Revenue appeal dismissed on 10AA deduction; CSR payments to foundation remitted for 80G verification with receipts required

ITAT Delhi - AT dismissed the Revenue's appeal regarding eligibility for deduction under section 10AA, finding no merit in Revenue's grounds because prior bench and CIT(A) findings showed use of existing plant & machinery did not exceed the 50% threshold. On the section 80G issue, the tribunal held that CSR payments to the foundation may qualify as donations if statutory conditions are met; the claim was remitted to the AO for verification. The assessee must furnish donation receipts and 80G certificates within one month, and the AO shall verify and allow the deduction if the legal requirements are satisfied.

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ISSUES PRESENTED AND CONSIDERED

1. Whether units are eligible for exemption under section 10AA where certain plant and machinery were acquired from an existing business and used in SEZ units (issue includes whether unit is formed by transfer to a new business of previously used plant & machinery and the effect of value threshold of used assets).

2. Whether depreciation can be allowed for SEZ units in the absence of separate books of account for the respective units.

3. Whether amounts expended as corporate social responsibility (CSR) and paid to a foundation qualify as deduction under section 80G, and what documentary/verification requirements must be satisfied before allowing such deduction.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Eligibility under section 10AA where some plant & machinery were transferred from an existing business

Legal framework: Section 10AA(4) prescribes conditions for claiming exemption for SEZ units, including that a unit shall not be "formed by the transfer to a new business of machinery or plant previously used for any purpose." Eligibility may be affected if transferred used assets exceed the statutory threshold (as interpreted by relevant authorities).

Precedent treatment: The Tribunal followed a prior coordinate-bench decision in the assessee's own earlier assessment years and the appellate authority's order for AY 2013-14 which had considered identical facts and legal issues. That earlier order found eligibility for exemption under section 10AA despite transfer/acquisition of assets, on analysis of the transfer agreement and the extent/value of transferred assets.

Interpretation and reasoning: The Court examined the assessment record, the agreement of slump sale and audited financial note showing transfer of assets of a specified value, and the earlier appellate findings. The Tribunal accepted the factual finding that assets valued at approximately Rs. 40.72 lakh were part of a running business acquired by slump sale and that the transferred/used assets, even if assumed to be used in SEZ units, constituted less than the materiality threshold (expressed in earlier orders as less than 50% of plant & machinery). The Revenue did not controvert the factual finding on percentage/value. Given parity of facts with the coordinate-bench decision, the Tribunal respectfully followed that precedent and directed deletion of the addition made by the AO.

Ratio vs. Obiter: Ratio - Where transferred used plant & machinery constitute less than the materiality threshold relied upon in prior appellate orders (here, <50% of value of plant & machinery), the unit is not treated as "formed by the transfer to a new business of machinery or plant previously used" within the meaning of section 10AA(4), and exemption under section 10AA can be allowed. The reliance on the prior coordinate-bench decision is central to the dispositive ratio. Obiter - Narrative details of the slump sale clauses and alternative percentage calculations are explanatory and supportive but not separately authoritative beyond the factual parity.

Conclusion: The appeals on this issue are dismissed (in favour of the assessee). The assessing officer is directed to delete the addition and accept eligibility under section 10AA for the relevant units, following the coordinate-bench precedent and the uncontested finding that the value of used assets is below the relevant threshold.

Issue 2 - Allowance of depreciation in absence of separate books for respective units

Legal framework: Depreciation is allowable under the Income-tax Act where assets are used for the purposes of the business; questions of allocation between units may arise where a single set of books exists for multiple units.

Precedent treatment: The CIT(A) and a coordinate-bench ITAT decision in the assessee's own earlier years addressed the same factual situation and allowed depreciation despite absence of separate books of account for each unit.

Interpretation and reasoning: Given parity of facts and the earlier appellate rulings, the Tribunal found no error in the CIT(A)'s allowance of depreciation. The matter was concluded on the basis that the appellate findings in earlier assessments directly govern the present assessments.

Ratio vs. Obiter: Ratio - Where factual parity exists with an earlier coordinate-bench decision that allowed depreciation despite consolidated books, the assessing officer must follow that precedent; the allowance in such circumstances is justified. Obiter - The judgment does not elaborate further on normative principles for allocation methodology.

Conclusion: Ground challenging allowance of depreciation is dismissed; depreciation allowed as per CIT(A) and prior ITAT decision.

Issue 3 - Claim of deduction under section 80G for amounts paid as CSR to a foundation

Legal framework: Section 80G allows deduction for certain donations subject to specified conditions and documentary requirements. Deduction is dependent on statutory criteria, proper classification of the payment as a qualifying donation, and production of requisite evidence such as donation receipts and 80G certificates issued by the donee.

Precedent treatment: The Tribunal relied on coordinate-bench decisions (including recent ITAT orders) which have considered allowability of contributions made as part of CSR and, in some instances, permitted deduction under section 80G where legal conditions were met. A prior Delhi bench decision (Max New York Life Insurance Co.) was cited for the procedure to be followed when requisite details were not furnished to the appellate authority.

Interpretation and reasoning: The Tribunal recognized that some coordinate-bench decisions have permitted section 80G claims arising out of CSR contributions but emphasized that the statutory conditions of section 80G must be satisfied. In the present case, the necessary details and documentation required by section 80G were not placed before the Tribunal. Following precedent, the Tribunal remitted the matter to the Assessing Officer for verification and directed the assessee to furnish relevant information, donation receipts and 80G certificates so that the AO may examine compliance with the statutory conditions and allow deduction if the requirements are met.

Ratio vs. Obiter: Ratio - Allowance of deduction under section 80G for CSR contributions is conditional; where requisite documentary evidence and statutory conditions are not before the appellate authority, the claim must be remitted to the assessing officer for verification and decision in accordance with law. Obiter - Observations about other ITAT benches allowing 80G claims for CSR contributions are persuasive but not determinative without satisfying section 80G requirements.

Conclusion: The claim for deduction under section 80G is set aside to the file of the Assessing Officer with directions to the assessee to furnish donation receipts and 80G certificates; AO to verify compliance with section 80G and allow deduction if details are found in order.

Cross-references and Disposition

All issues were resolved applying coordinate-bench precedents where factual parity existed; the Tribunal followed earlier decisions in favour of the assessee for section 10AA eligibility and depreciation (grounds dismissed). The section 80G claim was remitted for verification due to absence of required documentation, following the procedure indicated by prior appellate authority. Appeals by Revenue were dismissed or dismissed in part as recorded.

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