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2016 (7) TMI 1588 - AT - Income Tax


Issues Involved:
1. Rejection of deduction claim under section 80-IC.
2. Levy of interest under section 234B.

Issue-wise Detailed Analysis:

1. Rejection of Deduction Claim under Section 80-IC:

The primary issue pertains to the assessee's appeal against the disallowance of deduction under section 80-IC amounting to Rs. 25,44,945. The assessee, engaged in civil construction and manufacturing, claimed this deduction for Unit-II at its factory in Baddi, Himachal Pradesh. The Assessing Officer (AO) questioned the legitimacy of this claim, suggesting that Unit-II was a result of splitting up the existing business rather than a substantial expansion. The AO noted commonalities such as shared premises, invoice books, stock registers, and registration numbers between Unit-I and Unit-II, leading to the disallowance of the deduction.

The CIT(A) upheld the AO's decision but introduced a new rationale, stating that under section 80-IC(6), the deduction period is restricted to ten years from the initial assessment year. Since the first claim was made in the assessment year 1997-98, the deduction period would end by the assessment year 2006-07.

The assessee countered, arguing that the substantial expansion resulted in a new unit (Unit-II) and should be treated independently. They cited various judicial precedents, including the Madras High Court's decision in 'CIT vs. Premier Cotton Mills' and the Gujarat High Court's decision in 'CIT vs. Shree Digvijay Cement Company,' to support their claim that substantial expansion constitutes a new undertaking eligible for a separate deduction period.

The Tribunal agreed with the assessee, emphasizing that section 80-IC pertains to "undertakings or enterprises" rather than the "assessee." Therefore, the ten-year deduction period should apply to the new unit (Unit-II) from its initial assessment year (2004-05). The Tribunal found that Unit-II was indeed a distinct entity, with separate machinery, employees, and records, and thus eligible for the deduction.

2. Levy of Interest under Section 234B:

The second issue related to the levy of interest under section 234B, which was deemed consequential based on the outcome of the primary issue. Since the Tribunal ruled in favor of the assessee regarding the deduction under section 80-IC, the related interest levy under section 234B would also be impacted accordingly.

Conclusion:

The Tribunal allowed the assessee's appeal, reversing the CIT(A)'s decision and confirming that the deduction under section 80-IC was valid for Unit-II from the assessment year 2004-05. Consequently, the levy of interest under section 234B was also addressed in favor of the assessee.

 

 

 

 

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