2020 (5) TMI 43 - AT - Income Tax

Deduction u/s 80IC - @ 25 % OR 100% - Claim during the 7th year on the basis of substantial expansion - HELD THAT - As decided in M/S. AARHAM SOFTRONICS 2019 (2) TMI 1285 - SUPREME COURT carrying out substantial expansion by itself is treated as 'initial assessment year'. It would mean that even when an old unit completes substantial expansion, such a unit also becomes entitled to avail the benefit of Section 80-IC. If that is the purpose of the legislature, we see no reason as to why 100% deduction of the profits and gains be not allowed to even those units who had availed this deduction on setting up of a new unit and have now invested huge amount with substantial expansion of those units - direct the A.O. to allow the claim of the Assessee for deduction under section 80IC - Decided in favour of assessee. Unexplained cash deposit - HELD THAT - As noticed that the wife of the assessee had shown rental income for the year under consideration which has been accepted by the Department - wife of the assessee could have saved some amount out of the aforesaid rental income, at the same time, the amount of ₹ 2,00,000/- was deposited on 08/05/2014 , so it cannot be presumed that that the total rental income for the whole year was received by the wife of the assessee before that date, particularly when no evidence was furnished to substantiate the same. Therefore, we are of the view that the said deposit of ₹ 2,00,000/- was unexplained. As regards to the another deposit, some amount had been withdrawn from the bank account by the wife of the assessee and remaining account is from the savings from rental income of earlier years - the submission appears to be plausible, however part of the deposit confirmed - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Confirmation of addition made by restricting the deduction under section 80IC to 25% instead of 100%.
2. Sustenance of addition of ?5,75,000/- on account of unexplained cash deposit.
3. Interest income from bank guarantee of ?1,71,719/-.

Issue-wise Detailed Analysis:

1. Restriction of Deduction under Section 80IC:
The primary issue in this appeal was the confirmation of the addition made by the Assessing Officer (A.O.) by restricting the deduction under section 80IC of the Income Tax Act, 1961 to 25% instead of 100% claimed by the assessee. The facts revealed that the assessee had claimed 100% deduction for five years starting from the Assessment Year (A.Y.) 2008-09 and again claimed 100% deduction during the 7th year based on substantial expansion made in the Financial Year (F.Y.) 2011-12. The A.O. restricted this deduction to 25%, and this view was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. However, the assessee argued that the Hon'ble Apex Court in the case of Pr. CIT, Shimla Vs. M/s Aarham Softronics had settled this issue, concluding that 100% deduction should be granted even in the year of substantial expansion. The Tribunal, considering the Supreme Court's decision, directed the A.O. to allow the assessee's claim for 100% deduction under section 80IC.

2. Unexplained Cash Deposit of ?5,75,000/-:
The second issue concerned the addition of ?5,75,000/- made by the A.O. on account of unexplained cash deposits. The A.O. noted cash deposits in the joint bank account of the assessee and his wife, which the assessee failed to explain satisfactorily. The CIT(A) also confirmed this addition, noting the lack of documentary evidence to substantiate the source of the deposits. The assessee contended that the deposits were made from his wife's old savings and rental income. The Tribunal found the explanation for the ?2,00,000/- deposit on 08/05/2014 to be unsubstantiated. However, it accepted the explanation for the ?3,75,000/- deposit on 08/11/2014, considering the withdrawal of ?2,00,000/- on 10/09/2014 and the rental income. Thus, the Tribunal deleted the addition of ?3,25,000/- and sustained the remaining addition of ?2,50,000/-.

3. Interest Income from Bank Guarantee:
The third issue was regarding the addition of ?1,71,719/- on account of interest income from a bank guarantee. The assessee's counsel opted not to press this ground, acknowledging the CIT(A)'s order. Consequently, this ground was dismissed as not pressed.

Conclusion:
The appeal was partly allowed. The Tribunal directed the A.O. to allow the 100% deduction under section 80IC as per the Supreme Court's ruling and deleted part of the addition related to unexplained cash deposits. The ground concerning interest income from the bank guarantee was dismissed as not pressed.