Substantial Work of Production was got done in Other State: Himachal Pradesh HC upholds Denial of Tax Subsidy for North-Eastern States u/s 80IC (2)(ii) [Read Order]

The Himachal Pradesh High Court presided by Ms. Justice Sabina and Mr. Justice Satyen Vaidya has held that substantial work of production was got done in other State and upholds the denial of tax subsidy for North-Eastern states u/s 80IC (2)(ii).

The assessee, M/s usha infrasystems had begun production of Foundation Anchor Rods for Windmills in Industrial Area Parwanoo and claimed 100% deduction on the income under sub-clause (ii) of Sub Section (2) of Section 80IC of the Income Tax Act, 1961.

The Assessing Officer alleged that it clearly was a case of splitting or reconstruction of a business already in existence and hence, the assessee had violated the conditions laid down in Section 801C (4) (i) of the Act. The AO denied the deduction and pronounced the assessment order under Section 143(3) of the Act and assessed the total income of the assessee at Rs.1,66,61,240/-. The aggrieved by the dismissal of appeal before CIT(A) assessee filed an appeal before ITAT. The ITAT allowed the appeal and against the order revenue filed an appeal before the jurisdictional High Court.

The division bench of the High court has held that substantial work in the entire process of production was got done by the assessee from Ludhiana in Punjab by outsourcing the jobs. The only minimal job was given effect to at Parwanoo. The findings recorded by the AO that only a small part of the entire process involved in the production of the Anchors was done at Parwanoo and that by itself could not be considered sufficient to hold that the assessee was engaged in the manufacture or producing of the end product at Parwanoo,

The division bench has held that “the findings recorded by the ITAT in both the appeals, only to the extent of holding the assessee involved in ‘manufacture’ or ‘production’ of “Anchors” without considering the effect and implication of very small quantum of work done at Industrial Area Parwanoo, are set aside”. Mr. Vinay Kuthiala appeared on behalf of the revenue and Mr. Vishal Mohan appeared on behalf of the assessee.

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