2013 (5) TMI 175 - AT - Income Tax

Tribunal upholds deduction under section 80IB, citing fulfillment of conditions and consistency.

ITO., Balotra Versus Shri Kanti Lal Mehta Prop. M/s Sidharth Swadesh Mills

ITO., Balotra Versus Shri Kanti Lal Mehta Prop. M/s Sidharth Swadesh Mills - TMI Issues Involved:1. Allowing the deduction under section 80IB.2. Deleting the disallowance of Rs. 19,70,650/- made under section 80IB.Issue-wise Detailed Analysis:1. Allowing the Deduction under Section 80IB:The primary issue in this appeal concerns the deletion of the disallowance of Rs. 19,70,650/- made by the Assessing Officer (AO) under section 80IB of the Income-tax Act, 1961. The assessee, engaged in the textile business, claimed a deduction under section 80IB, which the AO disallowed. The AO observed that the assessee incurred minimal fuel and electricity expenses relative to its turnover, suggesting that the goods might have been traded rather than manufactured. The AO concluded that the assessee did not meet the conditions of section 80IB, which requires the sale of self-manufactured goods.2. Deleting the Disallowance of Rs. 19,70,650/- Made under Section 80IB:The CIT(A) allowed the assessee's claim, stating that the assessee fulfilled the conditions laid down in section 80IB(2) and was eligible for the deduction. The CIT(A) directed the AO to allow the deduction as claimed. The Department appealed this decision.During the hearing, the assessee's counsel argued that the issue was covered in favor of the assessee by a previous Tribunal decision in a similar case, ITO Ward Balotra v. M/s Deepak Swadeshi Mills. The Department's representative could not counter this argument.The Tribunal reviewed the submissions and material on record, noting that the issue was identical to a previously decided case. The Tribunal cited the relevant provisions of section 80IB(2), which require the industrial undertaking to:- Not be formed by splitting or reconstruction of an existing business.- Not be formed by the transfer of used machinery or plant.- Manufacture or produce articles or things not specified in the Eleventh Schedule.- Employ a minimum number of workers depending on whether the manufacturing process uses power.The Tribunal found that the assessee met all these conditions:- The assessee's business was not formed by splitting or reconstruction.- The machinery used was new.- The assessee manufactured 'poplin' from grey cloth, a process involving significant transformation.- The assessee employed more than the required number of workers, as verified by wage registers and other official certifications.The Tribunal also addressed the AO's concern about the low electricity expenses, explaining that the expenses were sufficient for the machinery used and that the assessee also incurred significant fuel expenses. The Tribunal emphasized the principle of consistency, noting that the deduction under section 80IB had been allowed in previous years and should not be disallowed without substantial change in facts or activities.The Tribunal concluded that the AO was not justified in denying the deduction and upheld the CIT(A)'s decision to allow the deduction under section 80IB. Consequently, the appeal of the Department was dismissed.Conclusion:The Tribunal dismissed the Department's appeal, affirming the CIT(A)'s decision to allow the deduction under section 80IB. The Tribunal found that the assessee fulfilled all the conditions required for the deduction and that the AO's concerns about electricity expenses were unfounded. The principle of consistency also supported the decision, as the deduction had been allowed in previous years without significant changes in the assessee's activities. The Tribunal's order was pronounced in the open court on 01.05.2013.