M/S MAHABIR INDUSTRIES,BADDI vs. ITO, BADDI

That the Ld. Commissioner of Income Tax (Appeals) gravely erred both, in law and facts in confirming that the learned Assessing Officer has correctly interpreted the provisions under section 80-IC(6).

That the Ld Commissioner of Income Tax (Appeals) made an erroneous interpretation of the provisions of section 80-IC(6) and confirmed the denial of deduction claimed by the appellant, which is bad both in law & facts.

That the Ld. CIT (A) is not justified in upholding the addition made by the Ld. Assessing Officer by disallowing the deduction of Rs. 11,04,022/- claimed by the appellant under section 80 IC of the Income Tax Act 1961 on the ground that the appellant has during the year exceeded the total period of deduction as per section 80IC(6) of the Income Tax Act 1961 as they have wrongly interpreted the provisions of section 80-IC(6). This addition is uncalled for and deserves to be deleted as the appellant made substantial expansion in the assessment year 2006-07 and started claiming deduction under section 80-IC(2)(a)(ii) from the

At the outset the Ld. Counsel for the Assessee brought to our notice the order of the Hon’ble Supreme Court in the case of the assessee i.e; Mahabir Industries Vs. Pr. CIT, Civil Appeal No. 4765 to 4766 of 2018 alongwith Civil Appeal No. 4767 of 2018 dt. 18/05/2018 wherein the Hon’ble Supreme Court held that the assessee is eligible for deduction under section 80IC based on as to how a period of ten years is to be calculated namely whether those assessment years in which deduction under section 80IA and Section 80IB was allowed are to be counted for the purpose of giving deduction under section 80IC and held that the Assessing Officer was wrong in not allowing the deduction to the assessee under section 80IC. For the sake of brevity the relevant part of the order of the Hon’ble Apex Court is reproduced below:

As can be seen from the reading of paras 46 and 47 of the High Court judgment, it has taken a categorical view that the moment 'substantial expansion' is completed as per Section 80-IC(8)(ix), the statutory definition of 'initial assessment year' {Section 80-IC(8)(v)} comes into play. As a consequence, Section 80-IC(3)(ii) would entitle the unit to hundred per cent deduction for five years commencing with completion of 'substantial expansion' followed by twenty-five per cent deduction for next five years i.e. subject to maximum of ten years. Thus, the High Court accepts that when the substantial expansion is done in a particular Assessment Year and that is made during the period mentioned in sub-section (2) of Section 80-IC, not only benefit admissible under Section 80-IC shall get triggered, the year in which such substantial expansion is completed is to be treated as 'initial assessment year'. Having said so, it has put a cap of ten years by invoking the provision of Section 80-IC(6). We have already reproduced the provisions of sub-section (6) of Section 80-IC. As per this provision, no deduction is allowed to any undertaking or enterprise under this Section, where the total period of deduction inclusive of the period of deduction under this Section, or under the second proviso to sub-section (4) of Section 80-IB or under Section IOC, as the case may be, exceeds ten assessment years. The total period of ten years, thus, is to be counted in the following three circumstances:

The assessee in the instant case has not got deduction under Section 80-IC for a period of ten years as he started claiming deduction under this provision w.e.f. Assessment Year 2006-07. Situation Nos. (b) and (c) mentioned above would not apply to the assessee as it's undertaking/enterprise is not established in North-

The matter can be looked into from another angle. Under Section 80-IA, deduction is provided to such industrial undertakings or enterprises which are engaged in infrastructure development etc, provided they fulfill the conditions mentioned in sub-section (4) thereof. Section 80-IB makes provisions for deduction in respect of those industrial undertakings, other than infrastructure development undertakings, which are enumerated in the said provision. On the other hand, the intention behind Section 80-IC is to grant deduction to the units making new investments in the State by establishing new manufacturing unit or even to the existing manufacturing unit which carried out substantial expansions. The purport behind the three types of deductions specified in Section 80-IA, Section 80-IB and Section 80-IC is, thus, different. Section 80-IC stipulates the period for which hundred per cent deduction is to be given and then deduction at reduced rates is to be given. If the assessee had earlier availed deduction under Section 80-IA and Section 80-IB, that would be of no concern inasmuch as on carrying out substantial expansion, which was carried out and completed in the Assessment Year 2006-07, the assessee became entitled to deduction under Section 80-IC from the initial year. The term 'initial year' is referable to the year in which substantial expansion has been completed, which legal position is stated by the High Court itself and even accepted by the Department as it has not challenged that part of the judgment. The inclusion of period for the deduction is availed under Section 80-IA and Section 80-IB, for the purpose of counting ten years, is provided in sub-section (6) of Section 80-IC and it is limited to those industrial undertakings or enterprises which are set-up in the North-Eastern Region. By making specific provision of this kind, the Legislature has shown its intent, namely, where the industry is not located in North-Eastern State, the period for which deduction is availed earlier by an assessee under Section 80-IA and Section 80-IB will not be reckoned for the purpose of availing benefit of deduction under Section 80-IC of the Act. 13. Learned counsel for the Revenue could not dispute that subsection (6) of Section 80-IC would get attracted when the industry is located in the North- Eastern Region. Having faced with this situation, he raised an altogether different argument for consideration by referring to Section 15C of the Income Tax Act, 1922 (hereinafter referred to as the '1922 Act'), which was also a provision which granted exemption from income in respect of newly established industrial undertaking. He submitted that this Court in Textile Machinery Corporation Limited, Calcutta v. The Commissioner of Income Tax, West Bengal, Calcutta has held that the true test for ascertaining whether industrial undertaking is 'formed by reconstruction of business already in existence' (which was the expression used in Section 15C of 1922 Act), is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is a new and identifiable undertaking separate and distinct from existing business. In fine, the endeavour of learned senior counsel was that the assessee cannot be treated as an industrial undertaking which has reconstructed the business i.e. made substantial expansion. This argument has to be rejected for at least two reasons:

As a result, the appeal of the assessee is allowed.

The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) The DR 5.