COMMISSIONER OF INCOME TAX Vs. LOVLESH JAIN

JUDGEMENT

(1.) The assessee company filed return of income for the Assessment Year 2007-08 declaring income of Rs. 20,23,243. The case of the assessee was selected for scrutiny and notice under Section 143(2) of the Income Tax Act (hereinafter referred to as the Act) was issued and served upon the assessee. Assessment under Section 143(3) of the Act was completed by the Assessing Officer (AO). During the course of assessment proceedings, it was observed by the AO that the assessee had claimed exemption under Section 10B of the Act. During the course of scrutiny proceedings, the AO observed that certain necessary conditions which are required to be fulfilled for claiming exemption under the said Section are not fulfilled by the assessee company. After considering the submissions of the assessee in this regard, the AO denied the exemption under Section 10B of the Act to the assessee company and made disallowance of Rs. 1,00,22,725 in the total income of the assessee. Reasons given by the AO were as under:

(2.) The CIT(A) also turned down the second reason given by the AO observing that the AO did not appreciate that the claim for deduction under Section 10B of the Act was made for the first time in the Assessment Year consequent upon the conversion of DTA to 100% EOU. Thus, it was neither formed by the splitting up or the reconstruction of a business already in existence and was not formed by the transfer to a new business profession used for any purpose.

(3.) Likewise, the CIT(A) was not convinced that the third reason given by the AO holding that the observations of the AO that the assessee was not maintaining books of accounts was based on a misappreciation of fact. The CIT(A) re-emphasized that the assessee operated as DTA unit till 31-7-2006. With effect from 01-8-2006, it started operating as 100% EOU (SEZ) unit. There was no mention under Section 10B(2) of the Act of any requirement for maintaining separate books of account and it was not necessary to maintain separate books of account for claiming deduction under that provision.