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Income Tax Appellate Tribunal, DELHI BENCH: ‘C’ NEW DELHI
Before: SHRI N. K. BILLAIYA & MS SUCHITRA KAMBLE
ORDER PER SUCHITRA KAMBLE, JM
This appeal is filed by the assessee against order dated 18/12/2017 passed by CIT(A)-4 New Delhi for assessment year 2013-14.
The grounds of appeal are as under:-
1. “On the facts and in the circumstances of the case the Ld CIT(A) erred in law in deleting the addition of Rs. addition of Rs. 5,68,44,423/- made by the Assessing officer on account of disallowance of deduction u/s 80IC by restricting deduction u/s 80IC of IT Act, 1961 @ 30% of the profits of undertaking as against deduction claimed by the assessee 100% of profits of undertaking at Rs. 8,12,06,319.
2. On the facts and circumstances of the case and in law the Ld CIT(A) erred in holding that there can be more than one initial Assessment year for the purpose of deduction u/s 80IC of the Income Tax Act, 1961 whereas the there is neither concept of more than one initial assessment year not intention of legislature behind section of 80IC of the Income Tax Act, 1961.
3. Whether on the facts and circumstances of the case the CIT(A) that is correct in law in holding that that the provision of Section 80IC of the Income Tax Act, 1961 allowed existence of more than one initial Assessment Year.” 3. The assessee is a private Limited Company and engaged in the business of manufacturing and sale of Herbals products i.e. Medicines and Animal/Poultry filled supplements for the use of animals and herbal extracts/human medicines etc. The assessee company was incorporated on 31/08/2012 after conversation of partnership firm namely Indian Herbs Specialties (Pvt. Ltd. Company) under part ix of the Companies Act, 1956. The firm before conversation into Pvt. Ltd. company had set up a new industrial undertaking in the area notified by the Board in accordance with the scheme framed and notified u/s 80IC (2)(a)(ii) in Himachal Pradesh on the notified land and commence the business w.e.f. 14/06/2006. Thereafter, the Company had undertaken substantial explanation in the existing business of the unit during the Financial Year 2011-12 which is completed on 22/3/2012 after fulfilling all the terms and conditions as prescribed u/s 80IC. The assessee company vide order dated 12/3/2013 passed by the Hon’ble Delhi High Court Companies namely Indian Herbs Research & Supply Company Ltd. having manufacturing unit at Saharanpur and Envin Bioceuticals Pvt. Ltd. were amalgamated into the assessee company and the amalgamated companies were engaged in the business of manufacture and sale of herbal products i.e. herbal extracts, Ayurvedic medicines, Veterinary medicines and animal field supplements. The assessee company filed its return of income on 29/09/2013 declaring total income at Rs.7,80,02,150/-. The assessment was completed on 7/3/2016 and the Assessing Officer assessed the total income at Rs.13,89,49,250/-. The Assessing Officer made addition of Rs. 14,37,556/- towards the expense in regard to provisions of Section 35DD. The Assessing Officer further made addition of Rs. 5,68,00,000/- in respect of deduction u/s 80IC and addition of Rs. 26,65,125/- in respect of disallowance u/s 14A read with Rule 8D.
Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
The Ld. AR submitted that the preceding and subsequent Assessment Years, the Tribunal has allowed identical issues in favour of the assessee.
7. The Ld. DR relied upon the assessment order but submitted that all the issues contested in Revenue’s appeal is decided against the revenue for Assessment Year 2014-15 being and Assessment Year 2015-16 ITA No. 299/Del/2019 order dated 18/10/2019.
We have heard both the parties and perused the material available on record. It is seen that for Assessment Year 2012-13 in respect of amalgamating company i.e. Herbs Specialties Vs. DCIT (ITA Nos. 196 & 197/CHD/2017 A.Y. 2012-13 and 2013-14 order dated 27/3/2018), the Tribunal has decided the issue of 80IC in assessee’s favour. Besides this, for Assessment Year 2014-15 and 2015-16, the Tribunal also has decided the similar issue thereby stating that the issue is already settled in light of the Hon'ble Supreme Court decision in case of Aarham Softronics Civil Appeal Nos. 1784/2019 and thus, the issue is squarely covered in favour of the assessee. The Tribunal held as under: “6. We have heard the rival submission and perused the relevant material on record. As per the provision of section 80IC(2) of the Act any undertaking or enterprises which has begun or begins to manufacture or produce any article or the thing by setting up a new factory in the area specified therein including the state of the Himachal Pradesh, is eligible for deduction under section 80IC of the Act. Sub-section (3) has prescribed period of 10 years commencing with initial assessment year. Sub-section 3 further prescribed deduction at the rate of 100% of such profit and gains
from the undertaking or an enterprise for five assessment years commencing with initial assessment year and thereafter deduction allowable @ 25% (or @ 30% where the assesee is a company) of the profit and gains. Further, sub-section (6) puts a cap of 10 years for claiming deduction under the section. In the case, the assessee has availed 100% of the profit and gains as deduction under section 80IC of the Act for five assessment years commencing with the initial assessment year, i.e., 2007- 08 to 2011-12 and thereafter the assessee carried out “substantial expansion” and again claimed that it should be allowed deduction from profit and gains for another five years @ 100%. 6.1 The issue in dispute is whether the assessee is entitled for deduction under section 80IC @ 100% for 6th to 10th assessment years from the year of the manufacturing as claimed by the assessee, on the ground that for the purpose of substantial expansion “initial assessment years” would be separate. The contention of the assessee that there can be more than one “initial assessment year”, first when the assessee begins to manufacture or commences operation and another after completing substantial expansion . 6.2 We find that Hon’ble Supreme Court in the case of Aarham Softronics (supra) has held in case of substantial expansion, the said previous year would become initial assessment year and from that assessment year the assessee shall be entitled to hundred percent deduction of the profit and gains. The relevant finding of the Hon’ble Supreme Court is reproduced 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 definition contained in Section 80-IB, which does not 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 been 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 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.”
6.3 The Tribunal (supra) in the assessment year 2012-13 and 2013-14 has also decided the issue in favour of the assessee observing as under:
“6. During the course of hearing before us, it was brought to our notice that the issue involved in these appeals has already been adjudicated by the Hon’ble Himachal Pradesh High Court vide their order dt. 28th November 2017 in the group of cases with the lead case titled as M/s Stovekraft India vs. Commissioner of Income Tax, of 2015, and it was pointed out that the Hon’ble High Court had decided the issue in favour of the assessee, holding that there is no bar in the said section denying the benefit of hundred percent deduction to new units undertaking substantial expansion. Our attention was drawn to the relevant conclusions of the Hon’ble High Court in this regard at para 55 of the order as under:
“55.Thus, in view of the above discussion, these appeals are allowed and orders passed by the Assessment Officer as well as the Appellate Authority and the Tribunal, in the case of each one of the Assesses, are quashed and set aside, holding as under: (a) Such of those undertakings or enterprises which were established, became operational and functional prior to 7.1.2003 and have undertaken substantial expansion between 7.1.2003 upto 1.4.2012, 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 7.1.2003 and carried out substantial expansion prior to 1.4.2012, 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-lC(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 7.1.2013 upto 1.4.2012, 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- 1B(5)]. ”
Ld. DR fairly admitted that the issue is squarely covered by the above decision of the Hon'ble jurisdictional High Court. It was, however, submitted that the issue be restored to the file of the Assessing officers for verification as to whether the assessee has actually carried out the substantial expansion to be entitled to claim deduction u/s 80IC of the Act.
8. We do not agree to the above contention raised by the Revenue at this stage. A perusal of the orders of the Assessing officers reveal that the Assessing officers have not disputed that the assessee unit has carried out substantial expansion as provided under clause (b) of sub section (2) read with clause (ix) of sub section (7) of section 80IC of the Act. Almost similar view has also been taken by the Hon'ble Himachal Pradesh High Court in the case of ‘M/s Stovekraft India vs. Commissioner of Income Tax’ (supra) in the following concluding para of the order:-
58. On facts, we may clarify that the Revenue has not disputed, (a) the units having carried out substantial expansion within the definition of the Section, (b) their entitlement and extent of deduction would be dependent upon interpretation of the relevant provisions.
We, therefore, do not find any justification at this stage to give the Assessing officers a second innings to re-examine undisputed facts.
In view of the above discussion, the impugned orders of the CIT(A) are set aside and the Assessing officers are directed to grant to the assessee deduction at the rate of hundred percent of its eligible profits, as per the ruling of the jurisdictional High Court in this regard in the case of ‘M/s Stovekraft India vs. Commissioner of Income Tax’ (supra).” 6.4 In view of the above, respectfully following the binding precedent, the order of the Ld. CIT(A) on the issue in dispute is set aside and the Assessing Officer is directed to allow the deduction under section 80IC of the Act to the assessee’s. The Ground No. 1 to 1.4 of the appeal are accordingly allowed.
Thus, the issues are identical and do not require any separate finding as the present Assessment Year is one of the Assessment Year were deduction under 80IC has to be allowed. No distinguishing facts were submitted by the Ld. DR at the time of hearing. Hence, the appeal of the Revenue is dismissed.