2017 (2) TMI 454 - HC - Income Tax

Claim of deduction under section 80IB - whether subsection (10) of Section 80IA cannot be invoked in the facts of the present case to restrict its deduction under Section 80IB on the basis of the profits of the Appellant s wife unit at Valsad? - Held that - Nothing has been shown by the Revenue that there is any business transacted between Appellant s unit at Jammu and his wife s unit at Valsad which resulted in inflating the profits being earned by the Appellant or that there is any transaction between them. The Tribunal has without considering the validity of the above finding of CIT(A), adopted the test of common customers of both the Appellant s Jammu unit and his wife s unit at Valsad, to conclude that profits of the Appellants, are inflated. Common customers by itself in the absence of some arrangement between the parties does not indicate transfer of profits to Appellant s Jammu unit. The factual finding of the CIT(A) has not been considered by the Tribunal in the impugned order. This issue requires reconsideration by the Tribunal in the context of the appropriate interpretation to be put on Section 80IB(8) and (10) of the Act. Substantial question of law is answered in the affirmative by way of remand. Therefore, we set aside the order of the Tribunal and restore the issue for fresh consideration by the Tribunal, in accordance with law.

Summary

Issues:
Challenge to order restricting deduction under Section 80IB of the Income Tax Act, 1961 based on Section 80IA(10) for Assessment Year 2009-10.

Analysis:
The appellant challenged the order of the Income Tax Appellate Tribunal (the Tribunal) dated 8th January, 2014, which restricted the deduction under Section 80IB of the Act by invoking Section 80IA(10) of the Act. The appellant contended that the condition precedent for the application of Section 80IA(10) was not present. The High Court was inclined to admit the appeal, but it was suggested that the matter needed to be sent back to the Tribunal for reexamination. However, with the consent of both parties, the High Court proceeded to hear the appeal itself for final disposal.

The appellant, engaged in manufacturing liquid soap and handwash, claimed a deduction under Section 80IB of the Act. The Assessing Officer invoked Sections 80IB(8) and (10) to determine the allowable claim, considering the profit ratio of the unit owned by the appellant's wife at Valsad. The Commissioner of Income Tax (Appeals) held that Sections 80IA(8) and (10) could not be used to restrict the deduction claimed under Section 80IB, as there was no arrangement between the units to generate extraordinary profits. The Revenue appealed to the Tribunal, which upheld the Assessing Officer's decision based on common customers of both units, concluding that restricting the benefit of Section 80IB at 10% of net profit ratio of the Jammu unit was reasonable.

The High Court noted that there was no evidence of any arrangement or transfer of goods/services between the units to inflate profits. The Tribunal failed to consider the finding of the CIT(A) and relied solely on common customers to conclude that profits were inflated. The High Court held that the issue required reconsideration by the Tribunal in the context of interpreting Sections 80IB(8) and (10). Therefore, the High Court set aside the Tribunal's order and remanded the issue for fresh consideration.

In conclusion, the High Court allowed the appeal and directed the Tribunal to reexamine the issue in accordance with the law. The High Court clarified that its observations should not influence the Tribunal's decision. No costs were awarded in the matter.