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Facts
The assessee, a partnership firm engaged in manufacturing, claimed deduction under Section 80IC for Assessment Years 2018-19 and 2019-20. The Assessing Officer (AO) partly disallowed this claim, citing issues with expansion, use of old machinery, and the business source. The CIT(A) deleted the disallowance, leading to the Revenue's appeals.
Held
The Tribunal noted that the CIT(A) had extensively dealt with the matter, considering the AO's observations and the assessee's evidence, along with judicial precedents. The CIT(A)'s conclusion that the AO's grounds for disallowance were not sustainable was found to be based on correct facts and legal reliance.
Key Issues
Whether the CIT(A) erred in deleting the disallowance of deduction under Section 80IC made by the AO on grounds related to substantial expansion, use of old machinery, and the source of income from eligible business.
Sections Cited
143(3), 80IC
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH, ‘E’: NEW DELHI
Before: SHRI SATBEER SINGH GODARA
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, ‘E’: NEW DELHI BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTNAT MEMBER
ITA Nos.611 & 1244/DEL/2023 [Assessment Years: 2018-19 and 2019-20] DCIT, Central Circle-20, Room M/s Lotus Herbals Colour Cosmetics No.269A, 2nd Floor, ARA Centre, Forest Lane 2, Shaheed Bhawan, E-2, Jhandewalan, Vs Near Gittorni Metro Station, New Delhi-110055 Sultanpuri, Delhi-110030 PAN-AADFL5335L Assessee Revenue Assessee by Ms. Deepashree Rao, Adv. Shri Jitender Bhati, CA Revenue by Ms. Amish S Gupt, CIT-DR Date of Hearing 05.01.2026 Date of Pronouncement 07.01.2026
ORDER PER AMITABH SHUKLA, AM,
The captioned appeals have been preferred by the assessee against order both dated 14.12.2022 and 27.02.2023 of the Learned Commissioner of Income Tax (Appeals)-27, New Delhi, [hereinafter referred to as ‘ld. CIT(A)] arising out of assessment orders both dated 30.09.2021 and 30.04.2021 passed u/s 143(3) of the Income Tax Act, 1961 pertaining to Assessment Years 2018-19 and 2019-20 respectively. The word ‘Act’ herein this order would mean Income Tax Act, 1961.
ITA No.611 & 1244/Del/2023
Both the appeals of the Revenue are on identical grounds of deletion of disallowance of assessee’s claim of deduction under section 80IC by the ld. Frist Appellate Authority which was made by the ld. Assessing Officer. Since, the facts of both the appeals are identical and hence both the above appeals were heard together and are being adjudicated by this common order. Further, for the purposes of this order, we have taken facts and figures for AY 2018-19. As facts for all the AY 2019-20 are identical, decision taken for AY 2018-19 would apply mutatis mutandis to AY 2019-20. The Revenue has raised following grounds of appeal in AY 2018-19:-
The Ld. CIT(A) has erred on facts and in law by partly allowing the appeal of the assessee in deleting the disallowance of claim of deduction u/s 80IC of the Income Tax Act, 1961 of Rs. 20,79,90,525/- by ignoring the findings of the AO and substantial evidence available 02. The Ld. CIT(A) has erred on facts and in law in deleting the disallowance by ignoring the fact that M's Kanidhi Cosmeceuticals' (KC) eligibility for availing deduction u's 801C of the Act was lapsing in FY 2017-18, and second-hand machinery, staffs, and land of KC were transferred to M's LHCC by forming bogus entities to continue claiming deduction u/s 801C of the Act, as accepted by Shri Mukesh Kumar, Production Manager of LHCC. 03. The Ld. CIT(A) has erred on facts and in law in deleting the disallowance by ignoring the fact that during FY 2017-18, the assessee had increased the investment by Rs. 1.76 Crores in the plant and machinery of LHCC, which was more than 50% of the book value of plant and machinery before taking depreciation as on 01.04.2017 along-with the fact that there was evidence of generated old/backdated bills for machinery purchased for LHCC during FY 2017-18 in the whatsapp chats of Shri Nitin Passi. 04. The Ld. CIT(A) has erred on facts and in law in deleting the disallowance by ignoring the fact that to claim deduction u's 80IC Page 2 of 7
ITA No.611 & 1244/Del/2023
of the Act, the undertaking or enterprise must satisfy the conditions mentioned therein i.e. "the undertaking or the enterprises should have commenced its operations or the substantial expansion is undertaken on or after January 7, 2003 but before April 1, 2012, in the state Himachal Pradesh or Uttarakhand"., which were not met by the assessee. 05. The Ld. CIT(A) has erred on facts and in law in deleting the disallowance by ignoring the fact that during post-survey investigation, it was found that significant finished goods that were produced by KC during the year, were sold by LHCC only for availing deduction u/s 801C of the Act, and while the total turnover of LHCC increased by 22 Crores in a period of 6 years from FY 2010-11 to FY 2016-17, the same increased by Rs. 158 Crores only during FY 2017-18, indicating that the entire business of KC was shifted to LHCC just for availing the deduction. 06. The Ld. CIT(A) has erred on facts and in law in deleting the disallowance by ignoring the fact that after the closure of KC, LHCC continued manufacturing skin care products of Lotus group that were previously made by KC, allowing KC to indirectly claim deduction u/s 801C through LHCC, beyond the permissible limit, which was against the intent of section 801C of the Act and also ignoring the fact that if KC had continued its production of skin care products beyond the limit, its entire total income would have been taxable during F.Y. 2017-18. 07. (a) The order of the Ld. Commissioner of Income Tax (Appeals) is erroneous and not tenable in law and on facts. (b) The appellant craves to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal. 3. The ld. DR invited our attention to the following brief facts of the case. Thus, it was informed that the assessee is a partnership firm incorporated on 12.08.2009 (read with Retirement of Partnership Deed dated 20.4.2015 executed after the death of erstwhile partner Sh. H J Kamal Passi) and consisted of partners for the relevant assessment year namely Mrs. Swarn Lata Passi 50 % and Mr. Nitin Passi and Mr. Dipin Passi. The last two partners having 25% each Page 3 of 7
ITA No.611 & 1244/Del/2023
share. The assessee was engaged in the business of manufacturing of make-up products till FY 2016-17 at its eligible unit in Baddi. During the year under consideration, (i.e financial year 2017-18 relevant to AY 2018-19) the assessee also diversified its product profile into skin care and allied products as well apart from make-up products. For the assessment year 2018-19, the year under consideration, the assessee claimed deduction of Rs.27,92,96,406/- under section 80-IC of the Act, being the 9th year of claim, in respect of the profits of the Baddi Unit, which comprised of profits of the makeup products and also the skin care products. While framing the assessment for the year under consideration, the Ld AO, partly disallowed deduction u/s 80-IC to the tune of Rs. 20,79,90,525/- (Out of total deduction claimed at Rs. 27,92,96,406/-). While making the impugned disallowance, the ld. AO referred to several discrepancies, deficiencies and short comings in the assessee’s claim. From the connected survey proceedings against the assessee under section 133A, It was noted, inter alia, from pages 47 to 49 of the AO’s order that the deduction was resting upon old machinery used for manufacturing activity, bogus purchase of machinery, sham transaction of machinery sale and purchase, irregular use of staffs, irregular staff transfer, in eligible business qua 80IC deduction, indulgence in apparent tax evasion etc.
Per Contra, the ld. DR placed heavy reliance upon the order of the ld. Assessing Officer to assail the findings of ld. CIT(A).
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ITA No.611 & 1244/Del/2023
The ld. Counsel for the assessee reiterated the arguments made before the ld. First Appellate Authority and submitted that the appellate order correct understanding and appreciation of the facts of the case and does not require any intervention at this stage.
We have heard rival submissions in the light of material placed on record. We have noted that the ld. CIT(A) has extensively dealt the matter as evident from page-4 to 78 of his order for AY 2018-19. All the observations made by the ld. AO have been considered in the light of evidences produced by the assessee as well as judicial precedents covering the matter. He has accordingly proceeded to conclude in para-6.23 of his order as under:-
“…..6.23 In view of the above discussion, the disallowance of deduction of Rs.20,79,90,525/-u/s 80IC of the Act made by the Id. AO on the ground that the i. assessee has carried out the Substantial expansion with old machineries beyond permissible time limit; and ii. source of income is not from eligible business as these new products were earlier produced by erstwhile KC is not found to be sustainable and therefore same is deleted and this ground of appeal is hereby allowed…..” 7. We have noted that the conclusions drawn by the ld. CIT(A) are based upon correct understanding of the facts of the case as well as reliance upon relevant judicial pronouncements. Accordingly, we do not find any need for any intervention in the order of the ld. CIT(A) at this stage. We therefore confirm the order of the ld. CIT(A) and dismiss all the grounds of appeal no.1 to 7 raised by the appellant revenue. Page 5 of 7
ITA No.611 & 1244/Del/2023
In the result, ITA No.611/Del/2023 is dismissed.
We have noted that the facts for the AY 2019-20 in revenue’s appeal vide ITA No.1244/Del/2023 are identical to ITA No.611/Del/2023, decision taken for AY 2018-19 would apply mutatis mutandis to AY 2019-20. No distinguishment of facts have been pointed out by the contesting parties. Accordingly, all the grounds of appeal raised by the Revenue in ITA No.1244/Del/2023 for the AY 2019-20 are also dismissed.
10 In the result, both appeals of the Revenue are dismissed.
Order pronounced in the open court on 07th January, 2026.
Sd/- Sd/- Sd/- [SATBEER SINGH GODARA] [AMITABH SHUKLA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 07.01.2026 Shekhar Copy forwarded to: 1. Appellant 2. Respondent 3. PCIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi,
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