2017 (2) TMI 1097 - AT - Income Tax

Deduction u/s 80IB - ground of the assessee for claiming the deduction was that it had started production in AY 2004-05. AY 2006-07 is the third year - Held that - Deduction under section 80IB was granted in Asstt.Year 2005-06 in a scrutiny assessment. CIT(A) while considering this aspect made reference to the decision in the case of Saurashtra Cement & Chemical Industries Ltd. vs. CIT (1979 (2) TMI 21 - GUJARAT High Court) and has observed that without disturbing relief granted in the earlier years, the AO cannot examine the question again and decide to withhold or withdraw the relief which has already been granted in the earlier year. We are conscious of the fact that assessment in Asstt.Year 2005-06 was reopened and in re-assessment, this deduction was denied. But it is pertinent to note that assessment was reopened for the reasons that deduction in A.Y.2006-07 was denied to the assessee. It was not reopened that something new was found and came to the possession of the AO. He has re-appreciated these very circumstance on the strength of the finding recorded in Asstt.Year 2006-07. The assessee has demonstrated that electricity consumption was very less on this machinery and maximum work was manual. This aspect has been highlighted before the AO in the explanation of the assessee and also before the CIT(A). The ld.AO failed to appreciate this peculiar nature of the assessee s business. The explanation of the assessee is being noticed by us in page 11 of this order. This explanation justifies the consumption of low electricity. This fact can be cross verified with the letter of machinery manufacturer at page no.27 of the paper book. The second reason assigned by the AO is that the assessee failed to give capacity of manufacturing of goods of each machine. In this connection, it was pointed by the assessee that major work was manual and number of art jewelleries was solely not depended upon machinery though assistance of machinery was required. As far as objection of the AO with regard nonproduction of day-today production register is concerned, it was pointed out by the assessee that in this line of business it was not possible to maintain such details. The assessee-firm was not manufacturing proto-type of jewellery. It has produced variety of items containing numerous designs, shape, size and specification. It is not feasible or possible to maintain any quantitative records on daily basis. With regard to non-production of challans and transport bills are concerned, the assessee pointed out to the AO that jewellery by its nature is a very small item and it is not being transported through transporter. These items were carried out by its employees or by the purchasers. Help of transporter would not be required in this line of business. It is also pertinent to observe that the AO wants to prove certain negative facts, i.e. to demonstrate how 12 persons can produce jewellery having value of ₹ 3.18 crores. Now, it is very difficult situation for any assessee to explain. The assessee has submitted all its details and pointed out how it has produced. Before the ld.CIT(A) detailed written submissions were made which have been noticed exhaustively, and thereby the ld.CIT(A) has accepted the claim of the assessee. After going through the detailed finding of the ld.CIT(A) we do not see any reason to interfere in it. Accordingly, all the appeals of the Revenue are dismissed.

Summary

Issues Involved:
1. Deduction under Section 80IB of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deduction under Section 80IB of the Income Tax Act, 1961:

The primary issue in these appeals is whether the assessee is entitled to a deduction under Section 80IB of the Income Tax Act, 1961. The Revenue contends that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in allowing this deduction for the assessment years 2005-06, 2006-07, and 2007-08.

Facts and Background:
The assessee filed returns for the relevant years, claiming deductions under Section 80IB. The assessee was engaged in manufacturing and selling silver art jewellery, fancy bindi, and bangles, operating from Daman, a backward area specified in the VIIIth Schedule of the Act. For the assessment year 2005-06, the deduction was initially allowed under Section 143(3). However, for the assessment year 2006-07, the Assessing Officer (AO) disallowed the deduction, leading to the reassessment and subsequent disallowance for the assessment year 2005-06 as well.

CIT(A)'s Findings:
The CIT(A) re-evaluated the facts and allowed the deduction, noting that the assessee fulfilled all conditions prescribed under Section 80IB. The CIT(A) emphasized that the AO should have provided evidence if the manufacturing activities were not carried out at the Daman unit. The CIT(A) concluded that the AO's denial was based on suspicion and presumption without cogent evidence.

Revenue's Arguments:
The Revenue argued that the AO had raised specific queries during the assessment proceedings, which were not satisfactorily answered by the assessee. The AO doubted the feasibility of achieving a turnover of ?3.18 crores with only 12 workers and minimal electricity consumption of ?13,205.

Assessee's Defense:
The assessee explained the nature of its business, highlighting that the manufacturing process was labor-intensive with minimal use of machinery, which justified the low electricity consumption. The assessee provided detailed explanations, including a flowchart of the manufacturing process and reconciliation of electricity consumption. The assessee also pointed out that the AO had allowed the deduction in the regular assessment for the assessment year 2005-06, and the same conditions were met in subsequent years.

Tribunal's Analysis:
The Tribunal noted that the deduction under Section 80IB was initially granted for the assessment year 2005-06 and that the AO's disallowance in subsequent years was based on reappreciation of the same facts. The Tribunal referred to the Gujarat High Court's decision in Saurashtra Cement & Chemical Industries Ltd. v. CIT, which held that the AO cannot withdraw the relief granted in an earlier year without disturbing the relief granted in that year.

The Tribunal further evaluated the AO's objections and found that the assessee had provided satisfactory explanations for the low electricity consumption and the feasibility of achieving the turnover with 12 workers. The Tribunal observed that the AO failed to appreciate the peculiar nature of the assessee's business and the detailed explanations provided by the assessee.

Conclusion:
The Tribunal upheld the CIT(A)'s order, allowing the deduction under Section 80IB for the assessment years 2005-06, 2006-07, and 2007-08. The Tribunal found no reason to interfere with the CIT(A)'s findings and dismissed the Revenue's appeals.

Order:
All appeals of the Revenue are dismissed.