2024 (12) TMI 1619 - AT - Income Tax

Assessee's activities held manufacturing; entitled to deduction under Section 80IC(2); TDS credit referred back for AO review

DCIT, Mumbai Versus Jyothy Labs Ltd.

DCIT, Mumbai Versus Jyothy Labs Ltd. - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether the activity of preparing 'Ujala Supreme' by diluting Acid Violet 49 with water constitutes 'manufacturing' or 'producing' an article or thing within the meaning of section 2(29)(BA) of the Income-tax Act and thereby qualifies for deduction under section 80IC(2). 2. Whether the assessee can claim section 80IC(2) deduction notwithstanding prior arguments or adjudications by the assessee in other fora regarding the character of the product (consistency/estoppel point), where identical facts and earlier ITAT orders for other assessment years are relied upon. 3. Whether the assessee is entitled to claim TDS credit of Rs. 3,22,008 arising in respect of the amalgamating company pursuant to a court-approved scheme of amalgamation, and whether the return/assessment record should be rectified to reflect such credit (scope of rectification/remand to assessing officer). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Manufacturing for section 80IC(2) eligibility Legal framework: Section 80IC(2) confers deduction for income of units engaged in specified industrial/manufacturing activities; section 2(29)(BA) defines 'manufacture'/'produce' for the purpose of such incentives, requiring production of an article or thing with a different chemical composition or integral structure. Precedent treatment: The Tribunal considered prior ITAT orders in the assessee's own case for assessment years 2009-10 to 2014-15 which held in favour of the assessee on identical facts; those orders were relied on as covering the present issue. The Revenue has sought higher-court review, but those proceedings are pending and did not alter the Tribunal's treatment in the present matter. Interpretation and reasoning: The Court accepted the parties' agreement that the factual matrix is identical to earlier years and that the prior ITAT findings are applicable. Applying the statutory definition and the earlier decisions, the Court concluded that the process of preparing Ujala Supreme by diluting Acid Violet 49 amounts to a manufacturing activity within the meaning of section 2(29)(BA), thereby satisfying the requirement for eligibility under section 80IC(2). Ratio vs. Obiter: Ratio - Where the facts are the same as in earlier favorable ITAT determinations, the preparation process involving dilution that results in a product treated as distinct for the purposes of tax incentives qualifies as 'manufacturing' under section 2(29)(BA), entitling the taxpayer to deduction under section 80IC(2). Obiter - The Court did not elaborate general tests beyond applying the earlier determinations to the identical facts; broader principles concerning borderline cases were not authoritatively laid down. Conclusion: The Court adjudicated, on the basis of identical facts and prior ITAT decisions relied upon by the assessee and not successfully disturbed by the Revenue to date, that the activity constitutes manufacturing and allowed the deduction under section 80IC(2) (first two grounds decided in favour of the assessee). Issue 2 - Consistency/estoppel from prior assertions by the assessee Legal framework: Principles of consistency and estoppel inform whether a party can take a position contrary to an earlier stance taken in judicial or quasi-judicial proceedings; administrative reliance on prior adjudications in identical factual circumstances is relevant to the exercise of appellate discretion. Precedent treatment: The Tribunal noted and applied the assessee's own prior ITAT orders for multiple assessment years, treating them as binding in context of identical facts. The Revenue's appeal to the High Court was pending and did not prevent the Tribunal from following earlier ITAT conclusions for the present year. Interpretation and reasoning: The Court accepted the parties' concurrence that the issue was covered by the prior favorable ITAT decisions and therefore found no merit in the Revenue's contention that the assessee's earlier submissions (to a different forum) should estop it from claiming a contrary position. The Tribunal treated the prior ITAT findings as controlling on like facts, and the parties' agreement obviated further exploration of estoppel doctrine. Ratio vs. Obiter: Ratio - Where identical facts exist and prior departmental tribunal orders favorable to the taxpayer remain operative, those orders may be followed on similar facts even if the revenue has appealed further. Obiter - The decision did not engage in an extensive doctrinal analysis of estoppel or change-of-stance principles; applicability beyond the present factual parity was not declared. Conclusion: The Tribunal held that the prior ITAT findings cover the present assessment year and that the assessee is entitled to the deduction; the potential inconsistency argument did not displace the application of those earlier findings. Issue 3 - Claim of TDS credit arising from amalgamating company and rectification/remand Legal framework: On amalgamation effected pursuant to a scheme approved by the competent High Court, assets and liabilities (including tax credits) of the amalgamating company pass to the merged entity; Form 26AS and related records evidence TDS credits. The assessing officer's rectification powers and duty to verify claims are pertinent where computational or record-based corrections are sought. Precedent treatment: The Court relied on the scheme of amalgamation (court order) and the assessee's rectification application supported by Form 26AS and breakup of the amalgamating company's TDS credits. No precedent was overruled or distinguished on the point; the approach was administrative - direct remand to the assessing officer for verification. Interpretation and reasoning: The Tribunal accepted that the amalgamation transferred the amalgamating company's assets and liabilities and that the assessee claimed the corresponding TDS credit. Given that the rectification application dated 29.05.2018 remained pending, the Tribunal did not decide the substantive entitlement on the record before it but directed the assessing officer to examine Form 26AS and the breakup of TDS credits of the amalgamating company and take necessary action. The remand was limited to verification and action on the rectification request. Ratio vs. Obiter: Ratio - Where a court-approved amalgamation transfers the amalgamating company's tax credits, the merged entity may claim those credits, subject to verification; pending rectification/applicant records should be examined by the assessing officer and appropriate action taken. Obiter - The Tribunal did not pronounce on whether the specific TDS credit must be allowed or disallowed; it refrained from substantive adjudication and remitted the factual verification to the assessing officer. Conclusion: The Tribunal remitted the rectification application to the assessing officer with directions to verify Form 26AS and the breakup of the amalgamating company's TDS credits and to take necessary action; no final adjudication on the substantive allowance of the Rs. 3,22,008 credit was made by the Tribunal. Disposition The appeal by the Revenue was partly allowed for statistical purposes: the Tribunal upheld entitlement to deduction under section 80IC(2) (first two grounds resolved for the taxpayer) and remitted the third ground (TDS credit claim) to the assessing officer for verification and action on the pending rectification application.