2018 (1) TMI 1494 - AT - Income Tax

Deduction u/s 80IC - benefit of substantial expansion for deduction u/s 80IC - HELD THAT - As gone through the order of the Hon ble Himachal Pradesh High Court in the case of Stovecraft 2017 (12) TMI 69 - HIMACHAL PRADESH HIGH COURT . Admittedly in all the above appeals the assessee was a new undertaking having commenced operations after 07-01-2003 and had already claimed deduction u/s 80IC @100% of its profits for a period of five years. In the impugned Years, the assessee had claimed deduction @100% of its profits since it had undertaken substantial expansion of its eligible unit which was denied following the order of the ITAT in the case of Hycron Electronics 2015 (6) TMI 725 - ITAT CHANDIGARH . The Hon ble High Court we find has set aside the order of the ITAT in the case of Hycron Electronics 2015 (6) TMI 725 - ITAT CHANDIGARH ruling that the new undertakings set up after 07-01-2003 are entitled to deduction @100% of the profits on carrying out substantial expansion. In view of the above order of the Hon ble Himachal Pradesh High Court, we set aside the order of the CIT(A) and direct the AO to grant the assessee deduction of hundred percent of its eligible profits, as per the ruling of the jurisdictional High Court in this regard in the case of M/s Stovekraft India vs. Commissioner of Income Tax 2017 (12) TMI 69 - HIMACHAL PRADESH HIGH COURT . The grounds raised by the assessee in this regard are therefore allowed Disallowance pertaining to interest and bad debts - increasing the business profits of the assessee - HELD THAT - In the earlier part of our order that the assessee is entitled to claim deduction of its profits @ 100% in the impugned year. Consequently the additions so made are entitled to deduction u/s 80IC of the Act, as accepted by the Department also vide the CBDT Circular reproduced above, resulting in no addition to the taxable income of the assessee - we direct that the addition made on account of interest and bad debts be deleted.

Summary

Issues involved:
1. Disallowance of claim of benefit of substantial expansion for deduction u/s 80IC of the Income-tax Act, 1961.
2. Disallowance of specific expenses u/s 36(i)(iii) and bad debts claimed as an expense.
3. Claiming deduction u/s 80IC on the additions made.

Issue 1: Disallowance of claim of benefit of substantial expansion for deduction u/s 80IC:
The appeals were filed against orders of Ld. Commissioner of Income Tax (Appeals) regarding disallowance of the claim of benefit of substantial expansion for deduction u/s 80IC. The Hon'ble Himachal Pradesh High Court ruled that new undertakings set up after 07-01-2003 are entitled to deduction @100% of profits on carrying out substantial expansion. The ITAT directed the Assessing Officer to grant the deduction of hundred percent of eligible profits as per the ruling of the High Court, allowing the grounds raised by the assessee in this regard.

Issue 2: Disallowance of specific expenses u/s 36(i)(iii) and bad debts claimed as an expense:
Additional grounds were raised challenging the disallowance of specific expenses u/s 36(i)(iii) and bad debts claimed as an expense. The ITAT admitted these grounds following the decision of the apex court in NTPC Ltd. vs CIT. The Board's Circular No.37/2016 clarified that disallowances relating to business activity, against which Chapter VI-A deduction had been claimed, would be eligible for deduction under the said chapter. The ITAT allowed the additional grounds raised by the assessee, directing the deletion of additions made on account of interest and bad debts.

Issue 3: Claiming deduction u/s 80IC on the additions made:
The ITAT found merit in the contention that the disallowances challenged in the additional grounds resulted in increasing the business profits of the assessee. As the assessee was entitled to claim deduction of its profits @ 100% in the impugned year, the additions made were entitled to deduction u/s 80IC of the Act. Consequently, the ITAT directed that the additions made on account of interest and bad debts be deleted, allowing the additional grounds raised by the assessee.

In conclusion, the ITAT allowed all the appeals of the assessee, directing the Assessing Officer to grant the deduction of hundred percent of eligible profits as per the ruling of the jurisdictional High Court. The ITAT also allowed the additional grounds raised by the assessee regarding disallowance of specific expenses, directing the deletion of additions made on account of interest and bad debts.