2013 (8) TMI 699 - AT - Income Tax

Deduction u/s 80IB - Deduction in SSI industry - withdrawal of benefit - value of plant and machinery had exceeded Rs.1 crore in subsequent years - Held that - the condition that is not complied with by the assessee is a condition which is to be fulfilled on an year to year basis and not merely in the initial/formative year alone. To elaborate further, the industrial undertaking, to be eligible for the benefit of the claim u/s 80IB of the Act, four conditions mentioned in section 80IB(2) has to be fulfilled. The first condition is that the industrial undertaking must not have been formed by splitting up or reconstruction of a business already in existence with an exception that in case of units specified u/s 33B of the I T Act, this condition will not apply. The second condition is that such undertaking must not have been formed by transfer of machinery and plant previously used must not exceed 20% of the value of the total cost of the plant and machinery of such industrial undertaking. The third condition is that the industrial undertaking must produce or manufacture any article or thing other than any article or thing specified in the Eleventh Schedule. Exception to this third condition is that a SSIU can avail the 80IB benefit even if manufactures or produces articles or things specified in Eleventh Schedule. The fourth condition is that the industrial undertaking running with the aid of power must not have less than 10 employees and if it is run without power, the number of employees must be more than 20 employees. Thus all the four conditions narrated above must be fulfilled if the industrial undertaking desires to avail benefit u/s 80IB of I T Act. For a SSIU, there is also an extra condition i.e. it must be an SSI unit as per explanation (g) given in 80IB(14) of I T Act which refers to Section 11B of the IDR Act, 1951 which in turn prescribes a limit for investment in plant and machinery to designate the industrial undertaking as SSI unit. Thus, out of these give conditions; the first two conditions may be called formative or unchangeable. In other words, if in the initial year of manufacture or production, it is substantiated that it has fulfilled these two conditions, the Assessing Officer cannot on this ground in subsequent eligible years of the block period deny the benefit u/s 80IB. The rest of the three conditions are to be fulfilled on year to year basis. The industrial undertaking must show in each subsequent year of claim that these three conditions have not been violated. Such claims of the assessee have to face the analysis and scrutiny of the Assessing Officer. Thus, since each assessment year is separate and independent, the revenue authorities had every power to examine and analyse the facts and figures as well as relevant law points of each year to find out whether all these three conditions are fulfilled or not - the value of plant and machinery had exceeded Rs.1 crore during the year under consideration which incidentally deprive the assessee to call itself as a Small Scale Industry - Decided against assessee.

Summary

Issues Involved:
1. Justification of the CIT(A) in upholding the disallowance of the assessee's claim of deduction under section 80IB of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Background and Facts:
The assessee company, engaged in the manufacture and sale of components/parts of CNC lathes, filed its return of income for the assessment year 2005-06, admitting a total income of Rs. 1.76 crores. The assessment was initially processed under section 143(1) and later scrutinized under section 143(3), resulting in an assessed income of Rs. 1,79,82,653/- after disallowing certain expenses. The jurisdictional CIT, invoking section 263, set aside the assessment, directing the AO to reconsider the claim under section 80IB. Consequently, the AO disallowed the assessee's claim of Rs. 75,81,910/- under section 80IB(3).

2. CIT(A)'s Reasoning:
The CIT(A) upheld the AO's decision, emphasizing that section 80IB is an incentive provision requiring fulfillment of specific conditions. The CIT(A) noted that the assessee violated the fifth condition by exceeding the prescribed investment limit in plant and machinery, thus disqualifying it as a Small Scale Industrial Undertaking (SSIU) for the relevant year.

3. Assessee's Arguments:
The assessee contended that:
- The CIT(A) should have accepted the explanation and allowed the deduction under section 80IB.
- The eligibility for deduction under section 80IB should be determined in the initial year, and once established, the benefit should continue for ten consecutive years.
- The condition of being a Small Scale Industry should only be proved in the initial year.

4. Legal Precedents Cited:
The assessee relied on:
- CIT v. Nippon Electronics (India) (P) Ltd (1990) 181 ITR 528 (Kar)
- Sami Labs Ltd v. ACIT (2011) 334 ITR 157 (Kar)

The Revenue relied on:
- Praveen Soni v. CIT (2011) 333 ITR 324 (Del)

5. Tribunal's Analysis:
The Tribunal examined the rival submissions and relevant case laws. It noted that the AO denied the claim because the assessee's investment in plant and machinery exceeded the prescribed limit, disqualifying it as an SSIU. The Tribunal emphasized that the conditions under section 80IB must be fulfilled annually, not just in the initial year. The Tribunal distinguished the case laws cited by the assessee, noting that they pertained to formative conditions in the initial year, whereas the present case involved conditions to be met annually.

6. Conclusion:
The Tribunal concluded that the assessee failed to comply with the condition of maintaining SSIU status by exceeding the investment limit in plant and machinery. Therefore, the authorities were justified in denying the deduction under section 80IB(3). The appeal was dismissed.

Order:
The assessee's appeal is dismissed. Order pronounced in the open court on 24.5.2013.