2021 (9) TMI 463 - AT - Income Tax

Deduction u/s 80IB(11A) - proof of manufacturing activity - as per assessee has outsourced its entire manufacturing therefore not entitled for benefit of deduction - assessee entered into an agreement with Mother Dairy' for processing, preservation and packaging of milk, under which Mother Dairy supplied pasteurized/raw chilled milk and commodities for processing and packaging of liquid milk in poly packs of different categories of milk and as the assessee company was not having its own facility, it entered into back-to-back agreement with one of its related party i.e. Umang Dairy Ltd. (Umang) which was under BIFR process - HELD THAT - Depreciation on such plant and machinery, however, CIT(A) deleted such disallowance and the Revenue has not challenged said finding of the CIT(A). This means, the Revenue has accepted the plant and machinery on which depreciation has been claimed, was put to use for manufacturing process by the assessee. Once the claim of the depreciation on machinery engaged for manufacturing has been accepted by the revenue, contesting that no manufacturing has been carried out by the assessee is self-contradictory and not justified - assessee that assessee was engaged in colourable device of evasion of taxes has not been found to be correct. The allegation of the AO that there were large amount of carryforward losses in the case of Umang and therefore deduction has been claimed in the case of assessee. This claim of the Assessing Officer has been not found to be correct as Ld. CIT(A) has pointed out that there was profit in the case of the Umang during the year under consideration. AO in the scrutiny assessment assessment year 2018-19 has accepted the claim of the assessee for deduction under section 80IB of the Act. In our opinion, when the same claim has been accepted by the Assessing Officer in assessment year 2008-19, the Assessing Officer is not justified in contesting the same issue for earlier year - Decided against revenue.

Summary

Issues Involved:
1. Erroneous and contrary to facts and law order by CIT(A).
2. Deletion of disallowance under section 80IB(11A) of the Income-tax Act, 1961.
3. Contravention of section 80IB(11A) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Erroneous and Contrary to Facts and Law Order by CIT(A):
The Revenue contended that the order of the CIT(A) was erroneous and contrary to facts and law. However, the Tribunal found that the CIT(A) had thoroughly examined the eligibility criteria for the deduction under section 80IB(11A) and found that all conditions were met by the assessee. The CIT(A) had analyzed the provisions of the Act and concluded that the assessee was entitled to the deduction.

2. Deletion of Disallowance under Section 80IB(11A):
The main issue was whether the assessee, engaged in processing, preservation, and packaging of dairy products, was entitled to a deduction under section 80IB(11A). The Assessing Officer (AO) had disallowed the deduction, arguing that the assessee was not engaged in manufacturing as it had outsourced the entire manufacturing activity to Umang Dairy Ltd. (Umang). The CIT(A) found that the assessee had fulfilled all the conditions for the deduction, including owning the plant and machinery used for manufacturing. The CIT(A) also noted that the assessee had entered into an agreement with Umang for processing and packaging, and the beneficial ownership of the building and machinery remained with the assessee. The Tribunal upheld the CIT(A)'s findings, noting that the Revenue had accepted the claim of depreciation on the machinery, which indicated that the machinery was used for manufacturing. The Tribunal also noted that the AO's suspicion of a colorable device to evade taxes was unfounded, as Umang was profitable during the year under consideration.

3. Contravention of Section 80IB(11A):
The Revenue argued that the CIT(A)'s order was in contravention of section 80IB(11A). However, the Tribunal found that the CIT(A) had correctly interpreted the provisions of the Act. The CIT(A) had noted that there was no specific restriction in section 80IB(11A) that the business of processing, preservation, and packaging of dairy products had to be carried out by the assessee itself. The Tribunal agreed with this interpretation and found that the assessee was entitled to the deduction, even though the manufacturing activity was outsourced.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that the assessee was entitled to the deduction under section 80IB(11A). The Tribunal found that the assessee had fulfilled all the conditions for the deduction, and the Revenue's arguments were not justified. The Tribunal also noted that the AO had accepted the claim of deduction in a subsequent assessment year, further supporting the assessee's entitlement to the deduction.