2014 (3) TMI 622 - HC - Income Tax

Court rules against assessee's deduction claim under Section 80IB due to manufacturing process alignment with Eleventh Schedule.

THE COMMISSIONER OF INCOME TAX AND THE DEPUTY COMMISSIONER OF INCOME TAX Versus M/s POLYFEX (INDIA) PVT LTD.

THE COMMISSIONER OF INCOME TAX AND THE DEPUTY COMMISSIONER OF INCOME TAX Versus M/s POLYFEX (INDIA) PVT LTD. - [2014] 363 ITR 224 Issues:1. Interpretation of Section 80IB of the Income Tax Act regarding deduction eligibility.2. Determination of whether the manufacturing of automobile seats using polyurethane foam qualifies for deduction.3. Consideration of end product versus raw materials for deduction eligibility.Analysis:Issue 1: Interpretation of Section 80IB of the Income Tax ActThe primary issue in this case revolves around the interpretation of Section 80IB of the Income Tax Act, specifically focusing on the eligibility criteria for claiming deductions under this provision. The Tribunal's decision to allow the appeal filed by the assessee was challenged by the Revenue, raising substantial questions of law regarding the applicability of Section 80IB(2)(iii) and Schedule 11th of the Act.Issue 2: Eligibility for Deduction under Section 80IBThe crux of the matter lies in whether the manufacturing of automobile seats using polyurethane foam qualifies for deduction under Section 80IB. The Tribunal held that the end product, i.e., the automobile seats, is commercially different from the item mentioned in the Eleventh Schedule, thereby granting the deduction. The Revenue contended that the assessee indeed manufactures polyurethane foam covered by Entry 25 in the Eleventh Schedule, thus challenging the Tribunal's interpretation.Issue 3: End Product vs. Raw Materials for Deduction EligibilityA significant aspect of the case involves the debate over whether the end product or the raw materials used should determine eligibility for deduction under Section 80IB. The respondent argued that the focus should be on the end product, i.e., the automobile seats, rather than the raw material, polyurethane foam. However, the Revenue emphasized that the assessee's manufacturing process involves producing polyurethane foam in the shape of seats without further altering its original character, thus falling under Entry 25 of the Eleventh Schedule.The judgment ultimately favored the Revenue, ruling in favor of the interpretation that the assessee's manufacturing process aligns with Entry 25 of the Eleventh Schedule, thereby disqualifying them from claiming deduction under Section 80IB. The court highlighted the importance of consistency in applying legal principles and rejected the principle of consistency based on past benefit allowances.