The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has clarified that if a taxpayer’s manufacturing unit is located in a notified area for the purpose of claiming a deduction under section 80-IC of the Income Tax Act, the relevant factor for determining eligibility under section 80-IC(2)(a)(ii) is whether the taxpayer manufactures any item that falls under the Thirteenth Schedule of the Income Tax Act.
Allowing confectionery manufacturer Perfetti Van Melle India (respondent-taxpayer) to claim tax deduction under Section 80-IC of the Income Tax Act on profits from its Rudrapur manufacturing unit in Uttarakhand, the ITAT therefore ruled that the mere fact that the taxpayer also manufactures certain items which are listed in the Fourteenth Schedule of the Act would not automatically make the provisions of Section 80-IC(2)(b)(ii) applicable or disentitle the taxpayer from the benefit of Section 80-IC(2)(a)(ii).
The entitlement to the benefit under Section 80-IC(2)(a)(ii) is based on the fulfilment of the eligibility criteria arising from the location of the factory in a notified area and the commencement of production within the specified period, and is not a matter of choice for the taxpayer, added the Tribunal.
The Division Bench comprising Anubhav Sharma (Judicial Member) and Manish Agarwal (Accountant Member) noted the undisputed position that the respondent’s factory in Rudrapur is located in a notified eligible area for the purposes of section 80-IC(2)(a)(ii) as per CBDT Notification No. 177/2004. It was also a matter of fact that the respondent was not manufacturing any item listed in the negative list provided in the Thirteenth Schedule of the Act, and the production had also commenced within the statutorily prescribed period.
The Tribunal upheld the CIT(A)’s reasoning that claims under section 80-IC(2)(a) and 80-IC(2)(b) are mutually exclusive and have different scopes. Section 80-IC(2)(a) grants a deduction for units in notified areas of special category states, provided they do not manufacture any item from the Thirteenth Schedule. In contrast, section 80-IC(2)(b) grants a deduction specifically for the production of articles listed in the Fourteenth Schedule.
Further, the Tribunal addressed the Revenue’s contention that since the respondent manufactured an item listed in the Fourteenth Schedule (Chlormint with Herbasol), its claim should be governed by section 80-IC(2)(b). It held that merely because the respondent manufactures an item that also falls in the Fourteenth Schedule, it does not make the provision of Section 80-IC(2)(b)(ii) applicable and does not take away the entitlement under Section 80-IC(2)(a)(ii), provided the conditions for the latter are met.
Briefly, the respondent is engaged in manufacturing candies, gums, jellies, and proprietary Ayurvedic products like Big Babol, Center Fresh, Alpenliebe, and Chlormint with Herbasol from its factories, including one at Rudrapur, Uttarakhand. It had claimed a deduction of INR 90.90 Crores under section 80-IC of the Income Tax Act, for its Rudrapur unit. This claim was restricted to the total income of INR 80.77 Crores, and a NIL return was filed.
Initially, the Assessing Officer (AO) accepted the eligibility for this deduction. However, the Principal Commissioner of Income Tax (PCIT), under section 263 of the Act, set aside this order and directed the AO to pass a fresh assessment order concerning the section 80-IC claim. Consequently, the AO passed a new order, disallowing the entire claim of INR 80.77 Crores.
The disallowance was on the grounds that the respondent was not entitled to the deduction as its products (chewing gum, candy, bubble gum”) were not listed in the Fourteenth Schedule of the Income Tax Act. However, the Commissioner of Income Tax (Appeals), set aside the AO’s disallowance.
