ACIT, CHANDIGARH vs. SHRI SUBHASH CHAND, CHANDIGARH

आदेश/Order Per B.R.R. KUMAR, AM:

The impugned appeal preferred by the Revenue, was earlier allowed vide order dated 27.11.2018 of this Tribunal. However, the said order dated 27.11.2018 has been recalled vide order of even date 06.08.2019 passed in M.A. Nos. 65/Chd/2019, filed by the assessee. The appeal is, therefore, heard afresh.

ITA No. 860-c-2018 Shri Subhash Chand, Chandigarh 2 3. During the course of hearing before us, the Ld. Counsel for the

assessee, at the outset itself, pointed out that the Hon'ble Apex Court

has decided this issue in favour of the assessee in bunch of cases with

the lead case being Pr.CIT, Shimla Vs. M/s Aarham Softronics in

Civil No.1784 of 2019 dated 20.2.2019.

the assessee by the above decision of the Apex court.

the case of M/s Aarham Softronics (supra) and find that the Hon'ble

Apex Court dealt with the entire scheme of the Act relating to the

relevant section i.e. section 80IC of the Act, and arrived at the

conclusion that the definition of the initial assessment year contained

in clause (v) of sub-section(8) of section 80IC of the Act can lead to a

situation where there can be more than one initial assessment year

within the said period of ten years. The relevant finding of the

Hon'ble Apex Court at para 19 of its order is as under:

“19. Having examined the scheme in the aforesaid manner, we arrive at the conclusion that the definition of ‘initial assessment year’ contained in clause (v) of sub-section (8) of Section 80-IC can lead to a situation where there can be more than one “initial assessment year” within the said period of 10 years. As per sub- section (6), cap is on the 10 assessment years. It is not on quantum. We have also to keep in mind the purpose for which Section 80-IC was enacted. The purpose was to establish the business of the nature specified in the said provision in the specified States. This provision was, thus, aimed at encouraging the undertakings or enterprises to establish and set up such units in the aforesaid States to make them industrially advanced States as well. Undoubtedly, these are difficult States as most of these

ITA No. 860-c-2018 Shri Subhash Chand, Chandigarh 3 States fall in hilly areas. Therefore, cost of production and transportation may also go up. 20. When we keep in mind these objectives for which Section 80-IC was enacted, an irresistible conclusion would be to grant 100% deduction of the profits and gains even from the year when there is substantial expansion in the existing unit. After all, this substantial expansion involves great deal of investment which has to be, at least 50% in the plant and machinery, of the book value thereof before taking depreciation in any year. With an expansion of such a nature not only there would be increase in production but generation of more employment as well, which would benefit the local populace. It is for this reason, carrying out substantial expansion by itself is treated as ‘initial assessment year’. It would mean that even when an old unit completes substantial expansion, such a unit also becomes entitled to avail the benefit of Section 80-IC. If that is the purpose of the legislature, we see no reason as to why 100% deduction of the profits and gains be not allowed to even those units who had availed this deduction on setting up of a new unit and have now invested huge amount with substantial expansion of those units.” 6. The Hon'ble Apex Court thereafter concluded that a newly set

up undertaking or enterprise in the State of Himachal Pradesh would

be entitled to deduction @ 100% of the Act its profits for the first

five years and even thereafter in the case of substantial expansion is

carried out by it, then the assessment year relevant to the previous

year in which substantial expansion is undertaken becoming the initial

assessment year. That in any case, the period of deduction u/s 80IC of

the Act would not exceed 10 years. The conclusion of the Hon'ble

Apex Court at para 24 of its order is 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

ITA No. 860-c-2018 Shri Subhash Chand, Chandigarh 4 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. 25. In view of the aforesaid, we affirm the judgment of the High Court on this issue and dismiss all these appeals of the Revenue. Likewise, appeals filed by the assessees are hereby allowed.” 7. In view of the above, it is now settled law that even a new

undertaking, which has claimed deduction of its eligible profits @

100% thereof for the first five years, is entitled to claim deduction @

100% of its profits thereafter on account of substantial expansion

ITA No. 860-c-2018 Shri Subhash Chand, Chandigarh 5 undertaken by it. However, such deduction would be for a total period

of 10 years as provided in sub-section (6) to section 80IC of the Act.

undertaken substantial expansion is not disputed, the assessee, we

hold, is entitled to claim deduction @ 100% of its eligible profits for

five years from the initial year of substantial expansion even though

the assessee has already claimed deduction of the profits at the rate of

100% for first five years subject to the condition that the total period

of deduction u/s 80IC will not exceed 10 years from the initial year of

commencement of unit, in view of the law laid down by the Apex

court in this regard in its decision in the case of M/s Aarham

Softronics(supra). Thus, this issue is decided in favour of the

assessee.

In the result, the appeal of the assessee stands allowed.

Order pronounced in the Open Court on 06.08.2019.

Sd/- Sd/- संजय गग� डा. बी.आर.आर, कुमार, (SANJAY GARG ) ( Dr. B.R.R. KUMAR, AM) �याय�क सद�य/ Judicial Member लेखा सद�य/ Accountant Member Dated : 06.08.2019 “आर.के.” आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File

ITA No. 860-c-2018 Shri Subhash Chand, Chandigarh 6

आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar