Facts of the Case

The appellant, Legacy Foods Pvt. Ltd., filed appeals under Section 260A of the Income-tax Act, 1961 challenging the order dated 28.02.2020 passed by the Income Tax Appellate Tribunal for Assessment Years 2008-09 and 2009-10.

The assessee had established a manufacturing unit in the State of Himachal Pradesh and claimed deduction under Section 80-IC(2)(b)(ii) of the Act, being an eligible undertaking set up in a notified State during the prescribed period. The deduction was claimed on profits derived from manufacturing activities carried out by the unit.

The Assessing Officer denied the deduction on the ground that the assessee had failed to furnish an agreement, approval or permission issued by the Central or State Government or local authority as required under Rule 18BBB(4) read with Clause 13 of Form 10CCB. The Commissioner of Income Tax (Appeals) allowed the assessee’s claim. However, the ITAT set aside the order and remanded the matter to the Assessing Officer, holding that furnishing such approval was mandatory even for a claim under Section 80-IC and further proceeded to examine the case from the perspective of Sections 80-IA(8) and 80-IA(10).

Issues Involved

Whether an assessee claiming deduction under Section 80-IC is mandatorily required to furnish an agreement or approval from the Central or State Government or local authority under Rule 18BBB and Form 10CCB, and whether the ITAT was justified in importing conditions of Sections 80-IA(8) and 80-IA(10) into a claim under Section 80-IC.

Appellant’s Arguments

The assessee contended that Section 80-IC does not mandate any agreement or approval from the Central or State Government or local authority as a condition precedent for claiming deduction under Section 80-IC(2)(b)(ii). It was argued that Rule 18BBB and Form 10CCB are procedural in nature and cannot impose substantive conditions not contemplated by the statute.

It was further contended that the ITAT exceeded its jurisdiction by examining applicability of Sections 80-IA(8) and 80-IA(10), which were neither invoked by the Assessing Officer nor formed part of the Revenue’s grounds of appeal.

Respondents’ Arguments

The Revenue supported the order of the ITAT and argued that Rule 18BBB(4) expressly requires furnishing of an agreement, approval or permission for carrying on eligible business, and that non-compliance with this statutory requirement disentitled the assessee from claiming deduction. It was further submitted that scrutiny under Sections 80-IA(8) and 80-IA(10) was justified to ensure that no abnormal profits were derived by shifting of expenses.

Court Order / Findings

The Delhi High Court held that the ITAT had clearly erred in law. The Court observed that Section 80-IC(2)(b)(ii), under which the assessee claimed deduction, does not require any agreement or approval from the Central or State Government or local authority. Such a requirement is statutorily mandated only under Section 80-IA(4)(i)(b), which operates in a completely different field.

The Court held that Rule 18BBB and Form 10CCB are procedural provisions applicable to a group of sections, namely Sections 80-I, 80-IA, 80-IB and 80-IC, and cannot be read in isolation to impose substantive conditions where the parent provision does not so require. The ITAT, therefore, committed a serious error in importing conditions applicable to Section 80-IA into Section 80-IC.

The Court further held that the ITAT was wholly unjustified in examining the applicability of Sections 80-IA(8) and 80-IA(10), as those issues were never raised by the Assessing Officer, were not part of the Revenue’s appeal, and could not have been introduced suo motu by the Tribunal.

Important Clarification

The Court clarified that delegated legislation and statutory forms cannot enlarge or curtail the scope of deductions granted by the parent statute. Conditions applicable to one deduction provision cannot be mechanically read into another merely because a common audit report or rule applies to both.

Final Outcome

The appeals were allowed. The Delhi High Court set aside the order dated 28.02.2020 passed by the Income Tax Appellate Tribunal, answered the substantial questions of law in favour of the assessee and against the Revenue, and held that deduction under Section 80-IC could not be denied for non-furnishing of an agreement or approval not mandated by the statute.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770016823_LEGACYFOODSPVT.LTD.VsDEPUTYCOMMISSIONEROFINCOMETAXCIRCLE131NEWDELHIANR..pdf

 

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