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Income Tax Appellate Tribunal, BANGALORE BENCH “ A ”
Before: SHRI A.K. GARODIA & SHRI VIJAY PAL RAO
order of Commissioner of Income Tax (Appeals) dt.14.11.2014 for the Assessment Years 2009-10 to 2011-12.
The brief facts leading to the controversy are that the assessee is a partnership firm and engaged in the business of mining of iron ore for export.
Siddapur, Sandur Taluk, Bellary, Karnataka. There are two separate undertakings and one of them is 100% Export Oriented Unit (‘EOU’) which was set up in the Assessment Year 2007-08. The assessee was subjected to search under Section 132 on 10.12.2010 which continued till 7.2.2011 when the final Panchanama was drawn. Subsequently, a Notice under Section 153A of the Income Tax Act, 1961 (in short 'the Act') was issued by the Assessing Officer.
In response to which the assessee filed returns of income for the assessment years 2009-10 and 2010-11 declaring income of Rs.28,16,70,090 and Rs.110,88,62,620. For the Assessment Year 2011-12, the return was filed under Section 139 of the Act and the assessment was completed under Section 143(3) of the Act. The Assessing Officer completed assessment for the three assessment years after making addition on account of deduction claimed under Section 10B of the Act apart from an addition for the Assessment Year 2010-11 in respect of under-valuation of closing stock. The assessee challenged the addition made by the Assessing Officer before the CIT (Appeals) but could not succeed.
Common grounds have been raised by the assessee in these appeals. The grounds raised for the Assessment Year 2009-10 are reproduced as under :
First we take up the issue of denial of deduction under Section 10B of the Act raised in Ground Nos.3 & 4.
The learned Authorised Representative of the assessee has submitted that the dispute revolves around the deduction under Section 10B in respect of 100% EOU unit. The assessee set up a 100% EOU in F.Y. 2006-07 after obtaining the necessary permission as accepted by the Assessing Officer in paras 4 and 4.2 of the impugned assessment order. The 100% EOU has commenced assessee claimed a deduction under Section 10B in respect of the profits of the EOU for the Assessment Year 2007-08 and 2008-09 which was accepted by the Assessing Officer in the scrutiny assessment under Section 143(3) of the Act.
While granting the approval as an EOU, entire area of 105.22 Hectares in the mining license No.2487 was approved by the concerned authorities. Thus the learned Authorised Representative has submitted that any export from this area which was approved as an EOU is classifed as an export from EOU and consequently eligible for deduction under Section 10B of the Act. The 100% EOU purchased plant and machinery known as the ‘Sesa Plant’ on 31.3.2008 and it was put to use in the following month i.e. April, 2008 relevant to the Assessment Year 2009-10. The 100% EOU is bounded by 5.20 Hectares area however Sesa Plant could not be located within the bounded area due to techno-economical reason. Initially the assessee wanted the bounded area of 5.2 Hectares to be redefined to include the Sesa Plant also with a view to avoid any controversy in the matter. However subsequently the assessee was advised that no specific approval was required for redefining or redesignating the bounded area specifically in view of the total area of 5.2 Hectares remaining the same even after redefining. Since the assessee has not or was bounding was required. The learned Authorised Representative has pointed out that the entire production 100% EOU was certified by custom authorized which included ore process in Sesa Plant which is integral part of the 100% EOU. The learned Authorised Representative has contended that the relief under Section 10B cannot be disallowed or restricted merely on the ground that certain plant and machinery is situated outside the bounded area when the assessee is an exporter and not an importer at all in view of the Notification No.53/1997 dt.3.6.1997 issued under Section 25(1) of the Customs Act as per which the custom bonding is required only where imports are contemplated for use in manufacturing/production of goods for export. In support of his contention, he has relied upon the decision of Hon'ble jurisdictional High Court in the case of CIT Vs. Caritor India Pvt. Ltd. 369 ITR 463 as well as decision of Hon'ble Delhi High Court in the case of CIT Vs. Arts Beauty Exports 357 ITR 276 (Del). The learned Authorised Representative also relied upon the decision of the Delhi Tribunal reported in 46 SOT 220. Thus he has contended that when all exports of assessee were approved by the Excise and Custom authorities and there is no violation of any of the conditions under Section 10B then the assessee is eligible for deduction in respect of iron ore EOU unit. The export of the iron ore was mined and excavated but processed through a non-EOU unit would not contradict any of the conditions under Section 10B of the Act and therefore the status of the assessee as EOU is not in dispute then deduction under Section 10B cannot be denied merely because of outsourcing of processing of iron ore. He has referred to the profit and loss account as well as ledger account to show that the assessee has shown the job work charges regarding the process of iron ore. The learned Authorised Representative has further contended that when the deduction under Section 10B was allowed during the assessment under Section 143(3) for A.Ys 2007-08 and 2008-09 then it cannot be disallowed by the Assessing Officer on the ground that Sesa Plant is situated beyond the bonded area.
On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below and submitted that the production in respect of the export was not carried out in the EOU unit as it was admitted by the assessee that the production was in non-EOU unit. The assessee accepted this fact in the return of income and made a claim under Section 10B in respect of 50% of the production of the earlier year claiming to be treated as having deduction under Section 10B of the Act.
6.1 Thus the learned Departmental Representative has submitted that when the assessee has failed to establish that the production has been carried out in the EOU unit, the assessee is not eligible for deduction under Section 10B of the Act.
We have considered the rival submissions as well as the relevant material on record. The assessee set up a 100% EOU in the F.Y. 2006-07 relevant to the Assessment Year 2007-08. This fact has been accepted by the Assessing Officer in para 4 of the assessment order. The claim of deduction under Section 10B was accepted by Assessing Officer in scrutiny assessment under Section 143(3) of the Act for the Assessment Years 2007-08 and 2008-09. The Assessing Officer has not disputed the fact that the 100% EOU of the assessee was approved for the entire mining area of 105.22 Hectares under mining License 2487 in N-E range, Bellary District, Karnataka. Therefore the mining and excavation of iron ore of the assessee has been carried out form the area belonging to 100% EOU unit. The EOU unit of the assessee purchased plant and machinery known as Sesa Plant and iron ore was processed in this plant apart from outsourcing of some of the processing work to NAPC Ltd. The Assessing Officer denied the claim of the assessee under Section 10B on the ground that the processing of iron ore is done by Sesa Plant which is outside the bounded area therefore, the EOU has not done any manufacturing or production work eligible for claim under Section 10B of the Act. The CIT (Appeals) concurred
8 to 381/Bang/2016 M/s. Lakshminarayana Mining Company with the finding of A.O. while passing the impugned order. The reasoning of the CIT (A) is given in paras 5.15 to 5.19 of impugned order as under :
Thus the Assessing Officer as well as CIT (Appeals) held that exemption under Section 10B is not allowable to the assessee in respect of the production of non-EOU unit. It is pertinent to note that the Assessing Officer has not disputed that the entire iron ore has been excavated by the assessee from the lease area which has been approved as 100% EOU and the same was processed by Sesa Plant which is located outside bonded area of EOU. Therefore the Assessing Officer and CIT (Appeals) considered the production being the process of iron ore from Sesa Plant as production / manufactured from non-EOU unit. It is pertinent to note that in the earlier assessment year i.e. Assessment Years 2007-08 & 2008-09, the assessee was not having this Sesa Plant as it was purchased on 31.3.2008 and was put to use in the month of April, 2008 relevant to the Assessment Year 2009-10. Thus the assessee was getting its the provisions of foreign trade policy, sub-contract upto 50% of the overall production is allowed and accordingly, the assessee claimed 50% deduction in the earlier years. However, for the year under consideration the assessee claimed deduction under Section 10B of the Act for the entire income of EOU but the Assessing Officer denied the claim. The excavation of iron ore is undisputedly done by the EOU from the mining area belong to EOU and therefore the entire raw-material belongs to the EOU of the assessee. The point of controversy is only regarding the processing of the iron ore as it was done by the Sesa Plant situated outside the bonded area. The Assessing Officer has not disputed the fact that Sesa Plant belongs to the EOU of the assessee.
Since the assessee is not an importer of any goods or articles to be used for manufacturing activity for export therefore, there is no question of taking any benefit under Customs Act as per the Notification No.53/1997 dt.3.6.1997 issued under Section 25(1) of the Customs Act, 1962. In the case of CIT Vs. Caritor India Pvt. Ltd. (supra) the Hon'ble jurisdictional High Court while dealing with the issue of requirements of a unit within Customs bonded area held as under :
It is clear that the custom bonding is not a requirement or a condition precedent for granting exemption under Section 10A/10B as held by the Hon'ble jurisdictional High Court. A similar view has been taken by the Hon'ble Delhi High Court in the case of CIT Vs. Arts Beauty Exports (supra), in para 21 as under :
In view of the above facts and circumstances of the case as discussed above as well as the decisions of Hon'ble jurisdictional High Court as well as Hon'ble 10B of the Act cannot be denied merely on the ground that the iron ore excavated from the mining area belonging to EOU got processed through its plant and machinery located outside the bonded area. Further the raw material as well as the finished product both belong to assessee and exported by the assessee therefore, there is no violation of any condition as provided under Section 10B of the Act for claim of benefit of deduction under Section 10B of the Act. Accordingly, we set aside the orders of the authorities below on this issue and allow the claim of the assessee.
Since the issue on merits has been decided in favour of the assessee therefore the issue regarding validity of assessment under Section 153A becomes academic in nature. Therefore we do not propose to decide this issue.
The Ground No.5 is regarding charging of interest under Section 234B & 234C of the Act which is consequential in nature.
In the result, the appeals of the assessee are allowed. Order pronounced in the open court on 3rd March, 2017.