2018 (11) TMI 1328 - AT - Income Tax

Deduction u/s 80IC - proof of manufacture - whether the article claimed to be produced/manufactured by assessee falls under the negative list of article i.e. Thirteenth Schedule at SI. No. 20 being plastics and articles thereof and is thus covered u/s 80-IC(2)(a) - Held that - The assessee has submitted the excise classification that what is the plastic and articles thereof and what are the products manufactured by the assessee. According to that the mere products Manufacturer by the assessee are not articles of plastic. Further the place where the assessee has eligible industrial undertaking was also proved to be notified area for setting up of the industry which is eligible for exemption. The assessee has also shown the relevant rent agreements by which assessee is in possession of the relevant land area. To establish the date of the commencement the assessee has shown that the date of commencement of the unit is 31/3/2010, on the date on which the first sale bill was prepared. Same was also confirmed by the sales tax records and excise records of the assessee. The assessee has also shown the details of the machinery for the purpose of manufacturing of the specified item. Such details are also furnished along with copies of bills etc. The amount of purchases from the related party are also very minuscule that is only of ₹ 5 9568/ . Even otherwise this is not the first year of the claim of the assessee but second-year of the Holiday period of 10 years. In view of this we confirm the finding of the learned CIT appeal in deleting the disallowance of deduction under section 80 IC - decided against revenue Allowing carry forward business losses and unabsorbed depreciation for the earlier years - Held that - We find that production had commenced from the first year onwards and this is the second year of the operation. Even otherwise Commencement of production or not is not a criteria for allowing such losses. In any case in the AY 2012-13 b/f losses have to be allowed if the losses were claimed in the return of income and the returns were filed in time. It is not the allegation of the revenue that assessee has not claimed this in the return of income or the returns were filed late. Set off and carried forward of losses are governed by section 70 to 80 of IT Act 1961. The grounds for disallowing the losses are not covered in any section from 70 to 80. According to us the action of the learned assessing officer cannot be sustained of not granting the credit of brought forward losses or unabsorbed depreciation. Even otherwise the unabsorbed depreciation is mandatory and becomes the depreciation of the current year. - decided against revenue

Summary

Issues Involved:
1. Eligibility for deduction under section 80IC of the Income Tax Act.
2. Commencement of manufacturing activities and the validity of the production start date.
3. Deletion of addition made by disallowing the deduction under section 80IC.
4. Allowing carry forward business losses and unabsorbed depreciation.

Issue-wise Detailed Analysis:

1. Eligibility for deduction under section 80IC:
The primary contention was whether the assessee's products fell under the negative list of articles in the Thirteenth Schedule, specifically item number 20, "plastics and articles thereof," which would disqualify them from the deduction under section 80IC. The assessee argued that their products, which include cell phone batteries and chargers, do not fall under this category. The CIT(A) agreed with the assessee, noting that the products manufactured are not listed in the Thirteenth Schedule and thus are eligible for the deduction under section 80IC. The Tribunal upheld this finding, confirming that the products do not fall under the prohibited category and the assessee is entitled to the deduction.

2. Commencement of manufacturing activities and the validity of the production start date:
The AO questioned the commencement date of the manufacturing activities, arguing that it was not feasible for the assessee to start production within one month of renting the premises. The assessee provided evidence of raw material purchases, sales invoices, customs invoices for machinery, and other documentation to support their claim that production started on 31.03.2010. The CIT(A) found these documents credible and held that the manufacturing activities indeed commenced as claimed. The Tribunal agreed with this assessment, noting that the evidence provided, including the lease agreements and registration with various authorities, supported the commencement date.

3. Deletion of addition made by disallowing the deduction under section 80IC:
The AO had disallowed the deduction under section 80IC, leading to an addition of ?69,20,378. The CIT(A) deleted this addition, citing that the assessee met all the conditions for the deduction, including being located in a notified area and engaging in manufacturing activities. The Tribunal upheld this deletion, agreeing with the CIT(A)'s detailed analysis and the evidence provided by the assessee. The Tribunal also referenced several judicial pronouncements supporting the assessee's case, confirming that the manufacturing process and location met the requirements for the deduction.

4. Allowing carry forward business losses and unabsorbed depreciation:
The AO denied the carry forward of business losses and unabsorbed depreciation, arguing that the assessee had not commenced production by the end of the assessment year 2011-12. The CIT(A) overturned this decision, stating that the assessee had indeed started production in March 2010 and was thus entitled to carry forward the losses and depreciation. The Tribunal supported this view, emphasizing that the commencement of production had been established and that the losses and unabsorbed depreciation should be allowed as per the relevant sections of the Income Tax Act. The Tribunal noted that the AO's grounds for disallowance were not covered under sections 70 to 80 of the Act.

Conclusion:
The Tribunal dismissed the revenue's appeal, confirming the CIT(A)'s decision to allow the deduction under section 80IC, recognizing the commencement of manufacturing activities in March 2010, deleting the addition of ?69,20,378, and allowing the carry forward of business losses and unabsorbed depreciation. The order was pronounced in the open court on 22/11/2018.