2019 (5) TMI 36 - HC - Income Tax

Eligible for deduction u/s 80IC - substantial expansion - @ 100% against the eligible profits for the Assessment Year 2014-15 being 9th Year of production on account of undertaking substantial expansion during the Financial Year 2010-11 - HELD THAT - M/S. AARHAM SOFTRONICS 2019 (2) TMI 1285 - SUPREME COURT in case substantial expansion is carried out as defined in clause (ix) of sub-section (8) of Section 80-IC by such an undertaking or enterprise, within the aforesaid period of 10 years, the said previous year in which the substantial expansion is undertaken would become initial assessment year , and from that assessment year the assessee shall be entitled to 100% deductions of the profits and gains. Such deduction, however, would be for a total period of 10 years, as provided in sub-section (6). For example, if the expansion is carried out immediately, on the completion of first five years, the assessee would be entitled to 100% deduction again for the next five years. On the other hand, if substantial expansion is undertaken, say, in 8th year by an assessee such an assessee would be entitled to 100% deduction for the first five years, deduction @ 25% of the profits and gains for the next two years and @ 100% again from 8th year as this year becomes initial assessment year once again. However, this 100% deduction would be for remaining three years, i.e., 8th, 9th and 10th assessment years. - Decided in favour of assessee.

Summary

Issues:
1. Eligibility for deduction under Section 80IC of the Income Tax Act, 1961.
2. Binding nature of High Court orders on subordinate Courts and Tribunals.
3. Legality of the order passed by the Income Tax Appellate Tribunal.

Eligibility for deduction under Section 80IC:
The appellant, engaged in manufacturing, claimed a deduction under Section 80IC of the Income Tax Act for the assessment year 2014-15 due to substantial expansion in the 9th year of production. The Assessing Officer restricted the deduction to 25% instead of 100%. The Commissioner of Income Tax (Appeals) upheld this decision, leading to an appeal before the Tribunal. The Tribunal allowed the appeal based on a Himachal Pradesh High Court order. The High Court, referring to the Apex Court judgment in Commissioner of Income Tax v. Aarham Softronics, highlighted the difference in definitions of 'initial assessment year' under Sections 80-IB and 80-IC. It clarified that substantial expansion within 10 years entitles the assessee to 100% deduction for a total of 10 years. Consequently, the High Court dismissed the appeal.

Binding nature of High Court orders:
The issue arose whether the Tribunal was right in following the Himachal Pradesh High Court order despite the doctrine that High Court orders are binding on subordinate Courts and Tribunals within their territorial jurisdiction. The Tribunal's decision was challenged based on the judgment in the matter of M/s Stoverkraft India v. Commissioner of Income Tax. However, the High Court emphasized the correct interpretation of the law as per the Apex Court's decision in Commissioner of Income Tax v. Aarham Softronics, which clarified the entitlement to deductions under Section 80IC based on substantial expansion within the specified period.

Legality of the Tribunal's order:
The legality of the Tribunal's order was questioned in light of the judgment in Commissioner of Income Tax v. M/s Classic Binding Industries by the Apex Court. The Tribunal's decision to allow the appeal of the assessee was challenged, but the High Court upheld the Tribunal's decision, citing the Apex Court's clarification on the correct interpretation of 'initial assessment year' and the entitlement to deductions under Section 80IC. The High Court, aligning with the Apex Court's ruling, dismissed the present appeal, affirming the Tribunal's decision in favor of the assessee.