2015 (5) TMI 79 - HC - Income Tax

Deduction under Section 80-IA - ITAT allowed claim - Whether ITAT was right in holding that the second unit of the respondent-assessee located at A-10, Sector 59, Noida was not formed by splitting up, or reconstruction, of a business already in existence? - Held that - The order of the CIT(A) in the present case took note of the fact that the AO denied altogether the benefit of Section 80-IA on the terms that there was no manufacturing activity at all in Unit-II. The AO apparently completely ignored the fact that Section 80-IA benefit was enjoyed by the assessee for 1998-99 and 1999-2000. In this view, the CIT(A) - we think - quite correctly too - directed the AO to compute the portion of the benefits arising out of the manufacturing activities carried out in Unit-II and execute the component of job work in the process and the income attributable to the job work performed by Unit-I. The assessee was not aggrieved by this. - Decided in favour of the assessee

Summary

Issues:
1. Appeal against ITAT orders regarding Section 80-IA deduction.
2. Denial of Section 80-IA deduction for AY 2001-02.
3. Manufacturing activities of Unit-I and Unit-II.
4. Allegation of subterfuge and tax evasion.
5. Interpretation of Section 80-IA benefits.
6. Question of law regarding the formation of Unit-II.

Analysis:
1. The case involved the revenue appealing against ITAT orders concerning the assessee's claim for deduction under Section 80-IA of the Income Tax Act, 1961. The CIT(A) had confirmed the deduction, which the ITAT upheld, especially for the assessment year 2001-02.

2. The dispute arose when the Assessing Officer (AO) denied the Section 80-IA deduction for AY 2001-02, alleging subterfuge as Unit-I's machinery was used for Unit-II's manufacturing activities. The CIT(A) directed the AO to compute the profits appropriately and allow the deduction for Unit-II, considering the activities of both units.

3. The assessee had two manufacturing units, Unit-I and Unit-II, engaged in steel fabrication and other activities. Unit-I's manufacturing license was surrendered after the Section 80-IA benefit ceased, and it started performing job work for Unit-II. The ITAT affirmed the CIT(A)'s decision, emphasizing the legitimate nature of the activities and rejecting tax evasion claims.

4. The revenue contended that the assessee ceased manufacturing in Unit-II and relied on job work from Unit-I, attempting to claim Section 80-IA benefits through subterfuge. However, the Court found that the CIT(A) correctly directed the AO to compute the benefits considering the manufacturing activities of Unit-II and the job work by Unit-I.

5. The Court framed a question of law regarding the formation of Unit-II and its eligibility for Section 80-IA benefits. The CIT(A) highlighted the past benefit availed by the assessee for both units and directed the AO to calculate the relevant profits for Unit-II, including job work by Unit-I, leading to the dismissal of the revenue's appeals.

6. In conclusion, the Court ruled against the revenue and in favor of the assessee, upholding the ITAT's decision to allow the Section 80-IA deduction for Unit-II based on the legitimate manufacturing activities and job work performed by both units, dismissing the revenue's appeals.