2025 (2) TMI 834 - HC - Income Tax

Deduction u/s 80IC - appellant/assessee must demonstrate compliance with the conditions set forth in Rule 18BBB(4) - Form 10CCB associated with Rule 18BBB requires specific information including approvals from local/state authorities - evident failure on the part of the appellant to place on the record an agreement or approval that may have been granted to it by either a local or state authority - HELD THAT - Stipulation of an agreement with the Central/State government or local authority would have to necessarily accompany Form 10CCB that it has proceeded to remit the matter for examination of AO. We find that it has while framing that direction for remit clearly lost sight of the principal distinction between Sections 80IA and 80IC. As we view Section 80IC it becomes apparent that there is clearly no requirement of an entity which claims coverage under Section 80IC (2) (b) (ii) to have in place an agreement with either the Central or State Government or for that matter any local authority. While Section 80IC (2) (a) does refer to the Central Government the same is confined to the aspect of the manufactory having been set up pursuant to a scheme notified by that government. However sub-clause (b) clearly avoids reference to any of those species of authorities. All that sub-clause (b) requires is for the undertaking to be engaged in the manufacture or production of any article or things specified in the Fourteenth Schedule and having commenced operations in the periods prescribed therein and in States of the Union mentioned therein. This must necessarily be contrasted with what obtains under Section 80IA (4) (i) (b) and where an agreement with the Central or State Government has been recognized as being a precondition for the purposes of claiming benefits under that provision itself. The Tribunal also appears to have clearly overlooked the fact that Rule 18BBB as well as Form 10CCB straddles more than one provision in the Act. As is evident from the title of that rule it is intended to cater to varied enterprises and eligible businesses as envisaged in Sections 80I 80IA 80IB or 80IC. We are of the considered opinion that in the absence of Section 80IC requiring an agreement between the assessee and the Central/State Government or local authority or mandating such an agreement as being a mandatory precondition for claiming benefits the Tribunal has clearly erred in reading such a requirement in respect of an assessee which may have been claiming benefits under Section 80IC. Tribunal thereafter has further proceeded to examine the case of the assessee from the stand point of Section 80IA (8) and 80IA (10). This exercise undertaken by it for purposes of discerning abnormal profits and whether the assessee had allegedly shifted profit or expenditure to an eligible business is an issue which was neither canvassed raised nor urged either before the AO or the CIT (A). It also does not appear to have constituted a ground of appeal that was urged by the Revenue for the consideration of the Tribunal. Decided against revenue.

Summary

ISSUES PRESENTED and CONSIDERED

The Court considered two primary legal questions:

(i) Whether the Tribunal erred in law and on facts by holding that the appellant/assessee must demonstrate compliance with the conditions set forth in Rule 18BBB(4) and provide information against serial No. 13 in Form 10CCB to claim deduction under Section 80IC.

(ii) Whether the Tribunal misdirected itself by considering the provisions of sub-sections (8) and (10) of Section 80IA, which were not the subject of the appeal filed by the respondents/revenue.

ISSUE-WISE DETAILED ANALYSIS

Issue (i): Compliance with Rule 18BBB and Form 10CCB for Section 80IC Deduction

- Relevant Legal Framework and Precedents: Section 80IC of the Income Tax Act provides deductions to assessees who earn income from specified businesses in certain regions. Rule 18BBB of the Income Tax Rules mandates an audit report for deductions claimed under Sections 80I, 80IA, 80IB, or 80IC. Form 10CCB, associated with Rule 18BBB, requires specific information, including approvals from local/state authorities.

- Court's Interpretation and Reasoning: The Court observed that Section 80IC does not explicitly require an agreement with the Central or State Government or local authorities as a precondition for claiming deductions. The Tribunal's interpretation that such an agreement was necessary for claims under Section 80IC was found to be erroneous.

- Key Evidence and Findings: The Tribunal had relied on Rule 18BBB and Form 10CCB to assert that the appellant needed to provide an agreement or approval from authorities, which the appellant had not done. However, the Court found that this requirement was not applicable to Section 80IC claims.

- Application of Law to Facts: The appellant had established a unit in Himachal Pradesh and claimed deductions under Section 80IC, which did not require agreements with authorities. The Tribunal's insistence on such agreements was misplaced.

- Treatment of Competing Arguments: The Court acknowledged the Revenue's argument but emphasized the distinction between the requirements under Sections 80IA and 80IC, noting that the latter does not necessitate agreements with government bodies.

- Conclusions: The Tribunal erred in mandating the submission of agreements or approvals for Section 80IC deductions. The Court ruled that such a requirement was not supported by the statutory provisions of Section 80IC.

Issue (ii): Consideration of Section 80IA (8) and (10) by the Tribunal

- Relevant Legal Framework and Precedents: Section 80IA pertains to deductions for businesses engaged in infrastructure development, with sub-sections (8) and (10) addressing abnormal profits and shifting of profits or expenses.

- Court's Interpretation and Reasoning: The Court found that the Tribunal's examination of Section 80IA (8) and (10) was unwarranted, as these issues were not raised by the Revenue nor part of the original appeal.

- Key Evidence and Findings: The Tribunal had remanded the matter to the Assessing Officer (AO) to examine potential abnormal profits or shifting of expenses, which was not part of the original dispute.

- Application of Law to Facts: The Court noted that the Tribunal's actions were beyond the scope of the appeal and not supported by any submissions from the Revenue.

- Treatment of Competing Arguments: The Court highlighted that neither the AO nor the CIT (A) had raised concerns about abnormal profits or expense shifting, making the Tribunal's actions inappropriate.

- Conclusions: The Tribunal's consideration of Section 80IA (8) and (10) was unjustified and not relevant to the issues at hand. The Court set aside these observations.

SIGNIFICANT HOLDINGS

- Preserve Verbatim Quotes of Crucial Legal Reasoning: The Court stated, "We are of the considered opinion that in the absence of Section 80IC requiring an agreement between the assessee and the Central/State Government or local authority or mandating such an agreement as being a mandatory precondition for claiming benefits, the Tribunal has clearly erred in reading such a requirement in respect of an assessee which may have been claiming benefits under Section 80IC."

- Core Principles Established: The Court clarified that Section 80IC does not require agreements with government bodies for claiming deductions, distinguishing it from Section 80IA.

- Final Determinations on Each Issue: The Court allowed the appeal, set aside the Tribunal's order, and answered the questions in favor of the appellant, emphasizing the incorrect application of legal requirements by the Tribunal.