2021 (7) TMI 183 - AT - Income Tax

Deduction u/s 80IC - initial assessment year - whether the initial Assessment Year can be re-fixed in case of substantial expansion? - permissible deduction of 30% because the law was very clear on the issue that for companies the deduction was allowable only @ 30% after expiry of the initial five assessment years - as per DR that the assessee does not have an option to re-fix the initial assessment year, and therefore, the claim of deduction @ 100% for the 6th and 7th Assessment Years from the initial assessment year was not valid in the eyes of law - HELD THAT - Assessee can re-fix the initial Assessment Year in the case of substantial expansion from 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 orders of the CIT(A) granting deduction @ 100%, we find no error either in law or on facts having been committed by Ld. CIT(A) in the two captioned appeals as the Ld. CIT(A) has only followed the interpretation as laid down by the Coordinate Bench of this Tribunal. Sr. DR also could not bring to our notice any order contrary to the order of the Coordinate Bench of this Tribunal in the case of Tirupati LPG Industries 2014 (1) TMI 1689 - ITAT DELHI The issue now stands squarely covered by the judgment of in the case of Pr. Commissioner of Income Tax vs. Aarham Softronics 2019 (2) TMI 1285 - SUPREME COURT 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 .Deduction would be for a total period of 10 years. - Decided against revenue.

Summary

Issues:
- Appeal by Department against orders of CIT(A) for Assessment Years 2011-12 and 2012-13 regarding deduction u/s 80IC.
- Claim of deduction @ 100% by assessee for 6th and 7th years of claim of deduction u/s 80IC.
- Interpretation of whether the initial assessment year can be re-fixed in case of substantial expansion.
- Department's contention that deduction should be allowable only @ 30% after initial 5 years.

Analysis:
- The Department filed appeals against orders of CIT(A) for Assessment Years 2011-12 and 2012-13, challenging the allowance of deduction u/s 80IC to 100% by the CIT(A). The Department argued that the deduction should be limited to 30% after the initial 5 years of claim.
- The assessee, a manufacturing company, claimed deduction @ 100% of eligible profits for the 6th and 7th years of deduction u/s 80IC. The Department contended that the law allowed deduction only @ 30% after the initial 5 years.
- The key issue revolved around whether the initial assessment year could be re-fixed in case of substantial expansion by the assessee. The CIT(A) allowed the deduction @ 100% based on a previous ITAT judgment, which held that deduction could be claimed at full rate for up to 10 years in case of substantial expansion.
- The Tribunal, after examining the facts and legal provisions, upheld the CIT(A)'s decision. It cited the ITAT judgment and a Supreme Court ruling to support the allowance of deduction @ 100% for the 6th and 7th years post substantial expansion. The Tribunal emphasized that the law did not restrict multiple substantial expansions and that the deduction could not exceed a total period of 10 years.
- Ultimately, the Tribunal dismissed the Department's appeals, stating that the CIT(A) correctly followed the legal interpretation established by the ITAT and Supreme Court. The decision was pronounced on 31/05/2021, upholding the allowance of deduction @ 100% for the relevant assessment years.