2013 (11) TMI 170 - AT - Income Tax

Entitlement of Deduction u/s 80IB - Weather the Commissioner of Income Tax (Appeals) erred in holding that the assessee is entitled for deduction under sec.80IB of the Act Held that - Held that - The assessee was entitled to deduction under sec.80IB of the Act since the assessee unit was located in an industrially back-ward State specified in VIII Schedule and was governed by the provisions of sub sec.(iv) of Sec.80IB of the I.T. Act - by analyzing the provisions of the Act, the assessees, whose industrial undertakings were recognized as Small Scale Industries or located in an industrially back-ward state were eligible for deduction under sec.80IB of the Act even if they manufacture articles or things specified in the list in XI Schedule - The Revenue could not rebut any of the findings of Commissioner of Income Tax (Appeals) with any supporting material - The deduction u/s.80-IB was available for the assesses who being to manufacture or produce things or article specified in the section and subject to the conditions laid down. The assessee s manufacturing unit was located in the State of Pondicherry, which was an industrially backward State - the assessee s case was covered by the second limb of proviso to clause (iii) of sub-section (2) of sec.80-IB of the Act - Hence, the words not being any article or thing specified in the list in the Eleventh Schedule stands omitted from the language of clause (iii) of the Act - Manufacturing of any article or thing (including those specified in 11th Schedule) was sufficient for claiming deduction u/s.80-IB of the Act in such a case - On this account alone the instant assessee, being located in an industrially backward State of Pondicherry, was eligible for deduction u/s.80-IB of the Act - the assessee was located in the State of Pondicherry which was in an industrially backward State - There was no dispute regarding this - Hence, the assessee was eligible for deduction under the sub-section (4) of sec.8O-lB of the Act. The deduction u/s. 80-IB in the case of an industrial undertaking an industrially backward State specified in the Eighth Schedule is governed by the provisions of sub-sec.(4). The only requirement in such cases is that the industrial undertaking should be located in an industrially backward State. It makes no difference whether such undertaking is a small scale industry or not. In other words, once the industrial undertaking is located in an industrially backward State, all units (whether SSI or non-SSI) are equally eligible for deduction u/s.80-lB of the Act. Disallowance u/s 40(a)(1a) - The order of the CIT(A) was confirmed in respect of the deduction u/s.80IB and reversed in respect of disallowance u/s.40(a)(ia) - The Assessing Officer to consider the said payments made to various parties as allowable expenses in the subsequent years since the assessee has deducted TDS on the said amount and remitted the same to the Govt. account, subject to verification - the Assessing Officer made disallowance under sec.40(a)(1a) on the ground that the assessee has not deducted TDS on certain payments made to various parties.

Summary

Issues Involved:
1. Entitlement to deduction under Section 80IB of the Income Tax Act.
2. Deletion of disallowance made under Section 40(a)(ia) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction under Section 80IB of the Income Tax Act:

The primary issue concerns whether the assessee, a company engaged in the manufacture and sale of ophthalmic instruments and equipment, is entitled to a deduction under Section 80IB of the Income Tax Act for the Assessment Year 2009-10. The assessee filed its return declaring a total income of Rs. 13,25,78,530 after claiming a deduction of Rs. 5,68,19,369 under Section 80IB. The Assessing Officer (AO) denied this deduction on the grounds that the assessee's products are listed in the Eleventh Schedule of the Act, which disqualifies them from the deduction.

On appeal, the Commissioner of Income Tax (Appeals) (CIT(A)) disagreed with the AO, stating that the assessee is entitled to the deduction under Section 80IB due to the exceptions provided in the proviso to clause (iii) of sub-section (2) of Section 80IB. These exceptions include small-scale industrial undertakings (SSI) and industrial undertakings located in industrially backward areas.

The CIT(A) held that the assessee's unit is located in Pondicherry, an industrially backward state as per the Eighth Schedule, and thus qualifies for the deduction even if the manufactured items are listed in the Eleventh Schedule. The CIT(A) further noted that the assessee's unit is registered as an SSI, which also qualifies it for the deduction under the proviso to clause (iii).

The Tribunal upheld the CIT(A)'s decision, confirming that the assessee is entitled to the deduction under Section 80IB since it meets the conditions specified in sub-section (2) and is located in an industrially backward state. The Tribunal rejected the Revenue's grounds on this issue, as the Revenue could not provide any supporting material to rebut the CIT(A)'s findings.

2. Deletion of Disallowance Made under Section 40(a)(ia) of the Income Tax Act:

The second issue concerns the disallowance made by the AO under Section 40(a)(ia) on the grounds that the assessee had not deducted TDS on certain payments. The Counsel for the Assessee submitted that TDS had been deducted and remitted to the government account in subsequent assessment years. The Counsel requested a direction for the AO to consider these payments as allowable expenses in the subsequent years.

The Tribunal agreed with the Counsel's submission and allowed the Revenue's grounds on this issue. The Tribunal directed the AO to verify and consider the payments made to various parties as allowable expenses in the subsequent years, provided the TDS had been deducted and remitted to the government account.

Conclusion:

The Tribunal's order resulted in a partial allowance of the Revenue's appeal. The deduction under Section 80IB was upheld in favor of the assessee, while the disallowance under Section 40(a)(ia) was directed to be reconsidered in subsequent years. The order was pronounced on January 30, 2013.