2013 (1) TMI 788 - AT - Income Tax

Eligibility for the claim of deduction u/s.80IA - Held that - An undertaking to be regarded as small scale industrial undertaking there must not have investment in plant and machinery exceeding ₹ 1 crore u/s 11B at the end of the previous year - simply because in a earlier year an assessee had satisfied the condition of small scale undertaking, it cannot ipso facto be taken that the assessee would be regarded as small scale industrial undertaking in the subsequent years also - it is observed that the assessee s investment in plant and machinery exceeded the limit specified u/s 11B of the Industries (Development and Regulation) Act - Hence the deduction is not allowed - decided against the assessee

Issues Involved:
1. Eligibility for deduction under Section 80IB of the Income Tax Act.
2. Interpretation of the term "small scale industrial undertaking" under Section 80IB(14)(g).
3. Validity of the CIT's order under Section 263 of the Income Tax Act.
4. Impact of previous years' deductions on current year's eligibility.

Detailed Analysis:

1. Eligibility for Deduction under Section 80IB of the Income Tax Act:
The core issue revolves around whether the assessee qualifies for the deduction under Section 80IB for the assessment year 2006-07. The Assessing Officer initially allowed the deduction, but the CIT later observed that the gross value of plant and machinery exceeded the Rs. 1 crore limit stipulated for small scale industrial undertakings. The CIT held that the condition for being regarded as a small scale industrial undertaking must be satisfied on the last day of each previous year, not just in the initial year of formation.

2. Interpretation of "Small Scale Industrial Undertaking" under Section 80IB(14)(g):
The CIT emphasized that the term "small scale industrial undertaking" as per Section 80IB(14)(g) must be satisfied as of the last day of the previous year. The assessee argued that once the status was granted, it should continue irrespective of subsequent investments. However, the CIT rejected this, stating that the status must be reassessed annually based on the investment in plant and machinery. The Tribunal upheld this interpretation, stating that the certificate of registration dated 11.9.2000 was not sufficient for the assessment year in question, and the actual investment must be considered.

3. Validity of the CIT's Order under Section 263 of the Income Tax Act:
The CIT invoked Section 263, arguing that the Assessing Officer's order was erroneous and prejudicial to the interests of the Revenue due to the failure to apply the correct criteria for small scale industrial undertakings. The Tribunal agreed, noting that the Assessing Officer did not examine the issue of deduction under Section 80IB in detail. The Tribunal cited several precedents, including the Supreme Court's decision in Malabar Industrial Co. Ltd vs CIT, to support the CIT's exercise of revisional jurisdiction.

4. Impact of Previous Years' Deductions on Current Year's Eligibility:
The assessee contended that since deductions were allowed in previous years, they should continue for the current year unless withdrawn. The Tribunal rejected this argument, distinguishing the facts of the current case from precedents like CIT vs Paul Brothers and CIT vs Western Outdoor Interactive Pvt. Ltd. The Tribunal held that eligibility for deduction must be reassessed each year based on current investments in plant and machinery, and previous allowances do not guarantee future eligibility if conditions change.

Conclusion:
The Tribunal dismissed the appeal, affirming the CIT's order under Section 263. It concluded that the assessee did not qualify as a small scale industrial undertaking for the assessment year 2006-07 due to exceeding the investment limit in plant and machinery. The Tribunal emphasized the necessity of annual reassessment of eligibility for deductions under Section 80IB, aligning with the statutory requirements and judicial precedents. The decision underscores the importance of adhering to specific conditions for tax benefits and the CIT's authority to correct erroneous assessments.

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