S. 80IB deduction conditions to be fulfilled in all years of deduction claim

CIT Vs M/s Micro Instruments Company (Punjab & Haryana High Court)

Brief of the case:

• The Hon’ble Punjab & Haryana HC in the above cited case held that deduction under section 80IB is allowable over a period of 6 years which follows that conditions for claiming deduction must remain fulfilled in all years for which deduction being claimed.
• Therefore, even when AO has allowed deduction in an Assessment year would not restrict him to retest the compliance to conditions stated in Sec 80IB who on finding non-compliance bound to disallow the deduction for the AY and all coming AYs. However, deduction already allowed for earlier AYs cannot be disallowed.

Facts of the case:

• The assessee in its return of income claimed deduction of Rs. .16,22,661/-. under Section 80-IB in respect of a new unit viz. Unit No.II. The Assessing officer disallowed the deduction claimed u/s 80IB for the following reasons:

i) No separate books of accounts have been maintained for Unit –II.

ii)The workers/employees are common in respect of Unit Iand Unit II there is no demarcation of employees/workers asper Attendance Register Produced.

iii) There is no power connection in unit-II.

iv) Bank accounts of Unit-I & Unit-II is same.

v) Telephone connections/numbers are common.

• It is splitting up or re-construction of business already in existence. As such deduction u/s 80 IB is not admissible in respect of Unit-II as it would amount to non-compliance of one of the condition stated in Sec 80 IB that new unit should not be formed by restructuring or splitting up of the existing one.
• CIT(A) concurred with the view taken by AO and dismissed assessee’s appeal . On appeal to tribunal, it held that the claim for deduction stood admitted in the initial assessment years and that there was, therefore, no justification to deny the same for the year in question, namely, 2003-04. The tribunal held that it was not open for the Assessing Officer to re-examine the issue all over again and to come to a different conclusion in a subsequent year without justifying such departure. Tribunal thus, set aside the order of CIT(A).
• Aggrieved revenue is in appeal before Hon’ble Punjab & Haryana HC.

Contention of the Assessee:

It was contended that the deduction under Section 80-IB having been allowed to the assessee for the Assessment Year 2001-02 under Section 143(3), the same ought to have been allowed in subsequent years. This would also result in consistency in view taken by the department.

Held by Hon’ble Punjab & Haryana HC:

• High court analyzing the provisions of Sec 80IB observed that Section 80-IB(1) entitles anassessee to a deduction for a specified number of years. Sec 80IB(2) provides that the section applies to an industrial undertaking that fulfills all the conditions stated therein.The deduction is, therefore, for each of the years.It follows, therefore, that the conditions stipulated in the section must be fulfilled or remain fulfilled for each of those years. A view to the contrary would render the section meaningless and confer a benefit upon an assessee which the legislature could never have intended.
• An assessee must fulfill each of the conditions stipulated in Section 80-IB in each of the years in which the deduction there under is sought. The Assessing Officer would be entitled to ascertain in each of the assessment years whether or not the conditions of section 80-IB remained fulfilled.
• Therefore, even where anassessee is found to have fulfilled all the conditions of Section 80-IB in the initial assessment year and has on account thereof been granted the deduction there under would not restrict an Assessing Officer assessing to retest the compliance to those conditions in coming AYs and if find the non-compliance then he is bound to deny the deduction.
• In result the appeal of revenue was allowed and assessee was disallowed the deduction u/s 80 IB for irregular compliance of conditions stated in Sec 90 IB.