2018 (3) TMI 1580 - AT - Income Tax

Reopening of assessment - Held that - Undisputedly, the assessment order was passed u/s 143(1), whereby the return of the assessee was only processed on 19.09.2006. While processing the return, obviously, no opinion was formed by the AO as regarding the claims made in the return. Now, once per se, no opinion came to be formed at that time, the AO cannot be said to have initiated the reopening proceedings merely on a change of opinion. Claim of deduction u/s 80IB regarding sales of liquid milk on the proportionate profit - Held that - Both the Authorities below have held that liquid milk is not a product of an industrial undertaking. This, in my considered opinion, is not justified. It remains undisputed that by virtue of the processing done on milk by the assessee, the milk gets pasteurized, thereby becoming free of bacteria, and thus, potable and consumable. Obviously, therefore, the quality and nature of the milk gets irreversibly altered by such processing. Thus, in this regard, the assessee is entitled to deduction u/s 80IB of the Act. AO is directed to grant exemption u/s 80IB as claimed by the assessee. Quantification of deduction u/s 80IB - whether such deduction is to be allowed on the amount arrived at before setting off the un-absorbed brought forward depreciation, or after setting off the un-absorbed brought forward depreciation- Held that - the special deduction under Chapter VI-A of the IT Act has to be computed on the gross total income determined after deducting all deductions allowable under sections 30 to 43D of the Act; that the quantum of deduction allowable u/s 80 IA of the Act has to be determined by computing the gross total income from business, after taking into consideration all the deductions allowable under sections 30 to 43D of the Act; that the quantum of deduction under section 80IA has to be determined on the total income computed after deductions allowable under sections 30 to 43D of the Act; that the assessee s claim of 100% deduction without taking into consideration depreciation which they wanted to utilize in the subsequent years, would be ana-thema to the scheme under section 80IA of the Act, which is linked to profit and if the contention of the assessee were to be accepted, it would allow them to inflate the profits-linked incentives provided under section 80IA of the Act, which could not be permitted; and that the provisions of section 80IB of the Act (which is under consideration herein), are in pari materia with those of section 80IA of the Act. See Plastiblends India Ltd case 2017 (10) TMI 423 - SUPREME COURT OF INDIA

Summary

Issues:
1. Reopening of assessment u/s 147 of the Act
2. Eligibility of deduction u/s 80IB for sale of liquid milk
3. Quantification of deduction u/s 80IB on gross total income reduced by unabsorbed depreciation

Issue 1: Reopening of assessment u/s 147 of the Act
The appellant contested the initiation and confirmation of proceedings u/s 147, arguing it was a mere change of opinion. The AO passed the original assessment under section 143(1) without forming an opinion on the claims made in the return. The Tribunal found that as no opinion was formed during the original assessment, the reopening was not based on a change of opinion. Consequently, Ground no.1 was rejected.

Issue 2: Eligibility of deduction u/s 80IB for sale of liquid milk
The appellant claimed deduction u/s 80IB for the sale of liquid milk, contending that processing milk into pasteurized milk constitutes an industrial activity. The lower authorities disagreed, stating liquid milk is not a product of an industrial undertaking. The Tribunal disagreed, emphasizing that processing altered the milk's characteristics, making it consumable. Citing the 'Ahmedabad Manufacturing & Colico (P) Ltd. vs. CIT' case, the Tribunal allowed the deduction u/s 80IB for the sale of liquid milk, reversing the impugned order.

Issue 3: Quantification of deduction u/s 80IB on gross total income reduced by unabsorbed depreciation
The appellant challenged the deduction calculation based on gross total income reduced by unabsorbed depreciation. The authorities relied on section 80AB, stating deduction computation should consider unabsorbed depreciation. Referring to 'Plastiblends India Ltd. vs. Addl. Commissioner of Income Tax', the Tribunal upheld that deductions under section 80IB must be computed after adjusting unabsorbed depreciation. The Tribunal rejected the appellant's claim, following the Supreme Court's decision and dismissed Ground no.3.

In conclusion, the Tribunal partially allowed the appeal, granting deduction u/s 80IB for the sale of liquid milk and upholding the deduction computation method considering unabsorbed depreciation.