In a recent judgment, the Delhi High Court ruled that enterprises claiming deductions under Section 80IC of the Income Tax Act are not required to obtain government approval if they operate in notified special zones.
Legacy Foods Pvt. Ltd., the appellant had established a manufacturing unit in Himachal Pradesh within the prescribed period and sought deductions under Section 80IC of the Income Tax Act. The Income Tax Department denied the claim, arguing that the appellant did not comply with Rule 18BBB of the Income Tax Rules, 1962, which mandates an audit report in Form 10CCB.
The department’s counsel argued that this form requires proof of approval from local or state authorities for eligible businesses. The appellant challenged this interpretation, arguing that Rule 18BBB applies to multiple provisions, including Sections 80I, 80IA, 80IB, and 80IC.
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The approvals are necessary under Section 80IA for infrastructure projects but no such requirement exists under Section 80IC of the Income Tax Act. The appellant’s counsel argued that the ITAT misread the law by imposing an additional condition that the statute does not prescribe.
The bench comprising Justices Yashwant Varma and Harish Vaidyanathan Shankar examined the case under Sections 80IA(8) and 80IA(10), which pertain to the shifting of profits between businesses to artificially inflate deductions.
The court observed that the ITAT failed to recognize the fundamental distinction between Sections 80IA and 80IC, and wrongly applied conditions meant for infrastructure projects to industrial units in special zones.
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The court held that Section 80IC does not mandate an agreement or approval from state or local authorities. The court also ruled that ITAT’s reliance on Sections 80IA(8) and 80IA(10) was misplaced, as the issue of profit shifting was not raised by the Revenue at any stage. The court explained that tax authorities cannot impose additional conditions beyond what is prescribed in the law.
The court set aside an order by the Income Tax Appellate Tribunal (ITAT)and allowed the appeal. The tribunal directed that the appellant’s deduction claim under Section 80IC be restored.
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