2019 (1) TMI 531 - AT - Income Tax

Deduction claimed u/s 80IC - restriction to 30% of the eligible profits as against 100% claimed by the assessee on account of substantial expansion carried out by it - assessee firm is engaged in the manufacturing of axels, gears and shafts having units at Baddi and Rudrapur - in the seventh year of production since the first time the assessee carried out substantial expansion - Held that - The issue was now settled and covered against the assessee by the decision of the Hon ble Apex Court in the case of CIT Vs M/s Classic Binding Industries & Ors. 2018 (8) TMI 1209 - SUPREME COURT OF INDIA wherein held once the assessees had started claiming deduction under Section 80-IC and the initial Assessment Year has commenced within the aforesaid period of 10 years, there cannot be another initial Assessment Year thereby allowing 100% deduction for the next 5 years also when sub-section (3), in no uncertain terms, provides for deduction @ 25% only for the next 5 years. It may be asserted again that the assessee s accept the legal position that they cannot claim deduction of more than 10 years in all under Section 80-IC. - Decided in favour of revenue Quantification of deduction u/s 80IC - the loss of one priority unit is to be set off against the profit of the other priority unit - Held that - Since the issue involved in the present case is identical to that in the case of Milestone Gears 2019 (1) TMI 421 - ITAT CHANDIGARH the decision rendered by the ITAT in the said case would squarely apply to the present case also following which we hold that the assessee is eligible to claim deduction on the profits of each individual undertaking without resorting to netting of the profit and loss of the eligible undertakings. - Decided in favour of assessee

Summary

Issues Involved:
1. Entitlement to 100% deduction under Section 80IC for substantial expansion.
2. Restriction of deduction under Section 80IC to 30% instead of 100%.
3. Quantification of deduction under Section 80IC by setting off losses of one priority unit against profits of another.

Detailed Analysis:

1. Entitlement to 100% Deduction under Section 80IC for Substantial Expansion:
The assessee firm, engaged in manufacturing with units at Baddi and Rudrapur, claimed 100% deduction under Section 80IC of the Income Tax Act, 1961, for substantial expansion in the seventh year of production. The Assessing Officer (AO) restricted the deduction to 30%, stating that as per Section 80IC, 100% deduction is only allowable for the first five years, and thereafter, it is restricted to 30%. The CIT(A) upheld the AO's decision, referencing the ITAT Chandigarh Bench's decision in the case of Hycron Electronics Vs ITO. The assessee conceded that the issue was settled against them by the Hon'ble Apex Court in CIT Vs M/s Classic Binding Industries. Consequently, the tribunal dismissed the grounds related to this issue.

2. Restriction of Deduction under Section 80IC to 30% Instead of 100%:
The AO noted that the Baddi unit, which had completed substantial expansion in 2005-06, was eligible for 100% deduction for the first five years. In the seventh year, the assessee again claimed 100% deduction after another substantial expansion in 2010-11. The AO restricted this to 30%, and the CIT(A) upheld this decision. The tribunal, referencing the Apex Court's decision in CIT Vs M/s Classic Binding Industries, found no reason to interfere with the CIT(A)’s order, thus dismissing the related grounds of appeal.

3. Quantification of Deduction under Section 80IC by Setting Off Losses of One Priority Unit Against Profits of Another:
The assessee had two manufacturing units eligible for deduction under Section 80IC, one showing profits and the other showing losses. The AO set off the losses of one unit against the profits of the other for calculating the deduction. The CIT(A) upheld this decision, citing the jurisdictional High Court's decision in M/s Him Teknoforge Ltd. However, the tribunal noted that the ITAT Chandigarh Bench had decided a similar issue in favor of the assessee in Milestone Gears Pvt. Ltd. Vs ACIT, distinguishing the case from Him Teknoforge Ltd. The tribunal held that under Section 80IC, each eligible undertaking should be considered separately for deduction purposes, without netting the profits and losses of different units. Therefore, the tribunal allowed the assessee’s appeal on this issue, directing the AO to allow the deduction based on the profits of each eligible undertaking independently.

Conclusion:
The tribunal partly allowed the appeal of the assessee in ITA 871/CHD/2017 and fully allowed the appeals in ITA 784/CHD/2017 and ITA 1180/CHD/2017. The decision emphasized that under Section 80IC, deductions should be calculated based on the profits of each eligible undertaking separately, without netting the profits and losses of different units.