ITO, New Delhi V. Sh. Sanjay Sadh, New Delhi

ITA 4609/DEL/2011

• Counselvise Citation: 460920114 RSA 2011
• Duration Of Justice: 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2008-2009
• Appeal Filed On: 18-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DK MISHR A
• Assessee Lawyers: R K MALHOTRAAR
• Keywords: Wrong claim; Revised return; Bonafide mistake
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI G BENC H BEFORE SMT. DIVA SINGH, JM & SHRI A.N. PAHUJA, AM ITA NO.4609/DEL/2011 ASSESSMENT YEAR: 2008-09 INCOME TAX OFFICER, WARD 32(3), ROOM NO.337C C.R. BUILDING, IP ESTATE NEW DELHI V/S . SHRI SANJAY SADH, B-223, LAJPAT NAGAR-I, NEW DELHI-24 [PAN : ALJPS 1570 M] (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI R.K. MALHOTRA,AR REVENUE BY SHRI D.K. MISHRA, DR DATE OF HEARING 13-03-2012 DATE OF PRONOUNCEMENT 23-03-2012 O R D E R A.N.PAHUJA:- THIS APPEAL FILED ON 18.10.2011 BY THE ASSESSEE AGA INST AN ORDER DATED 31-08-2011 OF THE LD. CIT(A)-XXVI, NEW DELHI, RAISES THE FOLLOWING GROUNDS:- 1. WHETHER THE LD. CIT(A) WAS CORRECT IN ALLOWING DEDUCTION U/S 10B WHEN THE BASIC CONDITION TO BE SATISFIED BY THE ASSESSEE WERE NOT FILED BY THE ASSESSEE TO THE ASSESSING OFFICER FOR VERIFICATION. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY/ALL THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF HEARING OF THE APPEAL. 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THA T RETURN DECLARING INCOME OF ` `1,75,281/- FILED ON 30 TH SEPTEMBER, 2008 BY THE ASSESSEE, EXPORTING GARMENTS, WAS REVISED ON 12 TH FEBRUARY, 2009 DECLARING INCOME OF ` ` 5,44,514/-. I.T.A. NO.4609/DEL./2011 2 SUBSEQUENTLY, AGAIN THE SAID RETURN WAS REVISED O N 5.1.2010,DECLARING INCOME OF ` ` 3,17,286/-. ACCORDING TO THE ASSESSING OFFICER (A. O. IN SHORT) , NO REASONS FOR REVISING THE RETURN WERE SUBMITTED. AFTER PROCE SSING U/S 143(1) OF THE INCOME- TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ), THE RETURN WAS SELECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TO A QUERY BY THE AO, SEEKI NG REASONS FOR REVISING THE RETURN, THE ASSESSEE DID NOT SUBMIT ANY REPLY. HOW EVER, THE AO NOTICED THAT IN THE ORIGINAL RETURN, THE ASSESSEE CLAIMED DEDUCTION OF ` ` 15,77,532/- U/S 80-IA OF THE ACT WHILE IN THE REVISED RETURN FILED ON 12.02. 2009 CLAIM WAS ENHANCED TO ` 20,45,047/- U/S 80IA OF THE ACT. IN THE RETURN REV ISED ON 5.1.2010, THE ASSESSEE CLAIMED DEDUCTION OF ` 22,72,275/- U/S 10B OF THE ACT INSTEAD OF SEC. 80IA OF THE ACT. SINCE THE CLAIM FOR DEDUCTION U/S 10B OF THE A CT IN THE REVISED RETURN WAS NOT FILED WITHIN THE TIME STIPULATED IN THE LAST P ROVISO TO SUB SECTION 1 OF SECTION 10B OF THE ACT, THE AO, WHILE REFERRING TO PROVISIO NS OF SEC. 10B OF THE ACT, OBSERVED AS UNDER: 5. ON PERUSAL OF THE DOCUMENTS FURNISHED BY THE AS SESSEE IT EMERGES AS UNDER:- I) NO NEWLY ESTABLISHED HUNDRED PER CENT EXPORT ORI ENTED UNDERTAKING COMES INTO EXISTENCE DURING THE YEAR UN DER ASSESSMENT. II) THE BUSINESS ACTIVITY HAS BEEN CARRIED OUT AT T HE SAME PREMISES WITH SAME INFRASTRUCTURE. III) THE EXISTING PLANT AND MACHINERY AND OTHER ASS ETS HAVE BEEN USED. ANY ADDITION TO THE FIXED ASSETS IS WIT H REGARD TO THE OLD ASSETS, INCLUDING PLANT AND MACHINERY. ADD ITION TO THE PLANT AND MACHINERY IS MOSTLY AFTER 30 TH SEPTEMBER, 2007. IV) NO SEPARATE BANK A/C WAS MAINTAINED. DEBTORS/C REDITORS ARE SAME. PURCHASES/SALES ARE MADE TO SAME PARTIES. V) SAME PROCESS OF LINEUP IS BEING FOLLOWED. VI) THERE IS NO SEPARATE AND INDEPENDENT IDENTIFICA TION TO THE INPUT OF RAW MATERIAL, AND FINAL PRODUCTS TO SEGREG ATE THAT HOW MUCH WAS PRODUCED BY THE NEW/OLD PLANT AND MACHINERY. VII) RAW MATERIAL, FINISHED PRODUCTS, EMPLOYEES, EL ECTRIC CONNECTION, TELEPHONE CONNECTION, MAINTENANCE OF BO OKS I.T.A. NO.4609/DEL./2011 3 ETC. WERE ALL COMMON AND COULD NOT BE IDENTIFIED AS COMING FROM NEW OR OLD PLANT. VIII) NO INDEPENDENT AND DISTINCT UNIT CAME INTO EX ISTENCE FOR THE PURPOSE OF CLAIMING DEDUCTION. IX) THE TURNOVER DURING THE PRECEDING ASSESSMENT YE AR, A.Y. 2007-08, WAS AGGREGATED TO ` `7,38,66,110/-. THE TURNOVER DURING THE YEAR UNDER ASSESSMENT, I.E., A.Y. 2008-0 9 HAS REDUCED TO ` 6,88,45,664/-. THE REDUCTION IN TURNOVER ALSO ESTABLISHES THAT NO NEW 100% EXPORT ORIENTED UNDERT AKING CAME INTO EXISTENCE. X) A COPY OF LETTER DATED 14 TH JUNE, 2007 HAD BEEN FURNISHED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS, WHI CH IS AN INTIMATION BY THE ASSISTANT DEVELOPMENT COMMISSI ONER, MINISTRY OF COMMERCE AND INDUSTRY, GOI, PHASE-II, N OIDA, TO THE ASSESSEE FOR CONVERSION OF DTA UNIT INTO A EOU. PERUSAL OF THE LETTER SHOWS THAT THE SAID CONVERSIO N IS FOR THE PURPOSE UNDER THE SCHEME OF NOIDA SPECIAL ECONOMIC ZONE. THE SAID LETTER DOES NOT SUPPORT THE CONTENTION OF THE ASSESSEE THAT THE HUNDRED PER CENT EXPORT ORIENTED UNIT CAME INTO EXISTENCE WHICH FULFILLS THE CONDITIONS L AID DOWN UNDER THE PROVISIONS OF SECTION 10B, OF INCOME-TAX ACT, 1961. 2.1 IN THE LIGHT OF AFORESAID OBSERVATIONS, THE A O FORMED AN OPINION THAT NO NEW HUNDRED PER CENT EXPORT ORIENTED UNDERT AKING WAS ESTABLISHED BY THE ASSESSEE NOR ANY INDEPENDENT & DISTINCT UNIT CAME I NTO EXISTENCE FOR THE PURPOSE OF DEDUCTION U/S 10B OF THE ACT. ACCORDINGLY, THE AO SHOWCAUSED THE ASSESSEE VIDE NOTICE/QUESTIONNAIRE DATED 8 TH DECEMBER, 2010 AS TO WHY CLAIM FOR DEDUCTION U/S 10B OF THE ACT BE NOT DISALLOWED. HO WEVER, THE ASSESSEE DID NOT SUBMIT ANY REPLY BY THE STIPULATED DATE OF 16.12.20 10. SUBSEQUENTLY, THOUGH THE LD. AR ON BEHALF OF THE ASSESSEE APPEARED ON 27.12 .2010, HE DID NOT OFFER ANY EXPLANATION IN SUPPORT OF THE CLAIM FOR DEDUCTION U/S 10B OF THE ACT. IN THE ABSENCE OF ANY REPLY, THE AO DISALLOWED THE CLAIM F OR DEDUCTION U/S 10B OF THE ACT. 3. ON APPEAL, THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE IN THE FOLLOWING TERMS:- 6.0 I HAVE GONE IN DETAIL THROUGH THE ASSESSMENT ORDER, GROUNDS OF APPEAL, WRITTEN SUBMISSIONS ETC. THE APPELLANT F ILED VOLUNTARILY AN I.T.A. NO.4609/DEL./2011 4 ORIGINAL RETURN ON 30.9.2008 U/S 139(1), WHICH IS WELL WITHIN TIME AND CLAIMED DEDUCTION U/S 80-IA OF THE IT ACT1961. THE ORIGINAL RETURN FILED ON 30.9.2008 WAS REVISED ON 12.2.2009, CLAIMING DEDUCTION U/S 80-IA FROM INDUSTRIAL PARK AND SEZS AMOUNTING TO RS .20,45,047/-. AGAIN THE RETURN WAS REVISED ON 5.1.2010, IN WHICH THE APPELLANT CLAIMED DEDUCTION U/S 10B OF RS.22, 72,275/-. THE A .O IN HIS ORDER STATED THAT THOUGH THE ORIGINAL RETURN WAS REVISED WITHIN SPECIFIED TIME, YET MADE AN ADDITION' BECAUSE THE APPELLANT W AS NOT ENTITLED TO CLAIM DEDUCTION U/S 10B OF THE IT ACT 1961 AS HE DID NOT FULFILL THE CONDITIONS STIPULATED IN THAT SECTION. THEREFORE, I T WOULD BE PRUDENT TO FIRST DISCUSS WHETHER THE APPELLANT WOULD BE ELI GIBLE FOR SUCH A CLAIM OF DEDUCTION OR NOT OR WHETHER THE REVISED RE TURN FILED BY THE APPELLANT ON 5.1.2010 CLAIMING DEDUCTION U/S 10B IN SUCH REVISED RETURN IS A VALID RETURN OR NOT. 6.1 THE APPELLANT IS A 100% EOU REGISTERED WITH NOIDA SPECIAL ECONOMIC ZONE. ON PERUSAL OF DETAILS FILED BY THE A PPELLANT, IT IS SEEN THAT THE APPELLANT WAS EARLIER AN UNDERTAKING SETUP IN DOMESTIC TARIFF AREA (DTA) SINCE 29.5.2003. SUBSEQU ENTLY THE APPELLANT WAS GRANTED EOU STATUS VIDE LETTER DATED 14.6.2007 ISSUED BY ASSISTANT DEVELOPMENT COMMISSIONER, MINIS TRY OF COMMERCE & INDUSTRY, GOI, PHASE-II, NOIDA. AS PER T HE RECORD SUBMITTED BY THE APPELLANT, IT IS NOTED THAT HE WAS COVERED AS 100% EOU, FOR THE YEAR UNDER CONSIDERATION. ON PERUSAL OF THE COPY OF THE AUDIT REPORT FILED IN FORM 3CD DATED 28.9.2008, IT IS SEEN THAT IN THE CERTIFICATE 56G ANNEXED WITH THE REPORT, THE AP PELLANT SHOWED RS.22,72,275/- AT SERIAL NO.12 MENTIONED AS 'TOTAL PROFITS OF THE UNDER TAKING' AND CLAIMED 20,45,047/- AS 'AMOUNT O F DEDUCTION TO WHICH THE ASSESSES ENTITLED UNDER SECTION 10B'. HO WEVER, WHILE FILING THE ITR-4, DEDUCTION WAS CLAIMED U/S 80-IA IN ORIGINAL RETURNS FILED ON 30.9.2008, AND ALSO IN REVISED RETURN FILE D ON 12.2.2008. SUBSEQUENTLY THIS WAS RECTIFIED AND REVISED ON 5.1. 2010 CLAIMING DEDUCTION U/S 10B OF THE IT ACT 1961. SUB-SEC.5 OF SEC.139 PERMIT S AN ASSESSEE TO FILE A REVISED RETURN AT ANY TIME BE FORE THE EXPIRY OF ONE YEAR FROM THE END OF THE RELEVANT ASSESSMENT YE AR OR BEFORE THE COMPLETION OF ASSESSMENT WHICHEVER IS EARLIER, IF HE DISCOVERS ANY OMISSION OR WRONG STATEMENT IN THE RETURN FILED BY HIM. IN OTHER WORDS, IF AN ASSESSEE HAVING FURNISHED A RETURN ON HIS OWN ACCORD OR IN RESPONSE TO A NOTICE SERVED ON HIM DISCOVERS ANY OMISSION OR WRONG STATEMENTS THEREIN, HE MAY FURNISH A REVISED RETURN AT ANY TIME BEFORE THE ASSESSMENT IS MADE. THE I.T. ACT CO NTEMPLATES THE FILING BY AN APPELLANT OF A CORRECT AND COMPLETE RE TURN. THE LAW GIVES A RIGHT TO SUBSTITUTE AND BRING ON RECORD A C ORRECT AND COMPLETE RETURN IF HE DISCOVERS ANY OMISSION OR ANY WRONG STATEMENT IN THE ORIGINAL RETURN FILED. THE RIGHT T O FILE A REVISED RETURN GRANTED TO THE APPELLANT UNDER SUB- SEC.5 IS A RIGHT GIVEN BY I.T.A. NO.4609/DEL./2011 5 THE SUB-SECTION ITSELF. VARIOUS DEDUCTIONS FROM THE TOTAL INCOME CAN BE CLAIMED DURING THE ASSESSMENT PROCEEDINGS. I REL Y ON THE JUDICIAL PRONOUNCEMENT HELD IN THE CASE OF DCIT VS. LAB INDIA INSTRUMENTS PVT. LTD.(2005) 277 ITR (AT)39(PUN.) WH EREIN IT WAS HELD THAT THERE IS NO PROVISION THAT CLAIM CAN BE M ADE ONLY UPTO THE TIME GRANTED IN SEC.139(5). A REVISED RETURN IS PER MISSIBLE ONLY WHEN THE APPELLANT DISCOVERS ANY OMISSION ANY WRONG STATEMENT THEREIN. THE APPELLANT AMENDED THE CLAIM OF DEDUCTI ON AND VOLUNTARILY REVISED THE RETURN AFTER A MISTAKE WAS DISCOVERED ON ITS OWN ACCORD. THE DICTIONARY DESCRIBES THE DEFINITION OF A MISTAKE AS 'TO CHOOSE WRONGLY, TO COMMIT, TO ERR IN KNOWLEDGE PERCEPTION OPINION OR JUDGMENT, MISCONCEPTION, ERROR ETC.' THE REFORE, THE APPELLANT'S CONTENTION THAT IT IS BONAFIDE MISTAKE THAT HAS TAKEN PLACE SEEMS TO MAKE WAY IN THE REVISED RETURN. I AL SO RELY ON THE DECISION HELD IN THE CASE OF CIT VS. DHAMPUR SUGAR MILLS LTD.(1973),90ITR236 (ALLAHABAD) WHERE ONCE A REVISE D RETURN IS FILED THE ORIGINALLY FILED RETURN MUST BE TAKEN TO HAVE BEEN WITHDRAWN AND SUBSTITUTED BY THE REVISED RETURN. IT IS ALSO SEEN FROM THE RECORDS THAT THERE IS NO LETTER FROM THE ASSESS ING AUTHORITY REQUIRING THE APPELLANT TO FILE A REVISED RETURN AF TER THE DISCOVERY OF SUCH A MISTAKE. I ALSO RELY ON THE JUDICIAL PRONOUN CEMENT IN THE CASES OF CIT VS. NIRANJAN LAL RAM CHANDRA (1982) 13 4 ITR 352(AII) AND CIT VS. DR. N. SRIVASTAVA (1988) 170 I TR 556 (MP) WHERE IN IT WAS HELD IN THAT IF THE ASSESSES DISCOV ERS ANY OMISSION OR ANY WRONG STATEMENT IS A REVISED RETURN IT IS PO SSIBLE TO REVISE SUCH A REVISED RETURN PROVIDED IT IS REVISED WITHIN THE SAME PRESCRIBED TIME. IT IS A FACT THAT THE ASSESSING OF FICER HAS NOT DISPUTED THE SPECIFIED TIME PERIOD WITHIN WHICH THE APPELLANT FILED REVISED RETURN U/S 139(5). IN VIEW OF THE ABOVE DISCUSSION, IT IS SEEN THAT TH E REVISED RETURN FILED VOLUNTARILY BY THE APPELLANT ON 5.1.2010 IS A VALID RETURN TO BE TAKEN INTO ACCOUNT FOR ASSESSMENT U/S143(3) FOR AY. 2008-09 AND THE ORIGINAL RETURN FILED ON 30.9.2008 BECOMES INFR UCTUOUS AND REDUNDANT. 6.2 IN THE REVISED RETURN DATED 5.1.2010, THE APP ELLANT RECTIFIED AND SUBSTITUTED THE SECTION UNDER WHICH HE WAS ELIG IBLE TO CLAIM DEDUCTION. THEREFORE AS PER THE DISCUSSION HELD ABO VE, THE ORIGINAL RETURN STANDS WITHDRAWN AS INFRUCTUOUS AND THE REVI SED RETURN DATED 5.1.2010 IS A VALID ONE BECAUSE DURING THE ONGOING ASSESSMENT PROCEEDINGS U/S 143, THE AO. DID NOT DETECT ANY CON CEALMENT OF INCOME PRIOR TO THE REVISION OF REVISED RETURN DATE D 12.2.2008 ON 5.1.2010. IN THE INTERIM PERIOD BETWEEN 12.2.2008 T O 5.1.2010, IF THE AO. HAD DETECTED ANY CONCEALED INCOME, OR ANY F ACT THAT HAS BEEN PROVED FALSE, THE APPELLANT'S REVISED RETURN F ILED ON 5.1.2010 I.T.A. NO.4609/DEL./2011 6 WOULD HAVE BEEN HELD INFRUCTUOUS. IN THE REVISED RE TURN DATED 5.1.2010, THE WRONG CLAIM MADE UNDER A NON-ELIGIBLE SECTION WAS REVISED AND CORRECTED TO AVAIL THE BENEFIT PROVIDED BY LAW. THEREFORE, THIS MISTAKE SEEMS TO BE BONAFIDE AND UN INTENTIONAL TO CAUSE ANY LOSE TO THE REVENUE, DUE TO THE FACT THAT THE APPELLANT REGISTERED HIMSELF AS 100% EOU ONLY TO AVAIL SUCH A BENEFIT. THE RELEVANT PROVISIONS OF SECTION10B ARE REPRODUCED HE RE AS UNDER: SPECIAL PROVISIONS IN RESPECT OF NEWLY ESTABLISHED HUNDRED PERCENT EXPORT- ORIENTED UNDERTAKINGS: 10B. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCT ION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PERCE NT EXPORT-ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS O R COMPUTER SOFTWARE FOR A PERIOD OFTEN CONSECUTIVE ASSESSMENT YEARS BEGINNI NG WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE APPELLANT: PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME O F THE UNDERTAKING FOR ANY ASSESSMENT YEAR, ITS PROFITS AND GAINS HAD NOT BEEN INCLUDED BY APPLICATION OF THE PROVISIONS OF THIS SECTION AS IT STOOD IMMEDIATELY BEFORE ITS SUBSTITUTION BY THE FINANCE ACT, 2000, THE UNDE RTAKING SHALL BE ENTITLED TO THE DEDUCTION REFERRED TO IN THIS SUB-SECTION ON LY FOR THE UNEXPIRED PERIOD OF AFORESAID TEN CONSECUTIVE ASSESSMENT YEAR S: [PROVIDED [FURTHER] THAT FOR THE ASSESSMENT YEAR BE GINNING ON THE FIRST DAY OF APRIL, 2003 ,THE DEDUCTION UNDER THIS SUB-SE CTION SHALL BE NINETY PERCENT OF THE PROFITS AND GAINS DERIVED BY AN UNDE RTAKING FROM THE EXPORT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTW ARE:] PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOWED TO ANY UNDERTAKING FOR THE ASSESSMENT YEAR BEGINNING ON TH E 1 ST DAY OF APRIL, [2012J AND SUBSEQUENT YEARS: [PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOWED TO AN APPELLANT WHO DOES NOT FURNISH A RETURN OF HIS INCO ME ON OR BEFORE THE DUE DATE SPECIFIED UNDER SUB-SECTION (1) OF SECTION 139.] 6.2.1 AS PER THE PROVISIONS OF SECTION 10B THE AP PELLANT MANUFACTURED/ PRODUCED THINGS LIKE MADE-UPS AND GAR MENTS AND IS ELIGIBLE FOR CLAIMING DEDUCTION. THE APPELLANT SET UP A UNIT IN DTA (DOMESTIC TARIFF AREA) IN THE FINANCIAL YEAR 2003-0 4 AS PER THE I.T.A. NO.4609/DEL./2011 7 APPROVAL GRANTED VIDE LETTER DATED 1.6.2003 AND THE UNIT IS LOCATED AT D-4, UDYOG KENDRA, GREATER NOIDA. THIS UNIT WAS SUBSEQUENTLY APPROVED AS 100% EXPORT ORIENTED UNIT VIDE LETTER D ATED 14.6.2007 ISSUED BY ASSISTANT DEVELOPMENT COMMISSIONER, MINIS TRY OF COMMERCE & INDUSTRY, GOI, PHASE-II, NOIDA. ON PERUS AL OF THE AUDIT REPORT DATED 28.9.2008 IT IS SEEN THAT THE MA NDATORY PROVISION OF SECTION 10B WAS COMPLIED AS THE APPELLANT FILED RETURN OF INCOME ON 30.9.200B ALONG WITH A CERTIFICATE ANNEXED AS 56 G.IN THE SAID AUDIT REPORT AT COLUMN NO 17; A DEDUCTION U/S 10B A MOUNTING TO RS.20,45,047 WAS CLAIMED WHICH WAS WELL WITHIN TIME .HOWEVER THE A.O.'S ORDER DATED 31.12.2010 DID NOT MENTION THE C ONTENTS OF SUCH AUDIT REPORT BEING PERUSED. EXPLANATION 2 TO SUB-SE CTION (2) OF SECTION 80-I STIPULATES AS UNDER: 'WHERE IN CASE OF AN INDUSTRIAL UNDERTAKING ANY MAC HINERY OR PLANT OR ANY PART THEREOF PREVIOUSLY USED FOR ANY P URPOSE IS TRANSFERRED TO A NEW BUSINESS AND THE TOTAL VALUE OF THE MACHINERY OR PLANT OR PART SO TRANSFERRED DOES NOT EXCEED TWENTY PERCENT OF THE T OTAL VALUE OF THE MACHINERY OR PLANT USED IN THE BUSINESS, THEN FOR T HE PURPOSE OF THE CLAUSE (II) OF THIS SUB-SECTION, THE CONDITION SPEC IFIED THERE IN SHALL BE DEEMED TO HAVE BEEN COMPILED WITH'. 6.2.2 ON GOING THROUGH THE OBSERVATIONS RENDERE D BY THE A.O IN HIS ORDER DATED 31.12.2010, IT IS NOTED THAT THE A. O. DID NOT CONSIDER THE CIRCULAR ISSUED BY CBDT VIDE DATED 6.1 .2005, WHICH CLARIFIED THE STAND OF REVENUE ON SECTION 10B IN CA SES PERTAINING TO AN UNDERTAKING SETUP IN DTA WHICH IS SUBSEQUENTLY C ONVERTED INTO A 100% EOU. THE FACTS OF THE APPELLANTS CASE WAS S PLIT INTO TWO PHASES BY THE ASSESSING OFFICER AS UNDERSTOOD BELOW : (A) PERIOD PRIOR TO 100% EOU, I.E. WHILE OPERATING IN DTA (B) AFTER THE SANCTION/APPROVAL OF 100% EOU. HOWEVER, TO DISALLOW THE CLAIM OF THE APPELLANT UND ER SECTION 10B, THE AO. HAS NOT BROUGHT OUT ANY FACT AFTER CONCLUDI NG ENQUIRIES OR INVESTIGATIONS WHICH IS WORTHWHILE. THERE IS NO EVI DENCE ON RECORD CONTRARY TO WHAT THE APPELLANT HAS PUT FORTH NOR FO UND ANY MATERIAL ADVERSE. THE BUSINESS ACTIVITY OF THE APPELLANT BEF ORE AND AFTER THE APPROVAL OF 100% EOU WAS SEGREGATED BY THE AO AND T HE CLAIM WAS DISALLOWED. THE A.O. HAS NOT REFERRED TO THE CI RCULAR DATED 6.1.2005 ISSUED BY THE CBDT WHERE IN IT CLARIFIED T HE FOLLOWING: 'REPRESENTATIONS HAVE BEEN RECEIVED FROM VARIOUS QU ARTERS AS TO WHETHER AN UNDERTAKING SET UP IN DOMESTIC TARIFF AR EA, WHICH IS I.T.A. NO.4609/DEL./2011 8 SUBSEQUENTLY APPROVED AS 100% EOU BY THE BOARD APPOINTED BY THE CENTRAL GOVERNMENT IN EXERCISE OF POWERS CONFERRED UNDER SECTION 14 OF THE INDUSTRIES (DEVELOPMENT AND REGULATION) ACT, 1951, IS ELIGIBLE FOR DEDUCTION U/S 1 OB OF THE INCOME TAX ACT. THE MATTER HAS BEEN EXAMINED AND IT IS HEREBY CLARI FIED THAT AN UNDERTAKING SET UP IN DOMESTIC TARIFF AREA (DTA) AN D DERIVING PROFIT FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE MANUFACTURED OR PRODUCED BY IT, WHICH IS SUBSEQUENTLY CONVERTED INTO A EOU, SHALL BE ELIGIBLE FOR DEDUCTION U/S 1 OB OF THE IT ACT, ON GETTING APPROVAL AS 100% EXPORT ORIENTED UNDERTAKING. IN SUCH A CASE, THE DE DUCTION SHALL BE AVAILABLE ONLY FROM THE YEAR IN WHICH IT HAS GOT TH E APPROVAL A 100% EOU AND SHALL BE AVAILABLE ONLY FOR THE REMAINING PERIO D OF TEN CONSECUTIVE ASSESSMENT YEARS, BEGINNING WITH THE ASSESSMENT YEA R RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS A DTA UNIT. FURTHER, IN THE Y EAR OF APPROVAL, THE DEDUCTION SHALL BE RESTRICTED TO T HE PROFITS DERIVED FROM EXPORTS, FROM AND AFTER THE DATE OF APPROVAL OF THE DTA UNIT AS 100% EOU. MOREOVER, THE DEDUCTION TO SUCH UNITS IN ANY CASE WILL NOT BE AVAILABLE AFTER ASSESSMENT YEAR 2009-10. FROM THE ABOVE IT IS CLEAR AND EVIDENT THAT THE APP ELLANT IS ELIGIBLE FOR DEDUCTION U/S10B AND PROVISIONS OF SECTION (2) OF SECTION 80-I ARE NOT APPLICABLE IN THE PRESENT CASE. IN VIEW OF THE ABOVE, THE ADDITION MADE BY THE AO. DISALLOWING DEDUCTION U/S 10B IS HEREBY DELETED AND DIRECT THE AO. TO PASS A CONSEQUENTIAL ORDER ACCORDINGLY. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR WHILE CARRYI NG OUT THROUGH THE IMPUGNED ORDER AND CIRCULAR NO. 141 DATED 28.12.2006 OF THE CBDT SUBMITTED THAT SINCE THE ASSESSEE DID NOT SUBMIT THE RETURN, CLAIMING DE DUCTION U/S 10BOF THE ACT WITHIN THE TIME STIPULATED U/S 139(1) OF THE ACT, T HE ASSESSEE WAS NOT ENTITLED TO THE SAID DEDUCTION IN VIEW OF PROVISO TO SEC. 10B(1 ) OF THE ACT. ON THE OTHER HAND, THE LD. AR ON BEHALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF THE LD. CIT(A). TO A QUERY BY THE BENCH, THE LD. AR ON BEHALF OF THE ASSESSEE WHILE REFERRING US TO PAGE 23 OF THE PAPER BOOK, SUBMITTED THAT THE A SSESSEE FILED A REPLY DATED BEFORE THE INCOME TAX OFFICER ON 31 ST DECEMBER, 2010 AT 1.10 P.M. HOWEVER, THIS REPLY DOES NOT FIND ANY DISCUSSION IN THE ASSE SSMENT ORDER. I.T.A. NO.4609/DEL./2011 9 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE. INDISPUTABLY AND AS POINTED OUT BY THE LD. CIT(A), THE UNDERTAKING OF THE ASSESSEE HAS BEEN FUNCTIONING IN THE DOMESTIC TAR IFF AREA SINCE 29.5.2003 FOR MANUFACTURING GARMENTS. SUBSEQUENTLY, THE SAID UNDE RTAKING WAS GRANTED 100% EOU STATUS VIDE LETTER DATED 14.6.2007 ISSUED BY AS SISTANT DEVELOPMENT COMMISSIONER, MINISTRY OF COMMERCE & INDUSTRY, GOI, PHASE-II, NOIDA. THE LD. CIT(A) NOTICED FROM THE COPY OF THE AUDIT REPORT DA TED 28.9.2008 FILED IN FORM 3CD AND THE CERTIFICATE 56G ANNEXED WITH THE REPORT THA T THE ASSESSEE REFLECTED AN AMOUNT OF ` 22,72,275/- AT SERIAL NO.12 ON ACCOUNT OF 'TOTAL PR OFITS OF THE UNDERTAKING' AND CLAIMED DEDUCTION OF ` 20,45,047/- U/S 10B OF THE ACT. HOWEVER, WHILE FILING THE ITR-4, DEDUCTION WAS CLAI MED U/S 80-IA OF THE ACT IN ORIGINAL RETURN FILED ON 30.9.2008, AND ALSO IN REV ISED RETURN FILED ON 12.2.2009. SUBSEQUENTLY, THIS RETURN WAS RECTIFIED AND REVISED ON 5.1.2010, CLAIMING DEDUCTION U/S 10B OF THE ACT. HERE WE MAY POINT OUT THAT IN TH E SUBSEQUENT ASSESSMENT YEAR 2009-10, THE AO ACCEPTED THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 10B OF THE ACT. THE PROVISIONS OF SE CTION 10B WAS INSERTED BY THE FINANCE ACT, 1988 WITH EFFECT FROM 1-4-1989 AND LAT ER ON THESE WERE AMENDED FROM TIME TO TIME. ACCORDING TO THIS PROVISION, ANY PROFITS AND GAINS DERIVED BY AN ASSESSEE FROM A HUNDRED PER CENT EXPORT-ORIENTED UN DERTAKING SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. AS PR OVIDED IN CLAUSE (2) OF SECTION 10B, THE DEDUCTION IS AVAILABLE TO AN UNDERTAKING W HICH FULFILS ALL THE FOLLOWING CONDITIONS, NAMELY:- (2) THIS SECTION APPLIES TO ANY UNDERTAKING WHICH FULFILS ALL THE FOLLOWING CONDITIONS, NAMELY:-- (I) IT MANUFACTURES OR PRODUCES ANY ARTICLES OR THI NGS OR COMPUTER SOFTWARE; (II) IT IS NOT FORMED BY THE SPLITTING UP, OR THE R ECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE: PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RES PECT OF ANY UNDER TAKING WHICH IS FORMED AS A RESULT OF THE RE- ESTABLISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASS ESSEE OF I.T.A. NO.4609/DEL./2011 10 THE BUSINESS OF ANY SUCH UNDERTAKING AS IS REFERRED TO IN SECTION 33B, IN THE CIRCUMSTANCES AND WITHIN THE PE RIOD SPECIFIED IN THAT SECTION; (III) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUS INESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. EXPLANATION.---THE PROVISIONS OF EXPLANATION 1 AND EXPLANATION 2 TO SUB-SECTION (2) OF SECTION 80-I SHALL APPLY FOR THE PURPOSES OF CLAUSE (III) OF THIS SUB-SECTION AS THEY APPLY FOR THE PUR POSES OF CLAUSE (II) OF THAT SUB-SECTION. 5.1 ACCORDING TO THE AO, THE UNDERTAKING WAS OLD AND BY CONVERSION IT CANNOT BECOME A NEWLY ESTABLISHED UND ERTAKING, AS IS REQUIRED U/S. 10B. SINCE AT THE TIME 100% EOU STATU S WAS GRANTED VIDE LETTER DATED 14.6.2007, THE UNDERTAKING WAS ALREADY IN EXISTENCE, THE AO CONCLUDED THAT IT COULD NOT BE HELD TO BE A NE WLY ESTABLISHED UNDERTAKING. HOWEVER, THE LD. CIT(A) WHILE REFERRIN G TO CIRCULAR NO.1 OF 2005 DATED 6.1.2005 ISSUED BY THE CBDT CONCLUDED TH AT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 10B AND PROVISIONS OF SUB-SECTION (2) OF SECTION 80-I ARE NOT APPLICABLE IN THE PRESENT CASE. THE SAID CIRCULAR READS AS UNDER : SUBJECT: TAX HOLIDAY UNDER SECTION 10B OF THE INCO ME-TAX ACT TO 100% EXPORT ORIENTED UNDERTAKING-CERTAIN CLARIFICATION-REG. CIRCULAR NO. 1 OF 2005, DT. 6TH JAN., 2005 SECTION 10B OF THE INCOME-TAX ACT PROVIDES FOR 100% DEDUCTION OF PROFITS DERIVED BY A HUNDRED PER CENT EXPORT ORIENTED UNDERTAKING, FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE MANUFACTURED OR PRODUCE D BY IT. THE DEDUCTION IS AVAILABLE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMEN T YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUT ER SOFTWARE. HOWEVER, NO DEDUCTION UNDER SECTION 10B IS AVAILABLE AFTER ASSE SSMENT YEAR 2009-10. 2. THE DEDUCTION UNDER SECTION 10B IS AVAILABLE TO AN UNDERTAKING WHICH FULFILS ALL THE FOLLOWING CONDITIONS: (I) IT MANUFACTURES OR PRODUCES ANY ARTICLE OR THIN G OR COMPUTER SOFTWARE; I.T.A. NO.4609/DEL./2011 11 (II) IT IS NOT FORMED BY THE SPLITTING UP, OR THE R ECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE EXCEPT IN THE CIRCUMSTANCES SPECIFIED UNDER SECTION 33B OF THE IT ACT; (III) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUS INESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. 3. REPRESENTATIONS HAVE BEEN RECEIVED FROM VARIOUS QUARTERS AS TO WHETHER AN UNDERTAKING SET UP IN DOMESTIC TARIFF AREA, WHICH I S SUBSEQUENTLY APPROVED AS 100% EOU BY THE BOARD APPOINTED BY THE CENTRAL GOVE RNMENT IN EXERCISE OF POWERS CONFERRED UNDER SECTION 14 OF THE INDUSTRIES (DEVELOPMENT AND REGULATION) ACT, 1951, IS ELIGIBLE FOR DEDUCTION UN DER SECTION 10B OF THE INCOME- TAX ACT. 4. THE MATTER HAS BEEN EXAMINED AND IT IS HEREBY CL ARIFIED THAT AN UNDERTAKING SET UP IN DOMESTIC TARIFF AREA (DTA) AND DERIVING P ROFIT FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE MANUFACTURED OR PRODUCE D BY IT, WHICH IS SUBSEQUENTLY CONVERTED INTO A EOU, SHALL BE ELIGIBL E FOR DEDUCTION UNDER SECTION 10B OF THE IT ACT, ON GETTING APPROVAL AS 100% EXPO RT ORIENTED UNDERTAKING. IN SUCH A CASE, THE DEDUCTION SHALL BE AVAILABLE ONLY FROM THE YEAR IN WHICH IT HAS GOT THE APPROVAL AS 100% EOU AND SHALL BE AVAILABLE ONLY FOR THE REMAINING PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS, BEGINNI NG WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAK ING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS A DTA UNIT. FURTHER, IN THE YEAR OF APPROVAL, THE DEDUCTION SHALL BE RESTRICTED TO THE PROFITS DERIVED FROM EXPORTS, FROM AND AFTER THE DATE OF APPROVAL OF THE DTA UNIT AS 100% EOU. MOREOVER, THE DEDUCTION TO SUCH UNITS IN ANY CASE W ILL NOT BE AVAILABLE AFTER ASSESSMENT YEAR 2009-10. 5. TO CLARIFY THE ABOVE POSITION, CERTAIN ILLUSTRAT IONS ARE GIVEN AS UNDER: (I) UNDERTAKING 'A' IS SET UP IN DOMESTIC TARIFF AR EA AND STARTS MANUFACTURE OR PRODUCTION OF COMPUTER SOFTWARE IN FINANCIAL YEAR 1 999-2000 RELEVANT TO ASSESSMENT YEAR 2000-01. IT GETS APPROVAL AS 100% E OU ON 10TH SEPTEMBER, 2004 IN THE FINANCIAL YEAR 2004-05 RELEVANT TO ASSE SSMENT YEAR 2005-06. ACCORDINGLY, IT SHALL BE ELIGIBLE FOR DEDUCTION UND ER SECTION 10B FROM ASSESSMENT YEAR 2005-06 I.E., THE YEAR IN WHICH IT FULFILS THE BASIC CONDITION OF BEING A 100% EOU. FURTHER, THE DEDUCTION SHALL BE AVAILABLE ONLY FOR THE REMAINING PERIOD OF TEN YEARS I.E. FROM ASSESSMENT YEAR 2005-06 TO ASSE SSMENT YEAR 2009-10. THIS DEDUCTION UNDER SECTION 10B FOR ASSESSMENT YEAR 200 5-06 SHALL BE RESTRICTED TO THE PROFITS DERIVED FROM EXPORTS, FROM AND AFTER TH E DATE OF APPROVAL OF THE DTA UNIT AS 100% EOU. (II) UNDERTAKING 'B' SET UP IN DOMESTIC TARIFF AREA , BEGINS TO MANUFACTURE OR PRODUCE COMPUTER SOFTWARE IN FINANCIAL YEAR 1996-97 RELEVANT TO ASSESSMENT YEAR 1997-98. IT GETS APPROVAL AS 100% EOU IN FINAN CIAL YEAR 2007-08 RELEVANT I.T.A. NO.4609/DEL./2011 12 TO ASSESSMENT YEAR 2008-09. NO DEDUCTION UNDER SECT ION 10B SHALL BE ADMISSIBLE TO UNDERTAKING B AS THE PERIOD OF 10 YEA RS EXPIRES IN FINANCIAL YEAR 2005-06 RELEVANT TO ASSESSMENT YEAR 2006-07, PRIOR TO ITS APPROVAL AS 100% EOU. (III) UNDERTAKING 'C' IS SET UP IN DOMESTIC TARIFF AREA IN THE FINANCIAL YEAR 2000-01 RELEVANT TO ASSESSMENT YEAR 2001-02 AND ENGAGED IN THE BUSINESS OF PROVIDING COMPUTER RELATED SERVICES, OTHER THAN THOSE NOTIFIE D BY THE BOARD FOR THE PURPOSES OF SECTION 10B. IN FINANCIAL YEAR 2002-03, IT ACQUIRES MORE THAN 20% OF OLD PLANT AND MACHINERY AND STARTS MANUFACTURING CO MPUTER SOFTWARE. IT ALSO GETS APPROVAL AS 100% EOU IN FINANCIAL YEAR 2002-03. UND ERTAKING 'C SHALL NOT BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10B, AS THERE HAS BEEN TRANSFER OF OLD PLANT AND MACHINERY. (IV) UNDERTAKING 'D' IS SET UP AND STARTS PRODUCING COMPUTER SOFTWARE IN FINANCIAL YEAR 2003-04 RELEVANT TO ASSESSMENT YEAR 2004-05. I T GETS APPROVAL AS 100% EOU IN FINANCIAL YEAR 2006-07 RELEVANT TO ASSESSMEN T YEAR 2007-08. IT SHALL BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10B FROM ASSES SMENT YEAR 2007-08. HOWEVER, THE DEDUCTION SHALL NOT BE AVAILABLE AFTER ASSESSMENT YEAR 2009-10. (V) UNDERTAKING 'E' IS SET UP AND STARTS PRODUCING COMPUTER SOFTWARE PRIOR TO 31ST MARCH, 1994. IT GETS APPROVAL AS 100% EOU IN FINANC IAL YEAR 2004-05 RELEVANT TO ASSESSMENT YEAR 2005-06. UNDERTAKING 'E' SHALL NOT BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10B AS THE PERIOD OF DEDUCTION OF 10 YEARS EXPIRES PRIOR TO ASSESSMENT YEAR 2005-06. [F. NO. 149/194/2004-TPL] 5.2 AS IS APPARENT FROM THE PARA 4 OF THE AFO RESAID CIRCULAR AND THE ILLUSTRATIONS GIVEN THEREAFTER, CBDT ITSELF PERMIT TED AN UNDERTAKING SET UP IN DOMESTIC TARIFF AREA (DTA) AND DERIVING PROFIT FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE MANUFACTURED OR PRODUCED BY IT AN D WHICH IS SUBSEQUENTLY CONVERTED INTO A EOU, DEDUCTION UNDER SECTION 10B OF THE ACT, ON GETTING APPROVAL AS 100% EXPORT ORIENTED UNDERTAKING. THE DEDUCTION IS AVAILABLE FROM THE YEAR IN WHICH IT GETS THE APPROVAL AS 100% EOU AND IS AVAILABLE ONLY FOR THE REMAINING PERIOD OF TEN CONSECUTIVE ASSESSMENT YEAR S, BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUT ER SOFTWARE, AS A DTA UNIT. IN THE LIGHT OF THIS CIRCULAR AND THE FINDINGS OF LD. CIT(A), WITH WHICH WE AGREE, THERE IS NO GROUND FOR DENIAL OF CLAIM FOR DEDUCTION U/S 10B OF THE ACT, THE ASSESSEE I.T.A. NO.4609/DEL./2011 13 HAVING REGISTERED AS 100% EOU IN THE PERIOD RELEVAN T TO THE YEAR UNDER CONSIDERATION AND THE REVENUE HAVING NOT PLACED BEF ORE US ANY MATERIAL, CONTROVERTING THE AFORESAID FINDINGS OF THE LD. CIT (A) SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER. IN VIEW THEREOF, GROU ND NO.1 IN THE APPEAL IS DISMISSED 6. NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US IN TERMS OF RESIDUARY GROUND NO.2 IN THE APPEAL, ACCORDINGLY, T HIS GROUND IS DISMISSED. 7 NO OTHER SUBMISSIONS OR ARGUMENT WAS MADE BEFORE US. 8. IN THE RESULT, APPEAL IS DISMISSED. SD/- SD/ - (DIVA SINGH) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NS COPY OF THE ORDER FORWARDED TO :- 1. INCOME TAX OFFICER, WARD 32(3), ROOM NO.337-C, C.R. BUILDING, NEW DELHI. 2. SHRI SANJAY SADH, B-223, LAJPAT NAGAR-I, NEW DELHI-24 3. CIT CONCERNED 4. CIT(A)-XXVI, DELHI-92. 5. DR, ITAT,G BENCH, NEW DELHI 6. GUARD FILE. TRUE COPY BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI ORDER PRONOUNCED IN OPEN COURT