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2019 (9) TMI 864 - AT - Income TaxDeduction u/s 80-IE - fresh claim after substantial expansion - assessee had earlier claimed deduction u/s 80IB and also u/s 10C - HELD THAT - The assessee availed benefit of Income Tax exemption in terms of Sec. 80-IA and 80IB and 10C in the earlier assessment years and availed benefit of exemption under Chapter VIA of the Income Tax Act 1961 and after undergoing substantial expansion of its existing plant and machinery and production capacity by investing more than 25 % of its existing capital investment in terms of NEIIP,2007 in the Financial Year 2008-09. The other one M/s. Charu Innovation Department and Industries, a new Industrial Undertaking, established in the year 2011-12 and commenced its commercial production w.e.f 23.11.2011, engaged in production of polyethylene Water Storage Tank and other plastic articles such as, Dustbin, Traffic Signal Point and injunction moulded Item and moulded filter etc. We note that after implementation of North-East Industries Investment Promotion Policy (NEIIP), 2007, the Assessee undergone modernization of its unit M/s. Charu Engineering Industries, in the year 2008, w.e.f 02.05.2008 by additional capital outlay in plant machinery amounting to ₹ 29,85,611/- in comparison to the previous capital outlay in plant machinery (i.e prior to the expansion/ modernization) ₹ 22,51,982/-, an increase in capital outlay by 133 % of the initial capital outlay in the financial year 2008-09. Therefore, the Assessee is eligible for income tax exemption from the Financial year 2008-09 and onwards due to modernization in its plant machinery by infusing additional capital investment by more than 25 % of the initial investment in plant machinery as envisaged in clause (iii) of sub-sec. 7 of Sec. 80-IE of the Income Tax Act, 1961, effective from 01.04.2008.We note that the purpose of section 80IE was to establish the business of the nature specified in the said provision in the specified States. This provision was, thus, aimed at encouraging the undertakings or enterprises to establish and set up such units in the aforesaid States to make them industrially advanced States as well.Hence, we note that assessee is entitled to claim deduction under section 80IE We note that assessee is entitled to deduction under section 80IE with respect to its above industrial undertakings M/s. Charu Engineering Industries Ms. Charu Innovation Department and Industries - Decided in favour of assessee.
Issues Involved:
1. Disallowance of 100% of the profits and gains derived from manufacturing activities under Section 80-IE of the Income Tax Act, 1961. 2. Interpretation and applicability of Section 80-IE(5) of the Income Tax Act, 1961. 3. Consideration of North East Industrial Investment Policy, 2007 (NEIIP, 2007). 4. Eligibility for tax benefits under Section 80-IE after substantial expansion/modernization. 5. Violation of principles of natural justice due to lack of personal hearing. 6. Non-furnishing of eligibility documents and audit reports. Detailed Analysis: 1. Disallowance of 100% of the Profits and Gains Derived from Manufacturing Activities: The assessee's claim for deduction under Section 80-IE for the assessment year 2012-13 was disallowed on the grounds that the assessee had already availed the exemption under Sections 80-IB and 10C for ten years prior to the assessment year 2010-11. The Commissioner of Income Tax (Appeals) [CIT(A)] held that the assessee was not eligible for the deduction under Section 80-IE after its expansion/modernization, despite the substantial investment made in plant and machinery. 2. Interpretation and Applicability of Section 80-IE(5): The CIT(A) invoked Section 80-IE(5), which states that no deduction shall be allowed where the total period of deduction exceeds ten assessment years, inclusive of deductions under Sections 80-IE, 80-IC, 80-IB, or 10-C. The assessee argued that this provision should not apply to units that have undergone substantial expansion and modernization. However, the CIT(A) rejected this argument, resulting in the disallowance of the deduction. 3. Consideration of North East Industrial Investment Policy, 2007 (NEIIP, 2007): The CIT(A) failed to consider the conditions of NEIIP, 2007, which provides incentives for both new units and existing units undergoing substantial expansion. The assessee contended that the legislative intention behind NEIIP, 2007, was to provide tax benefits to units in the North Eastern States, including those undergoing substantial expansion. The CIT(A)'s interpretation of Section 80-IE(5) in isolation, without considering NEIIP, 2007, was challenged by the assessee. 4. Eligibility for Tax Benefits under Section 80-IE after Substantial Expansion/Modernization: The assessee claimed that after undergoing substantial expansion in the financial year 2008-09, it was eligible for tax benefits under Section 80-IE. The assessee argued that the substantial expansion should be treated as a new initial assessment year for the purpose of claiming the deduction. The CIT(A) did not accept this argument, leading to the disallowance of the deduction. 5. Violation of Principles of Natural Justice due to Lack of Personal Hearing: The assessee contended that the CIT(A) passed the order without giving an opportunity for a personal hearing, thereby violating the principles of natural justice. The assessee argued that the order should be set aside on this ground. 6. Non-furnishing of Eligibility Documents and Audit Reports: The Assessing Officer (AO) disallowed the deduction for the proprietary concern M/s Charu Innovation Department and Industries due to the non-furnishing of eligibility documents, such as the DIC Certificate, Factory License, Land Documents, and Audit Report in Form 10CCB. The AO noted that the assessee failed to prove the setup of a new unit and the actual manufacturing or production of eligible articles. Conclusion: The appeals were allowed, with the Tribunal holding that the assessee was entitled to deductions under Section 80-IE for both M/s Charu Engineering Industries and M/s Charu Innovation Department and Industries. The Tribunal relied on the Supreme Court judgment in AARHAM SOFTRONICS, which clarified that substantial expansion entitles the unit to 100% deduction of profits and gains, even though the total period of deduction is capped at ten years. The Tribunal also emphasized the legislative intention behind NEIIP, 2007, and the need to consider the policy while interpreting Section 80-IE. The Tribunal found that the assessee had provided sufficient evidence of substantial expansion and was eligible for the claimed deductions.
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