2019 (7) TMI 1212 - AT - Income Tax

Deduction u/s 80IC - substantial expansion - initial assessment year - as per AO 100% deduction is admissible for first five years, and thereafter for the subsequent 5 years, deduction u/s 80IC is allowable @ 25% only - HELD THAT - As decided in S 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 been 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. We find that the order of Hon ble Supreme Court in the case of Pr. CIT vs M/s. Aarham Softronics (supra) being passed by a Larger Bench of the Hon ble Supreme Court has stronger force as a precedent as compared to decision of Hon ble Supreme Court in the case of CIT vs Classic Binding Industries 2018 (8) TMI 1209 - SUPREME COURT - Decided in favour of assessee.

Issues Involved:
1. Eligibility for 100% deduction under Section 80IC after substantial expansion.
2. Interpretation of "initial assessment year" under Section 80IC.
3. Applicability of judicial precedents and statutory provisions.

Detailed Analysis:

1. Eligibility for 100% Deduction Under Section 80IC After Substantial Expansion:

The primary issue is whether an assessee can claim a 100% deduction under Section 80IC of the Income Tax Act for a period of five years after undertaking substantial expansion, even if the initial five-year period of 100% deduction has already been availed. The assessee, engaged in manufacturing gas stoves, claimed 100% deduction for the 8th year based on substantial expansion of its plant and machinery. The Assessing Officer (AO) allowed only a 25% deduction, disallowing the remaining 75%, amounting to ?69,93,427/-.

The CIT(A) allowed the assessee's claim, referencing the Himachal Pradesh High Court's decision in M/s Stovekraft India vs. CIT, which stated that substantial expansion allows for a new "initial assessment year," enabling a further five-year period of 100% deduction. The Tribunal upheld this view, noting that Section 80IC does not restrict the number of substantial expansions or the corresponding initial assessment years within the statutory period.

2. Interpretation of "Initial Assessment Year" Under Section 80IC:

The interpretation of "initial assessment year" is crucial. The High Court's decision clarified that the term "initial assessment year" can apply to the year in which substantial expansion is completed, not just the year when the unit begins manufacturing. This interpretation aligns with the statutory language of Section 80IC, which allows for multiple initial assessment years corresponding to each substantial expansion.

The Tribunal reinforced this interpretation, citing the Himachal Pradesh High Court's decision and the ITAT Delhi Bench's ruling in Tirupati LPG Industries Ltd. vs. DCIT, which supported the view that substantial expansion can create a new initial assessment year, allowing for additional periods of 100% deduction.

3. Applicability of Judicial Precedents and Statutory Provisions:

The Revenue argued that the CIT(A)'s decision contradicted the Supreme Court's ruling in CIT vs Classic Binding Industries, which limited the period of 100% deduction to the first five years. However, the Tribunal noted that a subsequent Supreme Court decision in Pr. CIT vs M/s. Aarham Softronics, delivered by a larger bench, overruled Classic Binding Industries. The Aarham Softronics decision affirmed that substantial expansion within the statutory period allows for a new initial assessment year and a corresponding five-year period of 100% deduction, subject to a total cap of ten years.

The Tribunal emphasized the binding nature of the Supreme Court's decisions under Article 141 of the Constitution of India, asserting that the Aarham Softronics ruling, being from a larger bench, holds greater precedential value. Consequently, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order allowing the assessee's claim for 100% deduction following substantial expansion.

Conclusion:

The Tribunal's judgment affirms that under Section 80IC, an assessee can claim a 100% deduction for a new five-year period after substantial expansion, even if the initial five-year period of 100% deduction has been availed, provided the total deduction period does not exceed ten years. This interpretation aligns with the statutory provisions and the Supreme Court's ruling in Pr. CIT vs M/s. Aarham Softronics.

Order:

The appeal of the Revenue is dismissed. The CIT(A)'s order is upheld, allowing the assessee's claim for 100% deduction under Section 80IC following substantial expansion.

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