An Industry which Ceases to be a SSI is not Eligible for Income Tax Deduction, says Supreme Court [Read Judgment]

The Supreme Court of India recently held that benefit of deduction under Section 80 IB(3) of the Income Tax Act 1961 cannot be given to an industry if it ceases to be a small scale industry.

Assessee in the present case is engaged in manufacture and sale of components/parts of CNC lathes and similar machines had been enjoying benefit of section 80IB(3) of the Act. Its income was assessed for the assessment at Rs.1,79,82,653. During the relevant assessment year also, the assessee company also claimed deduction under section 80 IB(3) of the Act which was rejected by the department finding that the assessee is no more a Small Scale Industry for the purpose of the benefit of the provision.

Assessee contended that once the eligible business of an assessee is given the benefit of deduction under Section 80 IB on the assessee satisfying the conditions mentioned in sub-sec. (2) of Section 80 IB, it cannot be denied the benefit of the said deduction.

On appeal, the Karnataka High Court concluded the matter in favour of the assessee.

Justice Adarsh Kumar Goel of Supreme Court observed that Section 80 IB is an incentive provision. It stipulates deduction in respect of profits and gains from certain industrial undertakings. Within this section a large number of industries and business types have been given the benefit of such deduction if they fulfill the conditions mentioned in the concerned sub section of Section 80IB of the Act. But the assessee does not fulfill the conditions prevailed in the said section.

Allowing the departmental appeal, the bench further held that “On examination of the scheme of the provision, there is no manner of doubt that incentive meant for small scale industrial undertakings cannot be availed by industrial undertakings which do not continue as small scale industrial undertakings during the relevant period. Needless to say, each assessment year is a different assessment year, except for block assessment”

It was also noted that in the present case, the assessee also violate one of the important conditions regarding the annual turnover limit, which is the annual turnover limit of a small scale industry is 1 crores. But in the present case it is clear that the annual turnover of the assessee is exceeding the limit of 1 crores.