Location of the Plant outside EOU and customs bonded area not a disqualification to claim deduction under Section 10B of Income Tax Act-High Court
ABCAUS Case Law Citation:
ABCAUS 2285 (2018) (04) HC
Important Case Laws Cited/relied upon by the parties
Commissioner of Income Tax Vs. Caritor (India) Pvt. Ltd. reported in (2014) 369 ITR 463
The Revenue has filed the instant appeal aggrieved by the orders of the Income Tax Appellate Tribunal (ITAT) permitting claim of deduction u/s 10B of the Income Tax Act, 1961 ( ‘the Act’) holding that mere processing done in a
plant and machinery located outside the bonded area will not disentitle the assessee from deduction where the iron ore was excavated from the mining area belonging to the export oriented unit (EOU).
The assessee was a Firm in the business of mining and was granted a mining lease for an area. The assessee had entered into an operation and maintenance agreement with a company which operated the plants and machineries installed in the EOU and non-EOU both belonging to the assessee-Firm.
The assessee had been claiming deduction u/s 10B of the Act on the profits derived from the production of iron ore from the EOU and in its returns of income, the assessee firm had claimed deduction with respect to the profits derived from the export of iron ore produced in the EOU as well as non-EOU.
During the course of the search u/s 132, this fact came to light to the Revenue that the assessee was also claiming deduction with respect to production at its plant which was non-EOU and was out side the EOU bonded area.
Consequently, the Assessing Officer (AO) disallowed the claim for deduction under Section 10B with respect to production said to have been outsourced by the EOU to the non-EOU and restricted the claim to the profits derived by the EOU from its production.
The assessee challenged the disallowance before the Commissioner of Income Tax (Appeals). However, the Appellate Authority confirmed the order of the Assessing Authority observing that the claim for deduction under Section 10B of the Act was not allowable in respect of production of non-EOU and consequently dismissed the appeal.
The said appeals were challenged before the ITAT, where the assessee contended that as the entire area of in the Mining Licence was approved by the concerned authorities while granting approval to the assessee as a EOU, consequently, any export from this area approved as a EOU was eligible for deduction under Section 10B of the Act.
It was also submitted that the relief under Section 10B could not be disallowed or restricted merely on the ground that certain plant and machinery is situated outside the ‘bonded area’ and as the assessee is an exporter and not an importer in terms Custom Notification which provided that custom bonding was required only where imports are contemplated for use in manufacturing/production of goods for export.
It was also contended that the export of ore which was mined and excavated in an area within the legal possession of a EOU but processed through a non-EOU unit would not contravene any of the conditions under Section 10B, disentitling deduction.
The Tribunal held that custom bonding was not a condition precedent for granting exemption under Section 10B of the Act. The tribunal further held that as the raw material as well as finished product both belonged to the assessee and was exported by the assessee, there was no violation of Section 10B of the Act, disentitling the claim of the benefit of deduction.
Thus, the ITAT allowed the appeal which was challenged by the Revenue.
The primary contention advanced by the Revenue was to the effect that profits
that had been derived by the assessee must be pursuant to excavation and processing activity of the assessee in a custom bonded area. It was further contended that as the ‘production’ had not been carried out in the EOU Unit, contribution to the finished product by the assessee being almost absent, deduction under Section 10B of the Income Tax Act, 1961 cannot be permitted.
The Hon’ble High Court opined as under:
(a) the processing of the iron ore in a plant belonging to the assessee being in the nature of job work is not prohibited and forms an integral part of the activity of the EOU;
(b) The mere fact that the Plant was situated outside the bonded area was of no legal significance as the benefit of customs bonding is only for the limited purpose of granting benefit as regards customs and excise duty. The entitlement of deduction under the Income Tax Act is to be looked into independently and said benefit would stand or fall on the applicability of section 10B of the Act.
The Hon’ble High Court opined that mere location of the Plant outside the EOU and customs bonded area is not a disqualification to claim deduction under Section 10B of the Act.
Accordingly, the appeal was dismissed holding that no substantial question of law was involved
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