2014 (8) TMI 1168 - AT - Income Tax

Eligibility to section 80IB / 80IA - assessee be denied deduction u/s 80IB(3) in subsequent years as the assessee from investment point of view, matures out of SSI definition, when the assessee is a SSI in the initial years of deduction - HELD THAT - There is no dispute on the fact that the assessee is a SSI in the initial years. It is prospered and is no longer a SSI. Further, the assessee was given benefit of deduction u/s 80IB(3) of the Act in earlier years. Under these facts, we find the above judgment in the case of M/s. Ace Multi Axes Systems Ltd 2014 (8) TMI 596 - KARNATAKA HIGH COURT , has applicability to the present issue. CIT (A) has rightly adjudicated the issue under consideration while granting the relief to the assessee. Accordingly, we find no infirmity in the order of the CIT (A) and it does not call for any interference. Accordingly, the grounds raised by the Revenue are dismissed.

Summary

Issues:
1. Eligibility for deduction u/s 80IB(3) for subsequent years.
2. Interpretation of the definition of a Small Scale Industry (SSI) for tax benefits.

Issue 1: Eligibility for deduction u/s 80IB(3) for subsequent years:
The appeal was filed by the Revenue against the order of the CIT (A) for the assessment year 2009-2010. The Revenue contended that the CIT (A) erred in deleting the additions made by the AO u/s 80IB(3) and in holding that eligibility for section 80IB/80IA is determined in the initial assessment year. The AO disallowed the assessee's claim of deduction u/s 80IB(3) on the grounds that the assessee did not qualify as a SSI undertaking due to the value of its plant and machinery exceeding the threshold. The CIT (A) allowed the appeal, citing judgments of the Bombay High Court and Gujarat High Court, emphasizing that once relief is granted in earlier years, subsequent claims cannot be rejected without withdrawing the relief for previous assessment years. The Tribunal, after considering arguments and relevant judgments, upheld the CIT (A)'s decision, stating that denying deduction in subsequent years when the assessee matures out of the SSI definition would go against the purpose of granting incentives and industrial growth. The Tribunal found no infirmity in the CIT (A)'s order and dismissed the Revenue's appeal.

Issue 2: Interpretation of the definition of a Small Scale Industry (SSI) for tax benefits:
During the proceedings, the Ld Counsel for the assessee relied on the judgment of the Hon'ble Karnataka High Court in a similar case, emphasizing that a literal interpretation of the provision was not necessary when granting deduction u/s 80IB to a SSI that grows into a larger company. The Tribunal noted that the assessee was initially a SSI but had grown beyond that definition, yet had been granted deduction u/s 80IB(3) in earlier years. Referring to the judgment of the Hon'ble Karnataka High Court, the Tribunal held that the assessee should not be denied the benefit of claiming deduction under section 80IB for 10 consecutive years from the initial assessment year, even if it no longer falls under the SSI definition. The Tribunal concluded that the CIT (A) had rightly adjudicated the issue and dismissed the Revenue's appeal.

In conclusion, the Tribunal upheld the CIT (A)'s decision, emphasizing that denying deduction under section 80IB(3) in subsequent years when an assessee matures out of the SSI definition would be contrary to the purpose of granting incentives and industrial growth. The Tribunal found the judgments cited by the parties to be relevant and ruled in favor of the assessee, dismissing the Revenue's appeal.