2017 (9) TMI 957 - AT - Income Tax

Disallowance of deduction claimed u/s 10B - commencement of manufacture or production or articles or things - year of assessment - CIT(A) has decided the issue in favour of assessee and held that year of manufacture/production as a 100% EO for the purpose of eligibility of claim of under s.10B is FY 2001-02 relevant to AY 2002- 03 - Held that - CIT(A) has examined the issue in perspective and has come to rightful conclusion on facts. The revenue could not bring any positive evidence other than the certificate from the Accountant to show that actual commencement of manufacture/production took place in FY 2000-01 relevant to AY 2001-02 indeed. On the other hand, the assessee has brought on record overwhelming evidences of factual nature to support its case that the manufacture or production articles or things as contemplated under s.10B of the Act could not have been carried out in FY 2000-01 relevant to AY 20001-02. The commencement of manufacture/production in 2002-03 is supportable by plethora of evidence in the form of return of income, financial statements, electricity bill, change of location plot for manufacture, certificate from sale tax authorities availability of plant and machinery etc. These evidences in totality leaves us in no doubt that year of commencement noted by the Accountant in its certificate was inadvertent mistake inconsistent with the underlying facts, for which relief claimed under s.10B of the Act cannot be denied. Mere authorization to enable the Assessee to import material or export produce in the earlier date would not ipso facto tantamount to commencement of substantial activity of manufacture / production . The Assessee has successfully discharged onus which lay upon it. Under the circumstances, we find no fault with the conclusion derived by the CIT(A) and refuse to interfere therewith. - Decided against revenue

Summary

Issues Involved:
1. Disallowance of deduction claimed under Section 10B of the Income Tax Act.
2. Determination of the year of commencement of manufacturing/production activities.
3. Examination of evidence supporting the commencement year.
4. Interpretation of beneficial provisions in tax laws.

Detailed Analysis:

1. Disallowance of Deduction Claimed Under Section 10B:
The Revenue challenged the CIT(A)'s decision to reverse the Assessing Officer's (AO) disallowance of the deduction claimed by the assessee under Section 10B of the Income Tax Act. The AO had disallowed the deduction on the grounds that the year under consideration was the 11th year of production, thus making the assessee ineligible for the deduction.

2. Determination of the Year of Commencement of Manufacturing/Production Activities:
The core issue was whether the manufacturing/production activities commenced in FY 2000-01 or FY 2001-02. The AO relied on the auditor's certificate in Form 56G, which mentioned the commencement date as 26/12/2000. However, the assessee contended that this was an inadvertent error and provided multiple pieces of evidence to support that the actual commencement was on 03/04/2001, making FY 2011-12 the 10th year of production.

3. Examination of Evidence Supporting the Commencement Year:
The CIT(A) examined various pieces of evidence provided by the assessee, including:
- Sales tax registration certificate valid from 03/04/2001.
- Financial accounts showing no machinery or business activity in FY 2000-01.
- Electricity bills indicating no consumption of electricity before November 2001.
- Change of manufacturing location approved in June 2001.
- Return of income for FY 2000-01 showing no business activity or claim of exemption under Section 10B.
The CIT(A) found these pieces of evidence credible and concluded that the manufacturing activities began in FY 2001-02.

4. Interpretation of Beneficial Provisions in Tax Laws:
The CIT(A) and the Tribunal emphasized the need to interpret beneficial provisions like Section 10B liberally to promote industrial growth and development. They referred to various judicial precedents, including decisions by the Supreme Court and High Courts, which advocate a purposive and liberal interpretation of tax incentives to avoid frustrating the legislative intent.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, finding no fault with the conclusion that the year of commencement of manufacturing/production for the purpose of Section 10B was FY 2001-02. The Tribunal noted that the Revenue failed to provide substantial evidence to counter the assessee's claims and that the assessee had successfully demonstrated the commencement year through overwhelming factual evidence. The appeal of the Revenue was dismissed, and the deduction under Section 10B was allowed for the assessee.

Order Pronounced:
The order was pronounced in the Court on 11/09/2017 at Ahmedabad.