2018 (4) TMI 805 - HC - Income Tax

Stay application - grant of interim order - Eligibility for deduction u/s 80IC denied - processes adopted by the petitioner do not amount to manufacture and that the unit at Rudrapur is not eligible for deduction u/s 80IC - Held that - AO could not have gone beyond the observations rendered or findings recorded by the Central Excise Department as even in the show cause notice there is a reference only to the findings recorded by the Central Excise Department. Therefore the observations made by AO that 50% of the products sold at Rudrapur are not subjected to any manufacturing activity appear to be in contradiction with the findings rendered by the Central Excise Department. This aspect also touches upon the jurisdiction of the Assessing Officer to render such a finding when he had no independent material at the first instance while issuing the show cause notice dated 24.3.2015. If this interpretation is to be accepted then to the extent where there is no manufacturing activity the Assessing Officer would be justified in denying deduction under Section 80IC of the Act. However such procedure was not followed by the AO. The Appellate Authority while testing the correctness of the orders passed by the Assessing Officer appears to have not made an independent exercise to refer to the findings recorded and the observations made by the Assessing Officer. This aspect of the matter ought to have been considered by the Tribunal while exercising jurisdiction by stating that the petitioner has made out a prima facie case. 30% of the demand has already been adjusted/paid by the petitioner/assessee. In our considered view 30% of the demand having been adjusted/paid will sufficiently safeguard the interests of the Revenue and will be in tune with the Office Memorandum issued by the Central Board of Direct Taxes which rationalizes grant of stay orders for the Appellate Authority to follow by imposing a condition of payment of 20%. Hence we are of the view that the petitioner has made out a prima facie case for grant of interim order as payment of 30% sufficiently safeguards the interests of the Revenue.

Summary

Issues:
Challenging order of Income Tax Appellate Tribunal on stay of recovery for outstanding demand due to denial of deduction under Section 80IC of Income Tax Act for assessment years 2011-12, 2012-13, and 2014-15.

Analysis:

Issue 1: Denial of Deduction under Section 80IC
The controversy arose from the denial of deduction claimed by the petitioner under Section 80IC of the Income Tax Act, 1961 due to an Order-in-Original by the Assistant Commissioner of Central Excise regarding a claim for exemption made by the petitioner for their manufacturing unit at Rudrapur under Notification No.50/2003/CE. The Central Excise Authorities found that certain goods cleared to Rudrapur were not eligible for exemption as they had undergone processes not amounting to manufacture. This led to a show cause notice, demand confirmation, and subsequent appeals by the petitioner.

Issue 2: Assessing Officer's Findings
The Assessing Officer, based on information from the Central Excise Department, issued a show cause notice stating that the petitioner's processes did not amount to manufacture, questioning the eligibility of the Rudrapur unit for deduction under Section 80IC. Despite the petitioner's submissions and details provided, the Assessing Officer rejected the claim for deduction in multiple orders. The Commissioner of Income Tax (Appeals) upheld these rejections, leading the petitioner to appeal to the Income Tax Appellate Tribunal.

Issue 3: Tribunal's Decision on Stay of Recovery
The Income Tax Appellate Tribunal dismissed the petitioner's stay petitions for outstanding demand, citing a lack of a strong prima facie case. However, upon review, the High Court found that the Assessing Officer's findings were not supported by independent material and appeared contradictory to the Central Excise Department's observations. The Tribunal's failure to thoroughly assess the petitioner's case and the significant payment already made by the petitioner towards the demand led the High Court to conclude that the petitioner had made out a prima facie case for the grant of an interim order.

Conclusion
The High Court allowed the writ petitions, setting aside the Tribunal's orders and granting a stay of recovery for the remaining outstanding demand for the assessment years in question until the appeals before the Income Tax Appellate Tribunal were disposed of. The Court clarified that its observations were for the purpose of showing the petitioner's entitlement to the interim order and should not influence the Tribunal's decision on the appeals.