High Court upholds revenue appeal on small scale industry deduction eligibility

The High Court of Bombay ruled in favor of the revenue in an appeal challenging the Income Tax Appellate Tribunal's order regarding a small scale industry's deduction under Section 80IB for Assessment Year 2010-11. The court held that the conditions for qualifying as a small scale industry for the deduction do not need to be fulfilled on a year-to-year basis but only in the initial year, aligning with a previous Supreme Court decision. Consequently, the appeal was allowed in favor of the revenue, denying the assessee's claim for the deduction.

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Issues:
Challenge to order of Income Tax Appellate Tribunal regarding deduction under Section 80IB for a small scale industry for Assessment Year 2010-11.

The High Court of Bombay heard an appeal challenging the order of the Income Tax Appellate Tribunal related to the Assessment Year 2010-11 under Section 260A of the Income Tax Act, 1961. The main question of law raised was whether the conditions for qualifying as a small scale industry for the purpose of deduction under Section 80IB needed to be fulfilled on a year-to-year basis or only in the initial year. The appeal was admitted based on this substantial question of law, and the court decided to dispose of the appeal finally at this stage at the request of the parties.

The court noted that the question raised in the appeal had already been settled by the Supreme Court in a previous case, Deputy Commissioner of Income Tax Vs. ACE Multi Axes Systems. The decision in that case was in favor of the revenue, stating that the conditions for qualifying as a small scale industry for the purpose of deduction under Section 80IB do not need to be fulfilled on a year-to-year basis but only in the initial year. Therefore, the High Court answered the substantial question of law in the negative, favoring the revenue and ruling against the assessee. As a result, the appeal was allowed in favor of the revenue.

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