Supreme Court Allows Income Tax Deduction on Manufacturing of Polyurethane Foam

income tax

The Supreme Court allowed the Income Tax deduction on manufacturing of Polyurethane Foam.


The appellant – assessee is having a manufacturing unit at Pune in which the appellant – assessee is manufacturing ‘polyurethane foam,’ which is ultimately used as an automobile seat. The assessee filed its return of income for the assessment year 2003-04 and claimed deduction under Section 80-IB of the Income Tax Act. 

The assessing officer disallowed the deduction under Section 80-IB of the IT Act by observing that the nature of the business of the assessee is “manufacturer of polyurethane foam seats” which falls under entry 25 to the Eleventh Schedule of the IT Act and therefore the assessee shall not be entitled to deduction under Section 80-IB. 


Advocate Preetesh Kapur, appearing for the assessee, submitted that when on appreciation of the entire evidence on record and after considering the process undertaken by the assessee and after considering the fact that the end product was automobile seat, the ITAT allowed the appeal and held that the assessee is entitled to claim deduction under Section 80-IB of the IT Act, the same was not required to be interfered with by the High Court. 

Balbir Singh, ASG appearing for the revenue, submitted that what is manufactured by the assessee is polyurethane foam in different shapes/designs and what is sold is different sizes/designs of polyurethane foam which ultimately is being used by the assembly operator for manufacturing of car seats/automobile seats and the same is used as ingredient and after the process of moulding etc., the seats are manufactured. 

He contended that therefore, by no stretch of imagination, it can be said that the assessee is manufacturing and selling automobile seats.

Issue Raised

 Whether the assessee is eligible for the benefit under Section 80-IB of the IT Act?


The division bench of Justice M.R. Shah and Justice M.M. Sunderesh observed that the assessee shall not be eligible for the benefit under Section 80- IB of the IT Act if it is found that the articles and/or goods manufactured by the assessee do not fall and/or classifiable under Eleventh Schedule. According to the revenue, the assessee is manufacturing polyurethane foam which falls under the Eleventh Schedule. 

The court said that when the articles/goods which are manufactured by the assessee, namely, polyurethane foam is an article classifiable in the Eleventh Schedule (entry 25), considering Section 80- IB(2)(iii), the assessee shall not be entitled to the benefit under Section 80-IB of the IT Act. 

It was held by the court that the High Court has rightly held so and has rightly set aside the order passed by the ITAT and has rightly restored the order passed by the assessing officer denying the deduction/benefit claimed under Section 80-IB of the IT Act.

The bench dismissed the appeals. 

Case title: M/s Polyflex (India) Pvt. Ltd. v/s The Commissioner of Income Tax & Another

Citation: Civil appeal no. 8260 of 2022

Date: November 17, 2022

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