Continuing eligibility for industrial deduction requires small-scale status to subsist in the relevant year, not just at commencement.

Deduction under section 80IB depends on continued satisfaction of the statutory eligibility conditions in the relevant year. For a small-scale industrial undertaking, the classification must exist on the last day of the previous year, because section 80IB(14)(g) links eligibility to the status recognised under the Industries (Development and Regulation) Act, 1951. On the facts, the plant and machinery had crossed the prescribed limit during the year, so the assessee no longer qualified as a small-scale industrial undertaking for that assessment year. The deduction under section 80IB(3) was therefore not allowable and the disallowance was upheld.

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Issues: Whether the assessee was entitled to deduction under section 80IB(3) of the Income-tax Act, 1961 for the relevant assessment year even though its plant and machinery exceeded the prescribed limit and it no longer satisfied the definition of a small-scale industrial undertaking under section 80IB(14)(g).

Analysis: Deduction under section 80IB is available only if the statutory conditions are satisfied. For a small-scale industrial undertaking, section 80IB(14)(g) links eligibility to the status recognised under section 11B of the Industries (Development and Regulation) Act, 1951 as on the last day of the previous year. The requirement is therefore not confined to the initial year alone when the relevant condition is one that must continue to exist year by year. On the facts, the value of plant and machinery had crossed the prescribed limit during the year under consideration, so the assessee could not be regarded as a small-scale industrial undertaking for that year.

Conclusion: The claim for deduction under section 80IB(3) was not allowable for the relevant assessment year and the disallowance was upheld.

Ratio Decidendi: Where eligibility for a deduction depends on the assessee retaining a statutory industrial classification on the last day of the previous year, the condition must be satisfied in the relevant year and not merely in the initial year of operation.

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