CIT Vs Sociedade De Fomento Industrial Pvt. Ltd. (Bombay High Court)
Summary: All the appeals in the batch were filed by the Revenue and concerned, principally, the availability of exemption under section 10B of the Income Tax Act. In some connected appeals, an additional issue concerned disallowance under section 14A read with Rule 8D of the Income Tax Rules.
The Court took Tax Appeal No.25 of 2012 as the principal appeal for examining the common section 10B issue. The assessee had established a 100% Export Oriented Unit in 1985-86 and had claimed section 10B exemption from AY 1990-91. For AY 2006-07, it claimed exemption of ₹90,75,14,396/- and declared total income of ₹43,05,76,415/-. The Assessing Officer completed assessment under section 143(3) and made, among other additions, a disallowance of the section 10B claim. The CIT(A) upheld the disallowance, while the Tribunal held that the assessee had established a new unit and was entitled to the section 10B benefit.
The Revenue contended before the High Court that the assessee had merely expanded the capacity of its existing unit by installing new plant and machinery and therefore did not establish a new undertaking. The Court examined the factual findings recorded by the Tribunal. The original EOU had been established in 1985-86. Subsequently, because the quality of ore had deteriorated, the assessee proposed substantial expansion and modernization and sought approval for a new unit. The Ministry of Industry approved the proposal, the Government of India entered into an agreement with the assessee, and the assessee invested additional amounts in state-of-the-art capital goods. The new unit was established adjacent to the old unit, with a cost exceeding ₹30 crore, and annual production capacity increased from 2 lakh tons to 15 lakh tons.
