Jyothy Labs Limited Vs ACIT (ITAT Mumbai)
Once allowed, can’t be denied later without withdrawing initial year relief – ITAT Mumbai on 80IB/80IC deduction
Major issues & findings
Deduction u/s 80IB/80IC
Revenue disallowed deduction for Ujala Supreme on the ground that it is not “manufacturing.” ITAT followed its earlier orders & held that fabric whitener production constitutes manufacturing under Section 2(29BA). AO had allowed such deductions in initial years (starting AY 2009–10). As per settled law [CIT vs. Paul Brothers (1995) 216 ITR 548 (Bom.),& Simple Food Products (P) Ltd. vs. CIT (2017) 84 taxmann.com 239.)], deductions once allowed in initial year cannot be denied in subsequent years without withdrawing the initial year deduction. Hence, Revenue’s appeals dismissed on this ground.
Allocation of Interest cost to 80IB/80IC Units
AO allocated interest expense to 80IB/80IC units, alleging inflated profits. CIT(A) found that sufficient interest-free funds were available to cover investments in these units. ITAT upheld CIT(A)’s finding and held that no interest allocation is needed.
Section 14A Disallowance
AYs with no exempt income (2016–17, 2018–19, 2020–21, 2021–22, 2022–23): & Disallowance under Section 14A is not applicable.
AYs with exempt income (2017–18, 2019–20, 2023–24): Disallowance to be recomputed considering only investments that yielded exempt income.
