2011 (1) TMI 207 - HC - Income Tax

Deduction u/s 80IB - Assessing Officer noticed that in order to boost up the income of the eligible industrial unit at Adimaly there was transfer of goods from Theni unit to the Adimaly unit at cost price accounting profit on sale as attributable to Adimaly unit and claiming the benefit under section 80-IB - the assessment is an agreed assessment and the assessee s representative in fact did not oppose the partial disallowance by the officer - Held that We do not know how the Tribunal can direct the Assessing Officer to treat the stock transfer of final products from Theni unit to Adimaly unit at cost price. In fact the finished products on sale obviously gets profits and assessee has also no case that the profit is not derived on the sale of the products. The order of the Tribunal only helps to artificially jack up the profit of eligible industrial unit located in the backward area. - the eligibility for deduction under section 80-IB is only for the profit derived by the eligible unit and therefore the assessee cannot transfer final products from other industrial unit on cost price to inflate artificially the profit of the eligible unit to claim ineligible deduction - Decided in favor of revenue.

Summary

Issues:
1. Justification of the Tribunal in canceling the disallowance of a portion of relief claimed by the assessee under section 80-IB of the Income-tax Act, 1961 for an industrial unit at Adimaly.

Analysis:
The case revolves around the eligibility of the assessee for deduction under section 80-IB for the profit derived from an industrial unit in a backward district. The Assessing Officer observed that the assessee was transferring goods from one unit to another at cost price to inflate the profit of the eligible unit and claim the benefit under section 80-IB. The initial assessment included a part disallowance based on this observation. The first appeal confirmed this assessment, and in the second appeal, the Tribunal allowed the account transfers of goods on a cost price basis, which was challenged by the revenue in the present appeal.

Upon review, the High Court noted that the assessment was an agreed assessment, and the assessee's representative did not oppose the partial disallowance during the assessment. Consequently, the Court held that the assessee had no right of appeal against this order. However, the Court decided to consider the case on merits and found that the Tribunal's direction to treat the stock transfer of final products at cost price was not justified. The Court emphasized that the eligibility for deduction under section 80-IB is based on the profit derived by the eligible unit itself, and transferring final products from another unit at cost price to artificially inflate profits is not permissible.

The Court highlighted that the assessee had initially claimed a high amount under section 80-IB and later requested the officer to make necessary adjustments, indicating acknowledgment of the high claim. The Assessing Officer, in consultation with the assessee's auditor, made a part disallowance by adjusting the profit attributable to final products transferred to the eligible unit. The Court concluded that the Tribunal exceeded its authority by intervening in the order confirmed in the first appeal. Therefore, the Court allowed the appeal by reversing the Tribunal's order and restoring the assessment confirmed in the first appeal.