2016 (5) TMI 951 - AT - Income Tax

Deduction u/s.80IB denied - Held that - Commissioner of Income-tax(Appeals) is justified in rejecting the claim of the assessee u/s.80IB of the Act as the assessee is ceased to be a small industrial undertaking. Accordingly, this ground of appeal of the assessee is dismissed. - Decided in favour of revenue

Summary

Issues Involved:
1. Disallowance of the claim of deduction under Section 80IB(10) of the Income Tax Act.
2. Disallowance under Section 14A of the Income Tax Act.

Detailed Analysis:

1. Disallowance of the Claim of Deduction under Section 80IB(10) of the Act:
The primary issue in these appeals is the disallowance of the claim of deduction under Section 80IB(10) of the Income Tax Act. The assessee, a manufacturer of automobile components, claimed deductions under Section 80IB for the assessment years 2006-07, 2007-08, and 2008-09. The Assessing Officer (AO) disallowed these claims on the grounds that the assessee's unit did not qualify as a small-scale industrial undertaking, as its investment in plant and machinery exceeded the prescribed limit of Rs. 3 crores.

The AO's decision was based on the definition of 'Small Scale Industrial Undertaking' under Section 80IB(14)(g) and the fact that the assessee's investment figures for the relevant years were significantly higher than the limit. The assessee contended that the eligibility condition should only be assessed in the initial year of the claim and not every subsequent year. However, this contention was rejected by both the AO and the Commissioner of Income Tax (Appeals) [CIT(A)].

The Tribunal reviewed the case and considered the judgment of the Karnataka High Court in M/s. Ace Multi Axes Systems Ltd. v. DCIT, which held that the conditions for deduction under Section 80IB need not be fulfilled every year once initially met. However, the Tribunal found merit in the Department's argument that the definition under Section 80IB(14) requires the undertaking to be regarded as a small-scale industrial undertaking as on the last day of the previous year.

The Tribunal also referred to its own earlier decisions in similar cases, such as M/s Caress Beauty Care Products Pvt. Ltd. and Samruddhi Industries Ltd. v. JCIT, which supported the view that the conditions must be met each year. Consequently, the Tribunal upheld the CIT(A)'s order rejecting the assessee's claim for deduction under Section 80IB.

2. Disallowance under Section 14A of the Act:
For the assessment year 2008-09, the assessee did not press the ground relating to disallowance under Section 14A, leading to its dismissal. However, for the assessment years 2006-07 and 2007-08, the Tribunal directed that disallowance under Section 14A should be made at 2% of the exempted income, in line with the judgment of the Madras High Court in Simpson & Co. Ltd. v. DCIT. If the assessee had already disallowed more than 2% of the exempted income, such disallowance would be sustained.

Conclusion:
The appeals of the assessee were partly allowed for the assessment years 2006-07 and 2007-08, with specific directions regarding disallowance under Section 14A. The appeal for the assessment year 2008-09 was dismissed in its entirety. The Tribunal's decision emphasized the requirement for the assessee to meet the conditions for deduction under Section 80IB each year, rather than only in the initial year.