2011 (10) TMI 31 - HC - Income Tax

High Court Upholds ITAT Decision on Section 263: Deductions for New Unit

The High Court upheld the ITAT's decision to set aside the CIT's order under Section 263 of the Income Tax Act. The case involved the justification of ... Deduction u/s 80IB - various units - ITAT has held on the basis of the material on record that the Unit No. III situate at Block No. L-4 and L-6 was an independent unit newly established, having production capacity three times more i.e. 150 tonnes than the existing units. Moreover, in this appeal, the assessee has also filed an affidavit stating on oath that the assessee has purchased various new machineries for the newly established unit No. III wherein production of cattle feed activity was carried out. The assessee has also given a list of the machineries purchased by it. Therefore, the decision of the ITAT that the unit No. III was not formed by splitting or reconstruction of the existing units cannot be faulted. Issues:1. Justification of ITAT in setting aside CIT's order under Section 263 of the Income Tax Act, 1961.Analysis:The High Court of Bombay considered the appeal questioning the justification of the Income Tax Appellate Tribunal (ITAT) in setting aside the order passed by the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act, 1961. The assessment year in question was AY 2003-04, where the assessee, engaged in cattle feed production, claimed deduction under Section 80IB of the Act for Unit I, Unit II, and newly established Unit III at Block No. L-4 and L-6. The assessing officer allowed the deduction for Unit III, stating that the necessary details were provided. However, the CIT believed that the assessing officer did not consider if Unit III was formed by splitting/reconstructing existing units and if the activity constituted manufacturing. Consequently, the CIT invoked jurisdiction under Section 263, directing a fresh assessment. On appeal, the ITAT set aside the CIT's order, leading the revenue to challenge this decision.The ITAT, in its order, found Unit III to be an independent newly established unit with a production capacity three times more than existing units. The ITAT also noted the purchase of new machinery for Unit III's cattle feed production, indicating its independent nature. The High Court observed that the ITAT's decision was based on factual findings supported by evidence, as the unit was not formed by splitting existing units. Additionally, the activity in Unit III was similar to the other units, where cattle feed production was considered manufacturing, a decision accepted by the revenue for the other units as well.The High Court concluded that the ITAT's decision was factual, and no legal question arose from it. Therefore, the appeal was dismissed with no costs. The judgment highlighted the importance of factual findings and evidence in tax assessments, emphasizing the need for proper consideration of unit formation and manufacturing activities for claiming deductions under the Income Tax Act.