2011 (12) TMI 573 - AT - Income Tax

Claim of deduction u/s 80IB - Held that - For allowing deduction to the assessee u/s 80-IB, the increased income after making disallowance u/s 40(a)(ia) should be considered. Disallowance u/s 40A(2b) - The assessee is eligible for deduction u/s 80-IB and hence, this amount should also be considered as income of the assessee while computing deduction allowable to the assessee u/s 80- IB.

Summary

Issues involved:
1. Disallowance of deduction under Section 80IB for delay in obtaining Factory License.
2. Addition under Section 40(a)(ia) for delayed TDS payment.
3. Disallowance under Section 40A(2)(b) and eligibility for deduction under Section 80IB.

Issue 1: Disallowance of deduction under Section 80IB for delay in obtaining Factory License:
The Assessing Officer (AO) disallowed the deduction claimed under Section 80IB as the factory license was issued after the manufacturing activity commenced. The AO argued that the factory license is essential before starting manufacturing operations. The appellant provided evidence to support the commencement of production before the license issuance. The AO contended that machinery delivery dates contradicted the production start date. The Commissioner of Income Tax (Appeals) upheld the AO's decision. However, the ITAT Ahmedabad allowed the deduction under Section 80IB, citing a previous tribunal decision in the appellant's favor for a different assessment year. The ITAT directed the AO to grant the deduction as per law.

Issue 2: Addition under Section 40(a)(ia) for delayed TDS payment:
The AO added a sum under Section 40(a)(ia) due to delayed TDS payment to a vendor. The appellant argued that the increased income should be eligible for deduction under Section 80IB. The CIT(A) upheld the disallowance, stating that the increased income due to the deeming provision was not eligible for Section 80IB deduction. The ITAT referred to a tribunal decision in a similar case, where deduction under Section 80IB was allowed on the increased income post-disallowance under Section 40(a)(ia). Consequently, the ITAT allowed the appellant's claim for deduction under Section 80IB on the increased income.

Issue 3: Disallowance under Section 40A(2)(b) and eligibility for deduction under Section 80IB:
The AO disallowed an amount under Section 40A(2)(b), which the appellant argued should be eligible for deduction under Section 80IB. The CIT(A) disallowed the deduction under Section 80IB, leading to the disallowance of the amount under Section 40A(2)(b). The ITAT, after allowing the deduction under Section 80IB, held that the disallowed amount under Section 40A(2)(b) should be considered as the appellant's income for calculating the deduction under Section 80IB. Therefore, the ITAT allowed the appellant's claim for deduction under Section 80IB on the disallowed amount.

In conclusion, the ITAT Ahmedabad ruled in favor of the appellant on all three issues, directing the AO to allow the deductions under Section 80IB as per law.