2023 (7) TMI 456 - AT - Income Tax

Revision u/s 263 - as per CIT AO failed to examine the issue of deduction in excess of eligibility u/s 80IC - expansion of industrial unit of the assessee was undertaken by installing new plan and machinery in the F.Y. 2011-12 and it was more than 50% of existing plant and machinery for which assessee claimed - HELD THAT - As it is only industrial undertaking which is already claiming 100% deduction u/s 80IC as newly established unit cannot be allowed to claim 100% deduction u/s 80IC on substantial expansion undertaken by the same firm simultaneously. AO was apprised on behalf of the assessee that in the case of Hycron Electronics 2015 (6) TMI 725 - ITAT CHANDIGARH has held the issue in favour of the assessee and the Chandigarh Tribunal judgment has been reversed. However, Ld. AO observing that the revenue may be filing a SLP, thus, to protect the interest of revenue 75% disallowance was made. DR submitted that in a subsequent judgment in the case of CIT vs. M/s. Classic Binding Industries 2018 (8) TMI 1209 - SUPREME COURT has settled the issue. The assessee will be entitled for deduction of remaining assessment years @ 25% as there cannot be two initial assessment years within the span of 10 years from the initial assessment year. DR has escaped the judgment of DCIT vs. M/s. Aarhan Softronics 2019 (2) TMI 1285 - SUPREME COURT wherein judgment in Classic Binding Industries case was held to be not good law. The Bench is inclined to allow the appeal for statistical purposes and direct the Ld. AO to consider the aforesaid judgments of Hon ble Supreme Court of India, and pass afresh order u/s 263 / 143(3) of the Act.

Summary

Issues:
The appeal involves the assessment order passed under section 263/143(3) of the Income Tax Act, 1961, regarding the deduction claimed under section 80IC of the Act for substantial expansion undertaken by the assessee.

Issue 1: Failure to Examine Deduction Eligibility under Section 80IC
The appeal was filed against the order of Ld. First Appellate Authority arising from the assessment order passed by the Ld. AO. The assessment order was revised by Ld. PCIT as it was found to be erroneous and prejudicial to the revenue due to the failure of Ld. AO to examine the issue of deduction eligibility under section 80IC of the Act. The expansion of the industrial unit by installing new plant and machinery was considered substantial, exceeding 50% of the existing assets, thus falling under Section 80IC (8)(ix) of the Act.

Issue 2: Disallowance of Deduction
Ld. CIT(A) noted that the benefit of substantial expansion was erroneously granted by Ld. AO without considering a Chandigarh Tribunal decision which stated that a newly established unit cannot claim 100% deduction under section 80IC for substantial expansion simultaneously with an existing unit already claiming the same. Despite the assessee's reference to a favorable judgment by the Himachal Pradesh High Court overturning the Chandigarh Tribunal decision, Ld. AO made a 75% disallowance to protect the revenue's interest.

Issue 3: Interpretation of Supreme Court Judgments
Ld. DR highlighted a subsequent Supreme Court judgment in CIT vs. M/s. Classic Binding Industries, which clarified that the assessee would be entitled to a deduction of 25% for the remaining assessment years, as there cannot be two initial assessment years within a span of 10 years. However, Ld. DR omitted mentioning another Supreme Court judgment in DCIT vs. M/s. Aarhan Softronics, which declared the judgment in the Classic Binding Industries case as not good law.

In conclusion, the Bench decided to allow the appeal for statistical purposes and directed the Ld. AO to reconsider the judgments of the Honorable Supreme Court of India and issue a fresh order under section 263/143(3) of the Act.