2019 (6) TMI 140 - AT - Income Tax

Deduction u/s 80IB denied - assessee is claiming to be a small scale industrial undertaking eligible for deduction u/s 80IB(3)(ii) - investment threshold limits in Plant and Machinery - 11B of the IDR Act OR MSME Act, 2006 - deduction denied on the grounds that its investments in Plant and Machinery exceeded the threshold limit for being classified as small scale industrial undertaking - HELD THAT - The assessee has to fulfil criteria as laid down u/s 80IB(14)(g) every year as every assessment year is a separate unit before claiming deduction u/s 80IB(3). The Section 80IB(14)(g) of the 1961 Act in turn refers to IDR Act, 1951 and not MSME Act, 2006. Thus, notifications issued under IDR Act, 1951 will hold the field. We are inclined to restore this issue back to the file of the learned CIT(A) for denovo adjudication of this issue on merits in accordance with our aforesaid decision and reasoning as stipulated in preceding para s of this order . The assessee is directed to produce all relevant material/evidences before learned CIT(A) including relevant notifications issued u/s 11B of the IDR Act, 1951 which is applicable to the previous year relevant to impugned assessment year to support its case in its defence . The learned CIT(A) is also directed to make necessary verifications of facts to determine whether assessee is a small scale industrial undertaking as per applicable notifications for the relevant period based on notifications issued u/s 11B of IDR Act, 1951 including computing exclusions as are provided under relevant notifications issued under IDR Act, 1951. Appeal of the assessee is allowed for statistical purposes.

Issues Involved:
1. Rejection of deduction under Section 80IB of the Income-tax Act, 1961.
2. Legality and procedural fairness of the assessment order under Section 143(3).
3. Charging of interest under Sections 234A, 234B, 234C, and 234D.
4. Additional grounds of appeal.

Detailed Analysis:

1. Rejection of Deduction under Section 80IB:

The primary issue revolves around the rejection of a deduction amounting to ?25,07,133/- under Section 80IB of the Income-tax Act, 1961. The Assessing Officer (AO) disallowed the deduction on the grounds that the assessee's investment in Plant & Machinery exceeded the threshold limit for a Small Scale Industrial (SSI) undertaking, which is ?1 crore. The AO also noted that the unit was not located in a notified backward area, making it ineligible for deduction under Section 80IB(5).

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that the investment in Plant & Machinery was indeed over ?5 crores, thus disqualifying the unit as an SSI. The CIT(A) relied on various notifications issued under Section 11B of the Industrial (Development and Regulation) Act, 1951, which were later clarified by notifications under the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act).

2. Legality and Procedural Fairness of the Assessment Order under Section 143(3):

The assessee contended that the assessment order under Section 143(3) was illegal, bad-in-law, ultra vires, and passed without allowing a reasonable opportunity for a hearing. However, this issue was not elaborated upon in the judgment, as the primary focus was on the eligibility for deduction under Section 80IB.

3. Charging of Interest under Sections 234A, 234B, 234C, and 234D:

The assessee also contested the charging of interest under Sections 234A, 234B, 234C, and 234D of the Income-tax Act. This issue was not discussed in detail in the judgment, as the main contention was regarding the eligibility for deduction under Section 80IB.

4. Additional Grounds of Appeal:

The assessee reserved the right to add, amend, alter, or vary any of the grounds of appeal before or at the time of hearing. This issue was not further elaborated in the judgment.

Tribunal's Decision:

The Tribunal noted that the assessee's contention was based on the notification issued under the MSME Act, which allowed for a higher threshold of ?5 crores. However, the Tribunal emphasized that the relevant provisions for determining SSI status under Section 80IB(14)(g) referred to the IDR Act, 1951, and not the MSME Act, 2006.

The Tribunal cited the Supreme Court's decision in DCIT v. Ace Multi Axes Systems Ltd., which held that eligibility for deduction under Section 80IB must be established every year, and the criteria under the IDR Act, 1951, must be strictly followed.

The Tribunal concluded that the CIT(A) had incorrectly relied on the MSME Act notifications and should have considered the IDR Act notifications. Therefore, the Tribunal restored the issue to the CIT(A) for a de novo adjudication based on the correct legal framework.

The appeal was allowed for statistical purposes, and the CIT(A) was directed to re-examine the eligibility for deduction under Section 80IB, considering the relevant notifications under the IDR Act, 1951. The CIT(A) was instructed to provide a proper opportunity for the assessee to present evidence and arguments.

Conclusion:

The Tribunal's decision emphasized the importance of adhering to the specific legal provisions and notifications relevant to the assessment year in question. The case was remanded to the CIT(A) for a fresh evaluation based on the correct legal framework, ensuring procedural fairness and adherence to the principles of natural justice.

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