2015 (5) TMI 512 - AT - Income Tax

Deduction under section 80IB denied - value of plant and machinery of the assessee company having been exceeded to ₹ 5 crores, it was not a SSI (Small Scale Industrial) Unit eligible for claiming deduction under section 80IB - Held that - The common issue involved in the present appeals thus is squarely covered in favour of the assessee by the decision of the Hon ble Karnataka High Court in the case of M/s. Ace Multi Axes Systems Ltd. 2014 (8) TMI 596 - KARNATAKA HIGH COURT wherein held that as keeping in mind the industrial growth which is required to be achieved, if two interpretations are possible, the courts have to lean in favour of extending the benefit of deduction to an assessee who has availed the opportunity given to him under law and has grown in his business. Therefore we are of the view, if a small scale industry, in the course of 10 years, stabilizes early, makes further investments in the business and it results in it's going outside the purview of the definition of a small scale industry, that should not come in the way of its churning benefit under Sec.80lB for 10 consecutive years from the initial assessment year. In the present case the appellant was first recognized as a permanent SSI Unit in the year 1992 and at the time of recognition the investment limit was ₹ 60 lakhs. Thereafter, it was increased to ₹ 3 crores in the year 1997 and later in the year 1999 it was reduced back to ₹ 1 crore and clarifications were given by the Ministry concerned that where the units have taken steps for implementation of their project and investment exceeded ₹ 1 crore in the years 1997 and 1998, they should continue to be regarded as SSI Units. It is only after formation of a new agency by name Micro, Small and Medium Enterprises, under the Ministry of Industries, in the year 2006 the investment limit was fixed at ₹ 5 crores. As over the years, they are running their unit adhering to the norms fixed by the Government from time to time and, in any case, when all the conditions stipulated for SSI Units are being followed by them and recognized as SSI Unit by the prescribed authority, they cannot be disallowed the deduction under section 80IB of the Act - decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility for deduction under section 80IB of the Income Tax Act.
2. Classification and valuation of plant and machinery for determining Small Scale Industrial (SSI) status.
3. Impact of exceeding the investment limit on SSI status and eligibility for deduction under section 80IB.

Detailed Analysis:

1. Eligibility for Deduction under Section 80IB:
The primary issue in these appeals is the eligibility of the assessee for deduction under section 80IB of the Income Tax Act. The assessee, engaged in the manufacture of bulk drugs and intermediaries, claimed deductions under section 80IB for the assessment years (A.Y.) 2007-2008, 2008-2009, and 2009-2010. The Assessing Officer (A.O.) disallowed these claims on the grounds that the value of the assessee's plant and machinery exceeded Rs. 5 crores, thus disqualifying it as a Small Scale Industrial (SSI) unit eligible for the deduction under section 80IB.

2. Classification and Valuation of Plant and Machinery:
The A.O. relied on Notification No.S.O.2(E) dated 01.01.1993, which prescribes the method for calculating the value of plant and machinery. According to this notification, the original price of plant and machinery should be considered, excluding specific costs such as tools, installation, R&D equipment, and others. The A.O. found that the assessee's classification of plant and machinery into "Core Machinery" and "Other Assets" was not in compliance with the notification. He reclassified certain items, such as quality control equipment and electrical equipment, and concluded that the value of the assessee's plant and machinery exceeded Rs. 5 crores, thus disqualifying it from SSI status and the corresponding deduction under section 80IB.

3. Impact of Exceeding Investment Limit on SSI Status:
The assessee argued that its classification of assets was in line with the exceptions provided in the IDR Act and that it had been recognized as an SSI unit by the District Industries Centre (DIC). The Commissioner of Income Tax (Appeals) [CIT(A)] accepted the assessee's submissions, noting that the A.O. had not provided any factual findings to contradict the assessee's classification. The CIT(A) also considered the historical changes in the investment limits for SSI units and concluded that the assessee had adhered to the norms set by the government over the years. Consequently, the CIT(A) allowed the deduction under section 80IB for A.Ys. 2009-2010 and 2007-2008 but confirmed the disallowance for A.Y. 2008-2009.

Tribunal's Decision:
The Tribunal considered the arguments and found that the issue was covered in favor of the assessee by the decision of the Hon'ble Karnataka High Court in the case of M/s. Ace Multi Axes Systems Ltd. The High Court had held that the conditions for SSI status need to be fulfilled only in the initial year of claiming the deduction under section 80IB, and subsequent growth in investment should not disqualify the unit from availing the deduction for the entire period of 10 years. The Tribunal upheld the CIT(A)'s orders for A.Ys. 2007-2008 and 2009-2010 and set aside the CIT(A)'s order for A.Y. 2008-2009, directing the A.O. to allow the deduction under section 80IB.

Conclusion:
The Tribunal allowed the appeal of the assessee and dismissed the appeals of the Revenue, thereby granting the deduction under section 80IB for all the assessment years in question. The decision emphasized that the eligibility for deduction under section 80IB should be determined based on the initial year of claiming the deduction, and subsequent investments exceeding the SSI limit should not disqualify the unit from availing the deduction for the specified period.