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Income Tax Appellate Tribunal, DEHRADUN CIRCUIT BENCH, DEHRADUN
Before: SHRI SAKTIJIT DEY, VICE- & SHRI M. BALAGANESH
IN THE INCOME TAX APPELLATE TRIBUNAL DEHRADUN CIRCUIT BENCH, DEHRADUN BEFORE SHRI SAKTIJIT DEY, VICE-PRESIDENT AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER
ITA No. 3664/Del/2018 Assessment Year: 2014-15 Income-tax Officer, Versus Windlass Engineers & Services Ward 2(5), Dehradun. Pvt. Ltd., 11A, Rajpur Road, Dehrdun. PAN: AAACW6855C (Appellant) (Respondent) Assessee by : Sh. Virendra Kalra, CA Revenue by : Smt. Poonam Sharma, Addl. CIT Date of hearing : 19.06.2023 Date of pronouncement: 23.06.2023 ORDER This is an appeal by the Revenue against order dated 31.01.2018
of learned Commissioner of Income-tax (Appeals), Haldwani for the assessment year 2014-15.
The major controversy in the present appeal is in relation to assessee’s claim of deduction u/s. 80IC of the Income-tax Act, 1961. Of course, there is one more issue relating to deletion of addition made on account of difference in rate of foreign exchange.
ITA No. 3664/Del/2018
As regards the first issue relating to claim of deduction u/s. 80IC of
the Act, briefly, the facts are, the assessee is a resident corporate entity
stated to be engaged in the business of manufacturing of petroleum
drilling parts/equipments. For its manufacturing activity, the assessee
has set up a unit at Dehradun. The assessee commenced its operation
on 01.12.2007 and the assessment year 2008-09, being the initial
assessment year, wherein, the commencement of operation has started,
the assessee claimed deduction u/s. 80IC of the Act at 100% of its
profits. Subsequently, the assessee made substantial investment in expansion of its manufacturing unit in financial year relevant to
assessment year 2013-14. Based on substantial expansion undertaken,
the assessee again claimed deduction u/s. 80IC of the Act at 100% of
the business profits by treating the assessment year 2013-14 as the
initial assessment year in so far as the expansion programmed is
concerned. Following the same procedure in the return of income filed in
the impugned assessment year, i.e., 2014-15, the assessee claimed
deduction u/s. 80IC of the Act at 100% of the profits. While examining
assessee’s claim of deduction u/s. 80IC of the Act, the Assessing
Officer noticed that though, the assessee has claimed 100% deduction of its business profits in the initial assessment year, being the
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assessment year 2008-09, again he has claimed the maximum benefit
of deduction of 100% business profit during the assessment year 2013-
14, as the initial assessment year. According to the Assessing Officer,
such claim is not in the spirit of section 80IC of the Act, as the assessee
can have only one initial assessment year. In that view of the matter, he
restricted the deduction u/s. 80IC of the Act to 30% of the business
profit. Contesting the disallowance made by the Assessing Officer, the
assessee preferred appeal before learned Commissioner (Appeals).
Being convinced with the submissions of the assessee and guided by the ratio laid down in judicial precedents cited before him, learned
Commissioner (Appeals) deleted the disallowance made by the Assessing Officer.
Before us, learned Departmental Representative strongly relied
upon the observations of the Assessing Officer. She submitted, as per
the provisions contained u/s. 80IC of the Act, the assessee can have
only one assessment year. She submitted, since the assessee has
availed deduction u/s. 80IC of the Act by treating the assessment year
2008-09 as the initial assessment year, he cannot claim 100% benefit
u/s. 80IC of the Act again from the assessment year 2013-14 based on
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the investment made in expansion of the project. In support of her
contention learned Departmental Representative relied upon a decision
of Hon’ble Supreme Court in the case of CIT vs. Classic Binding Industries (2018) 97 taxmann.com 405(SC).
Per contra, learned counsel appearing for the assessee submitted
hat in a subsequent decision in case of PCIT vs. Aarham Softronics
(2019) 102 taxmann.com 80(SC), Hon’ble Supreme Court has dissented
with the view expressed in case of CIT vs. Classic Binding Industries
(supra) and has held that the assessee can have more than one initial
assessment year. Further, he submitted, in assessee’s own case in
assessment year 2013-14, the Tribunal has decided the issue in favour
of the assessee. Thus, he submitted, the issue stands squarely covered in favour of the assessee.
We have considered rival submissions and perused materials on
record. We have also applied our mind to the decisions relied upon.
Undisputed facts are, the assessee commenced its manufacturing
operations in financial year 2007-08, corresponding to assessment year
2008-09. Thus, treating the assessment year 2008-09 as the initial
assessment year, the assessee claimed deduction u/s. 80IC of the Act
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at 100% of its business profits. Subsequently, the assessee undertook
substantial expansion of the manufacturing unit and the operation of the
expanded unit was commenced in financial year 2012-13 relevant to
assessment year 2013-14. After expansion of the project, the assessee
claimed deduction u/s. 80IC of the Act at 100% of the business profits in
respect of the expanded unit. It is the case of the Revenue that the
assessee can have only one initial assessment year, which is
assessment year 2008-09. Therefore, in the first five years from the
initial assessment year, the assessee is eligible to claim deduction of 100% of its profits and thereafter at the reduced rate of 30% of the
profit. Whereas, learned Commissioner (Appeals) has held that the
Assessing Officer has not disputed that the assessee has undertaken
substantial expansion within the eligibility period of 10 years as provided
u/s. 80IC of the Act and has claimed deduction within the stipulated
period of 10 years as provided in section 80IC(6) of the Act and has not
claimed beyond that. Thus, on completion of substantial expansion in
assessment year 2013-14, the assessee can claim 100% deduction in
respect of its profits subject to overall limit of 10 years from the initial year, i.e., assessment year 2008-09.
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ITA No. 3664/Del/2018
In our view, aforesaid conclusion reached by the first appellate
authority is in consonance with the ratio laid down by the Hon’ble
Supreme Court in the case of PCIT vs. Aarham Softronics (supra),
wherein, while digressing from the view expressed in case of CIT vs.
Classic Industries(supra), Hon’ble Supreme Court has held that even
after availing 100% deduction of the profits in the initial five years, the
assessee can still avail 100% deduction of its business profits from the
previous year, in which substantial expansion is undertaken by treating
it as initial assessment year, subject to, overall limit of 10 years as provided under section 80IC of the Act. Pertinently, in assessee’s own
case, in assessment year 2013-14, similar deduction claimed by the
assessee in respect of expanded unit was allowed by the Assessing
Officer. However, while examining the assessment order in exercise of
powers conferred under section 263 of the Act, the Revisionary
Authority held that the assessee can have only one initial assessment
year and once the assessee has availed 100% deduction of its profits in
the initial five assessment years, it is no more eligible to claim 100%
deduction of its profits after substantial expansion of the units.
Accordingly, the revisionary authority set aside the assessment order. While deciding the issue in appeal, the Tribunal vide order dated
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16.05.2019 has reversed the order passed under section 263 of the Act
and upheld the assessment order. In any case of the matter, in our view,
as per the ratio laid down by Hon’ble Supreme Court in case of DCIT vs.
Aarham Softronics (supra), there is no infirmity in the decision of learned
Commissioner (Appeals). Accordingly, we uphold the order of the first appellate authority by dismissing the grounds raised.
Next issue arising for consideration is, deletion of addition of
Rs.46,72,560/- representing difference due to foreign exchange
fluctuation.
We have considered rival submissions and perused the materials
on record. As could be seen from the facts on record, while computing
deduction under section 80IC of the Act, the assessee had included the
foreign exchange gain as part of its business profits. Being of the view
that foreign exchange gain is not derived from or attributable to the
business of the assessee, the Assessing Officer held that assessee is
not eligible for deduction under section 80IC of the Act. Accordingly, he
disallowed assessee’s claim. While deciding the issue in appeal,
learned Commissioner (Appeals) held that the assessee is eligible to
claim deduction under section 80IC of the Act in respect of the gain from
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foreign exchange fluctuation, as there is a direct and proximate
connection with the manufacturing activities.
On examining the issue at depth, we do not find any infirmity in the
decision of learned Commissioner (Appeals). Undisputedly, the foreign
exchange fluctuation gain was derived by the assessee in course of its
business of manufacturing and sale of products. Therefore, the foreign
exchange gain is inextricably linked to the manufacturing activities of the
assessee. We further find, as per the ratio laid down in the judicial
precedents referred to by learned first appellate authority, foreign
exchange gain is eligible for deduction under section 80IC of the Act.
Accordingly, we uphold the decision of the first appellate authority.
Grounds raised are dismissed.
In the result, appeal is dismissed.
Order pronounced in the open court on 23/06/2023.
Sd/- Sd/- (M. BALAGANESH) (SAKTIJIT DEY) ACCOUNTANT MEMBER VICE-PRESIDENT
Dated: 23.06.2023 *aks/-
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