DCIT, C-1(1), CHANDIGARH vs. M/S BNAL PREFABS (P) LTD., CHANDIGARH

आदेश/ORDER Per Sanjay Garg, Judicial Member :

The present appeal has been preferred by the Department against the order of the Commissioner of Income Tax (Appeals)- 1, Chandigarh [(in short CIT(A)] dated 3.7.2018 pertaining to assessment year 2011-12.

allowance of claim of deduction u/s 80IC of the Act @ 100% of

profits from the eligible business of the assessee, on account of

substantial expansion undertaken, after availing 100%

deduction of the profits for the first five years.

started its manufacturing activity/operation on 7.1.2005 and

was eligible to claim deduction u/s 80IC of the Income Tax

Act, 1961 (in short ‘the Act’) w.e.f assessment year 2005-06.

The assessee had already claimed deduction u/s 80IC of the

Act to the extent of 100% of the eligible profit for five years

period. It was noticed by the A.O. that the assessee firm had

again claimed 100% deduction against eligible profits in the

impugned assessment year, i.e. A.Y 2011-12, which was the 7 th

year by claiming to have carried out substantial expansion

during the year under consideration. The A.O. for the detailed

reasons mentioned in the assessment order and following the

decision of the ITAT Chandigarh Bench in the case of M/s

Hycron Electronics Vs. ITO in ITA No.798/Chd/2012, held that

the assessee was eligible for deduction u/s 80IC only @ 30% as

against the claim of 100% made by the assessee.

the assessee’s appeal.

before us.

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.

of the assessee by the above decision of the Apex court.

in 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 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.”

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 BindingIndustries 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 HimachalPradesh 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 fiveyears. 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.” 10. 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 undertaken by it.

undertaken substantial expansion in the impugned year is not

disputed, the assessee, we hold, is entitled to claim deduction

@ 100% of its eligible profits even if it has already claimed

deduction of its profits at the said rate for first five years, 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).

Order pronounced in the Open Court on 13.05.2019.

Sd/- Sd/- एन. के. सैनी संजय गग� (N.K. SAINI) (SANJAY GARG) उपा�य� Vice President �याय�क सद�य/ Judicial Member �दनांक /Dated: 13th May, 2019 *रती* आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to :