2020 (10) TMI 304 - HC - Income Tax

Deduction u/s 80IB - Assessee in Form No.10CCB failed to provide the details of number of workmen working in each of the Units of the Assessee - HELD THAT - There was this omission on the part of the Assessee whilst filling in the Form 10CCB, it is not as if this omission was not rectifiable. In fact, the AO should have granted the Assessee an opportunity for rectifying this omission. Assessee even prior to the assessment, produced material before the AO, which evidences that each of the Units of the Assessee employed more than 10 workers. This means that there was material before the AO to conclude that the Assessee fulfilled the conditions required for claiming deduction under Section 80IB. In these circumstances, both, the Commissioner (Appeals), as well as the ITAT, were quite justified in directing grant of deduction u/s 80IB to the Assessee. In the case of Hindustan Steel Limited vs. State of Orissa 1969 (8) TMI 31 - SUPREME COURT the Hon'ble Supreme Court has held that mere furnishing of deduction form 10CCB could, at the most, be a default of technical and venial nature. Such omission cannot be held to be so fatal as to merit the penalty of disallowance of deduction under consideration. The view taken by the Commissioner (Appeals) and the ITAT is in consonance with the law laid down by the Hon'ble Apex Court in Hindustan Steel Limited (supra). Accordingly, the substantial question of law 'A' is required to be decided against the Revenue and in favour of the Assessee. Deduction under Section 80IC - AO has held that the profits are not matching with the consumption of the electricity at the said Unit - AO has compared the consumption of electricity in various Units of the Assessee and on such basis, concluded that the profits in respect of the newly established Unit at Nalagarh appeared to be unreasonably high - HELD THAT - The requirements of customers at Goa Unit are different from those of Daman Unit. The quality of printing, sale value and contribution of Nalagarh Unit is much higher as compared to other units. The products manufactured at Goa Daman are excisable products whereas Nalagarh Unit is excise exempt for 10 years. Moreover the electricity power rate at Goa, Daman are different from the power rates at Himachal Pradesh. We find that the Commissioner of Income Tax was of the view that the AO should bring out the reason of more sales at Nalagarh Unit. We find that AO has not carried out any excise. We find that in the instant case, the AC has not rejected the books of account. We find that there are many reasons for higher electricity consumption, therefore, on this simple disparity the AO cannot disallow the deduction U/s 80IC. - Decided in favour of assessee.

Summary

Issues:
1. Amendment of Memo of Appeal in Tax Appeal No.13/2015
2. Consideration of Tax Appeal No.62/2014
3. Disallowance of deduction under Section 80IB and Section 80IC
4. Admission of new evidences by the Income Tax Appellate Tribunal (ITAT)
5. Disparity in electricity consumption and sales for deduction under Section 80IC

Amendment of Memo of Appeal in Tax Appeal No.13/2015:
The High Court observed a mistake in stating the correct assessment year in the Memo of Appeal for Tax Appeal No.13/2015, which was identical to Tax Appeal No.62/2014 pertaining to Assessment Year 2006-07. Initially, there was a request to amend the Memo of Appeal to correct the assessment year to 2007-08. However, it was later pointed out that Tax Appeal No.64/2014 was disposed of for the Assessment Year 2007-08. Consequently, Tax Appeal No.13/2015 was disposed of as infructuous due to the inadvertent filing of two appeals for the same assessment year.

Consideration of Tax Appeal No.62/2014:
Tax Appeal No.62/2014 was admitted based on substantial questions of law related to deductions under Section 80IB and Section 80IC of the Income Tax Act. The Assessing Officer had initially denied the Assessee deductions under these sections due to issues with Form 10CCB and alleged disparity in electricity consumption and sales at different units of the Assessee.

Disallowance of Deduction under Section 80IB and Section 80IC:
The Commissioner of Income Tax (Appeals) allowed the Assessee's appeals and directed the grant of deductions under Section 80IB and Section 80IC. The Revenue then appealed to the ITAT, which dismissed the appeals. The High Court analyzed the reasons for disallowance and found that the Assessee had rectified the omissions and provided explanations to justify the deductions, in line with legal precedents.

Admission of New Evidences by ITAT:
The High Court noted that no new evidences were admitted by the ITAT, rendering the substantial question related to the admission of new evidences irrelevant. The Court emphasized that without new evidences being admitted, the issue did not hold significance in the case.

Disparity in Electricity Consumption and Sales for Deduction under Section 80IC:
The AO had disallowed the Assessee's deduction under Section 80IC citing a disparity in electricity consumption and sales at different units. However, the Assessee provided detailed explanations for the differences, including technological advancements, product variations, customer requirements, and excise exemptions. The Commissioner (Appeals) and ITAT considered these factors and concluded that the disparity in electricity consumption alone could not justify disallowing the deduction. The High Court upheld this reasoning, finding no perversity in the authorities' decisions.

In conclusion, the High Court disposed of the appeals in favor of the Assessee, granting deductions under Section 80IB and Section 80IC. The Court emphasized the importance of considering all relevant factors and explanations provided by the Assessee in determining the eligibility for tax deductions.