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Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC”, MUMBAI
Before: Shri B.R. Baskaran
Per B.R. Baskaran, Accountant Member
Both the appeals filed by the assessee are directed against the separate orders both dated 22-02-2018 passed by Ld CIT(A)-20, Mumbai and they relate to the assessment years 2011-12 and 2013-14.
Since common issue is involved in both the appeals, they were heard together and they are being disposed of by this common order, for the sake of convenience. In both the A.Ys the assessee is aggrieved by the decisions of Ld CIT(A) in confirming the disallowance of deduction claimed by the assessee u/s. 10AA of the Income Tax Act, 1961.
[2] M/s. Advance GRP Cooling Towers Pvt.Ltd.
The assessee is engaged in the business of manufacturing/assembling and dealing in all kind of cooling towers. The assessee filed its return of income claiming deduction u/s. 10AA of the Income Tax Act, 1961 @ 100%. It is pertinent to note that the deduction u/s 10AA of the Act is available @ 100% for the first five years and @ 50% thereafter. Accordingly, during the course of assessment proceedings, the assessee restricted its claim to @50% as the claim is being made in the 6th and 8th year(s) of commencement of the production. The Assessing Officer noticed that the Development Commissioner had granted licence to the assessee with several conditions and the assessee has not shown that it has fulfilled those conditions.
The Assessing Officer further noticed that the assessee has commenced its operation on 31-10-2005. The Assessing Officer took the view the deduction u/s 10AA of the Act is available only if the manufacture/production is commenced on or after 01-04-2006. The Assessing Officer further held that the assessee has not created any reserve to be called “Special Economic Zone Re-investment Reserve Account” as mandated u/s. 10AA of the Income Tax Act, 1961. Accordingly, he held that the assessee is not eligible for deduction u/s. 10AA of the Income Tax Act, 1961. Accordingly, he rejected the claim of assessee. The ld. CIT(A) also confirmed the same.
I heard the parties and perused the record. For the sake of convenience, I extract below provisions of section 10AA of the Income Tax Act, 1961 relevant for the years under consideration.
“10AA. (1) Subject to the provisions of this section, in computing the total income of an assessee, being an entrepreneur as referred to in clause (j) of section 2 of the Special Economic Zones Act, 2005, from his Unit, who begins to manufacture or produce articles or things or provide any [3] M/s. Advance GRP Cooling Towers Pvt.Ltd. services during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2006, a deduction of-
(i) Hundred per cent of profits and gains derived from the export, of such articles or things or from services for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the Unit begins to manufacture or produce such articles or things or provide services, as the case may be, and fifty per cent of such profits and gains for further five assessment years and thereafter;
(ii) For the next five consecutive assessment years, so much of the amount not exceeding fifty percent of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account (to be called the “Special Economic Zone Re-investment Reserve Account”) to be created and utilized for the purposes of the business of the assessee in the manner laid down in sub-section (2).”
It can be noticed that the condition prescribed is that the eligible unit should begin to manufacture or produce articles/things or provide any services during the previous year relevant to any assessment year commencing on or after 01-04-2006. The previous year for the assessment year 2006-07 is the financial year 1-04-2005 to 31-03-2006, meaning thereby, the manufacture/production etc., should be commenced from 01-04-2005 onwards. In the instant case, the assessee has commenced its operation on 31-10-2005. Hence, it fulfills the first condition prescribed u/s. 10AA of the Act. Accordingly, the view taken by the tax authorities that the production should have commenced on or after 01-04-2006 is not in accordance with law and the same is set aside.
Further, it can be noticed that the deduction u/s. 10AA is allowed @ 100% for the first five consecutive assessment years and then @ 50% for [4] M/s. Advance GRP Cooling Towers Pvt.Ltd.
further five assessment years and thereafter. In clause (ii), it is stated that the assessee is also eligible for deduction for the next five consecutive assessment years also and in those years the assessee is required to create/reserve “Special Economic Zone Re-investment Reserve Account”, meaning thereby such kind of reserve is not required to be created during the first ten years claim for deduction. The word “next”, in our view, refers to the years after completion of two sets of five years, meaning thereby, from 11th year onwards. Hence the requirement of creating reserve shall commence from 11th year onwards only. Accordingly, the view expressed by the tax authorities on this issue also fails.
The Assessing Officer has also observed that the assessee has not shown to have complied with various conditions prescribed by the Development Commissioner. The Ld.AR submitted that approval granted by the Development Commissioner has been renewed by a letter dt.20/11/2015. Accordingly, he submitted that the Development Commissioner could not have extended approval without compliance of various conditions. The ld. AR further submitted that the claim made in the years under consideration related to the 6th & 8th of commencement of operation/production. The Hon’ble Bombay High Court in the case of Simple Food Products (P) Ltd Vs. CIT reported in (2017) 84 taxmann.com 239(Bom.) has held that the assessee’s claim for deduction, having been accepted in the first year of operation, the relief for subsequent years could not be withheld. He further submitted that Delhi Bench in the case of Macquarie Global Services Pvt. Ltd Vs. DCIT reported in (2018) 62 ITR (Tirb) 666 (Del.) has also expressed an identical view. Accordingly he submitted that the AO was not right in examining the compliance of conditions in 6th and 8th year of operation.
[5] M/s. Advance GRP Cooling Towers Pvt.Ltd.
Since the year of deduction for the A.Ys under consideration being 6th and 8th of the operation and since the assessee has been allowed a deduction in the preceding five assessment years, following the decisions referred above, I am of the view that the tax authorities are not justified in denying the claim for deduction u/s. 10AA to the assessee. Even otherwise, the very fact that the Development Commissioner has extended approval would signify that the assessee has complied with the conditions.
In view of the foregoing discussions, I set aside the orders passed by the ld. CIT(A) in both the A.Ys under consideration on the impugned issue and direct the Assessing Officer to allow the claim u/s 10AA of the Act @ 50% as claimed by the assessee in the assessment proceedings.
In the result, both the appeals of assesses are allowed.
Order pronounced on 17-07-2019