2011 (3) TMI 1024 - HC - Income Tax

Deduction u/s 80IB declined - as per ITAT since the assessee had not claimed deduction under section 80-IB of the Income-tax Act 1961 in the initial assessment year i.e. 1998-99 it became disentitled to claim such a deduction in the instant assessment year 2004-05 despite the fact the assessee s undertaking fulfils the stipulated conditions for claiming deduction under section 80-IB - Held that - If the assessee fulfils the requirement of small scale industrial under taking it is not in dispute that the assessee would have qualified for this deduction from the assessment year 1998-99. Had the assessee claimed this benefit in that year he would have been allowed this benefit for 10 consecutive years i.e. till the assessment year 2007-08. The assessee thus becomes entitled to claim the benefit in the assessment year 1998-99. However merely because of the reason that though the assessee was eligible to claim this benefit he did not claim in that year that would not mean that he would be deprived from claiming this benefit till the assessment year 2007-08 which is the period for which his entitlement would accrue. The provisions contained in section 80-IB nowhere stipulate any condition that such a claim has to be made in the first year failing which there would be forfeiture of such claim in the remaining years. It is not the case of the assessee that he should be allowed to avail of this claim for 10 years from the assessment year 2004-05. The assessee has realized his mistake in not claiming the benefit from the first assessment year 1998-99. At the same time the assessee forgoes the claim up to the assessment year 2003-04 and is making the same only for the remaining period. There is no reason not to give the benefit of this claim to the assessee if the conditions stipulated under section 80-IB of the Income-tax Act are fulfilled. In favour of assessee. Whether it is incumbent upon the assessee that it is registered under the Industries (Development and Regulation) Act for claiming the benefit under sub-section (3) of section 80-IB - Held that - Registration under the Industries (Development and Regulation) Act will be of no consequence for availing of the benefit under section 80-IB of the Income-tax Act - Since the Central Government has to prescribe such conditions by notification in view of the provisions of section 11B of the Industries (Development and Regulation) Act the Legislature in its wisdom deemed it fit to incorporate those conditions for the purpose of the Income-tax Act as well. Depreciation claim - Held that - For the purpose of determining whether an industrial undertaking is a smallscale undertaking or not resort had to be taken to the Explanation to section 32(1)(vi) and not to any other provision of law whereby an industrial undertaking was to be regarded as a small-scale industrial undertaking for other purposes - there is no dispute that the assessee fulfils the eligibility conditions prescribed under section 80-IB of the Income-tax Act and is to be regarded as a small scale industrial undertaking - Appeal is allowed.

Summary

Issues Involved:
1. Whether the Income-tax Appellate Tribunal was justified in upholding the order rejecting the claim of deduction under section 80-IB of the Income-tax Act, 1961.
2. Whether the assessee was disentitled to claim deduction under section 80-IB in the assessment year 2004-05 because it was not claimed in the initial assessment year 1998-99.
3. Whether it was necessary for the assessee to be registered under the Industries (Development and Regulation) Act to claim the benefit under section 80-IB.

Issue-wise Detailed Analysis:

1. Justification of the Tribunal's Order:
The Tribunal upheld the order of the Commissioner of Income-tax (Appeals) which rejected the claim of deduction under section 80-IB of the Income-tax Act, 1961. The assessee, engaged in manufacturing and exporting readymade garments, began manufacturing on July 1, 1997, and was eligible for the section 80-IB benefit from the assessment year 1998-99. However, the assessee did not claim the deduction in the initial year or in the succeeding years until the assessment year 2004-05. The Tribunal's decision was based on the assessee not claiming the deduction in the initial year, and the small scale industrial undertaking not being registered under the IDR Act.

2. Entitlement to Claim Deduction Despite Initial Omission:
The court addressed whether the assessee could be denied the benefit of section 80-IB simply because it was not claimed in the initial assessment year, 1998-99. Section 80-IB provides benefits to certain classes of industries, allowing deductions for 10 successive assessment years. The court clarified that the provision does not stipulate that the claim must be made in the first year to avoid forfeiture in subsequent years. The assessee, realizing the mistake, sought the benefit from the assessment year 2004-05 to 2007-08, foregoing the claim for the previous years. The court found no reason to deny the benefit if the conditions under section 80-IB were met, thus answering this question in favor of the assessee.

3. Necessity of Registration under the IDR Act:
The court examined whether registration under the IDR Act was necessary for claiming the benefit under section 80-IB. Section 80-IB(14)(g) defines a small-scale industrial undertaking as one regarded under section 11B of the IDR Act. The IDR Act requires certain industries to be registered, but small scale industrial undertakings are exempt from regulation under sections 11B and 29B. The Central Government's notification dated December 10, 1997, specified conditions for an undertaking to be regarded as small scale, focusing on investment in plant and machinery without mandating registration. The court concluded that registration under the IDR Act was not a requirement for claiming the benefit under section 80-IB, as long as the conditions specified in the notification were met. This interpretation was supported by a similar ruling from the Gujarat High Court regarding depreciation benefits under section 32 of the Income-tax Act.

Conclusion:
The court directed the Assessing Officer to grant the deduction claimed by the assessee under section 80-IB for the assessment year 2004-05, as the assessee fulfilled the stipulated conditions and was regarded as a small scale industrial undertaking. The appeal was allowed in favor of the assessee.