2022 (4) TMI 1383 - AT - Income Tax

Deduction u/s 80IC - assessee is a partnership firm engaged in the business of manufacturing of herbal Velvette shampoo of various types and Nivaran-90 cough syrup - HELD THAT - Where the authorized officer had given that most of the machinery physically verified during the survey were found to be old/second hand and were never used by the assessee allowed the claim of deduction u/s 80IC - the findings of the AO that some of the machinery were transferred to assessee s business premises from Chennai where machines had been used by the assessee were not considered by CIT(A) before allowing the claim of deduction u/s 80IC which in our opinion is not justified under the facts and circumstances of the case. We further find the assessee did not file any revised form No.10CCB of the audit report before the survey to prove his claim of inadvertent error and value of old machinery and depreciation claimed and this issue was not properly dealt with by the CIT(A). Since the ld.CIT(A) has allowed the claim of the assessee without appreciating the findings of the survey report and the fact that the assessee has failed to prove that the items of old machinery excluded from manufacturing process is not more than 20% for the purpose of deduction u/s 80IC, therefore, such order of the CIT(A), in our opinion is not a speaking order. We, therefore, deem it proper to restore the issue to the file of the CIT(A) with a direction to pass a speaking order considering the findings in the survey report and decide the issue as per fact and law, after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The ground raised by the Revenue is accordingly allowed for statistical purpose.

Summary

Issues Involved:
1. Eligibility for deduction under Section 80IC of the Income Tax Act.
2. Interpretation of the usage of old machinery in the context of Section 80IC.
3. Compliance with the conditions laid down in Section 80IC(4).

Detailed Analysis:

1. Eligibility for Deduction under Section 80IC:
The primary issue revolves around the eligibility of the assessee for claiming a deduction under Section 80IC of the Income Tax Act. The assessee, a partnership firm engaged in manufacturing herbal shampoo and cough syrup, declared a total income of ?4,98,48,417/- for AY 2007-08. The assessment was completed at ?5,99,33,417/-, and the assessee's claim for deduction under Section 80IC was scrutinized. The AO noted that the assessee had claimed a deduction resulting in nil net income and conducted a survey under Section 133A to verify the correctness of this claim.

2. Interpretation of the Usage of Old Machinery:
During the survey, it was found that old machinery valued at ?74,71,382/- was used in the manufacturing process, exceeding 20% of the total cost of machinery. The AO rejected the assessee's claim that this machinery was not used in the business, despite the assessee providing a list of new machinery and asserting that the old machinery was not utilized in the manufacturing of the products. The AO concluded that the entirety of the machinery, including old and junk machinery, should be considered, and thus, the claim under Section 80IC was disallowed.

In contrast, the CIT(A) allowed the deduction by interpreting that only the machinery actually used in manufacturing should be considered. The CIT(A) relied on the language of Section 80IC(4) read with Section 80IA(3), Explanation 2, and the precedent set by CIT vs Kopran Chemicals Co. Ltd. (112 ITR 893), which focused on the machinery used for business purposes.

3. Compliance with Conditions Laid Down in Section 80IC(4):
The Revenue argued that the CIT(A) erred in allowing the deduction by not considering the AO's findings that old machinery was used and that the assessee did not file a revised Form 10CCB to rectify the claimed inadvertent error. The Tribunal noted that the CIT(A) did not adequately consider the survey report's findings and the AO's observations regarding the transfer of machinery from Chennai and the failure to prove that old machinery usage did not exceed 20%.

The Tribunal concluded that the CIT(A)'s order was not a speaking order and lacked proper consideration of the survey report and the AO's findings. Therefore, the Tribunal restored the issue to the CIT(A) for a fresh decision, directing a detailed and reasoned order considering the survey report and providing an opportunity for the assessee to be heard.

Separate Judgment for AY 2009-10:
For AY 2009-10, the CIT(A) followed the order for AY 2007-08 and allowed the deduction under Section 80IC. The Tribunal, having restored the matter for AY 2007-08 to the CIT(A), similarly restored the issue for AY 2009-10 to the CIT(A) for a fresh decision in line with the directions provided for AY 2007-08.

Conclusion:
In conclusion, both appeals by the Revenue were allowed for statistical purposes, with the Tribunal directing the CIT(A) to re-examine the eligibility for deduction under Section 80IC, taking into account the survey findings and ensuring a detailed and reasoned order. The matter was restored to the CIT(A) for both AY 2007-08 and AY 2009-10 for a fresh decision after providing due opportunity to the assessee.