ACIT, CIRCLE-63(1), NEW DELHI vs. VANESA COSMATICS, NEW DELHI

Ignoring the provisions of section 80IC(3)(ii) which clearly and unambiguously state that undertakings eligible for deduction u/s 80IC shall be eligible for 100% deduction for 5 assessment years commencing with the initial assessment (as defined u/s 80IC(8)(v)) and thereafter at the rate of 25 percent.

Allowing 100% deduction u/s 80IC for the 6th assessment year whereas Hon’ble Gujarat High Court in the case of M/s Anand Food and Dairy Products Vs. ITO 394 ITR 0531 on the issue of deduction u/s 80IB has adjudicated that deduction would be available to the assessee at the rate of 25% from 6th year after completion of five years. The provisions of section 80IC and 80IVB are parallel provision in nature. 4. Deleting the addition of Rs. 1,28,692/- on account of personal use of the car without giving any specific reason. 5. Deleting the addition of Rs. 85,682/-on account of tour and travelling expenses as the assessee failed to produce vouchers of expenses and substantiate its claim that the expense were incurred wholly and exclusively for the business purpose. 6. Deleting the addition of Rs. 33,917/- on account of telephone expenses as the assessee failed to produce for verification the telephone call register maintained for partners, employees and personal use cannot be ruled out. The appellant craves the right to add or alter any ground of appeal

We have heard the Ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.

Ld. DR for the Revenue challenging the impugned order passed by Ld. CIT(A) relied upon order passed by the assessment order and contended that the entire addition/disallowance have been made by the AO on the basis of particular facts of the case. However, on the other hand, Ld. AR of the assessee relied upon the order passed by the Ld. CIT(A) and further relied upon the judgment passed by the Hon’ble Supreme Court of India in the case of Principal Commissioner of Income- tax, Shimla Vs. Aarham Softronics (supra) (2019) 412 ITR 0623 and order passed by the coordinate bench of the Tribunal in the case of Tirupati LPG Industries Ltd. Vs. DCIT (supra) (2014) 151 ITD 0001.

Undisputedly assessee has set up its business of manufacturing of perfumes, etc. in the name and style of M/s Vanesa Cosmetics at Kala AMB, Indl. Area duly notified for the purpose of 80IC. It is also not in dispute that the assessee has started commercial production in 2007-08 and successfully claimed deduction u/s 80IC for 5 years till 2012-13 and ACIT Vs. Vanesa Cosmatics./ I.T.A.No.5600/Del/2017/A.Y.2013-14 Page 4 of 7 allowed as such. It is also not in dispute that in the subsequent assessment years viz. 2014-15, 2015-16, 2016-17 and 2017-18 100% deductions have been allowed by Ld. CIT(A) on the ground that the assessee has made substantial expansion in the existing unit. It is also not in dispute that for AY 2015-16, 2016-17 and 2017-18 no appeal has been filed by the Revenue against the appeal allowed by Ld. CIT(A).

In the backdrop of the aforementioned facts and circumstances of the case the sole question arises for determination in this case is as to whether “assessee is entitled for deduction under 80IC @ 100% after substantial expansion carried out during financial year 2011-12.

When it is not in dispute that the assessee has carried out substantial expansion during financial year 2011-12 by installing plant and machinery worth Rs. 1,20,26,092.00 which is more than 50% of the total book value of Rs. 2,30,48,407.00 of the plant and machinery existing on 1st day of the previous year in which substantial expansion was took place, the claim of the deduction on account of substantial expansion u/s 80IC sub section 8 clause (ix) is admissible to the assessee irrespective of the conditions stipulated for North Indian States and North Eastern Indian States as discussed by AO.

Hon’ble Supreme Court of India in case cited as Principal Commissioner of Income-tax, Shimla Vs. Aarham Softronics (supra) decided the identical issue in favour of the assessee by holding that in case of substantial expansion carried out as per clause (ix) of sub section 8 of section 80IC within the aforesaid period of 10 years the said previous years in which the substantial expansion is undertaken would become initial assessment year and as such entitled for 100% deductions of profits and gains. Operative part of the judgment (supra) is extracted for ready perusal as under:

In the light of the aforesaid undisputed facts, we are of the considered view that when assessee has carried out substantial expansion in the existing unit immediately on the completion of first five years i.e. in FY 2011-12 and duly complied with the conditions laid down in clause (ix)

Ld. CIT(A) deleted the addition of Rs. 1,28,692/-, 85,682/- and 33,917/- on account of personal use of car, on account of tour and travelling expenses and on account of telephone expenses respectively made by the AO on ad hoc basis @ 10%.

We are of the considered view that when Assessing Officer has proceeded to make ad hoc disallowance without assigning any reasons but on the basis of surmises the disallowance is not sustainable in the eyes of law. When undisputedly assessee has claimed the expenses on the basis of its audited financials which have not been disputed by the AO, the ad hoc addition on the basis of surmises is bad in law. Moreover, when it is not case of the AO that these expenses have not been made wholly and exclusively for the purpose of business by the assessee there is no ground to disallow the same. Ld. CIT(A) has rightly deleted the addition made by the AO. We find no scope to interfere in the finding returned by Ld. CIT(A). Consequently ground nos. 4 to 6 raised by the Revenue are dismissed.

In view of what has been discussed above, present appeal filed by the Revenue is hereby allowed.