INCOME TAX OFFICER, WARD-3(1), HYDERABAD vs. REGENCY CERAMICS LIMITED, HYDERABAB

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ITA 1337/HYD/2024Status: DisposedITAT Hyderabad02 June 2025AY 1999-200031 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the assessee is entitled to the claim of deduction under Section 80IA read with Section 33B of the Act. The Tribunal interpreted the term 'discontinuance' of business by referring to its dictionary meaning, which includes a temporary interruption. The Tribunal found that the Revenue's interpretation of 'discontinuance' as requiring permanent disruption with no intention to carry on the business would defeat the purpose of the concession provided in Section 80IA read with Section 33B. The Tribunal reasoned that the proviso to Section 80IA(2)(i) carves out an exception for undertakings formed by re-establishment, reconstruction, or revival of a business referred to in Section 33B. If 'discontinuance' meant permanent cessation, this concession would be rendered meaningless. The Tribunal upheld the CIT(A)'s view that the assessee's business was interrupted due to the cyclone, which falls under the circumstances envisaged in Section 33B, thus dispensing with the pre-condition of the undertaking not being formed by splitting up or reconstruction of an existing business. The grounds of appeal raised by the Revenue were dismissed.

What were the facts?

The Revenue filed appeals against the orders of the CIT(A) for Assessment Years 1998-99 to 2002-03. The assessee, Regency Ceramics Limited, engaged in manufacturing ceramic tiles, had claimed a deduction under Section 80IA read with Section 33B of the Income Tax Act, 1961, while computing its book profit under Section 115JA. The Assessing Officer (AO) had disallowed this claim. The matter went through multiple rounds of litigation. Initially, the Tribunal remitted the issue back to the AO for verification. Subsequently, the CIT(A) allowed the deduction, finding that the assessee's factory was extensively damaged by a cyclone on November 6, 1996, leading to a stoppage of production from November 6, 1996, to December 20, 1996. The Revenue's appeals are against this allowance of deduction.

What were the issues?

1. Whether the assessee is entitled to deduction under Section 80IA read with Section 33B of the Income Tax Act, 1961, when there was no reconstructed or revived business unit as per Section 33B? (Question of law) 2. Whether the damage sustained by the assessee, amounting to 5-6% of assets and stock, qualifies as 'extensive' damage as contemplated by Section 33B? (Question of mixed law and fact) 3. Whether a temporary stoppage of production due to a natural calamity constitutes 'discontinuance of business' for the purpose of Section 33B? (Question of law) Assessee's Contention: The assessee argued that the deduction claimed under Section 80IA read with Section 33B was permissible as per clause (v) of sub-section (2) of Section 115JA of the Act, which allows reduction of profits derived by an industrial undertaking referred to in Section 80IA from book profits. The assessee also relied on a confirmation from Customs and Central Excise authorities regarding the stoppage of production due to the cyclone. Revenue's Contention: The Revenue contended that there was no reconstructed or revived business unit as per Section 33B. They argued that 'extensive damage' implies a large scale of damage, which was not met by the 5-6% damage to assets and stock. Furthermore, the Revenue argued that a temporary stoppage of production does not amount to 'discontinuance of business' as per CBDT Circular No. 5-P (LXXVI-63) of 1967, which implies complete cessation of business. They relied on the said circular.

Which sections of the Income-tax Act were involved?

Section 80IA,Section 33B,Section 115JA,Section 143(3),Section 254,Section 80HHC

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Hyderabad ‘B‘Bench, Hyderabad

आदेशकी प्रतततिति अग्रेतषत/ Copy of the order forwarded to:- 1. तिर्ााररती/The Assessee : Regency Ceramics Limited, 6-3-1090/A/7/IMS House Rajbhavan, Somajiguda, Hyderabad, Telangana-500082.

31 ITO, Ward 3(1), Hyderabad Vs. Regency Ceramics Ltd.

1337 to 1340/Hyd/2024 AY(s). 1998-99 to 2002-03

2.

राजस्व/ The Revenue Income Tax Officer, Ward-3(1), 7th Floor, Signature : Towers, Kodapur, Hyderabad, Telangana-500084.

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