ITAT: Manufacturing in Notified Area Eligible for Section 80-IC Deduction; Presence of Fourteenth Schedule Item Not a Bar

March 05, 2026 : The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) 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 a product listed in the Fourteenth Schedule does not automatically disentitle the assessee 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 appeal filed by the Revenue and upheld the order of the Commissioner of Income Tax (Appeals), which had allowed the deduction to confectionery manufacturer Perfetti Van Melle India Pvt. Ltd.

Perfetti Van Melle India Pvt. Ltd. is engaged in the manufacture of confectionery and proprietary Ayurvedic products, including well-known brands such as Big Babol, Center Fresh, Center Fruit, Alpenliebe, Mentos, Happydent and Chlormint with Herbasol. These products are manufactured at facilities located in Manesar (Haryana), Rudrapur (Uttarakhand) and Chennai (Tamil Nadu).

The dispute in the present case related to the profits derived from the company’s manufacturing unit at Rudrapur, Uttarakhand. For the assessment year 2010-11, which was the third year of production at that unit, the assessee claimed a deduction of ₹90.90 crore under Section 80-IC. Since the deduction could not exceed the total income, the claim was restricted to ₹80.77 crore and the company filed a nil return after claiming the deduction.

During the original assessment proceedings, the Assessing Officer accepted the eligibility of the assessee to claim the deduction. However, the Principal Commissioner of Income Tax later invoked revisional jurisdiction under Section 263 of the Act and set aside the assessment order with respect to the deduction claim, directing the Assessing Officer to conduct 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 made on the ground that the assessee was manufacturing products such as chewing gum, candy and bubble gum, which were not listed in the Fourteenth Schedule of the Income Tax Act and therefore, according to the Revenue, the deduction was not available.

The assessee challenged the disallowance before the Commissioner of Income Tax (Appeals), who allowed the claim and held that the deduction had been 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 different fields and prescribe distinct eligibility conditions.

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

The CIT(A) found that the assessee’s manufacturing unit at Rudrapur was located in a notified industrial area as per CBDT Notification No. 177/2004 and that production had commenced within the prescribed period. It was also established that none of the products manufactured at the unit fell within the negative list contained in the Thirteenth Schedule.

Before the Tribunal, the Revenue argued that since the assessee manufactured a product listed in the Fourteenth Schedule—namely Chlormint with Herbasol—the deduction should be examined under Section 80-IC(2)(b) rather than Section 80-IC(2)(a). According to the Revenue, once a product falls within the Fourteenth Schedule, the benefit must be governed by the provisions applicable to that schedule.

The Tribunal rejected this contention and held that the relevant test under Section 80-IC(2)(a)(ii) is whether the manufacturing unit is located in a notified area and whether the products manufactured fall within the negative list in the Thirteenth Schedule. The Bench noted that the Rudrapur factory was located in a notified eligible area and that the products manufactured there did not fall within the prohibited list.

Clarifying the legal position, the Tribunal observed that Sections 80-IC(2)(a) and 80-IC(2)(b) are mutually exclusive and operate under different eligibility conditions. Section 80-IC(2)(a) applies to units located in notified areas and permits deduction for manufacturing any item except those listed in the Thirteenth Schedule, while Section 80-IC(2)(b) deals specifically with the manufacture of items listed in the Fourteenth Schedule.

The Bench further held that the mere fact that the assessee manufactures a product which also appears in the Fourteenth Schedule does not automatically attract Section 80-IC(2)(b) or deprive the taxpayer of the benefit available under Section 80-IC(2)(a)(ii). The eligibility under Section 80-IC(2)(a)(ii), the Tribunal said, flows from the fulfilment of statutory conditions relating to the location of the unit in a notified area and the commencement of production within the specified period.

The Tribunal also noted that similar claims made by the assessee in earlier assessment years had been examined and accepted by the tax authorities after verifying that the products manufactured by the Rudrapur unit were not covered by the negative list in the Thirteenth Schedule.

Finding no infirmity in the reasoning adopted by the Commissioner of Income Tax (Appeals), the Tribunal upheld the order granting the deduction and dismissed the appeal filed by the Revenue.

Case Title: ACIT vs. Perfetti Van Melle India Pvt Ltd
Case No.: ITA No. 623/Del/2025
Assessment Year: 2010-11