2020 (3) TMI 121 - AT - Income Tax

Deduction u/s 80IC - expenses related to generator, electricity expenses - manufacturing provided in section 2(29BA) - HELD THAT - In the instant case, section 80IA(8) and 80IA(10) are relevant to find out the reason of the abnormal profit and examine whether the assessee has shifted profit or expenditure to eligible business or to any other business carried on by the assessee or shifted profit or expenditure to any other person. CIT(A) in impugned order has mentioned that the AO has not commented in remand report on this issue. CIT(A), however, on the basis of the financial statements and discussion with the Authorized Representative of the assessee held that there was no other business which was carried out by the assessee company and, therefore, there was no reason to go into the issue of deriving more than ordinary profit which might be expected to arise in the eligible business. CIT(A) did not call for report or comment from the AO on the specific submission of Authorized Representative. Application of section 80-IA(8) and 80-IA(10), CIT(A) was required to examine all the expenses incurred by the assessee for ascertaining shifting of any expenses to any other business of the assessee or to any other concern. From the finding of the CIT(A), it cannot be ascertained that he has examined the expenses as per the requirement of the section 80IA(8) or 80IA(10). CIT(A) is having coterminous power of the Assessing Officer, and thus, he was required to examine this issue thoroughly. In view of the facts of the circumstances of the case and in the interest of the substantial justice, we feel it appropriate to restore this issue back to the file of the Assessing Officer for deciding applicability of section 80IA(8) and 80IA(10) of the Act over the affairs of the assessee. The grounds raised by the Revenue in both the appeals are accordingly allowed for statistical purposes

Summary

Issues Involved:
1. Deletion of addition made by the AO by way of disallowance of benefit of deduction U/s 80IC.
2. Non-compliance with Rule 18BBB of Income-tax Rules, 1962.
3. Application of section 80IC(7) and related sections.
4. Examination of the manufacturing process and job work activities.
5. Submission of required documents with form 10CCB.

Detailed Analysis:

1. Deletion of Addition Made by the AO by Way of Disallowance of Benefit of Deduction U/s 80IC:
The primary issue was whether the assessee was entitled to deduction under section 80IC. The AO disallowed the deduction, arguing that the assessee was engaged in job work (packaging) rather than manufacturing. The assessee, however, claimed it was involved in contract manufacturing, supported by an agreement with Glaxo and relevant excise documentation. The Ld. CIT(A) deleted the disallowance, referencing previous favorable decisions for the assessee in earlier years and a similar case (Zeon Life sciences Private Limited). The Tribunal upheld the Ld. CIT(A)'s decision, noting the consistency in the assessee's activities and the lack of change in circumstances.

2. Non-Compliance with Rule 18BBB of Income-tax Rules, 1962:
The AO argued that the assessee failed to comply with Rule 18BBB, specifically sub-rule (4), which requires submission of an agreement or approval from the Central/State Government or local authority. The Ld. CIT(A) dismissed this as a non-issue, stating that such requirements pertain to sections 80IA and 80IB, not 80IC. The Tribunal found that the Ld. CIT(A) did not adequately address the requirement of Rule 18BBB(4) and restored the issue to the AO for further verification.

3. Application of Section 80IC(7) and Related Sections:
Section 80IC(7) incorporates provisions from sections 80IA(5) and 80IA(7) to 80IA(12). The AO did not comment on this in the remand report. The Ld. CIT(A) concluded that since the assessee had no other business, there was no need to examine the derivation of more than ordinary profits. The Tribunal, however, emphasized the need for thorough examination under sections 80IA(8) and 80IA(10), which address intra-unit transactions and profit shifting. The issue was restored to the AO for detailed scrutiny.

4. Examination of the Manufacturing Process and Job Work Activities:
The AO's disallowance was based on the nature of the assessee's activities, which were deemed non-manufacturing. The assessee provided detailed submissions, including excise registration and process flowcharts, to substantiate its claim of contract manufacturing. The Ld. CIT(A) and Tribunal found in favor of the assessee, citing previous decisions and the nature of the activities as manufacturing under relevant laws.

5. Submission of Required Documents with Form 10CCB:
The AO noted deficiencies in form 10CCB, specifically the absence of required agreements or approvals. The Ld. CIT(A) considered this a non-issue, but the Tribunal highlighted the importance of compliance with Rule 18BBB(4). The Tribunal restored the issue to the AO, allowing the assessee another opportunity to submit the necessary documentation.

Conclusion:
The Tribunal restored key issues to the AO for further examination, particularly compliance with Rule 18BBB(4) and the applicability of sections 80IA(8) and 80IA(10). The appeals were allowed for statistical purposes, emphasizing the need for thorough verification and adherence to statutory requirements.