CIT vs. Micro Instruments Company (P&H High Court)

(i) An assessee must fulfill each of the conditions stipulated in Section 80-IB in each of the years in which the deduction thereunder 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. In other words, even where an assessee 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 thereunder, an Assessing Officer assessing the assessee’s income in subsequent years would be entitled to ascertain whether in that assessment year the conditions in Section 80-IB remained fulfilled or not. If not, he is bound to deny the deduction.

(ii) We are with respect unable to agree with the contrary view in Commissioner of Income-Tax v. Paul Brothers, [1995] 216 ITR 548 assuming that it applies to cases under Section 80-IB. We express no opinion in so far as it is in the context of the provisions dealt with therein. Merely because the relief granted for a previous assessment year is not withdrawn, it does not follow that the assessee is entitled to the relief for the subsequent years even if during the subsequent years the assessee fails to comply with the provisions of Section 80-IB or a condition precedent to a claim for deduction under Section 80-IB ceases to exist in the subsequent years for any Reason (Commissioner of Income Tax, Gujarat-I vs.
Satellite Engineering Ltd.,[1978] 113 ITR 208 (GUJ) Saurashtra Cement & Chemical Industries Ltd. vs. Commissioner of Income Tax, [1980] 123 ITR 669 (GUJ), Commissioner of Income Tax vs. Seeyan Plywoods, [1991] 190 ITR 564 referred)

(iii) Circular No.21/2015 dated 10.12.2015 applies retrospectively even to the pending appeals. Although the disputed issues arise in more than one assessment year, in view of Paragraph-5 of the circular, the appeals could be filed only in respect of such assessment years in which the tax effect in respect of the disputed issue exceeds Rs.20 lakhs. As per paragraph-10 pending appeals below the specified tax limit are to be withdrawn. Further, separate orders for each assessment year have been passed in the present case. Each assessment year is a separate year and the entitlement to the deduction would depend upon the facts and circumstances obtaining in a given year. Thus, whereas an assessee may be entitled to a deduction in respect of one or more years, he may not be entitled to the deduction for another year or other years. Further, the composite order referred to in paragraph-5 is of another High Court or appellate authority. Although the issue of law is common in respect of each of the assessment years, the issues of fact are not. (Commissioner of Income-tax vs. Surya Herbal Ltd [2013] 350 ITR 300 (SC) distinguished)

(iv) Keeping separate books of account is not a condition precedent to a claim for a deduction under Section 80-IB. There was no statutory provision making it mandatory for an assessee to maintain separate books of account. That it may be easier for an assessee to establish a claim for deduction under Section 80-IB in the event of separate books of account being maintained is another matter altogether. That is a question of evidence and not a legal obligation. (Commissioner of Income-tax, Guwahati vs. Bongaigaon Refinery and Petrochemical Ltd [2012] 349 ITR 352 (SC), Commissioner of Income Tax vs. Sree Krishna Pulverising Mills, (2000) 241 ITR 262 (AP) and Commissioner of Income Tax vs. Technotive Eastern (P) Ltd., (2002) 255 ITR 253 (Gau) referred).

(v) The fact that the products manufactured by the new undertaking are the same products, there was no separate power connection in Unit-II, that the bank account of the two units was the same and that the telephone connections are common does not mean that a new undertaking has not come into existence. The assessee’s case was that both the units were using generators. For administrative convenience, it is understandable that the assessees would maintain the same bank account in respect of both the units. The section does not make it mandatory to maintain separate bank accounts. For the same reason, the assessee cannot be denied a deduction merely because the telephone numbers are common. There is no reason for the assessees to have separate telephone connections in respect of each unit, if they can otherwise function with common telephone numbers. The section does not require the same either.

(vi) The Assessing Officer also disallowed the deduction on the ground that the workers/employees were common in respect of Unit-I and Unit-II and that there was no demarcation of employees/workers as per the attendance register produced. As per Section 80-IB(2)(iv), where the industrial undertaking manufactures or produces articles or things, the section would apply if the undertaking inter alia employs ten or more workers in a manufacturing process carried on with the aid of power. The assessees, admittedly, carry on their activities with the aid of power.