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Facts
The assessee, a partnership firm engaged in manufacturing, claimed a 100% deduction under Section 80IC for AY 2016-17, citing substantial expansion. The Assessing Officer restricted this to 25%. The assessee's rectification application, based on a Supreme Court decision, was rejected by the AO and then by the CIT(A) because it involved new facts.
Held
The Tribunal held that the assessee is eligible for 100% deduction under Section 80IC for AY 2016-17, relying on the Supreme Court's decision in Aarham Softronics and noting that the Coordinate Bench had accepted similar claims in prior years.
Key Issues
Whether the assessee is entitled to 100% deduction under Section 80IC for the 10th year of operation based on substantial expansion, especially after a subsequent Supreme Court ruling, and if the CIT(A) erred in dismissing the appeal regarding the rectification application.
Sections Cited
250(6), 80IC, 143(3), 154, 154
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सुनवाई की तारीख/Date of Hearing : 30/01/2025 उदघोषणा की तारीख/Date of Pronouncement : 22/04/2025 आदेश/Order PER KRINWANT SAHAY, A.M:
This is an appeal filed by the Assessee against the order of the Ld. CIT(A)/ NFAC, Delhi dt. 28/05/2024 pertaining to Assessment Year 2016-17. 2. In the present appeal Assessee has raised the following grounds:
1. That on the facts, circumstances and legal position of the case, Worthy CIT(A), in Appeal No. CIT A SHIMLA/10051/2020-21 has erred in passing the order in contravention of the provisions of S. 250(6) of the Income Tax Act, 1961.
2. That on law, facts and circumstances of the case, Worthy C1T(A) has erred in confirming the action of Ld. AO (CPC) of not allowing the deduction u/s 80-1C @ 100% even when the appellant was eligible for the same.
2 3. That on law, facts and circumstances of the case, Worthy CIT(A) has erred in confirming the action of Ld. AO (CPC) in holding that the issue in question raised by the appellant through its application is beyond the scope of sec. 154.
4. That on facts, circumstances and legal position of the case, the order passed by Ld. AO and then by Worthy CIT(A) deserves to be quashed since the same have been passed without affording reasonable opportunity of being heard to the appellant.
That the appellant craves leave for any addition, deletion or amendment in the grounds of appeal on or before the disposal of the same.
3. Briefly the facts of the case are that the assessee is a partnership firm engaged in the manufacturing of Mono and Master Cartons. It filed its return of income for the AY 2016–17 on 02.10.2016, declaring a total income of Rs. 60,99,680 after claiming a deduction of Rs. 20,33,225 under section 80IC of the Income Tax Act, 1961 at the rate of 25%. 3.1 The case was selected for scrutiny, and assessment was completed under section 143(3). The deduction under section 80IC was restricted to 25% by the AO, relying on the judgment in Classic Binding Industries vs. CIT 407 ITR 429 (SC). 3.2 Subsequently, the assessee filed an application under section 154 of the Act, seeking rectification on the ground that it was entitled to a 100% deduction under section 80IC, citing the decision of the Hon’ble Supreme Court in Pr. CIT vs. Aarham Softronics(2019) 412 ITR 623 (SC), wherein it was held that units undergoing substantial expansion are eligible for 100% deduction for another five years even after the initial five-year period.
3 3.3 The rectification application was rejected by the AO.
Against the order of the AO, the assessee went in appeal before the Ld. CIT(A).
5. The Ld. CIT(A), after considering the facts and submissions made by the assessee, observed that the rectification application under section 154 was filed on the basis of the subsequent decision of the Hon’ble Supreme Court in the case of Aarham Softronics, wherein it was held that an eligible unit under section 80IC that undertakes substantial expansion is entitled to claim 100% deduction again for a further period of five years, subject to the overall cap of ten years. 5.1 The CIT(A) noted that while this judgment supports the assessee’s claim, the benefit under section 154 can only be given if all the required facts like proof of substantial expansion were already part of the assessment record. In this case, the assessee had not claimed 100% deduction in its return, and there was nothing on record to show that any substantial expansion had taken place. 5.2 Because of this, the CIT(A) held that this was not a simple or clear mistake that could be corrected under section 154. The issue involved checking new facts, which can’t be done through a rectification application. So, the CIT(A) agreed with the Assessing Officer’s decision to reject the application and dismissed the assessee’s appeal.
4 6. Against the order of the Ld. CIT(A) the assessee came in appeal before us.
During the course of hearing the Ld. AR submitted as under: Ground No. 1&3 General and consequential in nature. The same shall be argued during hearings and oral submissions will be made. Ground No. 2: "That on law, facts and circumstances of the case, Ld. AO has erred in allowing the deduction u/s 801C only to the extent of 25% of the income even when the appellant is eligible for a deduction of 100% u/s 80IC of The Income Tax Act, 1961 as held in Aarham Softronics (SC Larger Bench) Civil Appeal No. 1784/2019 dtd. 20.02.19."
Facts and Submissions on this Ground:
1.
The appellant is a partnership firm carrying on manufacturing activity the stats of Himachal Pradesh. It is eligible for the deduction u/s 8OIC, is claming it and the same is being allowed in regular scrutiny assessment. 2. the year question is the 10th year of carrying out of the manufacturing activity by the appellant firm Due to carrying out of substantial expansion in the past, it claimed deduction u/s 801C which is allowed only @ 25% by the Ld. AO. Against this action, we are in appeal before your honour.
3. The above referred issue stands settled by decision of Larger Bench in favor of assessee in case of Aarham Softronies (SC Larger Bench) Civil Appeal No. 1784/2019 dtd. 20.02.
19. It is prayed that this issue may please be decided.as per this decision. Further, this issue stands decided in assessee’sfavour in its own case by your Honour for A.Y 2015-16 as well as by the Hon’ble ITAT for A.Y. 2014-15.
Per contra, the Ld. DR relied on the order of the lower authorities.
Ground Nos. 1 and 3 are general in nature and do not require separate adjudication.
As regards Ground No. 2, we have heard the rival contention and perused the material available on the record. In the present 5 case, we noticed that the assessee, engaged in manufacturing in Himachal Pradesh, claimed 100% deduction under section 80IC for the 10th year on the basis of substantial expansion. The Assessing Officer restricted the claim to 25%, but the Supreme Court in Aarham Softronics has clearly held that units undergoing substantial expansion are eligible for 100% deduction for another five years, within the overall 10-year period. It was also noticed that the assessee’s claim has already been accepted by the Coordinate Bench in earlier years i.e; AY 2014–15 and 2015–16, therefore there is no reason to take a different view on this issue.Accordingly, we hold that the assessee is entitled to 100% deduction under section 80IC for AY 2016–17, and the appeal of the assessee is allowed.
In the result, appeal of the Assessee is allowed. Order pronounced in the open Court on 22/04/2025