Pranav B Prem

The Income Tax Appellate Tribunal, New Delhi has held that a manufacturing unit located in a notified area is entitled to claim profit-linked deduction under Section 80-IC of the Income Tax Act if it satisfies the statutory conditions, and the mere manufacture of an item falling under the Fourteenth Schedule does not automatically disqualify the taxpayer from claiming the benefit under Section 80-IC(2)(a)(ii). The Division Bench comprising Anubhav Sharma (Judicial Member) and Manish Agarwal (Accountant Member) dismissed the Revenue’s appeal and upheld the order of the Commissioner of Income Tax (Appeals) granting the deduction to confectionery manufacturer Perfetti Van Melle India Pvt. Ltd.

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The respondent company is engaged in the manufacture of confectionery products such as candies, gums and jellies, along with proprietary Ayurvedic products including brands like Big Babol, Center Fresh, Center Fruit, Alpenliebe, Mentos, Happydent and Chlormint with Herbasol. These products are manufactured at multiple facilities located at Manesar in Haryana, Rudrapur in Uttarakhand and Chennai in Tamil Nadu.

The dispute arose in relation to the profits earned from the company’s manufacturing unit situated at Rudrapur, Uttarakhand. For the assessment year 2010–11, which was the third year of production at that unit, the respondent claimed a deduction of ₹90.90 crore under Section 80-IC of the Income Tax Act. Since the deduction could not exceed the total income, the claim was restricted to ₹80.77 crore and the company filed a nil return for the assessment year after claiming the deduction.

Initially, the Assessing Officer accepted the eligibility of the respondent to claim the deduction under Section 80-IC while completing the assessment. However, the Principal Commissioner of Income Tax later exercised revisional jurisdiction under Section 263 of the Act and set aside the assessment order to the extent of the deduction claim, directing the Assessing Officer to undertake a fresh assessment.

Pursuant to this direction, the Assessing Officer passed a fresh assessment order disallowing the entire deduction of ₹80.77 crore. The disallowance was based on the reasoning that the respondent was manufacturing products such as chewing gum, candy and bubble gum, which were not included in the Fourteenth Schedule of the Income Tax Act. According to the Assessing Officer, the deduction could only be granted if the products manufactured were listed in the Fourteenth Schedule.

Aggrieved by this disallowance, the respondent approached the Commissioner of Income Tax (Appeals), who set aside the assessment order and held that the deduction was rightly claimed under Section 80-IC(2)(a)(ii). The appellate authority observed that Section 80-IC(2)(a) and Section 80-IC(2)(b) operate in distinct fields and prescribe different eligibility conditions.

Section 80-IC(2)(a) grants deduction to industrial undertakings located in notified areas of specified states such as Uttarakhand, provided that the units do not manufacture items listed in the negative list contained in the Thirteenth Schedule. In contrast, Section 80-IC(2)(b) allows deduction for manufacturing specific articles listed in the Fourteenth Schedule.

The Commissioner (Appeals) found that the respondent’s manufacturing unit was situated in a notified industrial area in Rudrapur, Uttarakhand, as per CBDT Notification No. 177/2004. It was also established that the respondent had commenced production within the prescribed period and that none of the products manufactured by the unit fell within the negative list specified in the Thirteenth Schedule of the Act.

The Revenue challenged this decision before the Tribunal, contending that since the respondent was manufacturing a product listed in the Fourteenth Schedule—namely Chlormint with Herbasol—the deduction should be examined under Section 80-IC(2)(b) and not under Section 80-IC(2)(a). According to the Revenue, once a product falls under the Fourteenth Schedule, the benefit must be governed by the provisions applicable to that schedule.

The Tribunal rejected this contention and observed that the relevant consideration for eligibility under Section 80-IC(2)(a)(ii) is whether the manufacturing unit is located in a notified area and whether it produces any item included in the negative list contained in the Thirteenth Schedule. The Bench noted that it was undisputed that the respondent’s factory at Rudrapur was located in a notified eligible area and that the products manufactured there did not fall within the prohibited list under the Thirteenth Schedule.

The Tribunal further clarified that the provisions of Section 80-IC(2)(a) and Section 80-IC(2)(b) are mutually exclusive and operate under different sets of conditions. While Section 80-IC(2)(b) deals with manufacturing of specific items listed in the Fourteenth Schedule, Section 80-IC(2)(a) applies to units located in notified areas and allows deduction for manufacturing any item except those listed in the Thirteenth Schedule.

Addressing the Revenue’s argument, the Tribunal held that merely because the respondent manufactures an item that also appears in the Fourteenth Schedule does not automatically make Section 80-IC(2)(b) applicable or deprive the taxpayer of the benefit available under Section 80-IC(2)(a)(ii). The Tribunal observed that eligibility for deduction under Section 80-IC(2)(a)(ii) flows from the fulfilment of statutory conditions relating to the location of the manufacturing unit in a notified area and the commencement of production within the prescribed period.

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The Tribunal also noted that similar claims made by the respondent in earlier assessment years had been examined and accepted by the tax authorities, including verification that the products manufactured by the Rudrapur unit did not fall within the negative list specified in the Thirteenth Schedule. In light of these findings, the Tribunal concluded that the reasoning adopted by the Commissioner of Income Tax (Appeals) was correct and that the respondent was entitled to the deduction under Section 80-IC(2)(a)(ii) in respect of profits earned from the Rudrapur manufacturing unit. Accordingly, the Tribunal found no merit in the grounds raised by the Revenue and dismissed the appeal, thereby allowing Perfetti Van Melle India Pvt. Ltd. to claim the Section 80-IC deduction for its Rudrapur manufacturing facility.

Cause Title: ACIT vs. Perfetti Van Melle India Pvt Ltd

Case No: ITA No.623/Del/2025

Coram: Anubhav Sharma (Judicial Member) and Manish Agarwal (Accountant Member)