2010 (12) TMI 696 - AT - Income Tax

Disallowance - Deduction under S.80IB - The assessee s was not filed the audit report in Form 10CCB alongwith the return of income - Assessee is engaged in the manufacture of Conveyor and Material handling equipments - It is evident from the orders of the lower authorities that even though the Unit II had a separate land, building and some Plant and Machinery, it cannot be said to have the basic character of independence of function and ability to survive independent of Unit I - Whether a particular unit is a distinct entity or part of the other units depends upon the facts and circumstances of each case - Since, Unit II cannot survive on its own and independent of Unit I, it has to be held that it forms part of the assessee s undertaking as a whole and not a distinct entity - The caselaw relied upon by the Learned Departmental Representative has no application to the facts of the present case - Find no infirmity in the impugned order of the CIT(A)

Summary

Issues:
1. Disallowance of deduction under section 80-IB for not filing audit report in Form 10CCB along with the return of income.
2. Treatment of Unit II as a distinct entity for claiming deduction under section 80-IB(3)(ii).

Issue 1: Disallowance of deduction under section 80-IB for not filing audit report in Form 10CCB along with the return of income:

The Appellate Tribunal ITAT, Hyderabad heard two appeals by the Revenue against separate orders of the CIT(A)-IV, Hyderabad for the assessment years 2005-06 and 2007-08. The primary contention was the disallowance of deduction under section 80-IB due to the audit report in Form 10CCB not being filed along with the return of income. The Revenue argued that the CIT(A) erred in allowing relief to the assessee based on the audit report filed during reassessment proceedings. However, the Tribunal noted that non-filing of the audit report along with the return of income was a curable defect, and the claim for deduction had to be considered on its merits when the defect was rectified by filing Form 10CCB. Citing various precedents and the decision of the jurisdictional High Court, the Tribunal upheld the CIT(A)'s order, emphasizing that the audit report's filing during reassessment proceedings did not preclude the assessee from claiming the deduction under section 80-IB.

Issue 2: Treatment of Unit II as a distinct entity for claiming deduction under section 80-IB(3)(ii):

In the appeal for the assessment year 2007-08, the Revenue challenged the CIT(A)'s decision to grant a deduction under section 80-IB(3)(ii) to the assessee regarding Unit II. The Revenue contended that Unit II should be considered a distinct entity as per Income Tax Rule 18 BBB, and the claim for deduction was rightly disallowed by the Assessing Officer. However, the Tribunal, after reviewing the facts and relevant decisions, found that Unit II, despite having separate physical assets, lacked the basic character of independence and ability to survive independently of Unit I. Relying on the Special Bench decision in a related case, the Tribunal concluded that Unit II was not a distinct entity but an integral part of the assessee's overall undertaking. Consequently, the Tribunal upheld the CIT(A)'s order and dismissed the Revenue's appeal.

In conclusion, the Appellate Tribunal ITAT, Hyderabad, through detailed analysis and reference to legal precedents, resolved the issues related to the disallowance of deductions under section 80-IB and the treatment of Unit II as a distinct entity. The Tribunal's decisions were based on the principles of law, previous judgments, and the specific facts of each case, ultimately upholding the CIT(A)'s orders and dismissing the appeals by the Revenue.