Section 80IB eligibility turns on statutory conditions, with licensing delay and section 40(a)(ia) disallowance affecting profit computation.

Deduction under section 80IB is treated as depending on the statutory conditions in that provision, not on compliance with other regulatory requirements such as a factory licence obtained later. The discussion also states that where profits of an eligible industrial undertaking are computed under the Act, a disallowance under section 40(a)(ia) increases the undertaking's business profits for the year and is reflected in the section 80IB computation. On this view, later allowance of the corresponding expenditure in a subsequent year avoids any prohibited double benefit because the deduction position adjusts with the later year's profits.

---

---

Issues: (i) Whether deduction under section 80IB of the Income-tax Act, 1961 could be denied on the ground that the factory licence was obtained after the alleged commencement of production. (ii) Whether amounts disallowed under section 40(a)(ia) of the Income-tax Act, 1961 could be included while computing eligible profits for deduction under section 80IB.

Issue (i): Whether deduction under section 80IB of the Income-tax Act, 1961 could be denied on the ground that the factory licence was obtained after the alleged commencement of production.

Analysis: The deduction was disallowed below on the view that manufacturing could not lawfully begin without a factory licence and that the later grant of licence showed that production had not commenced in the relevant period. The Tribunal noted that the assessee had shown commencement of manufacturing, had employed the requisite workers, had obtained provisional SSI registration, NOC and power connection, and that the conditions specifically prescribed in section 80IB were otherwise satisfied. It followed earlier coordinate bench decisions holding that obtaining a factory licence is not a condition precedent under section 80IB and that violations under other statutes do not, by themselves, defeat a deduction otherwise allowable under the Income-tax Act.

Conclusion: The denial of deduction under section 80IB on the basis of delayed factory licensing was unjustified and the issue was decided in favour of the assessee.

Issue (ii): Whether amounts disallowed under section 40(a)(ia) of the Income-tax Act, 1961 could be included while computing eligible profits for deduction under section 80IB.

Analysis: The Tribunal held that section 80IB applies to profits of the eligible industrial undertaking as computed under the Act, and that a disallowance under section 40(a)(ia) increases the business profits of that undertaking for the relevant year. It accepted the view taken in earlier decisions that such enhancement of profits does not create a prohibited double deduction, because the corresponding expenditure, when allowed in the later year on payment of tax deducted at source, would reduce profits and deduction in that later year. On this reasoning, the disallowance under section 40(a)(ia) had to be taken into account while computing the eligible profits for section 80IB.

Conclusion: The assessee was entitled to deduction under section 80IB on the amount disallowed under section 40(a)(ia), and the issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded in full on the substantive grounds, and the assessee's claim for section 80IB deduction was upheld both on the factory-licence question and on the computation of eligible profits.

Ratio Decidendi: For deduction under section 80IB, only the statutory conditions of that provision govern eligibility, and disallowances under other provisions of the Act must be reflected in the computation of eligible industrial profits.

---