Delhi High Court

Commissioner Of Income Tax vs Enable Exports Pvt. Ltd. on 14 September, 2011

Author: A.K.Sikri

                                                                      #24

*            IN THE HIGH COURT OF DELHI AT NEW DELHI

+                       ITA No.1072 of 2011

%                      Decision Delivered On:14th September, 2011

      COMMISSIONER OF INCOME TAX                        . . . APPELLANT

                              Through:     Mr. N.P. Sahni, Sr. Standing
                                           Counsel.

                                 VERSUS

      ENABLE EXPORTS PVT. LTD.                        . . .RESPONDENT

                              Through:     Mr.  C.S.   Aggarwal, Sr.
                                           Advocate with Mr. Prakash
                                           Kumar, Advocate.

CORAM :-
    HON'BLE MR. JUSTICE A.K. SIKRI
    HON'BLE MR. JUSTICE M.L. MEHTA

      1.     Whether Reporters of Local newspapers may be allowed
             to see the Judgment?
      2.     To be referred to the Reporter or not?
      3.     Whether the Judgment should be reported in the Digest?

A.K. SIKRI, J. (ORAL)

1. The assessee company filed return of income for the

Assessment Year 2007-08 declaring income of `20,23,243/-.

The case of the assessee was selected for scrutiny and

notice under Section 143(2) of the Income Tax Act

(hereinafter referred to as „the Act‟) was issued and served

upon the assessee. Assessment under Section 143(3) of the

Act was completed by the Assessing Officer (AO). During

the course of assessment proceedings, it was observed by

the AO that the assessee had claimed exemption under

Section 10B of the Act. During the course of scrutiny

proceedings, the AO observed that certain necessary

conditions which are required to be fulfilled for claiming

exemption under the said Section are not fulfilled by the

assessee company. After considering the submissions of the

assessee in this regard, the AO denied the exemption under

Section 10B of the Act to the assessee company and made

disallowance of `1,00,22,725/- in the total income of the

assessee. Reasons given by the AO were as under:

"(i) That the assessee has been granted 100% EOU status from the board specifically constituted under Section 14 of Industries (Development and Regulation) Act, 1951, which is a requirement under the provisions of the Act.

(ii) That the assessee is using the old machinery/computers which is in contravention of the provisions of 10B(2)(iii) of the Act.

(iii) That the assessee company is not maintaining separate books of accounts as mandated by the provisions of Section 10B(2) of the Act.

In view of the above, the claim of assessee under Section 10B of the I.T. Act is not allowed."

2. Aggrieved by the order of the AO, the assessee filed appeal

before the CIT (A). The CIT (A) allowed the appeal of the

assessee. CIT (A) was of the opinion that the assessee

fulfilled all the conditions for claiming the benefit of Section

10B of the Act. The CIT (A) found that through power to

grant approval to 100% EOUs initially invested in the Board

constituted under Section 14 of the Industries (Development

and Regulation) Act, the Government in a series of measures

aimed at speeding up the approval process, had delegated

the power for approval to the assessee.

3. The CIT (A) also turned down the second reason given by

the AO observing that the AO did not appreciate that the

claim for deduction under Section 10B of the Act was made

for the first time in the Assessment Year consequent upon

the conversion of DTA to 100% EOU. Thus, it was neither

formed by the splitting up or the reconstruction of a business

already in existence and was not formed by the transfer to a

new business profession used for any purpose.

4. Likewise, the CIT (A) was not convinced that the third

reason given by the AO holding that the observations of the

AO that the assessee was not maintaining books of accounts

was based on a misappreciation of fact. The CIT (A)

re-emphasized that the assessee operated as DTA unit till

31.7.2006. With effect from 01.8.2006, it started operating

as 100% EOU (SEZ) unit. There was no mention under

Section 10B(2) of the Act of any requirement for maintaining

separate books of account and it was not necessary to

maintain separate books of account for claiming deduction

under that provision.

5. The Revenue challenged the aforesaid order by filing appeal

before the Income Tax Appellate Tribunal (hereinafter

referred to as „the Tribunal‟), which has been dismissed by

the Tribunal.

6. Still dissatisfied, the Revenue has come in appeal in this

Court. We may record that the entire emphasis of Mr.

Sahni, learned counsel appearing for the Revenue, was on

the first reason given by the AO while denying the benefit of

Section 10B of the Act to the assessee. His submission was

that it‟s the Board alone constituted under Section 14 of the

Industries (Development & Regulation) Act, which is

competent to give the approval and therefore, approval of no

other Authority is mandated.

7. After hearing the counsel for the parties, we are of the

opinion that the Tribunal has rightly decided the issue and

no substantial question of law arises in the matter. Our

reasons for the same are given hereunder:

On 05.6.2006, the assessee company had applied for

conversion from a Domestic Tariff Area (DTA) to 100% EOU

application for setting up EOUs in Special Economic Zone.

The aforesaid application of the assessee company was

accepted by the Development Commissioner, Noida, SEZ

and letter of permission dated 15.6.2006 was issued to the

assessee. Legal agreement dated 07.7.2006 for EOU Units

was entered between the assessee company and the

President of India acting through the Development

Commissioner. The aforesaid legal agreement was accepted

by the Development Commissioner, Noida, SEA and approval

under 100% EOU was granted to the assessee respondent

on 11.7.2006.

8. Thereafter, the assessee was issued Green Card No.120 on

11.7.2006 by the Development Commissioner, Noida SEZ.

Licence for the Private Bonded Warehouse under Section 58

of the Customs Act, was also granted to the assessee on

31.7.2006.

9. Learned counsel for the assessee is right in his submission

that the power to grant approvals to 100% EOUs initially

vested with the Board specifically constituted under Section

14 of the Industries (Development & Regulation) Act, 1951.

However, the Government in a series of measures aimed at

speeding up the approval process, had delegated the powers

for approval to the Development Commissioner. Thus, CBDT

in its Circular F.N. 178/19/2008-ITA dated 09.3.2009 issued

clarification regarding deduction under Section 10B of the

Act, which reads as under:

"The matter regarding validity of approvals given by Development Commissioner has been examined in the Board. It has been decided that an approval granted by the Development Commissioner in the case of an hundred percent export oriented unit will be considered valid, once such an approval is ratified by the Board of Approval for EOU scheme.