2016 (8) TMI 734 - AT - Income Tax

Deduction u/s 80IC - Held that - Section 80IC was inserted to give effect to the new package announced by the Union Cabinet. The Circular further clarifies that this section provides for deduction for a period of 10 years from the profits of new undertaking or enterprise or existing undertaking or enterprise on their substantial expansion (see highlighted portion of the circular). The contention of the Ld. Counsel of the assessee was that word existing qualifies only the undertaking or enterprises and does not mention any particular date for carrying out substantial expansion. Assessee appellant is eligible for deduction under section 80 IC @ 25 % of the profit derived from industrial undertaking for these years and not @ 100 % of deduction claimed by the assessee

Summary

Issues Involved:
1. Defectiveness of the CIT(A)'s order.
2. Restriction of deduction under Section 80IC to 25% instead of 100%.
3. Discrimination against units established after 07-01-2003.
4. Interpretation of "initial assessment year" under Section 80IC.
5. Interpretation of Section 80IC in light of legislative intent.

Issue-wise Detailed Analysis:

1. Defectiveness of the CIT(A)'s Order:
The assessee contended that the order of the CIT(A), Shimla was defective in both law and facts. However, the tribunal did not specifically address this issue in detail, as the primary focus was on the interpretation and application of Section 80IC.

2. Restriction of Deduction under Section 80IC to 25% Instead of 100%:
The assessee claimed a 100% deduction under Section 80IC for AY 2011-12, asserting substantial expansion during FY 2010-11. The AO restricted the deduction to 25%, which the CIT(A) upheld based on the ITAT's decision in Hycron Electronics Vs. ITO. The tribunal agreed with the CIT(A) and AO, emphasizing that Section 80IC allows 100% deduction for the first five years and 25% thereafter during the holiday period.

3. Discrimination Against Units Established After 07-01-2003:
The assessee argued that the CIT(A) unjustly concluded that substantial expansion benefits are only available to pre-existing units operational as of 07-01-2003. The tribunal found no merit in this contention, referencing the legislative history and interpretation principles, which indicated that the benefits were intended for units existing as of the specified date.

4. Interpretation of "Initial Assessment Year" Under Section 80IC:
The assessee claimed that the initial assessment year could be redefined upon substantial expansion, allowing for multiple initial assessment years. The tribunal disagreed, stating that the term "initial assessment year" refers to the year in which the undertaking begins production or completes substantial expansion. The tribunal emphasized that the provision does not support multiple initial assessment years and that the deduction period is limited to ten years.

5. Interpretation of Section 80IC in Light of Legislative Intent:
The tribunal examined the legislative intent behind Section 80IC, which aimed to incentivize industrial growth in specific regions through a limited period of tax benefits. The tribunal referenced Circular No. 7/2003 and other judicial precedents, concluding that the section's purpose was to provide a ten-year deduction period, with the first five years at 100% and subsequent years at 25%. The tribunal rejected the liberal interpretation argument, noting that the statutory language was clear and unambiguous.

Conclusion:
The tribunal upheld the CIT(A)'s decision, confirming that the assessee was entitled to a 25% deduction under Section 80IC for the relevant assessment years, not the 100% claimed. The tribunal dismissed both appeals filed by the assessee. The order was pronounced in the open court on 11/08/2016.