2023 (6) TMI 30 - AT - Income Tax

Deduction u/s 80IC - substantial expansion - period of deduction limited to 10 years - 9th year of claim of tax holiday - AO for disallowing the benefit of substantial expansion u/s 80IC(2) and confirming the deduction u/s 80IC only to the extent of 25% - HELD THAT - Following the decision in case of Pr. CIT Vs. M/s Aarham Softronics 2019 (2) TMI 1285 - SUPREME COURT and which has been followed in case of CIT Vs. Classic Binding Industries 2022 (6) TMI 1399 - ITAT CHANDIGARH , in the instant case, the assessee has started its business activity during financial year 2007-08 relevant to assessment year 2008-09 and has carried out substantial expansion in the financial year 2011-12 relevant to assessment year 2012-13 and the year under consideration being the 9th year of claim of tax holiday, it shall be eligible for claim of deduction @ 100% and not 25% of profits and gains from its business and matter is accordingly decided in favour of the assessee and the ground of appeal is allowed.

Summary

Issues involved:
The appeal concerns the disallowance of the benefit of substantial expansion under section 80IC(2) and the confirmation of deduction at 25% instead of 100% as claimed by the assessee, based on conflicting decisions of the Hon'ble Supreme Court.

Summary:
The Assessee, engaged in manufacturing rubber compound, set up an undertaking in A.Y. 2018-19 at Baddi, Himachal Pradesh, claiming deduction under section 80IC. The dispute arose when the AO allowed deduction at 25% instead of 100% for the A.Y. 2016-17, considering the substantial expansion in A.Y. 2012-13. The Assessee contended that the subsequent decision of the Hon'ble Supreme Court in Pr. CIT Vs. M/s Aarham Softronics favored 100% deduction under section 80IC.

The Ld. CIT(A) upheld the AO's decision based on the earlier judgment in CIT Vs. Classic Binding Industries but acknowledged the subsequent ruling allowing 100% deduction. The Assessee appealed against this decision.

During the hearing, the Assessee cited the Pr. CIT Vs. M/s Aarham Softronics case, while the Ld. DR supported the lower authorities' orders.

The ITAT Chandigarh found the matter covered by the Pr. CIT Vs. M/s Aarham Softronics decision, which clarified that substantial expansion entitles the Assessee to 100% deduction for ten years, starting from the initial assessment year of expansion. Referring to a similar decision by the Chandigarh Bench, the ITAT ruled in favor of the Assessee, allowing the appeal and granting 100% deduction for the relevant year.

In conclusion, the ITAT upheld the Assessee's claim for 100% deduction under section 80IC, in line with the Pr. CIT Vs. M/s Aarham Softronics judgment, setting aside the lower authorities' decision and ruling in favor of the Assessee.