DCIT Vs Lotus Herbals Colour Cosmetics (ITAT Delhi)
ITAT Delhi Upholds Section 80-IC Deduction for Lotus Herbals Unit; Allegations of Bogus Expansion and Business Shifting Rejected
The Delhi Bench of the Income Tax Appellate Tribunal dismissed the Revenue’s appeals for AYs 2018-19 and 2019-20 in the case of Lotus Herbals Colour Cosmetics, thereby affirming the CIT(A)’s order allowing deduction under Section 80-IC in respect of the assessee’s Baddi (Himachal Pradesh) unit.
The Revenue had alleged that the assessee continued to claim Section 80-IC deduction beyond the permissible period by shifting business from an earlier eligible entity (Kanidhi Cosmeceuticals – KC) to the assessee firm, using old/second-hand machinery, bogus purchase bills, staff transfers, and artificial inflation of turnover, particularly after the eligibility of KC allegedly lapsed. It was further alleged that the assessee did not satisfy the statutory conditions of commencement or substantial expansion within the prescribed period, and that the surge in turnover during FY 2017-18 was solely tax-driven.
The Tribunal noted that the CIT(A) had carried out an exhaustive factual examination (pages 4–78 of the appellate order), analysing survey material, machinery records, expansion details, staff deployment, and product diversification. On facts, the CIT(A) had categorically found that:
- the assessee had not undertaken impermissible substantial expansion with old machinery beyond the time limit;
- the profits claimed were derived from an eligible business carried on by the assessee itself, and not merely a continuation of KC’s business; and
- the Revenue’s allegations of sham transfers, bogus entities, and colourable devices were not supported by conclusive evidence.
Endorsing these findings, the ITAT held that the Assessing Officer’s conclusions were based on suspicion and inference rather than proved facts, whereas the CIT(A)’s decision rested on proper appreciation of evidence and settled judicial principles. The Tribunal therefore found no infirmity in the deletion of the disallowance of ₹20.79 crore under Section 80-IC.
Accordingly, the Revenue’s appeals for both years were dismissed in entirety, and the assessee’s eligibility to claim Section 80-IC deduction on the Baddi unit’s profits—including profits from diversified product lines—stood confirmed.
FULL TEXT OF THE ORDER OF ITAT DELHI
