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2021 (7) TMI 323 - AT - Income TaxRevision u/s 263 by CIT - assessee s claim of 100 % exemption of profits u/s 80 IC in respect of its Unit- II - HELD THAT - As the letter of the GOI to the DIC, Himachal, which as per the Ld. Pr.CIT the AO failed to consider, stated the item manufactured by the assessee as covered under serial no. 5 of the negative list, but the item manufactured by the assessee does not have the NIC CODE mentioned against the said serial NO. of the negative list and also that the description of items in the said serial no. is ambiguous mentioning organic chemicals under some descriptions and inorganic chemicals against other description. There is no dispute vis a vis the aforestated facts. Perusing the manner of description of items falling in the negative list, i.e. Schedule XIII of the Income tax, there is no doubt that to qualify as an item covered therein, all the manners of describing the items has to be satisfied. It has to fit into the description, belong to the specified chapter of Excise classification and also qualify as item of the specified NIC CODE. In the present case the uncontroverted fact is that the NIC CODE of the item manufactured by the assessee is not that mentioned in S.No.5 of Schedule XIII, though it may meet the other descriptions. It cannot therefore be categorically said that the item manufactured by the assessee qualified in S. No.5 of the negative list. Moreover on account of the clear cut ambiguity in the item mentioned/described against S.No.5, relating both to organic and inorganic chemicals, the assessee is entitled to the benefit of doubt regarding the items sought to be covered under it. We do not find any error in the view taken by the AO, in the light of the above facts which were before him also, that the item manufactured by the assessee does not qualify in S. No. 5 of the negative list and the assessee therefore is entitled to claim exemption u/s 80 IC The argument of the Ld.DR that the statement of the Department of Industrial Policy Promotion is a technically backed one, we find is very impressive and pertinent and there may be no doubt about it also, but all the same it only mentions the item as falling in S. No.5, which at the cost of repetition, we state, has been clearly demonstrated as being unclear of the items sought to be covered and the assessee not qualifying therein on account of its NIC CODE being not covered in it. There was no error in the order of the AO, taking the view that the item manufactured by the assessee did not meet the description of S.No. 5 of the negative list and accordingly allow assesses claim of exemption u/s 80 IC of the Act. The findings of the Ld. Pr.CIT therefore to the effect that the AO s order was erroneous on account of inadequate enquiry having been conducted on the issue of grant of exemption u/s 80 IC of the Act to unit- II of the assessee are accordingly set aside. Claim of deduction u/s 80 IC on rental income in Unit- I (IU-II) and on interest on securities deposited with Sales Tax Department and H. P. S.E. B. - HELD THAT - Since it is a fact on record that the AO had not allowed the assessee s claim on deduction of profits earned in Unit- I (IU-II) as per the provisions of section 80 IC of the Act, it is but obvious that the entire income earned therein had been subjected to tax and, therefore, the findings of the Ld.Pr.CIT that the assessee had been wrongly allowed deduction u/s 80 IC of the Act on rental income and interest on securities earned in the said unit by the AO is incorrect. There is clearly no error in the order of the AO since both the rental income and interest on securities has been subjected to tax and the findings of the Ld.Pr. CIT in this regard are therefore set aside. Bifurcation of expenses between Unit- I (IU-II) and Unit- II of the assessee - With respect to the apportionment of expenses relating to the electricity charges and salary to employees between Unit- I (IU- II) and Unit- II, we find that the assessee had explained that the two units were separate manufacturing different items, having their own infrastructure for electricity and had different employees on their rolls and expenses had accordingly been accounted for in the said two units. The Ld. Pr. CIT while f inding error in the order of the AO has not dealt with this contention of the assessee. The Ld. Pr. CIT could have found an error in the order of the AO only after pointing out any infirmity in the reply filed by the assessee, which he has failed to do so. In effect, the entire order of the Ld. Pr.CIT passed u/s 263 of the Act is set aside. - Decided in favour of assessee.
Issues Involved:
1. Deduction under Section 80IC for Unit-II producing Dissolved Acetylene Gas. 2. Deduction under Section 80IC for rental income in Unit-I (IU-II). 3. Deduction under Section 80IC for interest on securities deposited with Sales Tax Department and HPSEB. 4. Apportionment of expenses between Unit-I (IU-II) and Unit-II. Detailed Analysis: 1. Deduction under Section 80IC for Unit-II producing Dissolved Acetylene Gas: The primary issue was whether the assessee's Unit-II, producing Dissolved Acetylene Gas, qualified for a deduction under Section 80IC of the Income Tax Act, 1961. The Principal Commissioner of Income Tax (Pr. CIT) had noted that the Assessing Officer (AO) allowed this deduction despite having information that the product fell under the negative list specified by the government. The Pr. CIT referenced letters from the Directorate of Industries, Himachal Pradesh, and the Department of Industrial Policy & Promotion, Government of India, which stated that Dissolved Acetylene Gas fell under the negative list. The assessee argued that the product did not fall under the negative list as it did not meet all the specified conditions, particularly the NIC code. The AO had previously examined this and allowed the deduction, concluding that the product did not fall under the negative list. The Tribunal found no error in the AO's decision, noting that the NIC code for the assessee's product was not listed in the negative list and that there was ambiguity in the negative list's description. Consequently, the Tribunal set aside the Pr. CIT's finding that the AO's order was erroneous. 2. Deduction under Section 80IC for rental income in Unit-I (IU-II): The Pr. CIT had raised an issue regarding the deduction under Section 80IC for rental income of ?60,000 shown in Unit-I (IU-II). The assessee contended that the AO had already disallowed the deduction for Unit-I (IU-II) and hence, no deduction was allowed for the rental income. The Tribunal confirmed that the AO had indeed disallowed the deduction for Unit-I (IU-II) and thus, the Pr. CIT's finding was incorrect. The Tribunal set aside the Pr. CIT's order on this issue. 3. Deduction under Section 80IC for interest on securities deposited with Sales Tax Department and HPSEB: Similar to the rental income issue, the Pr. CIT had raised concerns about the deduction under Section 80IC for interest on securities deposited with the Sales Tax Department and HPSEB. The assessee again pointed out that the AO had disallowed the deduction for Unit-I (IU-II), which included these interest incomes. The Tribunal found that the AO had indeed taxed these interest incomes and thus, there was no error in the AO's order. The Tribunal set aside the Pr. CIT's finding on this issue as well. 4. Apportionment of expenses between Unit-I (IU-II) and Unit-II: The Pr. CIT contended that expenses for electricity, water, and employee benefits should have been apportioned between Unit-I (IU-II) and Unit-II based on their turnover. The assessee argued that both units were independent with their own infrastructure and staff, and the expenses were correctly accounted for. The Tribunal noted that the AO had examined this issue during the assessment proceedings and accepted the assessee's explanation. The Pr. CIT did not address the assessee's detailed explanation and failed to point out any specific infirmity. Thus, the Tribunal set aside the Pr. CIT's order on this issue. Conclusion: The Tribunal found no error in the AO's order regarding the deduction under Section 80IC for Unit-II, rental income, and interest on securities. It also upheld the assessee's method of accounting for expenses between the units. The entire order of the Pr. CIT passed under Section 263 of the Act was set aside, and the appeal of the assessee was allowed.
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