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The captioned appeal by the Revenue arises out of order dated 15th March, 2016 of learned Commissioner of Income Tax–Appeals, Mumbai pertaining to Assessment Year 2010–11. In ground no. 1 the Revenue has challenged allowance of assessee’s claim of deduction under section 10B of the Act and has further challenged the non reduction therefrom the deduction claimed under section 35(2AB) of the Act.
2. Briefly the facts are, the assessee is a resident company engaged in manufacture and sale of Active Pharmaceutical Ingredients (API) and bulk drugs. For the assessment year under dispute assessee filed its return of income on 15.10.2010 declaring total income of`.72,4,080/– after claiming deduction under section 10B of the Act. Subsequently, assessee filed a revised return of income on 30.3.2012 declaring total income of `. 8,99,11 94/– under the normal provisions of the Act and book profit of `. 34,91,51,096/– under section 115JB of the Act. During the assessment proceedings the Assessing Officer noticing that the assessee had claimed deduction of `. 5,33,72,623/– under section 10B of the Act in respect of its unit at Mangalore, called upon the assessee to furnish the necessary details. From the material available on record, he found that the assessee has claimed the aforesaid deduction for the first time during the year. After verifying the certificate issued by the Auditor in Form no. 56G and the permission granted by the Development Commissioner, the Assessing Officer called upon the assessee to furnish separate Profit & Loss Account of the Export Oriented Unit (EOU). On perusing the details furnished by the assessee the Assessing Officer observed that the assessee is not maintaining separate account for EOU and non EOU. Further, he observed, the Mangalore unit, in respect of which the assessee had claimed deduction under section 10B of the Act, was made after splitting up of old business. Referring to the provision of section 101B of the Act, the Assessing Officer observed that deduction under the said provision is not allowable if the unit is formed by splitting up, or reconstruction of a business already in existence except in the circumstances specified in the provision of the Act. Referring to the approval granted by the Development Commissioner on 26.2.2010 the Assessing Officer observed, it is not possible for the assessee to achieve export worth of `. 14,04,18,342/– in such a short span. Further, he observed, the assessee has not produced any evidence to prove that the export proceeds were realized within the prescribed time limit provided in section 10B of the Act. Without prejudice, the Assessing Officer observed, while computing deduction under section 10B of the Act, the additional deduction claimed under section 35(2AB) of the Act has to be reduced. On the basis of aforesaid reasoning the Assessing Officer ultimately disallowed assesse’s claim of deduction under section 10B of the Act.
3. Being aggrieved, assessee preferred an appeal before learned Commissioner (Appeals). In course of appeal proceedings, the assessee apart from making elaborate submissions in support of deduction claimed under section 10B of the Act also furnished some more evidences. The submissions made and evidences produced by the assessee were forwarded to the Assessing Officer seeking his comments/report. As observed by learned Commissioner (Appeals), in his report dated 9.9.2014 the Assessing Officer did not offer any comments regarding the acceptability or otherwise of additional evidences furnished by the assessee. The Assessing Officer merely repeated his own reasoning while disallowing the deduction in the assessment order. Thus, learned Commissioner (Appeals) proceeded to decide the issue on the basis of evidences available on record keeping in view the submissions of the assessee as well as the comment of Assessing Officer in the remand report. After analyzing the materials on record, learned Commissioner (Appeals) recorded a factual finding that the Mangalore unit was not formed by splitting up of an existing business Therefore, he concluded that the assessee is eligible to avail deduction under section 10B of the Act. In so far as the issue of reduction of deduction allowed under section 35(2AB) of the Act for the purpose of computing deduction under section 10B of the Act, learned Commissioner (Appeals) having examined facts and material on record found that expenses claimed under section 35(2AB) of the Act were reduced by the assessee while computing deduction under section 10B of the Act. Hence, he observed, no further adjustment is required. Accordingly, he decided the issue in favour of the assessee.