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2017 (2) TMI 1225 - AT - Income TaxDenial of deduction u/s 80IB - conditions for availing the benefit - deductions are claimed are subject matter of an earlier assessment year and allowed - Held that - The qualification as to whether any industrial undertaking fulfills the condition as specified under Section 80-I of the Act has to be determined in the year in which the new industrial undertaking is established. Although the deduction under Section 80-I of the Act is available for the assessment years succeeding the initial assessment year, the conditions for availing the benefit are inextricably linked with the previous year relevant to the assessment year in which the new undertaking was formed. In such circumstances, it would not be possible for an Assessing Officer to reject the claim of an assessee for deduction under Section 80-I of the Act on the ground that the industrial undertaking in respect of which deduction is claimed did not fulfill the conditions as specified in Section 80-I(2) of the Act, without undermining the basis on which the deduction was granted to the assessee in the initial assessment year. This in our view would not be permissible unless the past assessments are also disturbed. Assessing Officers over a period of three years being assessment years 1988-89, 1989-1990 and 1990-1991 have consistently accepted the claim of the assessee for deduction under 80-I of the Act and it would not be open for the Assessing Officer to deny the deduction under Section 80-I of the Act on the ground of non fulfilment of the conditions under 80-I(2) of the Act without disturbing the assessment for the assessment years relevant to the previous year in which the Unit Nos.2 & 3 were established. - AO is directed to allow the claim of the assessee for deduction u/s 80IB - Decided in favour of assessee.
Issues Involved:
1. Sustaining the disallowance of the claim of deduction under Section 80IB of the Income Tax Act, 1961. 2. Interpretation of clause (2) of Part C of Schedule XIII read with the fifth proviso to Section 80IB(4) of the Act. 3. Eligibility of the appellant’s undertaking engaged in blending and bottling of Indian Made Foreign Liquor (IMFL) for deduction under Section 80IB. 4. Reliance on the tax audit report and the scope of rectification under Section 154 of the Act. Issue-wise Detailed Analysis: 1. Sustaining the Disallowance of Deduction under Section 80IB: The primary grievance of the assessee was the denial of deduction under Section 80IB amounting to ?7,58,275/-. The assessee had filed a return declaring an income of ?17,69,310/-, which was processed under Section 143(1) of the Act. During scrutiny, the Assessing Officer (AO) noticed the deduction claim and disallowed it, concluding that the assessee was engaged in the business of distillation and brewing of alcoholic drinks, which was ineligible for deduction under Section 80IB. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s decision. The Tribunal, however, found that the facts of the present case were identical to the assessee’s own case for the assessment years 2007-08 and 2008-09, where the deduction was allowed. Thus, the Tribunal set aside the CIT(A)'s order and directed the AO to allow the deduction. 2. Interpretation of Clause (2) of Part C of Schedule XIII and Fifth Proviso to Section 80IB(4): The CIT(A) had misinterpreted these provisions to conclude that the appellant's undertaking, engaged in blending and bottling of IMFL, was ineligible for deduction. The Tribunal noted that the blending and bottling of IMFL were not covered in the negative list of Part C of the Thirteenth Schedule of the Act. Therefore, the appellant’s activity did not constitute distillation and brewing of alcoholic drinks, making the undertaking eligible for deduction under Section 80IB. 3. Eligibility for Deduction under Section 80IB: The Tribunal emphasized that the eligibility for deduction under Section 80IB had already been established in the initial assessment years (2007-08 and 2008-09). The principle of finality in legal proceedings was invoked, stating that once the eligibility was determined and not disturbed in subsequent years, the deduction could not be denied in later years without reopening the initial assessment. The Tribunal relied on precedents, including the decisions in CIT v. Delhi Patra Prakash Ltd., Saurashtra Cement & Chemical Industries, and Shasun Chemicals and Drugs Ltd. v. CIT, which supported the continuity of deductions once granted in the initial assessment year. 4. Reliance on Tax Audit Report and Scope of Rectification under Section 154: The Tribunal found that the tax audit report, which formed part of the assessment record, could not be the sole ground for invoking Section 154 to rectify the assessment order. The Tribunal cited cases like CIT v. Reliance Industries and Satish Kumar Aggarwal v. DCIT, which held that rectification under Section 154 is permissible only for glaring and apparent mistakes, not for debatable issues or changes in opinion. The Tribunal concluded that the AO’s action to disallow the deduction based on the tax audit report was beyond the scope of Section 154. Conclusion: The Tribunal allowed the appeal, directing the AO to grant the deduction under Section 80IB, thereby setting aside the CIT(A)’s order. The Tribunal’s decision was based on the principle of finality in legal proceedings, proper interpretation of the relevant provisions, and the limited scope of rectification under Section 154. The appeal was thus allowed in favor of the assessee. (Order Pronounced in the Court on 27/02/2017)
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