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2017 (12) TMI 69 - HC - Income TaxEntitlement to deduction under Section 80-IC - whether an undertaking or an enterprise (Unit) established after 7th January, 2003, carrying out substantial expansion within the specified window period, i.e. between 7.1.2003 and 1.4.2012, would be entitled to deduction on profits @ 100%, under Section 80-IC? - Held that - Both the authorities have misconstrued the definition of Initial Assessment Year . The Assessment Officer as well as the Appellate Authority have held that there cannot be two Initial Assessment Years between 07.01.2003 and 01.04.2012, which conclusion, in our considered view, is totally perverse. We reiterate that Sub clause (v) of Sub section (8) of Section 80 IC itself contemplates more than one Initial Assessment Years . The said Clause envisages that for a Unit , which begins to manufacture or produce any article or things or commences operation, the Initial Assessment Year means Assessment Year relevant to the previous year, in which, it begins to manufacture and produce article or thing or commences operation and for a Unit , which completes substantial expansion, Initial Assessment Year means Assessment Year relevant to the previous year, in which it completes substantial expansion. This very important aspect of the matter has been completely overlooked by the Assessment Officer as well as the Appellate Authority. Therefore, the conclusion arrived at by all the authorities below, that new industrial Units cannot carry out substantial expansion to claim benefits envisaged under Section 80 IC is perverse and not sustainable in law. Thus held (a) Such of those undertakings or enterprises which were established, became operational and functional prior to 7.1.2003 and have undertaken substantial expansion between 7.1.2003 upto 1.4.2012, should be entitled to benefit of Section 80-IC of the Act, for the period for which they were not entitled to the benefit of deduction under Section 80-IB. (b) Such of those units which have commenced production after 7.1.2003 and carried out substantial expansion prior to 1.4.2012, would also be entitled to benefit of deduction at different rates of percentage stipulated under Section 80-IC. (c) Substantial expansion cannot be confined to one expansion. As long as requirement of Section 80-IC(8)(ix) is met, there can be number of multiple substantial expansions. (d) Correspondingly, there can be more than one initial Assessment Years. (e) Within the window period of 7.1.20013 upto 1.4.2012, an undertaking or an enterprise can be entitled to deduction @ 100% for a period of more than five years. (f) All this, of course, is subject to a cap of ten years. Section 80-IC(6) . (g) Units claiming deduction under Section 80-IC shall not be entitled to deduction under any other Section, contained in Chapter VI-A or Section 10A or 10B of the Act Section 80- IB(5) .
Issues Involved:
1. Eligibility of units established after 7th January 2003 for 100% deduction under Section 80-IC of the Income Tax Act. 2. Definition and implications of "substantial expansion" under Section 80-IC. 3. Determination of the "initial assessment year" for units undertaking substantial expansion. 4. Interpretation of statutory provisions in relation to multiple substantial expansions and initial assessment years. 5. Applicability of deductions under Section 80-IC in conjunction with other sections of the Income Tax Act. Detailed Analysis: 1. Eligibility of Units Established After 7th January 2003: The primary issue was whether units established after 7th January 2003 and undertaking substantial expansion within the specified period (7.1.2003 to 1.4.2012) are entitled to 100% deduction on profits under Section 80-IC of the Income Tax Act. The court concluded that units established post-7.1.2003 and carrying out substantial expansion within the window period are indeed eligible for 100% deduction for five years, followed by 25% for the next five years, subject to a total cap of ten years. 2. Definition and Implications of "Substantial Expansion": The term "substantial expansion" is defined under Section 80-IC(8)(ix) as an increase in investment in plant and machinery by at least 50% of the book value. The court emphasized that the statute does not restrict the number of substantial expansions a unit can undertake. As long as the expansion meets the defined criteria within the specified period, the unit is eligible for the benefits. 3. Determination of the "Initial Assessment Year": The court clarified that the "initial assessment year" as per Section 80-IC(8)(v) can be the year in which the unit begins to manufacture or produce articles or completes substantial expansion. This definition allows for more than one initial assessment year if the unit undertakes multiple substantial expansions. 4. Interpretation of Statutory Provisions: The court interpreted the statutory language to mean that units can claim 100% deduction for more than five years if they undertake substantial expansion within the specified window period, subject to the overall cap of ten years. The court rejected the artificial distinction created by the revenue authorities between units established before and after 7.1.2003, stating that the statute does not support such a distinction. 5. Applicability of Deductions: The court held that units claiming deductions under Section 80-IC are not entitled to deductions under any other sections in Chapter VI-A or Sections 10A or 10B of the Income Tax Act, as per Section 80-IC(5). The court directed fresh assessments by the Assessing Officer for each appellant based on this interpretation. Conclusion: The court allowed the appeals, quashing the orders of the lower authorities and holding that: - Units established before 7.1.2003 and undertaking substantial expansion within the specified period are entitled to deductions for the period they were not eligible under Section 80-IB. - Units established after 7.1.2003 and undertaking substantial expansion within the specified period are entitled to deductions at the rates specified under Section 80-IC. - Substantial expansion can occur multiple times, and there can be more than one initial assessment year. - Units can be entitled to 100% deduction for more than five years within the window period, subject to a maximum of ten years. - Units claiming deductions under Section 80-IC cannot claim deductions under other specified sections. The court directed fresh assessments for each appellant, ensuring the correct application of the statutory provisions.
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