THE PR. COMMISSIONER OF INCOME TAX-2, LUDHIANA vs. M/S RAJ INDUSTRIES

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ITA/8530/2018HC Punjab & HaryanaPHHC01145953201829 April 2019Author: MR. JUSTICE AJAY KUMAR MITTAL,MRS. JUSTICE MANJARI NEHRU KAUL5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeal filed by the Revenue. It noted that the issue was covered by the Supreme Court's decision in Commissioner of Income Tax v. Aarham Softronics, Civil Appeal No. 1784 of 2019, decided on 20.02.2019. The Supreme Court, in its judgment, clarified that the decision in Classic Binding Industries omitted to consider the definition of 'initial assessment year' as contained in Section 80IC itself, and instead relied on the definition from Section 80IB, which are materially different. The Apex Court held that if substantial expansion is carried out as defined in Section 80IC(8)(ix) within the initial 10-year period, the previous year in which such expansion occurs becomes the 'initial assessment year', entitling the assessee to 100% deduction for the remaining period up to a total of 10 years. The Court found that the ITAT's order was in line with this clarified position.

What were the facts?

The Revenue filed an appeal under Section 260A of the Income Tax Act, 1961, against an order of the Income Tax Appellate Tribunal (ITAT) for assessment year 2014-15. The ITAT had allowed the assessee's appeal, overturning the Commissioner of Income Tax (Appeals) and the Assessing Officer's disallowance under Section 80IC. The Assessing Officer had increased the assessee's income by disallowing the Section 80IC deduction. The assessee had initially returned an income of ₹56,76,670, but the assessment was framed at ₹19,12,69,129. The ITAT's decision was based on a Himachal Pradesh High Court ruling. The High Court noted that the issue was covered by a Supreme Court decision in Commissioner of Income Tax v. Aarham Softronics.

What were the issues?

1. Whether an assessee setting up a new industry eligible for 100% tax exemption under Section 80IC(3) for five years can claim the same exemption rate beyond that period on grounds of substantial expansion in the manufacturing unit? (Question of law turning on Section 80IC). 2. Whether there can be more than one 'initial assessment year' for availing deduction under Section 80IC? (Question of law turning on Section 80IC). 3. Whether the ITAT's order in favour of the assessee is liable to be set aside in view of the Supreme Court's judgment in Commissioner of Income Tax Vs. M/s Classic Binding Industries, which was decided in favour of the Revenue? (Question of mixed law and fact turning on Section 80IC). 4. Whether the ITAT's order in favour of the assessee is liable to be set aside, as this Hon'ble Court had adjudicated an identical issue against the assessee and in favour of the Revenue in the case of the same assessee for assessment year 2013-14? (Question of mixed law and fact turning on Section 80IC). Assessee's Contention: The assessee relied on the ITAT's order which was based on the Himachal Pradesh High Court's decision in M/s. Stoverkraft India v. Commissioner of Income Tax. Revenue's Contention: The Revenue argued that the ITAT's order was erroneous and sought to rely on the Supreme Court judgment in Commissioner of Income Tax Vs. M/s Classic Binding Industries and its own previous decision in ITA No. 217 of 2017 for the same assessee.

Which sections of the Income-tax Act were involved?

Section 260A,Section 80IC,Section 143(2),Section 80IB

AI-generated summary — verify with the full judgment below

ITA-8530-2018 -1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA-8530-2018 (O&M) Date of Decision: 29.4.2019 The Principal Commissioner of Income Tax-2, Ludhiana ....Appellant. Versus M/s Raj Industries, Pawa, Ludhiana ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. HON'BLE MRS. JUSTICE MANJARI NEHRU KAUL. PRESENT: Mr. Yogesh Putney, Senior Standing Counsel for the appellant. Mr. Amrinder Singh, Advocate for the respondent. *** AJAY KUMAR MITTAL, J.

1.

This appeal has been filed by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 2.7.2018 (Annexure A-III) passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'B', Chandigarh (hereinafter referred to as “the Tribunal”) in ITA No. 1617/Chd/2017, for the assessment year 2014-15, claiming the following substantial questions of law:- (i) Whether an assessee who sets up a new industry of a kind mentioned in sub-section (2) of Section 80IC of the Income Tax Act, 1961 and starts availing exemption of 100 per cent tax under sub- section (3) of Section 80IC of the Act (which is admissible for five years) can start claiming the GURBACHAN SINGH 2019.05.01 10:38 integrity of this document

ITA-8530-2018 -2- exemption at the same rate of 100% beyond the period of five years on the grounds that the assessee has now carried out substantial expansion in its manufacture unit? (ii) Whether there can be more than one 'initial assessment year' for availing the deduction u/s 80IC of the Income Tax Act? (iii) Whether the order of the Income Tax Appellate Tribunal, which is in favour of the assessee, is liable to be set aside, in view of the judgment of Hon'ble Supreme Court, dated 20.8.2018, in Civil Appeal No. 7208 of 2018 in the case of Commissioner of Income Tax Vs. M/s Classic Binding Industries, wherein the issue has been decided against the assessee in favour of the Revenue? (iv) Whether the order of the Income Tax Appellate Tribunal, which is in favour of the assessee, is liable to be set aside, as this Hon'ble Court in the case of the same assessee, in ITA No. 217 of 2017 for the assessment year 2013-14, in the decision dated 6.9.2018, has adjudicated the identical issue against the assessee and in favour of the revenue?

2.

A few facts necessary for adjudication of the instant appeal as narrated therein may be noticed. The assessee filed its return of income for the assessment year 2014-15 on 27.11.2014 at an income of ` 56,76,670/-. GURBACHAN SINGH 2019.05.01 10:38 integrity of this document

ITA-8530-2018 -3- The case was selected for scrutiny and notice dated 28.8.2015 under Section 143(2) of the Act was issued to the assessee. The Assessing Officer vide order dated 12.5.2016 (Annexure A-I) framed the assessment at an income of ` 19,12,69,129/- against the returned income of ` 56,76,670/- by making addition on account of disallowance under Section 80IC of the Act. Feeling aggrieved by the order, Annexure A-I, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [for brevity “the CIT(A)”]. The CIT(A) vide order dated 24.10.2017 (Annexure A-II) dismissed the appeal of the assessee and upheld the disallowance made by the Assessing Officer. Still dissatisfied, the assessee filed an appeal before the Tribunal. The Tribunal vide order dated 2.7.2018 (Annexure A-III) allowed the appeal of the assessee in view of the order dated 28.11.2017 passed by the Himachal Pradesh High Court in M/s. Stoverkraft India v. Commissioner of Income Tax (2018) 400 ITR 225 (HP). Hence, the present appeal.

3.

We have heard learned counsel for the parties.

4.

It was not disputed by the learned counsel for the parties that the issue involved herein is covered by the decision of the Apex Court in Commissioner of Income Tax v. Aarham Softronics, Civil Appeal No. 1784 of 2019 decided on 20.02.2019. The Apex Court while dismissing all the appeals of the revenue, had in para 24, held as under:- “24. The aforesaid discussion leads us to the following conclusions: (a) Judgment dated 20th August, 2018 in Classic Binding Industries case omitted to take note of the definition ‘initial assessment year’ contained in Section 80-IC itself and instead based its conclusion on the GURBACHAN SINGH 2019.05.01 10:38 integrity of this document

ITA-8530-2018 -4- definition contained in Section 80-IB, which does apply in these cases. The definitions of ‘initial assessment year’ in the two sections, viz. Sections 80-IB and 80-IC are materially different. The definition of ‘initial assessment year’ under Section 80-IC has made all the difference. Therefore, we are of the opinion that the aforesaid judgment does not lay down the correct law. (b) An undertaking or an enterprise which had set up a new unit between 7th January, 2003 and 1st April, 2012 in State of Himachal Pradesh of the nature mentioned in clause (ii) of sub-section (2) of Section 80-IC, would be entitled to deduction at the rate of 100% of the profits and gains for five assessment years commencing with the ‘initial assessment year’. For the next five years, the admissible deduction would be 25% (or 30% where the assessee is a company) of the profits and gains. (c) However, in case substantial expansion is carried out as defined in clause (ix) of sub-section (8) of Section 80-IC by such an undertaking or enterprise, within the aforesaid period of 10 years, the said previous year in which the substantial expansion is undertaken would become ‘initial assessment year’, and from that assessment year the assessee shall be entitled to 100% deductions of the profits and gains. (d) Such deduction, however, would be for a total period of 10 years, as provided in sub-section (6). For GURBACHAN SINGH 2019.05.01 10:38 integrity of this document

ITA-8530-2018 -5- example, if the expansion is carried out immediately, on the completion of first five years, the assessee would be entitled to 100% deduction again for the next five years. On the other hand, if substantial expansion is undertaken, say, in 8th year by an assessee such an assessee would be entitled to 100% deduction for the first five years, deduction @ 25% of the profits and gains for the next two years and @ 100% again from 8th year as this year becomes ‘initial assessment year’ once again. However, this 100% deduction would be for remaining three years, i.e., 8th, 9th and 10th assessment years.”

5.

In view of the above, the present appeal is also dismissed. (AJAY KUMAR MITTAL) JUDGE April 29, 2019 (MANJARI NEHRU KAUL) gbs JUDGE Whether Speaking/Reasoned Yes/No Whether Reportable Yes/No GURBACHAN SINGH 2019.05.01 10:38 integrity of this document

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