2018 (6) TMI 49 - AT - Income Tax

Deduction u/s 80-IC - development of a software which automatically controlled the inbuilt generators installed beneath the telephone towers for communication - Revenue has contended that the manufacturing unit of the assessee was not in existence - Held that - In immediately preceding assessment year the assessee has filed sufficient evidence of existence of unit at the address i.e. village Salempur Rajputana Roorkee district Hardwar (Uttaranchal) and accordingly the Tribunal accepted the finding of the learned Commissioner of Income-tax (Appeals)-I Dehradun for holding that the unit was in existence during relevant period. Since in the year under consideration the identical issue of denying deduction under section 80-IC of the Act on the allegation of non-existence of the unit is involved respectfully following the decision of the Tribunal (supra) we uphold the finding of the learned Commissioner of Income-tax (Appeals) on the issue in dispute and dismiss the grounds of the appeal of revenue

Issues Involved:
1. Deletion of addition of ?86,59,086 by the CIT-(A).
2. Allowance of deduction under section 80-IC due to alleged non-existence of the manufacturing unit in the notified area.
3. Allowance of deduction under section 80-IC despite poor electricity consumption indicating non-existence of business.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?86,59,086 by the CIT-(A):
The Revenue contended that the Commissioner of Income-tax (Appeals) erred in deleting the addition made by the Assessing Officer without appreciating the facts of the case. The Assessing Officer had disallowed the deduction under section 80-IC of the Income-tax Act, 1961, amounting to ?86,59,086, claiming the manufacturing unit did not exist. The CIT-(A) allowed the appeal of the assessee, following the order of the CIT-(A)-I, Dehradun, for the previous assessment year 2009-10. The Tribunal upheld the CIT-(A)'s decision, noting that sufficient documentary evidence was provided to prove the existence of the unit, and the same had been accepted in the preceding year.

2. Allowance of Deduction under Section 80-IC Due to Alleged Non-existence of the Manufacturing Unit in the Notified Area:
The Revenue argued that the manufacturing unit did not exist in the notified area as claimed by the assessee. The Tribunal noted that in the assessment year 2009-10, the CIT-(A)-I, Dehradun, had examined various documentary evidences, including certificates from Central Excise Authorities, and upheld the existence of the unit. The Tribunal found that the assessee had provided sufficient evidence, such as rental agreements, power connection documents, registration with the District Industry Centre, VAT and CST registrations, and no objection certificates from pollution-control authorities, proving the existence of the unit at the said premises. The Tribunal upheld the CIT-(A)'s findings, dismissing the Revenue's ground on this issue.

3. Allowance of Deduction under Section 80-IC Despite Poor Electricity Consumption Indicating Non-existence of Business:
The Revenue contended that the poor consumption of electricity was a strong indicator of the non-existence of the business. The Tribunal noted that the assessee had explained that the manufacturing of embedded systems required minimal power consumption, as the process involved mounting components on a printed circuit board and programming micro-controllers, which consumed very low power. The Tribunal agreed with the CIT-(A)'s findings that the business primarily involved software development, which did not require heavy investment in plant and machinery or high electricity consumption. The Tribunal found the explanation provided by the assessee to be reasonable and upheld the CIT-(A)'s decision, dismissing the Revenue's ground on this issue.

Additional Observations:
The Tribunal observed that the Revenue had not raised any ground challenging whether the software development activity constituted manufacturing. Therefore, the arguments of the Senior Departmental Representative on this point could not be considered.

Conclusion:
The Tribunal upheld the findings of the CIT-(A) and dismissed the appeal of the Revenue. The decision was pronounced in the open court on October 6, 2017.

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