2014 (8) TMI 1078 - AT - Income Tax

Disallowance of deduction u/s 80IC - Held that - Even in case of substantial expansion of an eligible unit claiming deduction u/s 80IC is allowable for a maximum period of 10 years from the inception. Therefore the claim of the assessee is valid in the eyes of law and is therefore is allowed. - Decided in favour of assessee.

Summary

Issues:
Disallowance of deduction under section 80IC of the Income Tax Act, 1961.

Analysis:
The appeal pertains to the disallowance of a deduction of Rs. 18,35,410/- under section 80IC of the Income Tax Act, 1961. The dispute arose as the Assessing Officer (AO) denied the claim based on a previous decision by the ld CIT(A), which was later challenged by the assessee. The crux of the matter was whether the assessee's substantial expansion qualified for the deduction under section 80IC. The Tribunal analyzed the provisions of sub-section (2) of section 80IC, which distinguish between deductions for newly set-up units and expansions by existing units. The Tribunal emphasized that the deduction for substantial expansion is permissible without any restrictions on the number of expansions undertaken by an assessee. The term "substantial expansion" was defined in detail, requiring a significant investment in plant and machinery. The Tribunal clarified that the initial assessment year can be triggered by each substantial expansion, allowing for multiple deductions within the 10-year limit.

The Tribunal also addressed the concern of evergreening of incentive provisions by highlighting the statutory restriction of a total deduction period not exceeding 10 assessment years. This limitation ensures that the deduction is available for a maximum of 10 years from the initial assessment year, with the rate of deduction varying over time. A previous Tribunal decision was referenced to support the assessee's entitlement to the deduction under section 80IC despite a technical error in the section mentioned. The Tribunal concluded that the claim of the assessee was valid under the law and allowed the appeal, emphasizing that the deduction cannot extend beyond the specified 10-year period from the inception of the claim.

In summary, the Tribunal's decision clarified the eligibility criteria and restrictions regarding deductions under section 80IC for substantial expansions by existing units. The judgment emphasized the statutory provisions, interpretation of terms, and the overall objective of providing incentives for industrial growth while ensuring compliance with the prescribed limits on deduction periods.