2014 (1) TMI 189 - AT - Income Tax

Deduction u/s 80IB - Held that - There is no specific guideline with regard to the need to manufacture the same item which is mentioned in the provisional certificate so as to enable a company to claim the benefit of deduction under section 80IB of the Act - These factors were not properly examined by the tax authorities - There is no condition prescribed to continue production of the same product so long as the assessee begins manufacture and ultimately commences production before the stipulated period - The issue was restored for fresh adjudication.

Summary

Issues:
- Eligibility for deduction under section 80IB of the Income Tax Act based on investment in plant and machinery for a Small Scale Industrial Unit (SSI).
- Validity of provisional and permanent registration certificates obtained by the assessee.
- Interpretation of conditions for claiming deduction under section 80IB by the tax authorities.

Eligibility for Deduction under Section 80IB:
The appeals filed by the assessee-company pertained to the assessment years 2004-2005 and 2005-2006, claiming deduction under section 80IB of the Income Tax Act as a Small Scale Industrial Unit (SSI) with an investment in plant and machinery less than Rs.3 crores. The Assessing Officer scrutinized the case and noted that the investment exceeded Rs.1 crore, contrary to the Ministry of Commerce & Industry notification. The assessee argued that it qualified for SSI status as per the Central Government's clarification and certain expenses should be excluded from the investment calculation. However, the Assessing Officer denied the deduction, citing lack of proof of provisional registration and supporting documents for expenditure.

Validity of Registration Certificates:
The assessee contended before the CIT(A) that it had provisional and permanent registration as an SSI unit, meeting the requirements of section 80IB(3) of the Act. The CIT(A) observed discrepancies in the registration certificates regarding the company name, addresses, and products manufactured. This led to the conclusion that the assessee did not obtain provisional registration before 1999, failing to fulfill conditions specified in the Ministry's notification. Consequently, the Assessing Officer's orders were upheld.

Interpretation of Conditions for Deduction:
The assessee appealed to the ITAT, arguing that changes in company name and address did not affect the unit's eligibility for deduction under section 80IB. The ITAT noted that the factory location remained the same in both registration certificates and that the company's business involved manufacturing bulk drugs, subject to market demand. Emphasizing the fulfillment of conditions for deduction, the ITAT set aside the previous orders, directing the Assessing Officer to re-examine the issue considering all relevant facts and submissions. The ITAT clarified that continuity in product manufacturing was not a prerequisite for claiming the deduction, emphasizing the need for a fair assessment based on the law.

In conclusion, the ITAT partially allowed the appeals for statistical purposes, emphasizing the importance of a thorough examination of facts and adherence to legal provisions in determining the eligibility of an assessee for deductions under section 80IB of the Income Tax Act.