The court emphasized the importance of satisfying the conditions laid down in Section 80-IC and upheld the ITAT's decision based on the materials analyzed.

S. RAVINDRA BHAT, J.

1. The assessee appeals a decision of the Income Tax Appellate Tribunal (ITAT), for Assessment Year 2008-2009. Its claim for benefit of deduction under Section 80-IC of the Income Tax Act [hereafter referred to as the ‘Act’] was disallowed by the AO. The Appellate Commissioner, however, set aside the disallowance and granted the benefit. The ITAT by the impugned order reversed the Commissioner’s decision. In the return of income for Assessment Year 2008-09, which was subject to scrutiny, the assessee declared Rs.1,62,82,400/-. It claimed deduction of Rs.3,13,09,690/- from its gross total income under Section 80-IC stating that a new industrial unit at Selaqui, Uttrakhand had started during the assessment year. The assessee manufactured roof mounted air conditioner units for the Indian Railways. Till 2007-2008, this activity was carried out at Kala Amb, Himachal Pradesh. The Kala Amb unit enjoyed the Section 80-IC benefit which had ended sometime in 2005. The assessee during the scrutiny claimed that it had purchased 3 Ton Cap Wire Rope Hoist Mach Machine on 23.04.2007 and one of the two “Map 1305 Hydraulic Pallets” on 04.04.2007. These were transferred to the new unit at Selaqui on 07.07.2007. It also used old tools and equipments valued at an insignificant amount of Rs.18,000/-. The A.O. was not satisfied with these declarations and was of the view that having regard to the value of the machinery, that previously used machinery for any purpose is more than 20% of the value of the plant and machinery used in the new unit, the assessee has failed to satisfy the conditions laid down in Section 80-IC(4)(ii) of the Act. In so holding the AO also took note of the fact that the machinery was initially taken to Kala Amb and later transported to Selaqui. The AO, therefore, disallowed Rs.3,13,09,690/-. The CIT(A) granted relief.

2. The ITAT addressed itself to the question whether the Selaqui unit was eligible to claim exemption under Section 80-IC. In so doing, it took note of certain circumstances that the assessee did not have the competence in Selaqui unit to carry out manufacturing activities; but it transferred used machinery in excess of 20% from Kala Amb unit to Selaqui unit, contrary to Section 80-IC(4)(i) and that minimal expenditure was debited to the P&L Account under the head ‘salary’ to establish prima facie that any manufacturing was carried out at the new unit. To consider all this, the ITAT took note of several documents such as agreement to sell, the lease deed of 16.12.2006, the site plan annexed to the lease deed, the balance sheet for the period 31.03.2008, and further noted that the plant and machinery in the Selaqui unit as on 31.03.2008 was declared to be of value of Rs.3,50,353/- as against which, the turnover reported was in excess of Rs.11.3 crores. The ITAT further noted that the assessee had claimed that it purchased machinery from M/s Grip Engineers Pvt. Ltd., Ballabhgarh and ABB, Faridabad but stored it at Kala Amb unit for want of space and non-availability of Transit Form issued by the Government of Uttrakhand. The ITAT disbelieved this explanation. Some of the material parts of the ITAT’s findings are as follows:

“19. Moreover, when this fact is examined in the light of the fact that no travelling allowance has been debited by the assessee to the P&L account during the year under assessment, it is difficult to believe that any manufacturing activities have been carried out at the Selaqui unit. Because earning the turnover of Rs. 11.11 crores with profit of Rs. 3.13 crores from the assembling/ manufacturing unit is humanly not feasible without supervision of senior/ junior functionaries of the assessee either from Kala Amb unit or from Head Office, Delhi nor any skilled worker has ever visited the Selaqui unit or proved to be engaged. So, all these facts strengthen the findings returned by the AO which have been overturned by the CIT (A) on the basis of whims and fancies. Sin