2015 (4) TMI 630 - HC - Income Tax

Revision u/s 263 - whether Assessee is entitled to a deduction under Section 80I? - Held that - When two opinions or views are available and one of the possible view is reached by the Assessing Officer, recourse to Section 263 of the Income Tax Act is not open. In order to decide whether two view on Section 80I are possible, in so far as present facts are concerned, we have to look into the express language of Section 80I which is on the subject of deduction in respect of profit and gains derived from an industrial undertaking, after certain date etc. It's subsection 1 is about profits derived from an industrial undertaking. If the gross total income of assessee includes such profits, deduction therefrom of an amount equal to 20% thereof is permitted. The proviso in subsection 2 stipulate that Section 80I applies to any industrial undertaking which fulfills conditions which are stipulated in subsections (i) to (iv), subsection i does not permit benefit of deduction to be taken if the industrial undertaking is formed by splitting up or reconstruction of a business, already in existence. Clause (ii) does not allow benefit to be taken if such undertaking is formed by transfer to a new business, machinery or plant previously used for any purpose. Clause (iii) again creates a bar if the industrial undertaking manufactures any article or thing, which is not specified in the 11th Schedule. By Clause (iv), the ceiling on number of workers has been provided. Thus, none of these clauses prohibit the assessee from taking other industrial undertaking on hire and use it for the purpose of his manufacturing activity. Division Bench of this Court in a case reported at CIT .vrs. Penwalt India Ltd. (1991 (4) TMI 33 - BOMBAY High Court) has considered a finding by the Tribunal of absence of factory for manufacturing facility of its own, where assessee company utilizes facilities of others on payment, and found assessee entitled to relief as contemplated under Section 80I of the Income Tax Act, upholding those findings. Other judgment of this Court reported at Cit .vrs. Anglo French Drug Co. (Eastern) Ltd) 1991 (2) TMI 63 - BOMBAY High Court again shows a finding that the manufacturing company need not manufacture the goods by its own plant and machinery, at its own factory. There while recording these findings in paragraph no.2, the Division Bench has also noted that CBDT had accepted the correctness of the judgment of Calcutta High Court in a case Addl. CIT .vrs. A. Mukherjee & Co. (P) Ltd. (1977 (9) TMI 26 - CALCUTTA High Court), in its Circular No. 347 dated 07.07.1982. Third judgment of this Court reported in CIT .vrs. Neo Pharma Pvt Ltd. (1982 (3) TMI 56 - BOMBAY High Court), finds the assessee engaged in the business of manufacture and processing of pharmaceuticals, entitled to benefit of deduction, though the activity was being done through machinery belonging to other company on hire, under direct supervision of own staff and under own quality control of assessee. - Decided in favour of assessee.

Summary

Issues:
1. Entitlement to deduction under Section 80I of the Income Tax Act, 1961
2. Validity of sustaining the action of the C.I.T. under Section 263

Analysis:

Issue 1: Entitlement to deduction under Section 80I
The case involved a partnership firm engaged in the manufacture of Pulses, claiming a deduction under Section 80I of the Income Tax Act. The firm engaged another entity for crushing raw materials and claimed deductions for various expenses incurred. The Assessing Officer allowed the deduction, but the Commissioner invoked Section 263, questioning the firm's eligibility for the deduction as it did not own a new industrial unit but had taken it on hire. The ITAT considered both questions raised and held that while the acceptance of two opinions by the assessing officer would deny access to Section 154, it did not prevent the CIT from invoking Section 263. The Court examined the legislative intent behind Section 80I and concluded that the firm was entitled to the deduction despite using machinery on hire for manufacturing activities, citing various precedents supporting this interpretation.

Issue 2: Validity of sustaining the action of the C.I.T. under Section 263
The Court analyzed the provisions of Section 80I and emphasized that the language of the statute did not prohibit the firm from using machinery on hire for manufacturing activities. The Court referred to judgments from different High Courts supporting the interpretation that ownership of machinery or plant was not a prerequisite for claiming the deduction under Section 80I. The Court rejected the revenue's argument that the firm must own the industrial unit, highlighting that the statute did not explicitly require ownership. Therefore, the Court ruled in favor of the assessee on both issues, stating that the firm was entitled to the deduction under Section 80I and that the action of the C.I.T. under Section 263 was not sustainable in the given circumstances.

In conclusion, the High Court of Bombay ruled in favor of the assessee on both issues, holding that the firm was entitled to the deduction under Section 80I and that the action of the C.I.T. under Section 263 was not valid based on the specific facts and legal interpretations presented in the case.