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2018 (12) TMI 193 - AT - Income TaxDeduction u/s 80IC - substantial expansion within the specified window period - Held that - These assessee have availed deduction under Section 80-IC alone. Initially, they claimed the deduction on the ground that they had set up their units in the State of Himachal Pradesh and after availing the deduction @ 100% they want continuation of this rate of 100% for the next 5 years also under the same provision on the ground that they have made substantial expansion. As pointed out above, once the assessee had started claiming deduction under Section 80-IC and the initial Assessment Year has commenced within the aforesaid period of 10 years, there cannot be another initial Assessment Year thereby allowing 100% deduction for the next 5 years also when sub-section (3), in no uncertain terms, provides for deduction @ 25% only for the next 5 years. It may be asserted again that the assessee accept the legal position that they cannot claim deduction of more than 10 years in all under Section 80-IC. We hold that after availing deduction for a period of 5 years @ 100% of such profits and gains from the units , the assessees would be entitled to deduction for remaining 5 Assessment Years. @ 25% (or 30% where the assessee is a company), as the case may be, and not @ 100%. The question of law is, thus, answered in favour of the Revenue thereby allowing all these appeals. See case of M/s Stovekraft India 2017 (12) TMI 69 - HIMACHAL PRADESH HIGH COURT - Decided in favour of assessee.
Issues Involved:
1. Error in partly allowing the appeal of the assessee. 2. Deletion of addition made on account of restricting the claim of deduction under Section 80-IC of the Income Tax Act, 1961. 3. Allowing deduction under Section 80-IC at 100% for 10 years. 4. Interpretation of the proviso to Section 80-IC regarding deductions for backward states. 5. Applicability of deductions under Section 80-IC for states like Himachal Pradesh. 6. Multiple "substantial expansions" under Section 80-IC. 7. Interpretation of "substantial expansion" in Section 80-IC. 8. Initial assessment year for claiming deduction under Section 80-IC. 9. Request to set aside the order of CIT(A) and restore the Assessing Officer's order. Detailed Analysis: 1. Error in Partly Allowing the Appeal of the Assessee: The Revenue contended that the CIT(A) erred in partly allowing the appeal of the assessee without adequately appreciating the facts of the case. The Tribunal reviewed the grounds and found that the CIT(A) had relied on previous judgments, which were not accepted by the department, and SLPs were filed in those cases. 2. Deletion of Addition Made on Account of Restricting the Claim of Deduction under Section 80-IC: The Revenue argued that the CIT(A) erred in deleting the addition of ?85,31,403 by restricting the claim of deduction under Section 80-IC at 25%. The CIT(A) relied on the decision of the Himachal Pradesh High Court in the case of M/s Stovekraft India and the jurisdictional Tribunal in the case of M/s Eurolinks. The Tribunal noted that these judgments had not been accepted by the department on merits. 3. Allowing Deduction under Section 80-IC at 100% for 10 Years: The Revenue challenged the CIT(A) for allowing the deduction under Section 80-IC at 100% for 10 years, arguing that it ignored the intent and purpose of the insertion of Section 80-IC, CBDT circulars, and the subsidy scheme issued by the Ministry of Commerce and Industry. The Tribunal emphasized that the deduction should be 100% for the first five years and 25% for the next five years, as per the statutory provisions. 4. Interpretation of the Proviso to Section 80-IC Regarding Deductions for Backward States: The Revenue highlighted that the deduction for backward states was available under Section 80-IB(4) before 31.03.2004, and post this date, it was available only under Section 80-IC. The Tribunal agreed that the deduction should be 100% for the first five years and 25% thereafter, as per the proviso. 5. Applicability of Deductions under Section 80-IC for States like Himachal Pradesh: The Revenue argued that the CIT(A) ignored the explicit statutory provision of the second proviso, which clarifies that the deduction for states like Himachal Pradesh should be 100% for the first five years and 25% for the next five years. The Tribunal upheld this interpretation. 6. Multiple "Substantial Expansions" under Section 80-IC: The CIT(A) held that undertakings commencing production after 07.01.2013 could carry out multiple "substantial expansions" prior to 01.04.2012, with each expansion being considered an initial year for deduction purposes. The Tribunal found that this interpretation was not consistent with the provisions of Section 80-IC and the CBDT circulars. 7. Interpretation of "Substantial Expansion" in Section 80-IC: The Revenue argued that the expression "substantial expansion" in Section 80-IC(2)(a) and 80-IC(2)(b) was applicable to Himachal Pradesh and Uttarakhand, and the rate of deduction was 100% for the first five years and 25% for the next five years. The Tribunal agreed that allowing a 100% deduction for 10 years would render the meaning of "substantial expansion" redundant. 8. Initial Assessment Year for Claiming Deduction under Section 80-IC: The CIT(A) held that an undertaking carrying out substantial expansion in any assessment year prior to 01.04.2012 could opt for that year as the initial assessment year for claiming deduction under Section 80-IC. The Tribunal found that this interpretation was not aligned with the provisions of Section 80-IC and the CBDT circulars. 9. Request to Set Aside the Order of CIT(A) and Restore the Assessing Officer's Order: The Revenue prayed that the order of CIT(A) be set aside and the Assessing Officer's order be restored. The Tribunal, considering the Supreme Court's judgment in CIT Vs Classic Binding Industries, held that the deduction under Section 80-IC should be 100% for the first five years and 25% for the next five years, thereby allowing the Revenue's appeal. Conclusion: The Tribunal concluded that the issue had reached finality in view of the Supreme Court's judgment, and accordingly, the appeal of the Revenue was allowed. The order pronounced in the open Court confirmed the Tribunal's decision to uphold the statutory provisions and the Supreme Court's interpretation of Section 80-IC.
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