An industrial undertaking recognized as an SSI and situated in an 'industrially backward State' will be eligible for deduction under section 80-IB, even if it manufactures items specified in Eleventh Schedule
In the instant case, the assessee was engaged in manufacturing of items specified in Eleventh Schedule and its manufacturing unit was located in Pondicherry, an 'Industrially backward state'. It was registered as small scale industry (‘SSI’) with the Directorate of Industries and Commerce Pondicherry. It claimed deduction under section 80-IB. The AO held that as the item manufactured by the assessee was an article specified in Schedule XI, it was not eligible for deduction under section 80-IB. On appeal, the CIT(A) allowed the claim of the assessee, on the ground that an SSI or an industrial undertaking situated in an industrially backward state, is eligible for deduction under section 80-IB even if it manufactures items specified in Eleventh Schedule. Revenue appealed to the Tribunal against such order.
The Tribunal held in favour of assessee as under:
- The section 80-IB deductions in the case of an undertaking situated in industrially backward area (as specified in VII Schedule) is governed by the provisions of Sec. 80-IB(4). The only requirement in such case is that the industrial undertaking should be located in an industrially backward State;
- All SSI units can also take exception to clause (iii) of sub-section (2) of section 80-IB. Once the requirements of SSI are fulfilled, the assessee falls under the first limb of exceptions of proviso to clause (iii). In such a case, the assessee is eligible for deduction even if they manufacture items specified in 11th schedule notwithstanding the location of the undertaking i.e. whether located in an industrially backward State or other states;
- The exceptions specified in the proviso to clause (iii) i.e. being "Small Scale Industries" or "located in an industrially backward State" are independent of each order. The assessee is not required to fulfill both of these two conditions. If any one requirements is fulfilled the assessee is eligible for deduction, irrespective of the fulfillment of the other condition; and
- Therefore, there is no good and valid reason to interfere with the reasoning of the CIT(A) – Dy.CIT v. Eye Photonics India (P.) Ltd  31 taxmann.com 387 (Chennai - Trib.)