2019 (2) TMI 1366 - AT - Income Tax

Deduction u/s 80IC - initial year for claiming benefit u/s 80IC - 5th year for counting deduction - HELD THAT - A plain reading of Section 80IC shows that any undertaking or enterprise which begins or begun to manufacture or produce any article or thing or which manufactures or produces any article or thing and undertakings substantial expansion during the specified period is entitled to claim deduction u/s 80IC(3)(ii). The interpretation adopted by the Revenue for initial assessment year does not promote the object of Section 80IC for the undertakings which have completed the substantial expansion but at the same time it was impossible for such undertaking to commence business or to claim any benefit of an enactment in Section 80IC. Law does not require any assessee to do an impossible act and claiming benefit by the assessee in this particular set of circumstances is nothing but impossibility. As we have observed the initial assessment year means the assessment year relevant to the previous year in which the undertaking or an enterprise begins to manufacture or to produce articles or things or commences operations or completes substantial expansion. Here the completion of substantial expansion has to be read with reference to the expression in the company of which this particular expression happens to be. We are of the considered opinion that completing the substantial expansion for the purpose of claiming benefit u/s 80IC for the first time shall be read in the context of the proviso as a whole and it shall mean that the completing of substantial expansion would be equivalent to the commencement of the operation. Undertaking of substantial expansion would be complete only when substantial expansion is capable of producing the desired results. We, therefore, find it difficult to agree with the interpretation given by the authorities below. Assessment order for the AY 2006-07 also contains a reference to this claiming of deduction u/s 80IC for the first time on account of substantial expansion in that year only. It,thus, goes without saying that it has been in the knowledge of the Revenue right from AY 2006-07 that though the assessee has been mentioning the date of substantial expansion as 31.3.2005, it had taken a clear stand that the initial assessment year for commencement of claiming benefit u/s 80IC is 2006-07. The same was accepted for all these years. We do not find any valid reason for the revenue now to take a different stand. It is not the self serving statement of the assessee alone that the assessee is taking support from, but it is the acceptance of such a statement by the Revenue for all these year, that lend support to the case of the assessee. Thus the initial year for claiming benefit u/s 80IC is 2006-07 and going by that 2010- 11 is the fifth year for claiming the benefit and not sixth year as held by the authorities below. - Decided in favour of assessee.

Summary

Issues Involved:
1. Determination of the initial assessment year for claiming deduction under Section 80IC of the Income-tax Act, 1961.
2. Interpretation of "substantial expansion" and its impact on the initial assessment year.
3. Consistency in the application of the initial assessment year by the Revenue.

Detailed Analysis:

1. Determination of the Initial Assessment Year for Claiming Deduction Under Section 80IC:
The primary issue revolves around identifying the correct initial assessment year for claiming deductions under Section 80IC. The assessee, a company engaged in manufacturing vibration testing systems, claimed deductions starting from AY 2006-07 after a substantial expansion completed on 31.3.2005. The Assessing Officer (AO) restricted the deduction to 30% for AY 2010-11, treating 2005-06 as the initial assessment year. The CIT(A) upheld this view, stating that the initial year should be the year of substantial expansion, not the year when production commenced post-expansion.

2. Interpretation of "Substantial Expansion" and its Impact on the Initial Assessment Year:
The court examined the definitions and provisions under Section 80IC, specifically focusing on the terms "initial assessment year" and "substantial expansion." The court noted that Section 80IC(8)(v) defines "initial assessment year" as the year in which the undertaking begins to manufacture or produce articles or completes substantial expansion. The court emphasized that a beneficial provision like Section 80IC should not be interpreted in a manner that negates its purpose. It argued that if substantial expansion is completed on the last day of a financial year, it is impractical to commence production within that same year, thus the next year should be considered the initial assessment year.

3. Consistency in the Application of the Initial Assessment Year by the Revenue:
The court observed that the assessee consistently claimed AY 2006-07 as the initial year for deductions under Section 80IC, which was accepted by the Revenue for four years. The sudden shift by the Revenue in AY 2010-11 to consider 2005-06 as the initial year was deemed inconsistent and unjustified. The court highlighted that the Revenue had accepted the assessee's stance in previous years, which should lend support to the assessee's claim.

Conclusion:
The court concluded that the interpretation adopted by the Revenue did not align with the objective of Section 80IC. It stated that the substantial expansion should be read in the context of the commencement of operations, and thus, AY 2006-07 should be considered the initial assessment year for the assessee. Consequently, AY 2010-11 would be the fifth year for claiming the benefit, not the sixth year as held by the authorities below. The appeal of the assessee was allowed, reversing the impugned order.

Order Pronounced:
The appeal was allowed, and the court pronounced the order in the open court on 20th February 2019.