2019 (1) TMI 1018 - HC - Income Tax

Manufacturing Commencement Year Confirmed for Tax Deduction

Pr. Commissioner of Income Tax Versus M/s. Shah Originals

The High Court upheld the Tribunal's decision, affirming the assessee's claim that the initial year of commencement of manufacturing activity for ... Initial year of commencement of assessee's manufacturing activity for the purpose of deduction under Section 80IB - Held that:- Section 80IB of the Act grants certain deduction of profits and gains from certain industrial undertakings. Sub-section (3) of Section 80IB of the Act provides that such deduction at the specified rate would be available to such industrial undertaking for a period of 10 consecutive assessment years, beginning with the initial assessment year. The term “Initial Assessment Year” has been explained in subsection (14) to Section 80IB of the Act inter alia as to mean, in case of an industrial undertaking, the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things. It was in this context, the question arose before the Assessing Officer. As noted, the CIT(A) and the Tribunal concurrently came to the conclusion that the initial year for assessee was A.Y. 1994-95. This was on the basis of material produced by the assessee to establish that it was only in this period that the assessee had procured the material and started manufacturing. The registration as an industrial unit was granted only during the said period. We find no perversity in the finding of the Tribunal. The decision of this Court in case of Penwalt India Ltd. [1991 (4) TMI 33 - BOMBAY HIGH COURT] was rendered in entirely different background. It was a case in which the assessee had claimed expenditure on scientific research. The Court held that the assessee can be said to be engaged in the manufacturing activity, which is done directly by himself or even in which the assessee engages the services of somebody else on contract basis. It was found that the manufacturing activity carried on behalf of the assessee was also under the direct quality control and supervision of the assessee. On such findings, the Court granted the depreciation allowance to the assessee. - decided against Revenue Issues:1. Initial year of commencement of manufacturing activity for deduction under Section 80IB of the Income Tax Act, 1961.2. Interpretation of the term 'Initial Assessment Year' under Section 80IB.3. Discrepancy between the commencement of partnership and industrial undertaking.4. Consideration of relevant material procurement and commencement of manufacturing activity.Analysis:Issue 1: Initial year of commencement of manufacturing activity for deduction under Section 80IBThe case involved a dispute regarding the initial year of commencement of the assessee's manufacturing activity for claiming deduction under Section 80IB of the Income Tax Act, 1961. The Assessing Officer contended that the initial year was A.Y. 1992-93, while the assessee argued that it was A.Y. 1995-96. The assessee provided evidence that material procurement and manufacturing activity started in A.Y. 1995-96, which was accepted by the CIT(A) and the Tribunal. The Tribunal's decision was based on the material produced by the assessee to establish the commencement of manufacturing during that period.Issue 2: Interpretation of the term 'Initial Assessment Year' under Section 80IBSection 80IB of the Act provides for deductions from profits and gains for industrial undertakings for a specified period. The term 'Initial Assessment Year' is crucial as it determines the beginning of the 10-year deduction period. The Tribunal concluded that the initial year for the assessee was A.Y. 1994-95 based on the definition provided in subsection (14) of Section 80IB. This decision was supported by the evidence presented by the assessee regarding material procurement and manufacturing commencement during that period.Issue 3: Discrepancy between the commencement of partnership and industrial undertakingA significant point of contention was the distinction between the commencement of the partnership and the industrial undertaking. The assessee clarified that the partnership was formed earlier, but the manufacturing activity started in A.Y. 1995-96 when material procurement and industrial unit registration took place. This distinction was crucial in determining the initial year for claiming deductions under Section 80IB.Issue 4: Consideration of relevant material procurement and commencement of manufacturing activityThe assessee highlighted that material procurement and commencement of manufacturing activity occurred in A.Y. 1995-96, which supported their claim for deduction under Section 80IB. The Tribunal found no fault in the assessee's evidence and upheld the decision based on the timeline of events presented by the assessee. The Court's analysis emphasized the importance of material procurement and actual commencement of manufacturing activity in determining the initial year for claiming deductions under Section 80IB.In conclusion, the High Court upheld the decision of the Tribunal and dismissed the appeals, affirming the assessee's claim regarding the initial year of commencement of manufacturing activity for the purpose of deduction under Section 80IB of the Income Tax Act, 1961.