Facts of the Case

  1. The assessee filed its return of income for Assessment Year 2007-08 declaring income of ₹20,23,243.
  2. During scrutiny assessment under Sections 143(2) and 143(3), the Assessing Officer examined the assessee's claim for deduction under Section 10B.
  3. The Assessing Officer denied the deduction of ₹1,00,22,725 on three grounds:
    • Approval was not obtained from the Board constituted under Section 14 of the Industries (Development and Regulation) Act, 1951.
    • The assessee allegedly used old machinery/computers contrary to Section 10B(2)(iii).
    • Separate books of account were allegedly not maintained.
  4. The Commissioner of Income Tax (Appeals) allowed the assessee's appeal and held that all conditions prescribed under Section 10B were fulfilled.
  5. The Income Tax Appellate Tribunal upheld the order of the CIT(A).
  6. The Revenue thereafter filed an appeal before the Delhi High Court.

Issues Involved

  1. Whether approval granted by the Development Commissioner to a 100% Export Oriented Unit is valid for claiming deduction under Section 10B of the Income Tax Act?
  2. Whether deduction under Section 10B can be denied on the ground that approval was not granted directly by the Board constituted under Section 14 of the Industries (Development and Regulation) Act, 1951?
  3. Whether the assessee violated the conditions of Section 10B by using old machinery or by not maintaining separate books of account?

Petitioner's Arguments (Revenue)

  • The Revenue contended that only the Board constituted under Section 14 of the Industries (Development and Regulation) Act, 1951 was competent to grant approval to a 100% Export Oriented Unit.
  • It was argued that approval granted by any authority other than the said Board could not satisfy the requirements of Section 10B.
  • Consequently, the assessee was not entitled to claim deduction under Section 10B of the Income Tax Act.

Respondent's Arguments (Assessee)

  • The assessee submitted that although approval powers originally vested with the Board, such powers had subsequently been delegated to the Development Commissioner.
  • The assessee had duly obtained approval from the Development Commissioner, Noida Special Economic Zone.
  • The approval granted by the Development Commissioner had also been ratified by the Board of Approval.
  • Reliance was placed upon CBDT Circular dated 09.03.2009 clarifying that approval granted by the Development Commissioner would be considered valid for Section 10B purposes once ratified by the Board.
  • The assessee further contended that there was no statutory requirement under Section 10B(2) to maintain separate books of account.

Court Findings

The Delhi High Court upheld the orders of the CIT(A) and the Tribunal and observed:

  • The assessee had applied for conversion from Domestic Tariff Area (DTA) status to a 100% Export Oriented Unit.
  • The Development Commissioner, Noida SEZ accepted the application and granted the requisite approval.
  • A legal agreement was executed and approval under the 100% EOU Scheme was formally granted.
  • The assessee was also issued a Green Card and obtained a Private Bonded Warehouse Licence.
  • Though the Board initially possessed approval powers, the Government had delegated such powers to the Development Commissioner to expedite approvals.
  • CBDT Circular dated 09.03.2009 specifically clarified that approvals granted by the Development Commissioner are valid for purposes of Section 10B where ratified by the Board of Approval.
  • The approval granted to the assessee had been ratified by the Board of Approval.

Accordingly, the Court held that the assessee fulfilled the requirements for claiming deduction under Section 10B.

Important Clarification

For the purposes of Section 10B deduction:

  • Approval granted by the Development Commissioner under delegated authority is legally valid.
  • Such approval satisfies the requirements of Section 10B when ratified by the Board of Approval for the EOU Scheme.
  • Deduction under Section 10B cannot be denied merely because approval was not issued directly by the Board constituted under Section 14 of the Industries (Development and Regulation) Act, 1951.
  • Absence of separate books of account is not, by itself, a disqualification where the statute does not specifically mandate such maintenance under Section 10B.

Sections Involved

  • Section 10B, Income Tax Act, 1961
  • Section 143(2), Income Tax Act, 1961
  • Section 143(3), Income Tax Act, 1961
  • Section 14, Industries (Development and Regulation) Act, 1951
  • Section 58, Customs Act, 1962
  • CBDT Circular F. No. 178/19/2008-ITA dated 09.03.2009

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2011:DHC:4719-DB/AKS14092011ITA10722011.pdf

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