PARVINDER SINGH vs. CIT, CHANDIGARH

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ITA/158/2018HC Punjab & HaryanaPHHC01118997201826 September 2018Author: MR. JUSTICE R.C. KATHURIA (RETD.),MS. JUSTICE RITU BAHRI10 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the substantial questions of law were answered against the assessee and in favour of the revenue, following the Supreme Court's decision in M/s Classic Binding Industries' case. The Court reasoned that Section 80IC provides for a deduction of 100% of profits for the first five assessment years commencing from the initial assessment year, and thereafter, a deduction of 25% for the next five years. Once an initial assessment year has commenced and the assessee starts enjoying the deduction under Section 80IC, there cannot be another 'initial assessment year' for the purposes of claiming 100% deduction on the ground of substantial expansion within the overall 10-year period. The Court distinguished the case from Mahabir Industries, where the initial deduction was claimed under different provisions (Section 80IA and 80IB) before Section 80IC was introduced. The appeal was dismissed.

What were the facts?

The appellant-assessee, Parvinder Singh Sahni, proprietor of Windstor Industries, engaged in manufacturing and trading, claimed a deduction of ₹2,10,46,729/- under Section 80IC of the Income Tax Act, 1961, for assessment year 2013-14. The unit commenced operations on 29.06.2004, with the initial assessment year being 2005-06. The Assessing Officer disallowed the deduction, leading to an assessed income of ₹1,71,64,027/-. The assessee contended that substantial expansion in the financial year 2009-10 made it eligible for 100% deduction for five assessment years from 2010-11. The CIT(A) and the Income Tax Appellate Tribunal dismissed the assessee's appeals, upholding the disallowance. The assessee then filed an appeal before the High Court.

What were the issues?

1. Whether units set up after 07.01.2003 are entitled to 100% deduction under Section 80IC for profits arising from substantial expansion undertaken within the specified period? (Question of law turning on Section 80IC). 2. Whether the benefit of 100% deduction under Section 80IC is available to units set up after 07.01.2003 on undertaking substantial expansion, commencing from the year of completion of such expansion? (Question of law turning on Section 80IC). 3. Whether the disallowance of a claim for substantial expansion under Section 80IC for units established after 07.01.2003 is sustainable, given that the initial assessment year cannot be refixed for such units? (Question of law turning on Section 80IC). 4. Whether, in case of differing opinions among co-ordinate benches, the matter should be referred to a larger bench? (Question of procedure). Assessee's Contention: The assessee argued that substantial expansion made it eligible for 100% deduction for five assessment years from 2010-11, relying on Section 80IC, the Explanatory note to the Finance Act, 2003, and various Tribunal orders. They also relied on the Himachal Pradesh High Court's decision in Stovkraft India vs. Commissioner of Income Tax. Revenue's Contention: The revenue's position, as reflected in the Tribunal's decision and the High Court's reliance on Supreme Court judgments, was that once an initial assessment year commenced under Section 80IC, there could not be another 'initial assessment year' for substantial expansion within the 10-year period, and the deduction rate would reduce after the initial five years.

Which sections of the Income-tax Act were involved?

Section 260A,Section 80IC,Section 139(1),Section 143(1),Section 143(2),Section 142(1),Section 80-IB(14)(c),Section 80-IA,Section 80-IB

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
ITA No. 158 of 2018 (O&M) 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 158 of 2018 (O&M) Date of decision: 26.09.2018 Parvinder Singh Sahni, H.No. 2082, Sector-44C, Chandigarh. ……Appellant Vs. Commissioner of Income Tax, Chandigarh …..Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MR. JUSTICE AVNEESH JHINGAN Present: Mr. Pankaj Jain, Senior Advocate with Mr. Sachin Bhardwaj, Advocate for the appellant. Ajay Kumar Mittal,J. 1. The appellant-assessee has filed the present appeal under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 12.10.2017, Annexure A.6, passed by the Income Tax Appellate Tribunal, Chandigarh Bench, ‘A’ (in short, “the Tribunal”) in ITA No.386/CHD/2017, for the assessment year 2013-14, claiming following substantial questions of law:- i) “Whether under the facts and circumstances of the case, the impugned order is unreasonable, in holding that units set up after 07.01.2003 would not be entitled to enlarged deduction under Section 80IC of the Act @ GURBAX SINGH 2018.10.08 10:48 ITA No. 158 of 2018 (O&M) 2 100% of profit, even after undertaking substantial expansion within the specified period? ii) Whether under the facts and circumstances of the case, the Tribunal has erred in holding that benefit of deduction under Section 80IC @ 100% of profit was not available to units set up after 07.01.2003, on undertaking substantial expansion from the year of completion of substantial expansion? iii) Whether under the facts and circumstances of the case, the

order is unsubstantial, for upholding the disallowance of the claim for substantial expansion under Section 80IC to the units that came into existence after 07.01.2003 by stating that initial assessment year cannot be re-fixed for such units? iv) Whether under the facts and circumstances of the case, in case of difference of opinion amongst the decisions of co-ordinate benches, the matte is to be referred to the larger bench?”

2.

A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. The appellant-assessee is a proprietor of Windstor Industries which is primarily engaged in the business of manufacturing and trading in EPS Thermocole Moulded Packaging, Disposable Glass and BOPP Tapes at Baddi (Himachal Pradesh). Deduction of ` 2,10,46,729/- under Section 80IC of the Act was claimed. As per Form 10-CCB, the date of commencement of operation at Baddi was on 29.06.2004 and the initial year was assessment year 2005-

06.

The assessee filed its return of income under Section 139(1) of the Act at an income of `13,78,980/- which was processed under Section 143(1) of the Act on 2.08.2014. However, the case was selected for initiation of scrutiny proceedings. Notice under Section 143(2) of the Act was issued to the assessee. Thereafter, notice under Section 142(1) of the Act was also ITA No. 158 of 2018 (O&M) 3

issued along with questionnaire. The assessee furnished the written pleadings on 15.12.2015 before the Assessing Officer. After examining the matter, the Assessing Officer disallowed the deduction under Section 80IC of the Act by arriving at chargeable assessed income amounting to `1,71,64,027/- by passing an order under Section 143(2) of the Act on 31.12.2015. Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax, Appeals [CIT(A)]. The assessee reiterated the pleadings of having made substantial expansion in the terms of Section 80IC of the Act in the financial year 2009-10 by making an addition in the plant and machinery by more than 50% of its original cost of plant and machinery as on 01.04.2009 and thereby becoming eligible for claiming deduction to the extent of 100% for five assessment years beginning from assessment year 2010-11; placing reliance on the provisions of Section 80IC of the Act; Explanatory note to the Finance Act, 2003 and various orders passed by the Tribunal. Vide order dated 17.01.2017, Annexure A.4, the CIT(A) dismissed the appeal, by following the earlier order passed by the Tribunal dated 27.05.2015. Still not satisfied, the assessee filed an appeal before the Tribunal. Vide order dated 12.10.2017, Annexure A.6, the Tribunal dismissed the appeal. Hence the instant appeal by the appellant-assessee.

3.

We have heard learned counsel for the appellant-assessee.

4.

The matter is no longer res integra. The issue has already been decided against the assessee in a judgment passed on 06.09.2018 in ITA No. 332 of 2015 (M/s Admac Formulations, H.No. 272, Sector-17, ITA No. 158 of 2018 (O&M) 4

considering the relevant statutory provision and the case law on the point, it has been recorded as under:- “Section 80-IC was inserted by Finance Act, 2003 w.e.f. April 1, 2004. It makes special provisions in respect of certain undertakings or enterprises in certain special category States. According to this provision, certain undertakings or enterprises in certain special category States are allowed deduction from such profits and gains, as specified in sub- section (3) of Section 80-IC of the Act. The provisions of this Section provided deduction to manufacturing units situated in the States of Sikkim, Himachal Pradesh and Uttaranchal and North-Eastern States. The deduction was provided to new units established in the aforesaid States, and also to existing units in those States if substantial expansion was carried out. The deduction was available @ 100% for ten Assessment Years for the units located in North-Eastern and in the State of Sikkim, and for the units located in Himachal Pradesh, the deduction was available @ 100% for five years and @ 25% for next five years.

6.

The Tribunal in view of the opinion expressed by it in its decision in the case of M/s. Hycron Electronics, Baddi, Solan in ITA No. 798/Chd/2012 dated 27.05.2015 for the assessment year 2009-10 adjudicated the issue against the Stovkraft India’s case (supra) was as to whether “undertaking or an enterprise” established after 7th January 2003 carrying

ITA No. 158 of 2018 (O&M) 5

out “substantial expansion” within the window period between 07.01.2003 to 01.04.2012 would be entitled to deduction on profits at the rate of 100% under Section 80IC of the Act and if so then for what period. The answer was given in the affirmative. It was held as under: “(a) Such of those undertakings or enterprises which were established, became operational and functional prior to 07.01.2003 and have undertaken substantial expansion between 07.01.2003 upto 01.04.2012, should be entitled to benefit of Section 80-IC of the Act, for the period for which they were not entitled to the benefit of deduction under Section 80-IB. (b) Such of those units which have commenced production after 07.01.2003 and carried out substantial expansion prior to 01.04.2012, would also be entitled to benefit of deduction at different rates of percentage stipulated under Section 80-IC. (c) Substantial expansion cannot be confined to one expansion. As long as requirement of Section 80- IC(8)(ix) is met, there can be number of multiple substantial expansions. (d) Correspondingly, there can be more than one initial Assessment Years. (e) Within the window period of 07.01.2003 to 01.04.2012, an undertaking or an enterprise can be entitled to deduction @ 100% for a period of more than five years. (f) All this, of course, is subject to a cap of ten years. [Section 80-IC(6)] (g) Units claiming deduction under Section 80-IC shall not be entitled to deduction under any other Section, contained in Chapter VI-A or Section 10A or 10B of the Act [Section 80-IB(5)].”

ITA No. 158 of 2018 (O&M) 6

8.

The view of the Himachal Pradesh High Court in Stovkraft India’s case (supra) and other appeals was not approved by the Supreme Court. The Apex Court in Commissioner of Income Tax vs. M/s Classic Binding Industries, Civil Appeal No(s) 7208 of 2018 decided on 20.8.2018, dealing with the issue whether the assessee who had availed deductions at the rate of 100% for first five years on the ground that they had set up a manufacturing unit as prescribed under sub section (2) of Section 80IC of the Act can start claiming deduction at the rate of 100% again for the next five years as they had undertaken substantial expansion during the period mentioned in sub section (2) thereof. The answer was given in the negative. The matter is no longer res integra. It was held by the Apex Court as under:- “17. In this backdrop, the question is as to whether these assessees, who had availed deductions @ 100% for first five years on the ground that they had set up a manufacturing unit as prescribed under sub-section (2) of Section 80IC of the Act, can start claiming deductions @ 100% again for next five years as they had undertaken “substantial expansion” during the period mentioned in sub-section (2) thereof? The answer has to be in the negative for the following reasons:

18.

We are dealing with the deductions in respect of profits and gains under Section 80-IC of the Act. No other provision is involved. This section makes special provisions in respect of certain undertakings or enterprises in certain special category States. Section 80-IC was inserted by the Finance Act, 2003 w.e.f. April 1, 2004. As per this provision, certain undertakings or enterprises in certain special category States are allowed deduction from such profits and gains, as specified in sub-section (3) of Section 80-IC. The provisions of Section 80-IC provided deduction to manufacturing units situated in the State of Sikkim, Himachal Pradesh and Uttaranchal and North-Eastern States. The deduction was provided to new units established in the aforesaid States, and ITA No. 158 of 2018 (O&M) 7

also to existing units in those States if substantial expansion was carried out. The deduction was available @ 100% for ten Assessment Years for the units located in North-Eastern and in the State of Sikkim and for the units located in Himachal Pradesh, the deduction was available @ 100% for five years and @ 25% for next five years.

19.

In the instant case, we are concerned with the assessees who had established their undertakings in the State of Himachal Pradesh. Sub-section (3), as noted above, mentions the period of 10 years commencing with the initial Assessment Year. Sub- section (6) puts a cap of 10 years, which is the maximum period for which the deduction can be allowed to any undertaking or enterprise under this section, starting from the initial Assessment Year. Another significant feature under sub-section (3) is that the deduction allowable is 100% of such profits and gains from an undertaking or an enterprise for five Assessment Years commencing with the initial Assessment Year and thereafter the deduction is allowable at 25% (or 30% where the assessee is a company) of the profits and gains. Cumulative reading of these provisions brings out the following aspects: (a) Those undertakings or enterprises fulfilling the conditions mentioned in sub-section (2) of Section 80-IC become entitled to deduction under this provision. (b) This deduction is allowable from the initial Assessment Year. “Initial Assessment Year” is defined in Section 80- IB(14)(c) of the Act. (c) The deduction is @ 100% of such profits and gains for first 5 Assessment Years and thereafter a deduction is permissible @ 25% (or 30% where the assessee is a company). (d) Total period of deduction is 10 years, which means 100% deduction for first 5 years from the initial Assessment Year and 25% (or 30% where the assessee is a company) for the next 5 years.

ITA No. 158 of 2018 (O&M) 8

20.

When we keep in mind the aforesaid scheme and spirit behind this provision, such a situation cannot be countenanced where an period of 10 years. If that is allowed it will amount to doing violence to the provisions of sub- section (3) read with sub-section (6) of Section 80-IC. A pragmatic and reasonable interpretation of Section 80-IC would be to hold that once the initial Assessment Year commences and an assessee, by virtue of fulfilling the conditions laid down in sub-section (2) of Section 80-IC, starts enjoying deduction, there cannot be another “Initial Assessment Year” for the purposes of Section 80-IC within the aforesaid period of 10 years, on the basis that it had carried substantial expansion in its unit.”

9.

(Civil Appeal Nos.4765-4766 of 2018 decided on May 18, 2018 in the following terms:- “21. We are conscious of our recent judgment rendered by Commissioner of Income Tax (Civil Appeal Nos. 4765-4766 of 2018 decided on May 18, 2018). However, a fine distinction needs to be noted between the two sets of cases. In Mahabir Industries, the assessees had availed the initial deduction under a different provision, namely, Section 80-IA of the Act, i.e. by fulfilling the conditions mentioned in sub- section (4) of Section 80-IA. Those conditions are altogether different. Deduction in respect of profits and gains under the said provision is admissible when these profits and gains are from industrial undertakings or enterprises engaged in infrastructure development etc. Even this availment started at a time when Section 80-IC was not even on the statute book. As mentioned above, Section 80-IC was inserted by the Finance Act, 2003 with effect from April 01, 2004. The ITA No. 158 of 2018 (O&M) 9

assessees in those cases had started claiming and were allowed deductions from the Assessment Years 1998-99 and 1999- 2000 under Section 80-IA and from the Assessment Year 2000-01 to Assessment Year 2005-06 under Section 80-IB of the Act. The deduction was, thus, claimed by the assessees in those appeals under the new provision i.e. Section 80-IC on fulfilling conditions contained in sub-section (2) of Section 80-IC for the first time for the Assessment Year 2006-07. Thus, insofar as those cases are concerned, the initial Assessment Year under Section 80-IC started only from the Assessment Year 2006-07. In contrast, position here is altogether different. These assessees have availed deduction under Section 80-IC alone. Initially, they claimed the deduction on the ground that they had set up their units in the State of Himachal Pradesh and after availing the deduction @ 100% they want continuation of this rate of 100% for the next 5 years also under the same provision on the ground that they have made substantial expansion. As pointed out above, once the assessees had started claiming deduction under Section 80-IC and the initial Assessment Year has commenced within the aforesaid period of 10 years, there cannot be another initial Assessment Year thereby allowing 100% deduction for the next 5 years also when sub-section (3), in no uncertain terms, provides for deduction @ 25% only for the next 5 years. It may be asserted again that the assessees accept the legal position that they cannot claim deduction of more than 10 years in all under Section 80-IC.”

10.

In view of the law laid down by the Apex Court in M/s Classic Binding Industries’s case (supra), the substantial questions of law are answered against the assessee and in favour of the revenue. Consequently, all the appeals stand dismissed.”

ITA No. 158 of 2018 (O&M) 10

5.

In view of the above pronouncement of this Court in M/s Admac Formulations’ case (supra), there is no substantial question of law arising in the present appeal. Accordingly, the appeal stands dismissed.

(Ajay Kumar Mittal)

Judge

September 26, 2018

(Avneesh Jhingan)

‘gs’

Judge Whether speaking/reasoned

Yes Whether reportable

Yes

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