Brief of the Case
In the case Vinod Kumar Surana Vs. ITO the Hon’ble Kolkata ITAT held that the fact of withdrawal of deduction u/ 80IB of the Act in the subsequent years when the same were duly granted by the ld. AO in the initial assessment years per se becomes a debatable issue and hence same cannot be dealt in the proceedings u/s 154 of the Act as the same cannot be construed as a patent, glaring, obvious mistake apparent from record.
Facts of the Case
The Assessee is a proprietor of M/s. Modern Industries having a small manufacturing unit at Yanam which is registered as Small Scale Tiny Unit and has been granted exemption by the Govt. of Pondicherry Industries Department. The said unit is situated in the backward region vide notification issued by the Govt. of India and hence 100% deduction on the income derived by the unit is granted u/s 80IB of the Act for the first five years to support the growth of manufacturing activities in the backward region. The unit is also given exemption for payment of sales tax for the first five years.
The assessee claimed deduction u/s 80IB of the Act commencing from A.Y.2001-02, being the initial assessment year, which was duly granted by the AO during the scrutiny assessment proceedings. The said deduction was also granted for A.Yrs.2002-03 and 2003-04 by the ld. AO in the scrutiny assessment proceedings. During the A.Y. 2004-05, deduction u/s 80IB of the Act was originally granted by the ld. AO in 143(3) proceedings and later he sought to withdraw the same in proceedings u/s 154 of the Act on the premise that assessee had not employed 10 or more workers during the assessment year 2004-05 which is one of the pre-requisite for claiming deduction u/s 80IB of the Act.
Contention of the Assessee
The Assessee was not satisfied with the disallowance of deduction made u/s 80IB. In its ground of appeal the assessee mentioned that this issue is not a mistake apparent from record and thus is not a subject matter of Section 154.
However, during the appellate proceedings no one appeared on behalf of the assessee.
Contention of the Revenue
The Ld. DR of Department relied on the orders of the lower authorities.
Held by CIT(A)
Ld. CIT(A) upheld the disallowance made by the AO on the ground that the principle of res judicata does not apply to income tax proceedings and also on the ground that in the profit and loss account of the assessee, no expenses towards temporary wages and salary were debited by the assessee and hence it was proved beyond doubt that the assessee had employed only three workers which is in violation of section 80IB of the Act.
Held by ITAT
ITAT held that the fact of withdrawal of deduction u/ 80IB of the Act in the subsequent years when the same were duly granted by the ld. AO in the initial assessment years per se becomes a debatable issue and hence same cannot be dealt in the proceedings u/s 154 of the Act as the same cannot be construed as a patent, glaring, obvious mistake apparent from record. It was also held that that the requirement of compliance of provision of section 80IB of the Act should be verified in detail by the ld. AO only in the initial assessment year i.e. A.Y.2001-02 and he need not stretch or travel beyond that year for the purpose of grant of deduction in subsequent years. Deduction u/s 80IB of the Act is granted to the assessee for promoting the growth of manufacturing units in the backward region by the Govt. Of India. It being a beneficial provision, the same has to be viewed liberally. Even otherwise, whether the same had to be viewed literally or liberally per se is a debatable issue which cannot be the subject matter of rectification u/s 154 of the Act.
Thus the Hon’ble ITAT held that the action of the ld. AO in denying the deduction u/s 80IB of the Act u/s 154 proceedings is bad in law and hence allowed the appeal of the assessee.
Case laws relied upon by the ITAT
Hon’ble Apex Court in the case of T.S.Balaram & Co. –vs Valkart Bros (1971) 82 ITR 50 (SC)