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2019 (5) TMI 309 - HC - Income TaxDeduction u/s 80IC - substantial expansion - initial assessment year' for availing the deduction - exemption at the same rate of 100% beyond the period of five years on the grounds that the assessee has now carried out substantial expansion in its manufacture unit - HELD THAT - Issue involved herein is covered by the decision of M/S. AARHAM SOFTRONICS 2019 (2) TMI 1285 - SUPREME COURT as held deduction, would be for a total period of 10 years, as provided in sub-section (6). 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.
Issues:
1. Interpretation of Section 80IC of the Income Tax Act, 1961 regarding exemption for new industries. 2. Determination of 'initial assessment year' for availing deduction under Section 80IC. 3. Impact of previous judgments on the current case. Issue 1: Interpretation of Section 80IC - The appeal was filed by the revenue challenging the order of the Income Tax Appellate Tribunal regarding the exemption under Section 80IC of the Income Tax Act, 1961. The primary question raised was whether an assessee establishing a new industry under Section 80IC and availing 100% tax exemption for five years can continue to claim the same rate of exemption beyond the initial five years due to substantial expansion. The court referred to the decision in Commissioner of Income Tax v. Aarham Softronics, where it was clarified that if substantial expansion is carried out within the initial 10-year period, the year of expansion becomes the 'initial assessment year,' allowing the assessee to claim 100% deduction for a total of 10 years. The court dismissed the appeal based on this interpretation. Issue 2: 'Initial Assessment Year' for Deduction under Section 80IC - The court discussed the definition of 'initial assessment year' under Section 80IC and emphasized the difference between the definitions in Sections 80-IB and 80-IC. It was clarified that an undertaking setting up a new unit between specific dates in Himachal Pradesh is entitled to 100% deduction for five years from the 'initial assessment year.' If substantial expansion occurs within the 10-year period, the year of expansion becomes the new 'initial assessment year,' allowing the assessee to claim 100% deduction for a total of 10 years. The court highlighted the importance of the definition in Section 80IC in determining the eligibility for deductions under the Act. Issue 3: Impact of Previous Judgments - The court considered the impact of previous judgments, including the decision in Civil Appeal No. 7208 of 2018 and ITA No. 217 of 2017, on the current case. It was noted that the judgment in Commissioner of Income Tax Vs. M/s Classic Binding Industries and the decision in ITA No. 217 of 2017 were not applicable to the present case due to the specific provisions and definitions under Section 80IC. The court relied on the decision in Commissioner of Income Tax v. Aarham Softronics to uphold the assessee's entitlement to claim 100% deduction for the specified period based on substantial expansion within the statutory timeframe. In conclusion, the High Court dismissed the appeal filed by the revenue, affirming the Tribunal's decision in favor of the assessee based on the interpretation of Section 80IC and the principles established in relevant case law.
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