2013 (9) TMI 399 - AT - Income Tax

Tribunal upholds deduction under section 80IB for assessee in backward area

The Tribunal upheld the Commissioner of Income Tax (Appeals) [CIT(A)]'s decision allowing the deduction under section 80IB for the assessee, based on its ... Claim of deduction u/s 80IB of the Income Tax Act – Small scale industry - whether being 'located in an industrially backward State' of Pondicherry, there is no need to fulfil the requirements of SSI - Held that:- For claiming deduction, certain conditions are to be necessarily satisfied - It is also clear that the conditions above said do not apply in case the undertaking in question is either a small scale industry or it operates from an industrially backward region and if any of the above said condition is satisfied, the concern undertaking becomes eligible for claiming deduction. Pleadings of the Revenue only challenge the status of the assessee as small scale industry and the findings of the CIT(A) that the place of assessee’s business is in an industrially backward State i.e. Pondicherry - Even if it is hold that the assessee is a small scale industry, still it is entitled for claim of deduction in view of section 80IB(4) of the “Act” since it is operating from an industrially backward State - Assessee satisfies the relevant provision of section 80IB(4) of the “Act” and arguments of the Revenue that it is not a small scale industry or it manufacture an item contained in Schedule XI of the “Act” do not hold any ground – Decided against the Revenue. Issues Involved:1. Deduction under section 80IB of the Income Tax Act.2. Disallowance under section 14A of the Income Tax Act.3. Levy of interest under sections 234B and 234C of the Income Tax Act.Detailed Analysis:1. Deduction under section 80IB of the Income Tax Act:The Revenue challenged the Commissioner of Income Tax (Appeals) [CIT(A)]'s decision allowing the assessee's claim for deduction under section 80IB. The primary contention was that the assessee did not qualify as a Small Scale Industrial Undertaking (SSI) under the Industries (Development and Regulation) Act, 1951 (IDR Act), and thus was not eligible for the deduction.The CIT(A) held that the assessee's industrial undertaking, located in the industrially backward State of Pondicherry, was eligible for the deduction under section 80IB(4) of the Act, regardless of its SSI status. The CIT(A) noted:- The conditions under section 80IB(2) must be met for the deduction.- Industrial undertakings in industrially backward States are eligible for the deduction, even if they manufacture items listed in the Eleventh Schedule.- The assessee's location in Pondicherry negated the need to fulfill SSI requirements.The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee satisfied the conditions under section 80IB(4) due to its location in an industrially backward State. The Tribunal found the Revenue's arguments regarding the assessee's SSI status and the manufacture of items in Schedule XI to be of academic significance, as the location in an industrially backward State was sufficient for the deduction.2. Disallowance under section 14A of the Income Tax Act:The assessee contested the CIT(A)'s decision to uphold the Assessing Officer's (AO) disallowance under section 14A, which was related to the exempt dividend income. The AO had invoked section 14A read with Rule 8D, leading to a disallowance of Rs. 4,83,414/-, an amount self-computed by the assessee.The Tribunal found no merit in the assessee's cross objections, as the disallowance was based on the assessee's own computation. The Tribunal noted that the assessee had declared exempt income and had computed the disallowance under Rule 8D, thus validating the AO's and CIT(A)'s actions.3. Levy of Interest under sections 234B and 234C of the Income Tax Act:The assessee also challenged the levy of interest under sections 234B and 234C, arguing that it was arbitrary and contrary to law. However, this issue was not elaborated upon in the Tribunal's order, indicating that the main focus was on the primary issues of deduction under section 80IB and disallowance under section 14A.Conclusion:The Tribunal dismissed both the Revenue's appeal and the assessee's cross objections. The CIT(A)'s decision to allow the deduction under section 80IB was upheld, as the assessee's location in an industrially backward State met the necessary conditions. The disallowance under section 14A was also upheld, as it was based on the assessee's own computation. The levy of interest under sections 234B and 234C was not specifically addressed, suggesting no change to the CIT(A)'s decision on this matter.