2009 (12) TMI 961 - AT - Income Tax

Summary

Issues Involved:
The principal issue in this case is the claim of deduction under Section 80IB of the Income Tax Act, 1961 for the assessment years 2000-2001 to 2005-2006.

Deduction under Section 80IB:
The assessee, a partnership firm engaged in manufacturing, claimed deduction under Section 80IB(4) which was rejected by the AO citing reasons like reconstituting/splitting up of existing unit, job workers' involvement, and insufficient number of employees. The CIT(A) upheld the denial of deduction. However, the Tribunal found that the activities carried out by the assessee constitute manufacturing, as recognized by various government authorities and supported by judicial precedents. The Tribunal directed the AO to grant the deduction under Section 80IB in favor of the assessee.

Deemed Dividend Income under Section 2(22)(e):
For the assessment year 2005-2006, the lower authorities treated the amount received by the assessee from another company as deemed dividend income under Section 2(22)(e) of the IT Act. The Tribunal observed that clubbing the voting rights of partners and their HUFs together for computing qualifying interest is not justified. Citing relevant case laws and Tribunal decisions, the Tribunal held that the assessing authority erred in treating the amount as deemed dividend income and consequently deleted the said addition.

Reopening of Assessments and Interest Levy:
The assessee raised grounds regarding the reopening of assessments under Section 147 for certain years, which became redundant due to the decisions on merits. The Tribunal did not adjudicate on these grounds. Additionally, the grounds related to the levy of interest under Sections 234A, 234B, and 234C were deemed consequential and did not require adjudication. A ground against the proposal to levy penalty under Section 271(1)(c) for a specific year was considered premature by the Tribunal.

Conclusion:
The Tribunal allowed the appeals filed by the assessee on the merits of the issues discussed, directing the AO to grant the deduction under Section 80IB and deleting the addition of deemed dividend income. The grounds related to reopening of assessments and interest levy were not adjudicated, and the ground concerning penalty levy was deemed premature.