2021 (12) TMI 943 - HC - Income Tax

High Court rules for assessee on section 80IA & 36(1)(vii) issues, emphasizing control over manufacturing process.

The Commissioner of Income Tax-I Coimbatore. Versus M/s. Elgi Ultra Industries Ltd.

The Commissioner of Income Tax-I Coimbatore. Versus M/s. Elgi Ultra Industries Ltd. - TMI Issues involved:1. Eligibility for relief under section 80IA of the Income Tax Act for an assessee engaged in assembling parts procured from others.2. Allowance of bad debts written off in the books of accounts under section 36(1)(vii) of the Income Tax Act.Detailed Analysis:1. Eligibility for relief under section 80IA:The first substantial question of law in the case revolved around whether the assessee, engaged in assembling parts procured from others, was eligible for relief under section 80IA of the Income Tax Act. The High Court referred to a previous order in a similar case where it was established that even if the assessee did not personally engage in manufacturing but exercised control over the job work, they could qualify for the relief. The court emphasized the importance of control exercised by the assessee over the manufacturing process, including supervision and quality control. Citing various precedents, the court concluded that as long as the assessee effectively controlled the manufacturing process, they were entitled to the benefit under section 80IA. Based on this reasoning, the court rejected the Revenue's appeal, confirming the Tribunal's order in favor of the assessee.2. Allowance of bad debts written off:The second substantial question of law dealt with the allowance of bad debts written off in the books of accounts under section 36(1)(vii) of the Income Tax Act. The court noted that the assessing officer had disallowed the claim for deduction, arguing that the debts were taken over voluntarily from sister concerns and were known to be irrecoverable. However, the Commissioner of Income Tax (Appeals) and the Tribunal allowed the claim, considering the transactions as part of the assessee's business activity permitted by the Memorandum and Articles of Association. Since there was no dispute over the factual position, the court upheld the Tribunal's decision, answering the second substantial question of law in favor of the assessee. Additionally, the court highlighted a previous order in favor of the assessee for the assessment years 2002-03 and 2003-04, further supporting the dismissal of the tax case appeal.In conclusion, the High Court upheld the decisions in favor of the assessee on both issues, emphasizing the importance of control in the manufacturing process for claiming relief under section 80IA and allowing the deduction for bad debts written off in the books of accounts under section 36(1)(vii) of the Income Tax Act.