2019 (5) TMI 941 - AT - Income Tax

Deduction u/s 80IC - substantial expansion - initial assessment year - 100% deduction of the profits after substantial expansion undertaken, for eligible business where @100% deduction already taken for first five years - HELD THAT - As gone through the order of the Hon'ble Apex Court in the case of M/s Aarham Softronics 2019 (2) TMI 1285 - SUPREME COURT and find that the Hon'ble Apex Court dealt with the entire scheme of the Act relating to the relevant section i.e. section 80IC of the Act, and arrived at the conclusion that the definition of the initial assessment year contained in clause (v) of sub-section(8) of section 80IC of the Act can lead to a situation where there can be more than one initial assessment year within the said period of ten years. Hon'ble Apex Court thereafter concluded that a newly set up undertaking or enterprise in the State of Himachal Pradesh would be entitled to deduction @ 100% of the Act its profits for the first five years and even thereafter in the case of substantial expansion is carried out by it, then the assessment year relevant to the previous year in which substantial expansion is undertaken becoming the initial assessment year. That in any case, the period of deduction u/s 80IC of the Act would not exceed 10 years. It is now settled law that even a new undertaking, which has claimed deduction of its eligible profits @ 100% thereof for the first five years, is entitled to claim deduction @ 100% of its profits thereafter on account of substantial expansion undertaken by it. Since in the present case the fact that the assessee had undertaken substantial expansion in the impugned year is not disputed, the assessee, we hold, is entitled to claim deduction @ 100% of its eligible profits even if it has already claimed deduction of its profits at the said rate for first five years - Decided in favour of assessee.

Summary

Issues:
Allowance of claim of deduction u/s 80IC @ 100% of profits for substantial expansion undertaken after initial deduction for first five years.

Analysis:
The appeal before the ITAT Chandigarh involved the Department challenging the order of the CIT(A) regarding the allowance of deduction u/s 80IC of the Act @ 100% of profits for substantial expansion after availing the deduction for the first five years. The assessee had claimed 100% deduction against eligible profits in the 7th year, asserting substantial expansion. The AO limited the deduction to 30% based on a previous ITAT decision. However, the CIT(A) ruled in favor of the assessee.

During the hearing, the assessee cited a Supreme Court decision in Pr.CIT, Shimla Vs. M/s Aarham Softronics, where the Court favored the assessee's position. The Department also acknowledged the decision's impact. The Supreme Court's ruling emphasized the purpose of Section 80-IC to encourage industrial advancement in specified States, allowing 100% deduction for substantial expansions. The Court clarified that if substantial expansion occurs, the assessment year relevant to that expansion becomes the initial assessment year.

The Supreme Court concluded that an enterprise in Himachal Pradesh would be entitled to 100% deduction for the first five years and subsequently for expansions. The deduction period under Section 80IC would not exceed 10 years. The Court differentiated between the initial assessment year definitions in Sections 80-IB and 80-IC, emphasizing the latter's relevance. The judgment clarified the deduction entitlement for expansions within the 10-year period.

Based on the Supreme Court's decision, the ITAT upheld the CIT(A)'s order, allowing the assessee to claim 100% deduction for the substantial expansion undertaken, even after availing the same rate for the initial five years. The ITAT dismissed the Revenue's appeal, affirming the settled law established by the Supreme Court's ruling in M/s Aarham Softronics.