2009 (5) TMI 838 - AT - Income Tax

Summary

Issues Involved:
1. Deduction under section 80-IB(8A) of the Income-tax Act, 1961.
2. Approval by the prescribed authority.
3. Amendment of the Memorandum of Association (MOA).
4. Initial assessment year for deduction purposes.
5. Reconciliation difference in receipts.

Issue-wise Detailed Analysis:

1. Deduction under section 80-IB(8A):
The primary contention was whether the assessee, an existing industrial undertaking since 1992, was eligible for the deduction under section 80-IB(8A), which is generally available to new industrial undertakings. The Revenue argued that the assessee was not a new undertaking and had been claiming deductions under section 80-O previously. The Tribunal concluded that the conditions in sub-section (2) of section 80-IB, applicable to industrial undertakings, did not apply to the assessee, as sub-section (8A) specifically dealt with research and development companies. Thus, the assessee was eligible for the deduction under section 80-IB(8A).

2. Approval by the Prescribed Authority:
The Revenue challenged the validity of the approval granted by the prescribed authority, arguing that the assessee did not meet the exclusive engagement requirement in scientific research and development as per rule 18DA(1)(e). The Tribunal examined the agreement between the assessee and ADI and concluded that the assessee was conducting research and development activities independently, not in collaboration with ADI. Therefore, the assessee met the conditions for approval under section 80-IB(8A).

3. Amendment of the Memorandum of Association (MOA):
The Revenue contended that the amendment to the MOA was a strategic move by the assessee to claim benefits under section 80-IB(8A) after exhausting deductions under section 80-O. The Tribunal dismissed this argument, stating that the assessee is entitled to arrange its affairs to claim deductions under different sections of Chapter VI-A, provided the total deductions do not exceed the gross total income.

4. Initial Assessment Year:
There was a dispute regarding the initial assessment year for the purpose of section 80-IB(8A). The Revenue argued it should be 1993-94, while the assessee claimed it to be 2003-04, the year of approval by the prescribed authority. The Tribunal referred to the Board's Circular No. 794 and concluded that the initial assessment year should be the year in which the approval was granted, i.e., 2003-04, aligning with the intention of the legislation to provide a ten-year tax holiday from the year of approval.

5. Reconciliation Difference in Receipts:
The Revenue added Rs. 1,00,309 to the total income due to discrepancies in receipts. The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision, which clarified that the difference arose because unaudited accounts were submitted to the prescribed authority while audited accounts were filed with the return of income. The audited accounts included interest accrued on fixed deposits, income-tax refunds, and adjustments for exchange fluctuations. The Tribunal found no error in this explanation.

Conclusion:
The Tribunal dismissed the Revenue's appeal and upheld the order of the Commissioner of Income-tax (Appeals), granting the assessee the deduction under section 80-IB(8A) and resolving the issues regarding the initial assessment year and reconciliation differences in receipts. The cross-objection by the assessee was also dismissed as it was in support of the Commissioner's order.