2018 (6) TMI 412 - AT - Income Tax

Tribunal confirms 100% tax deduction for manufacturing activities under Section 80IC

The Tribunal upheld the CIT(A)'s decision allowing 100% deduction under Section 80IC for the assessee engaged in manufacturing activities. The assessee's ... Entitlement to exemption u/s 80IC - Held that:- Since the deduction u/sec 80IC shall not in any case exceeds 10 assessment years, as specified in sub section (6), the appellant shall be eligible to claim deduction upto A. Y. 2013-14 at rate of deduction as may be applicable. From the submission made by the appellant and facts placed on records, AY 2011-12 is the 8th year of claiming deduction under the section 80IC and same shall be allowed till AY 2013-14. - Decided in favour of assessee. Issues Involved:1. Justification of 100% deduction under Section 80IC.2. Justification of 100% deduction in the eighth year based on expansion in the fifth year.3. Legality of claiming 100% exemption for ten years and 25% exemption for the next five years.4. Ignoring the Assessing Officer's observations in disallowing the deduction under Section 80IC.5. Acceptance of additional evidence under Rule 46A without giving an opportunity to the AO.Detailed Analysis:Issue 1: Justification of 100% deduction under Section 80IC:The Revenue challenged the Ld. CIT(A)'s decision to allow 100% deduction under Section 80IC, arguing that the assessee was performing job work for Heinz India Pvt. Ltd. and not manufacturing. The Ld. CIT(A) found that the assessee was indeed engaged in manufacturing Glucon-D and other food products, which were distinct from the raw materials used. The CIT(A) noted that the manufacturing unit was owned and managed by the assessee, who complied with all regulatory formalities and had been consistently recognized as a manufacturer by various authorities. The Tribunal upheld the CIT(A)'s decision, citing relevant case laws and the definition of manufacturing, concluding that the assessee was entitled to the deduction.Issue 2: Justification of 100% deduction in the eighth year based on expansion in the fifth year:The Revenue contended that the assessee should not receive 100% exemption in the eighth year based on expansion in the fifth year. The CIT(A) observed that the assessee had made substantial investments in plant and machinery, qualifying as substantial expansion under Section 80IC(8)(ix). Consequently, the initial assessment year was reset to AY 2008-09, allowing 100% deduction for five years starting from AY 2009-10. The Tribunal agreed with the CIT(A), noting that the law allowed for substantial expansion without requiring a new unit and that the assessee had fulfilled all conditions for the deduction.Issue 3: Legality of claiming 100% exemption for ten years and 25% exemption for the next five years:The Revenue argued that the assessee's claim of 100% exemption for ten years and 25% for the next five years was against the provisions of Section 80IC. The CIT(A) clarified that the assessee was entitled to 100% deduction for the first five years and 25% for the next five years, with the initial assessment year reset due to substantial expansion. The Tribunal upheld this interpretation, confirming that the assessee's claim was in line with the statutory provisions and the intention of the law.Issue 4: Ignoring the Assessing Officer's observations in disallowing the deduction under Section 80IC:The Revenue contended that the CIT(A) ignored the AO's observations in disallowing the deduction. The CIT(A) had reviewed the AO's reasoning and found it unsupported by the facts and law. The Tribunal concurred with the CIT(A), noting that the AO's conclusions were based on a misinterpretation of the manufacturing process and the provisions of Section 80IC. The Tribunal found no merit in the AO's disallowance and upheld the CIT(A)'s decision.Issue 5: Acceptance of additional evidence under Rule 46A without giving an opportunity to the AO:The Revenue claimed that the CIT(A) accepted additional evidence without giving the AO an opportunity to respond, violating Rule 46A. The Tribunal found no mention of additional evidence being accepted in the CIT(A)'s order. Since no additional evidence was admitted, the issue of contravention of Rule 46A did not arise, and the Tribunal dismissed this ground of appeal.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s well-reasoned order on all issues. The assessee's entitlement to 100% deduction under Section 80IC was affirmed, and the grounds raised by the Revenue were rejected. The appeal filed by the Revenue was dismissed.