TMI Blog2013 (9) TMI 399X X X X Extracts X X X X X X X X Extracts X X X X ..... guments of the Revenue that it is not a small scale industry or it manufacture an item contained in Schedule XI of the “Act” do not hold any ground – Decided against the Revenue. - ITA No.1581/Mds/2012 - - - Dated:- 29-1-2013 - O K Narayanan and S S Godara, JJ. For the Appellant : Shri Guru Bashyam, JCIT For the Respondent : Dr Anita Sumanth, Adv. ORDER:- Per: S S Godara: This appeal by the Revenue and Cross Objections at the behest of the assessee, emanate from the order of the Commissioner of Income Tax (Appeals) XII, Chennai dated 23.05.2012 in ITA No. 326/2011-12 for assessment year 2009-10. The assessment was framed under section 143(3) of the Income Tax Act 1961 [in short the Act ]. 2. The Revenue has raised following grounds in the appeal: 1. The learned Commissioner of Income Tax (Appeals) has erred in law and facts of the case in holding that the assessee is entitled for deduction u/s 80lB of the I.T. Act. 2. The learned Commissioner of Income Tax (Appeals) has erred in law and facts of the case in not appreciating the fact that the assessee claiming to be a Small Scale Industrial Undertaking has to satisfy all the conditions laid down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 is contrary to law, facts and circumstances of the case and opposed to the principles of natural justice. (ii) The Commissioner of Income Tax (Appeals) erred in making the disallowance u/s 14A notwithstanding the fact that the investment has not yielded any income during the current year. Sec.14A is attracted only in a situation where the total income of an assessee includes income that is exempt. In so far as the investment has not yielded any income, there is no exempt income included in the total income of the appellant. Accordingly, the provisions of Sec.14A would not apply. (iii) The Commissioner of Income Tax (Appeals) erred in not considering the case of Dy. CIT vs. Jindal Photo Ltd which held that the provisions of Rule 80 cannot be invoked mechanically by the authorities, hence the addition is liable to be cancelled. (iv) The Commissioner of Income Tax (Appeals) erred in relying on the decision of the Special Bench of the ITAT in making the disallowance u/s 14A. The decision is not applicable to the facts and legal position involved in the present case. (v) The Commissioner of Income Tax (Appeals) erred in arbitrarily disallowing a sum of Rs. 4,83,414 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not even a small scale industry under IDR Act (supra) for a small scale industry, the cap on investment amount was fixed at Rs.1 crore and the assessee s investment stood more than that. In the light of the observations, the Assessing Officer disallowed assessee s claim of deduction under section 80IB of the Act and added the amount of Rs.2,02,92,732/- in assessee s total income. 7. Similarly, in the assessment proceedings, the Assessing Officer noticed that the assessee had claimed dividend income of Rs.10,61,830/- as exempt income under section 10(35) of the Act . Therefore, the Assessing Officer invoked section 14A read with Rule 8D. On this, the assessee is stated to have itself worked out the disallowance at Rs.4,83,414/- which was added by the Assessing Officer in the assessment order. Accordingly, the assessee s total income was computed at Rs.8,60,32,030/-. 8. Aggrieved by both above disallowances, the assessee carried the matter in appeal. On the ground of deduction under section 80IB of the Act , the CIT(A) has accepted assessee s contentions. Per Revenue, the CIT(A) has held as under: (i) From the above provisions. it is clear that claiming the deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in respect of profits and gains from certain industrial undertaking other than infrastructural development undertaking] being a small scale industrial undertaking under the provisions of the Act and also because it is carrying its business from Pondicherry i.e. industrially backward State under section 80IB(4) of the Act . We deem it appropriate to reproduce the provisions itself which reads as under: 80-IB. (1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (3) to 41[(11), (11A) and (11B)] (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely :- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence : Provided that this condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power. (3) The amount of deduction in the case of an industrial undertaking shall be twenty-five per cent (or thirty per cent where the assessee is a company), of the profits and gains derived from such industrial undertaking for a period of ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co-operative society) beginning with the initial assessment year subject to the fulfilment of the following conditions, namely:- (i) it begins to manufacture or produce, articles or things or to operate such plant or plants at any time during the period beginning from the 1st day of April, 1991 and ending on the 31st day of March, 1995 or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular undertaking; (ii) where it is an industrial undertaking being a small scale industrial undertaking, it begins to manufacture or produce articles or things or to operate its cold storage plant [not specified in sub-section (4) or subsection (5)] at any time d ..... 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