2021 (6) TMI 882 - AT - Income Tax

Deduction u/s 80IC - substantial expansion - Initial assessment year - whether assessee has already claimed deduction @ 100% for 5 Assessment Years - HELD THAT - The issue now stands squarely covered by the judgment of case of Pr. Commissioner of Income Tax vs. Aarham Softronics 2019 (2) TMI 1285 - SUPREME COURT and related cases wherein the Hon ble Apex Court has laid down that in case substantial expansion is carried out as defined in clause (ix) of Sub-section-8 of Section 80IC 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% deduction of profits and gains. It was also laid down by the Hon ble Apex Court that deduction would be for a total period of 10 years.

Summary

Issues:
- Interpretation of initial assessment year for claiming deduction u/s 80IC
- Allowability of 100% deduction for substantial expansion in the 7th year
- Scope of re-fixing initial assessment year for substantial expansion

Interpretation of Initial Assessment Year:
The Department appealed against the CIT(A)'s order allowing the assessee's claim of deduction u/s 80IC at 100% for the 7th year, challenging the interpretation of the initial assessment year. The Department contended that only 25% deduction was permissible for non-companies after the initial five years. The assessee claimed substantial expansion in the 7th year, seeking 100% deduction. The ITAT examined whether the initial assessment year could be re-fixed for substantial expansion. The ITAT noted that the CIT(A) relied on a previous ITAT Delhi Bench's decision, allowing deduction at 100% for substantial expansion up to a maximum of 10 years. The ITAT found no error in the CIT(A)'s decision, as it followed the precedent set by the ITAT Delhi Bench.

Allowability of 100% Deduction for Substantial Expansion:
The ITAT observed that the assessee had established a new unit and claimed 100% deduction for five assessment years. In the 7th year, the assessee undertook substantial expansion and again claimed 100% deduction. The ITAT noted that the Department did not challenge the 100% deduction previously. The ITAT analyzed the relevant provisions and held that the assessee could re-fix the initial assessment year for substantial expansion, in line with the ITAT Delhi Bench's decision. The ITAT emphasized that the deduction could not exceed 10 years, as per statutory provisions.

Scope of Re-fixing Initial Assessment Year:
The ITAT referenced the decision of the Hon'ble Apex Court in a related case, establishing that substantial expansion within 10 years would redefine the initial assessment year for claiming 100% deduction. Citing the Apex Court's judgment, the ITAT upheld the CIT(A)'s decision, dismissing the Department's appeal. The ITAT concluded that the deduction period could not extend beyond 10 years. Thus, the ITAT affirmed the CIT(A)'s ruling based on statutory provisions and judicial precedents, ultimately dismissing the Department's appeal.