2014 (3) TMI 1027 - AT - Income Tax

Deduction u/s.80IB disallowed - as per revenue the assessee was not having factory license before it started manufacturing activities - Held that - The basis for disallowance of deduction u/s.80IB was not that the production had not been started but the controversy was that the license was issued after the close of the said financial year; hence, the assessee s claim of start of manufacturing activity was allegedly incorrect. It is worth to mention at this juncture that in assessee s own case for A.Ys. 2005-06 and 2006-07, after appreciation of all the facts and evidences, the Respected Co-ordinate Benches have decided this controversy in favour of the assessee. Therefore, while deciding an appeal of the Revenue for subsequent year, i.e., 2007-08 the judicial propriety requires to follow the earlier precedents of the Respected Co-ordinate Benches pronounced in assessee s own case. Firstly on this basis, we hereby affirm the relief granted by the learned CIT(A). What is essential is that the assessee should manufacture or produce an article or thing before the prescribed date. It was held that if there is any violation of any provision of any other statute then the assessee has to explain the same to the authorities implementing those statutes but the same could not be the basis of denial of benefit u/s. 80IB of the IT Act. On this reasoning as well we hereby uphold the view of learned CIT(A) in deleting the disallowance. - Decided in favour of assessee

Summary

Issues Involved:
1. Eligibility for deduction under Section 80IB of the Income Tax Act.
2. Requirement of factory license before commencement of manufacturing activities.

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 80IB of the Income Tax Act:
The primary issue is whether the assessee is eligible for deduction under Section 80IB despite obtaining the factory license after the specified date. The assessee firm, engaged in manufacturing glasses, claimed a deduction of Rs. 93,97,565/- under Section 80IB. The Assessing Officer (AO) rejected this claim because the factory license was obtained on June 3, 2004, after the stipulated date of March 31, 2004. The assessee argued that they complied with all conditions of Section 80IB, including commencing manufacturing activities before the specified date, and presented various documents (sales tax registration, SSI certificate, power release letter, electricity bill, pollution control certificate, and manufacturing license) to support their claim. The CIT(A) allowed the deduction, referencing a prior Tribunal decision in favor of the assessee for a similar issue in the assessment year 2005-06. The Tribunal upheld this decision, stating that obtaining a factory license is not a precondition for claiming deduction under Section 80IB, especially when manufacturing activities commenced before the specified date.

2. Requirement of Factory License Before Commencement of Manufacturing Activities:
The controversy centered on whether the factory license must be obtained before March 31, 2004, to qualify for the deduction. The AO argued that the absence of a factory license before this date disqualified the assessee from claiming the deduction. However, the assessee provided evidence that manufacturing activities had commenced on March 26, 2004, and the delay in obtaining the factory license was a technicality. The Tribunal noted that the Hon'ble Gujarat High Court, in the case of Jolly Polymers, held that if the application for the factory license was made before the specified date but the license was granted shortly thereafter, such a lapse is a technicality and does not disqualify the assessee from claiming the deduction. The Tribunal affirmed that the essential requirement is that the assessee should manufacture or produce an article or thing before the prescribed date, and any violation of other statutes should be addressed by the respective authorities, not as a basis for denying the deduction under Section 80IB.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to grant the deduction under Section 80IB. It reiterated that the commencement of manufacturing activities before the specified date is crucial, and obtaining the factory license subsequently is a technicality that does not affect the eligibility for the deduction. The Tribunal's decision aligns with precedents set by the Hon'ble Gujarat High Court and the Hon'ble Bombay High Court, emphasizing that technical lapses in obtaining licenses should not disqualify an assessee from claiming deductions if the primary conditions of the Income Tax Act are met.