2016 (6) TMI 1185 - AT - Income Tax

Eligibilty for section 80IB deduction - Held that - There is no quarrel about the fact that the assessee received the impugned purchase discount from raw materials/consumables suppliers to the tune of ₹ 2,99,153/- as utilized in its eligible business of manufacturing of specialty chemicals whose profits are already eligible for section 80IB deduction. Both the ld. lower authorities do not rebut assessee s books specifically stating the crucial live nexus between the discounted raw materials and its manufactured specialty chemicals. Net effect thereof is that assessee s eligible profits derived from its manufacturing activities have seen increased since raw material costs have come down due to the impugned discount forming integral part of the manufacturing process. We conclude that the authorities below have wrongly equated these facts with those involved in hon ble apex court decision in Liberty India vs. CIT (2009 (8) TMI 63 - SUPREME COURT ) involving DEPB sales figures. We accept assessee s contentions on merits and reject those raised at Revenue s behest supporting the impugned disallowance.

Summary

Issues:
1. Validity of reopening assessment order under section 143(3) r.w.s. 147 of the Income Tax Act, 1961.
2. Disposal of objections filed by the appellant by a speaking order.
3. Exclusion of other income for the purpose of calculation of deduction U/s. 80IB of the Act.

Issue 1: Validity of Reopening Assessment Order:
The appeal pertains to the assessment year 2006-07 and challenges the validity of the assessment order issued without granting the appellant an opportunity to be heard. The Revenue raised substantive grounds questioning the action of the Assessing Officer in issuing the assessment order without following the provisions of Section 143(3) and other applicable provisions of the Act. The appellant did not press the grounds challenging the validity of reopening, leaving the issue of disallowance of deduction under section 80IB as the main contention.

Issue 2: Disposal of Objections by Speaking Order:
The appellant contended that the Assessing Officer did not dispose of the objections filed by the appellant by a speaking order as required by law. The appellant argued that the re-assessment proceedings should be quashed based on the principles laid down by the Honorable Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. Income Tax Officer. However, the focus shifted to the disallowance of deduction under section 80IB, as the appellant did not press the grounds related to the objections disposal.

Issue 3: Exclusion of Other Income for Deduction U/s. 80IB:
The primary issue in the case revolved around the exclusion of other income of ?3,00,295/- for the purpose of calculating deduction under section 80IB of the Act. The Assessing Officer excluded the discount received by the appellant from suppliers on purchases of raw materials and consumables from the deduction under section 80IB, treating it as income from other sources. The CIT(A) upheld the Assessing Officer's decision, stating that the discount did not have a direct nexus with the manufacturing activities and therefore did not qualify for the deduction under section 80IB.

Judgment:
The appellant, a firm manufacturing specialty chemicals, received discounts from suppliers on raw material purchases. The Assessing Officer disallowed the deduction under section 80IB for the discount amount, treating it as income from other sources. The CIT(A) upheld this decision, stating that the discount did not have a direct nexus with manufacturing activities. However, the Tribunal disagreed, finding that the discount directly impacted the manufacturing process, reducing costs and increasing profits eligible for section 80IB deduction. The Tribunal accepted the appellant's contentions and partly allowed the appeal, rejecting the disallowance of deduction under section 80IB.