Income Tax Act, 1961

--Deduction under section 80-IBAllowability Commencement of commercial production vis-a-vis grant of licence to start business operations--Assessee-company was engaged in manufacture and sale of non-ferrous metals and telephones cables. Assessee had set up two units one at Chichpada Unit and another at Rakholi Unit. For Chichpada unit assessee obtained licence on 7-6-1996 and for Rakholi unit it got licence on 18-3-1998. From Chichpada Unit commercial production was commenced on 1-4-1998 and from another unit on 22-2-1999. In respect of Chinchpada Unit, deduction under section 80-IB was claimed from assessment year 1999-2000, it being the first year of commencement of commercial production and in respect of Rakholi Unit, claim was made only from 2000-01. As claims for deduction under section 80-IB for assessment years 2002-03, 2003-04 and 2004-05 are well covered under five years period, assessee claimed 100% deduction under section-80 IB. In the assessment orders passed under section 143(3), in respect of assessment years 2002-03, 2003-04 and 2004-05, after verification of materials called for and produced by assessee, assessing officer granted claim of assessee for 100% deduction. Subsequently, assessing officer initiated proceedings under sections 154/148 on ground that deduction was allowable from issuance of licence and not from commercial production. Held: Not acceptable. Deduction under section 80-IB was allowable from date of commencement of commercial production and not from date of grant of licence by licensing authority.

It is not disputed by the Revenue that the commencement of the operation, as by way of commercial production in respect of these Units, was from 1-4-1998 and 22-2-1999 respectively. It is not denied by the Revenue that the assessee made no claim for deduction under section 80-IB in respect of the Chinchpada Unit and the Rakholi Unit in the assessment years 1997-98 and 1998-99, relevant to the year in which the licence was granted. To a specific question put to the assessing officer as to the first year of granting the relief of 100% under section 80-IB, the assessing officer does not deny, as a matter of fact, that as per the provision under section 80-IB, the relief of 100% was granted from the year in which the commercial production started. As already pointed out, in respect of Chinchpada Unit, the commercial production started on 1-4-1998 and in respect of Rakholi Unit, the commercial production started on 22-2-1999. Given the fact that the assessee is entitled to 100% deduction for the first five years starting from the initial assessment year of the date of commercial production, the assessee had the benefit of 100% deduction granted for the first time from the assessment year 1999-2000 and 2000-2001 in respect of Chinchpada Unit and Rakholi Unit respectively. [Para 22] The contention of the assessing officer herein that there was a wrong relief granted at 100% in respect of the assessment years 2002-03 2003-04 and 2004-05, is not legally correct. [Para 23] Criteria for determining the period of deduction and the percentage of deduction is based on the industrial undertaking beginning to manufacture or produce things, there is no legal basis in the contention of the Revenue that the relief has to be worked out from the date of the licence. It may be noted that getting a licence to set up an industrial undertaking is a stage anterior to the commencement of production and hence, the date of licence and the date of commercial production cannot be a simultaneous happening. In the circumstances, the very basis for initiating the reassessment proceedings suffers from legal infirmity arising from the wrong understanding of a clear provision under section 80-IB of the Act. On the admitted fact as regards the date of the licence and the date of commercial production, the relief granted from the initial assessment year taken from the date of commercial manufacture must enure for a period of five years thereafter. [Para 24]