2015 (4) TMI 1259 - AT - Income Tax

Claiming of deduction u/s. 80IB(3) - Status of SSI ceased in 9th year - When once the eligible business of an assessee is given the benefit of deduction u/s 80IB on the assessee satisfying the conditions mentioned in Sub-sec.(2) of Sec.80IB, can the assessee be denied the benefit of the said deduction on the ground that during the said 10 consecutive years, it ceases to be a small scale industry Held that - The issue is now covered by the decision of the Tribunal in the own case of the assessee for earlier assessment year 2009-10 2014 (8) TMI 596 - KARNATAKA HIGH COURT in the entire provision, there is no indication that these conditions had to be fulfilled by the assessee all the 10 years - When once the benefit of 10 years, commencing from the initial year, is granted, if the undertaking satisfy all these conditions initially, the undertaking is entitled to the benefit of 10 consecutive years If the object of the Legislature providing for the incentives is kept in mind and when a period of 10 years is prescribed, that is the period, probably, which is required for any industry to stabilize itself - Merely because an industry stabilizes early, makes profits, makes future investment in the said business, and it goes out of the definition of the small scale industry, the benefit u/s 80IB cannot be denied - If such a literal interpretation is placed on the said provion, it would run counter to the very object of granting incentives - the benefit of deduction is given to an assessee who has availed the opportunity given to him under law and has grown in his business - 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 claiming benefit u/s 80IB for 10 consecutive years, from the initial assessment year Decided in favour of Assessee.

Summary

Issues:
- Appeal against orders of CIT(A) for assessment years 2010-11 & 2006-07 regarding deduction under section 80IB(3).

Analysis:

Issue 1: Deduction under section 80IB(3) for AY 2010-11
- The appellant challenged the denial of deduction of Rs. 4,13,58,579 under section 80IB(3) by the Assessing Officer (AO) and CIT(A) due to exceeding the limit of plant & machinery value. The Tribunal referred to a previous decision in the assessee's case for AY 2009-10 and a Karnataka High Court case, emphasizing that if the conditions were met initially, the benefit of 10 years should be granted. The Tribunal held that denying the benefit due to growth and exceeding the small scale industry limit would go against the legislative intent of providing incentives for industrial growth. Consequently, the Tribunal allowed the appeal, setting aside the impugned order and restoring the deduction.

Issue 2: Deduction under section 80IB(3) for AY 2006-07
- In the appeal for AY 2006-07, the AO initially allowed the deduction under section 80IB(3) but later reopened the assessment citing the plant & machinery value exceeding Rs. 1 crore. Following the decision on the AY 2010-11 issue, the Tribunal found in favor of the assessee, holding them entitled to the deduction under section 80IB(3) even for this assessment year. Consequently, the appeal for AY 2006-07 was also allowed.

In conclusion, both appeals by the assessee were allowed by the Tribunal, granting them the deduction under section 80IB(3) for both AY 2010-11 and AY 2006-07. The Tribunal's decisions were based on the interpretation of legislative intent and the continuity of benefits for small scale industries meeting the initial conditions, despite subsequent growth and exceeding limits.