2021 (8) TMI 4 - AT - Income Tax

Deduction u/s 80IC - Assessee undertaken substantial expansion of the industrial unit during the year under consideration - this was the 6th year of claiming deduction u/s 80IC - AO was of the view that the deduction u/s 80IC was allowable @ 100% only for the initial five assessment years and not for undertaking substantial expansion and proceeded to restrict the assessee s claim of deduction to 25% of the profit and gains from the eligible business - whether the initial Assessment Year can be re-fixed in the case of substantial expansion? - HELD THAT - A perusal of the impugned order shows that the Ld. CIT(A) has allowed the assessee s claim by following the order of ITAT Delhi Bench in the case of Tirupati LPG Industries Limited 2016 (2) TMI 1279 - ITAT DELHI as held that in case of substantial expansion, the deduction will be allowable @ 100% subject to a maximum of 10 years. Thus, it has been held that the assessee can re-fix the initial Assessment Year in the case of substantial expansion from the year in which the substantial expansion has taken place for the purpose of claiming deduction at full rate subject to over all limit of 10 years. Although, the Department has vehemently opposed the order of the Ld. CIT(A) granting deduction @ 100%, we find no error either in law or facts having been committed by Ld. CIT(A) as the Ld. CIT(A) has only followed the interpretation as laid down by the Co-ordinate Bench of this Tribunal. Further, the issue now stands squarely covered by the judgment of M/S. AARHAM SOFTRONICS 2019 (2) TMI 1285 - SUPREME COURT wherein as 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. Appeal filed by the Department stands dismissed.

Summary

Issues:
- Interpretation of initial assessment year for deduction u/s 80IC
- Allowability of 100% deduction for substantial expansion
- Applicability of the judgment in Tirupati LPG Industries Limited case
- Impact of the judgment in Pr. Commissioner of Income Tax vs. Aarham Softronics case

Analysis:

Issue 1: Interpretation of initial assessment year for deduction u/s 80IC
The case involved a dispute over the interpretation of the initial assessment year for claiming deduction u/s 80IC of the Income Tax Act, 1961. The Assessing Officer restricted the deduction to 25% for the 6th assessment year, contending that the initial assessment year could not be re-fixed. However, the CIT(A) allowed the deduction @ 100% for the 6th year based on substantial expansion. The ITAT upheld the CIT(A)'s decision, citing the absence of any statutory restriction on re-fixing the initial assessment year for substantial expansions. The judgment referred to the definition of "initial assessment year" and "substantial expansion" under Section 80-IC, emphasizing that the law permits multiple substantial expansions without any specific restrictions.

Issue 2: Allowability of 100% deduction for substantial expansion
The core issue was whether an assessee could claim 100% deduction for substantial expansion beyond the initial five years under Section 80IC. The ITAT relied on the judgment in Tirupati LPG Industries Limited case, which allowed 100% deduction for substantial expansions subject to a maximum of 10 years. The ITAT emphasized that the law encourages substantial expansions by providing incentives and recognized that such expansions lead to increased investment, production, and employment. The ITAT concluded that the assessee was entitled to claim the deduction for the 6th assessment year based on substantial expansion.

Issue 3: Applicability of the judgment in Tirupati LPG Industries Limited case
The ITAT extensively discussed the judgment in the Tirupati LPG Industries Limited case to support its decision. The judgment clarified that there was no restriction on claiming deductions for substantial expansions and highlighted the importance of encouraging industrial growth through such expansions. The ITAT emphasized that the CIT(A) correctly followed the interpretation laid down in the Tirupati LPG Industries Limited case, which allowed re-fixing the initial assessment year for substantial expansions.

Issue 4: Impact of the judgment in Pr. Commissioner of Income Tax vs. Aarham Softronics case
The ITAT also referred to the judgment in the Pr. Commissioner of Income Tax vs. Aarham Softronics case to reinforce its decision. The judgment established that in cases of substantial expansion within the specified period, the previous year of such expansion becomes the initial assessment year for claiming 100% deduction. The ITAT, in line with the apex court's ruling, affirmed that the deduction could be availed for a total period of 10 years from the initial assessment year.

In conclusion, the ITAT dismissed the Department's appeal, upholding the CIT(A)'s decision to allow the assessee's claim of 100% deduction for the 6th assessment year based on substantial expansion, in accordance with the legal provisions and relevant judicial precedents.