on the advice of various mutual fund managers who are normally attached to the banks with whom the Assessee deals. It has also maintained that "the said mutual fund officials/managers used to come to the doorstep of our company and do all the required formalities and also used to collect the cheques for the purpose of such investments". Besides, the dividend amounts received from various mutual funds were said to have been directly credited to the Assessee's bank account. 47. As seen from the record, the Assessee has also filed a working of expenditure disallowable under section 14 A of the IT Act. As for the Assessee, these elements of expenses under section 14 A of the IT Act read with Rule 8D of the IT Rules come to Rs.3,552,524/-. But the AO rejected the Assessee's contentions. He has disallowed Rs.1,28,75,357/- under sub-rule (2) of ....