SHRI KARAN RAWAT,NAINITAL vs. INCOME TAX OFFICER, WARD-5-3, JAIPUR

During the course of hearing, the ld AR submitted that assessee has been claiming deduction under section 80-IC since A.Y. 2011-12 and the same has never been disallowed. Further, for A.Y. 2013-14, the assessment was completed u/s 143(3) vide order dated 27.03.2016 and the assessee’s claim of 100% deduction of the profits under section 80-IC has been allowed. It was submitted that where deduction is allowed in continuation over a period, the eligibility has to be tested in the first year of claim. Thereafter, the eligibility cannot be questioned and the Revenue cannot be not allowed to breach the principles of consistency and in support, reliance was placed on the following judicial pronouncements:

It was further submitted that section 80-IC falls in Chapter VI-A-(c) of the IT Act, 1961 and provides for deduction of a percentage of profits and gains derived from the eligible business which is carried out through the undertaking/ enterprise situated in the specified states. An enterprise situated 2 Shri Karan Rawat vs. ITO in Uttaranchal can claim deduction under section 80-IC(2)(a) as well as 80- IC(2)(b) subject to fulfillment of certain conditions. The relevant provisions of section 80-IC(2) read as under:-

A perusal of above provisions reveals that deduction under section 80- IC(2) can be claimed by an enterprise situated in Uttaranchal under two clauses subject to fulfillment of certain conditions. 1. Section 80-IC(2)(a): a. The undertaking is not engaged in manufacturing or producing any article/ thing as specified in Thirteenth Schedule. b. The undertaking begins manufacturing after 07.01.2003 but before 01.04.2012. c. The undertaking is situated in an area which is notified by the Board in accordance with the scheme.

Section 80-IC(2)(b): a. The undertaking is engaged in manufacturing or producing any article/ thing as specified in Fourteenth Schedule. b. The undertaking begins manufacturing after 07.01.2003 but before 01.04.2012. c. The undertaking is situated in the state of Uttaranchal.

It was submitted that both the clauses i.e. 80-IC(2)(a) and 80-IC(2)(b) are overlapping under certain circumstances and in those circumstances, therefore, both are not mutually exclusive. Any assessee whose undertaking is situated in notified area can claim deduction in either of the clauses or even in both clauses. Since the assessee’s undertaking is situated in notified area, the assessee’s case also falls in both the clauses. The same is explained as under: Shri Karan Rawat vs. ITO 1. Section 80-IC(2)(a) a. The undertaking is not engaged in manufacturing or producing any article/ thing as specified in Thirteenth Schedule. b. The undertaking began manufacturing after 07.01.2003 and also before 01.04.2012 i.e. on 27.03.2010. c. The undertaking is situated at F-14, SIDC Industrial Area, Bhimtal, Nainital, Uttaranchal – 263136 which is at Khasra Nos. 687, 689 in Nainital Tehsil which falls in the Notification No. 177/2004 [SO 741] [F.No. 142/47/2003-TPL] dated 28-06-2004 issued by CBDT in accordance with the scheme. 2. Section 80-IC(2)(b) a. The undertaking is engaged in manufacturing of TV, DVD, LCD manufacturing which falls under entry 13 of Fourteenth Schedulei.e., “Information and Communication Technology Industry, Computer hardware, Call Centers". b. The undertaking began manufacturing after 07.01.2003 and also before 01.04.2012 i.e. on 27.03.2010. c. The undertaking is situated in the state of Uttaranchal.

It was further submitted that along with return of income, assessee filed Form-10CCB for claiming deduction u/s 80-IC. As submitted above, the case of the assessee falls in both the clauses, therefore, the auditor, in Form- 10CCB, reported that the undertaking of assessee is eligible for deduction under section 80-IC(2) as the undertaking is situated in the state of Uttaranchal and is engaged in manufacturing of TV, LCD etc.

It was further submitted that during the assessment proceedings itself, the assessee filed Form-10CCB as revised by the auditor herein the auditor categorically reported that assessee’s undertaking is situated at Khasra No. Shri Karan Rawat vs. ITO 687, 689 and manufactures TV, DVD, LCD and therefore, has claimed deduction u/s 80-IC(2)(a)(ii). In support, reliance was placed on the decision of Hon’ble Rajasthan High Court in case of ITO vs. Novelty Garments 175 CTR 306. Thus, during assessment proceedings, it was clarified that pre- dominantly the eligibility of the assessee falls under 80-IC(2)(a)(ii). During appellate proceedings, the overlapping situation of eligibility was also explained before the ld CIT(A).

It was further submitted that on account of original Form-10CCB, the AO did not examine the revised Form 10CCB and based his opinion on the earlier Form 10CCB where the claim was under both the clauses being overlapping situation. Further, the AO disallowed deduction u/s 80-IC by holding that the case of assessee does not fall under section 80IC(2)(b) because assembling and manufacturing of Television/LED and blaster of CFL bulbs, in his opinion, were not covered under the entries mentioned in Fourteenth Schedule. It was submitted that the assessee’s case falls under section 80-IC(2)(b) however, pre-dominantly it falls under section 80IC(2)(a) because:-

It was further submitted that the ld. CIT(A) erred in dismissing the appeal of the assessee by observing as under:-

In this regard, it was submitted that CBDT has issued Notification No. 177/2004 [SO 741] [F.No. 142/47/2003-TPL], dated 28.06.2004. The Khasra No. on which the undertaking of the assessee is situated find mention in the notification. Further, CBDT Notification requires the State to notify the industrial areas or estates which can claim deduction u/s 80-IC. The relevant extract of the notification is as under:

It was submitted that consequent to the above Notification, State Infrastructure and Industrial Development Corporation of Uttarakhand Ltd 8 Shri Karan Rawat vs. ITO (SIDCUL) notified Industrial areas one being SIDC Bhimtal. The state allotted different Khasra Nos. to different assessees, one of which is F-14 i.e. the undertaking of the assessee. It was not in dispute that the assessee is manufacturing any article or thing which is mentioned in Thirteenth Schedule. In view of above, it was submitted that since the undertaking of the assessee is situated in the notified area and is not engaged in the manufacturing of any article or thing which is mentioned in Thirteenth Schedule, the assessee is eligible for claiming deduction u/s 80-IC(2)(a).

Without prejudice to above, it was further submitted that there is no dispute with regard to the fact that the assessee’s undertaking is situated in Uttaranchal and it commenced its production within the period as specified. Further, the assessee is manufacturing TV, DVD, LCD which falls under entry 13 of Fourteenth Schedule i.e., “Information and Communication Technology Industry, Computer hardware, Call Centers". Thus, the assessee is also, alternatively, eligible to deduction u/s 80-IC(2)(b). It was submitted that the ld. AO erred in inferring that the products in which the assessee is dealing does not fall under entry 13 of Fourteenth Schedule i.e., “Information and Communication Technology Industry, Computer hardware, Call Centers". During the appellate proceedings, the eligibility of the assessee under 80- IC(2)(b) was explained before the ld CIT(A). The ld. CIT(A) has not disputed the same. However, the appeal was dismissed by ld. CIT(A) holding the assessee not eligible u/s 80-IC(2)(a). It is pertinent to note that Information and Communication Technology is an umbrella term that includes any communication device, encompassing radio, television, cell phones, computer and network hardware, satellite systems. Further, the Information Technology Act, 2000 defines communication devices as under:- Shri Karan Rawat vs. ITO “ Section 2(ha)-communication device: means cell phones, personal digital assistance or combination of both or any other device used to communicate, send or transmit any text, video, audio or image.”

It was submitted that Television is a mode of mass communication and is used to transmit any text, video, audio or image. Therefore, the same duly forms a part of the Information and Communication industry. In view of above, it was submitted that since the undertaking of the assessee is situated Uttaranchal and is engaged in the manufacturing of any article or thing which is mentioned in Fourteenth Schedule, the assessee is eligible for claiming deduction u/s 80-IC(2)(b) and the AO may be directed to allow the same.

Per contra, the ld. DR is heard who has relied on the order of the lower authorities and our reference was drawn to the findings of the ld CIT(A) which read as under: “2.3 I have perused the facts of the case, the assessment order and the submission of the appellant. Assessee is proprietor of M/s Sarla Industries appearing at F-14, SIDC, Industrial Area, Bhimtal and had claimed deduction under section 80IC of the Act on profits earned from such unit. This unit was engaged in manufacturing of LED TV’s etc. As per Assessing Officer, the items manufactured by assessee are not specified in 14th schedule of I.T. Act, of which part C pertains to Himachal & Uttaranchal.

We have heard the rival submissions and gone through the material available on record. We note that the undertaking in respect of which deduction has been claimed u/s 80IC is situated at Khasra Nos. 687, 689, F- 14, SIDC Industrial Area, Bhimtal, Nainital, Uttaranchal which falls in the 11 Shri Karan Rawat vs. ITO specified Industrial area as per Notification No. 177/2004 dated 28-06-2004 issued by the CBDT in accordance with the scheme framed and notified by the Central Government for the state of Uttaranchal. Apparently, the said notification was not brought to the notice of ld CIT(A) and in absence of the same, the ld CIT(A) has denied the deduction under section 80IC(2)(a)(ii) of the Act. There is no dispute that the undertaking satisfies the other conditions specified therein. It is engaged in the assembly and manufacturing of LED Televisions and blaster of CFL bulbs and is thus not engaged in manufacturing or producing any article/ thing as specified in Thirteenth Schedule. As per the assessment order for A.Y 2013-14 passed u/s 143(3) of the Act dated 27.03.2016, the Assessing officer has recorded a finding that financial year 2012-13 is the third year after commencement of business and is eligible for deduction u/s 80IC of the Act. Thus, financial 2010-11 would be the first year of commencement of business and the undertaking had begun manufacturing before 01.04.2012 and thus, satisfied all the conditions. Apparently, revised audit report in Form 10CCB has been filed during the course of assessment proceedings which was not considered by the AO on account of a mistake on the part of the auditor where he has wrongly mentioned the date of issue of such report as in the original audit report, however, there is no dispute that the assessee substantially complies with all the conditions as prescribed for claim of deduction u/s 80IC of the Act and during the appellate proceedings, the ld CIT(A) has accepted the revised audit report which is not disputed by the Revenue. The only dispute which remains before the ld CIT(A) was that there was no CBDT notification notifying the industrial area as per the scheme framed by the Central Government which the assessee has now filed and the same has been examined. In light of the aforesaid discussion, we set-aside the order of the lower authorities and direct the Assessing officer to allow the deduction u/s 80IC of the Act. The matter is accordingly decided in favour of the assessee and against the Revenue. Shri Karan Rawat vs. ITO In the result, the appeal filed by the assessee is allowed.