2016 (10) TMI 1401 - AT - Income Tax

Deduction u/s 80IA of Daman Unit 1 2 - Penalty u/s 271(1)(c) - HELD THAT - It is clear from the above order of Tribunal that quantum addition / disallowance so made by the Revenue authorities in the Assessment Year 1999-2000 to 2001-2002 2016 (7) TMI 183 - ITAT MUMBAI have been deleted by the Tribunal. Facts and circumstances during the Assessment Year 2002-2003 to 2005-2006 are pari-materia, respectfully following the order of the Tribunal in assessee s own case on exactly similar facts, we set aside the order of the lower authorities and allow assessee s claim for deduction under Section 80IA/80IB for the Assessment Year 2002-2003 to 2005-2006. Since, addition itself has been deleted in the Assessment Year 1999-2000 to 2004-2005, the penalty orders so passed by AO has no legs to stand. Appeals of the assessee are allowed.

Summary

Issues Involved:

1. Disallowance of deduction under Section 80IA for Daman Unit 1 and Unit 2.
2. Imposition of penalty under Section 271(1)(c) of the IT Act for Assessment Years 1999-2000 to 2004-2005.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 80IA for Daman Unit 1 and Unit 2:

The primary issue in the appeals was the denial of the deduction under Section 80IA for Daman Unit 1 and Unit 2. The assessee, engaged in the manufacturing and trading of pharmaceuticals, had claimed deductions under Section 80IA for its units in Daman. The Revenue's objection was based on the transfer of old machinery from the Aurangabad unit to Daman Unit 1, allegedly exceeding 20% of the total value of the plant and machinery, which contravenes Explanation 2 to Section 80IA(2). The Tribunal noted that the condition regarding the transfer of machinery is to be evaluated at the time of formation of the unit, which was not the case for the assessment year in question. The Tribunal found that the Revenue's assertion of 29% or 22% transfer was not substantiated with detailed evidence. The assessee provided records showing the value of machinery transferred was within permissible limits. The Tribunal upheld the assessee's claim, noting the lack of evidence from the Revenue to support the denial of deduction.

For Daman Unit 2, the Revenue contended it was not an independent unit but an extension of Unit 1, citing common excise registration and utilities. The Tribunal found that Unit 2 was set up on a separate land with new machinery, workforce, and distinct products, qualifying it as a separate unit eligible for deduction under Section 80IA/80IB. The Tribunal relied on precedents that allowed deductions for new units even if they were expansions of existing businesses, provided they met the statutory conditions.

2. Imposition of Penalty under Section 271(1)(c) of the IT Act:

The second issue was the imposition of penalties for alleged concealment of income due to disallowance of deductions. The Tribunal referenced its previous order, which had allowed the assessee's deduction claims for earlier years, noting that the facts and circumstances for the years under appeal were similar. Since the quantum additions for the assessment years 1999-2000 to 2001-2002 were deleted, the basis for the penalties was negated. Consequently, the Tribunal directed the deletion of penalties for the assessment years 1999-2000 to 2004-2005, as the disallowance itself was not sustained.

Conclusion:

The Tribunal allowed the appeals of the assessee, granting deductions under Section 80IA/80IB for the assessment years 2002-2003 to 2005-2006 and directing the deletion of penalties for the years 1999-2000 to 2004-2005. The decision was based on the lack of substantiated evidence from the Revenue and the consistent application of legal principles regarding the establishment and operation of industrial units under the IT Act.