2019 (1) TMI 408 - HC - Income Tax

Entitlement to deduction u/s 80IB - sales recorded in the separate books of Salem unit - consolidates sales - whether the turnover from outlets located in areas other than the place where the eligible unit is situated qualifies for deduction under Sec.80IB when the Sales account does not prove that the Sales from branches is turnover of the eligible unit? - Held that - Sub-section (8) of Section 80IA indicates that where any goods or services held for the purpose of eligible business are transferred to any other business or where any goods held for the purposes of any other business carried on by the assessee are transferred to the eligible business, the consideration, if any, for such goods and services shall be computed, so as to correspond to the market value of such goods. In such circumstances, the provision recognizes transfer of goods and services between businesses and even if the sale is made from the retail centers of the assessee itself, it can be deemed to be the business of the eligible undertaking. The Tribunal too has noticed the fact and specifically referred to the no. of units produced at Salem and what is actually sold from the undertaking and that sold through different branches. On a verification of the actual sale for the current year, the Tribunal has found that the claim for allowance made by the assessee is proper. We, hence, find that the Tribunal has gone into the facts and allowed the allowance claimed. The sale figures taken is obviously not the consolidated figure of the Salem and Hyderabad units and the question of law framed as (1) is not relevant. We do not find any infirmity in the findings of the Tribunal. We answer the question of law (2) in favour of the assessee

Summary

Issues:
1. Eligibility of claiming deduction under Sec.80IB on consolidated sales figure.
2. Qualification of turnover from outlets located in areas other than the eligible unit for deduction under Sec.80IB.

Analysis:

Issue 1:
The case involved an assessee with two units, one in Salem and the other in Hyderabad, engaged in manufacturing chappals. The Salem unit was eligible for deduction under Section 80IB of the Income Tax Act, 1961. The dispute arose regarding the disallowance of a certain amount by the Income Tax Appellate Tribunal in the assessment year 2004-05. The Salem Unit's profit and loss account showed an eligible deduction under Section 80IB at ?21,85,24,989, while the consolidated profit and loss account of both units reflected a figure of ?19,53,96,288. The first appellate authority disallowed the difference, leading to a confirmed disallowance of ?69,38,609. However, the Tribunal overturned this decision and directed the full allowance as claimed in the Salem Unit's profit and loss account.

Issue 2:
The difference in figures was attributed to the separate recording of sales from the retail business of the assessee, where manufactured items were stock transferred from the Salem Unit. The counsel for the assessee argued that Section 80IB(13) should be considered, along with relevant sub-sections of Section 80IA, which allow for the transfer of goods and services between businesses at market value. The Tribunal acknowledged the production and sales details from the Salem Unit and various branches, concluding that the claim for allowance by the assessee was justified. It was clarified that the sales figures did not represent the consolidated sales of both units, making the first issue irrelevant. The Tribunal's decision was upheld, ruling in favor of the assessee and dismissing the Income Tax Appeal without costs.