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TMI Blog2010 (9) TMI 577X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 2004-05 was the initial year for the purpose of claim of deduction by the Assessee U/s.80-IC of the Act. 3. That the order passed by the ld. CIT(A) is bad in law. 4. That the appellant craves leave to submit further grounds and to amend, alter or otherwise modify the grounds taken, if necessary, before or at the time of hearing of the appeal. 3. Though the assessee has taken as many as 4 grounds of appeal, it is only contesting the rejection of it's claim of deduction u/s.80IC of the Act by the AO and the ld. CIT(A). 4. The assessee company has tea, coffee, black paper, areca and cardamom plantations in north-east India and Southern India. During the relevant assessment year it disclosed net business loss of Rs. 1,09,58,339/- from Joonktollee Tea Estate in north-east India. Before the Assessing Officer, it was contended by the assessee that it was entitled to deduction u/s.80-IC of the Act considering assessment year 2004-05 as the initial year. According to the assessee, it fulfils all the conditions as laid down in section 80-IC(2)(b)(iii) of the Act. The Assessing Officer did not accept the contention of the assessee on the following grounds:- a. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Industries, situated in Assam, are as follows: 1) 80-IC (1) :- where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section-2, there shall be allowed in accordance with and subject to the provision of this section, in computing the total income of the assessee a deduction from such profits and gains as specified in sub-section-3. 2) This section applies to any undertaking or enterprise. a)........................ b) which has begun or begins to manufacturer or produce any article or thing specified in he fourteenth schedule........ and undertakes substantial expansion.......... during the period beginning (i).... (ii)..... Or (iii)..... on the 24th day of December, 1997 and ending before 1-4-2007 in any of the North Eastern states. Under sub-section 8, Clause (vii), State of Assam is included in the North Eastern States in the 4th schedule vide serial number 12, processing and raising of plantation crop, - tea, rubber, coffee, coconut etc. are included. In sub-section (3) the deduction referred to in sub-section 1 is 100% of the profit derived from the undertaking for 10 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one dry, i.e. free from moisture. From the drier the manufactured tea is conveyed to sorting machine, the tea is sorted according to grade and quality and thereafter the same is packed. Now manufacturing capacity can be increased by adding various machines such as CTC machine and/or drier. A substantial expansion of the manufacturing capacity also calls for extension of the factory building. The capacity to wither the green leaves has also to be increased. All this process takes time and proper planning. The whole process when undertaken for completion takes a few years. In the case of appellant, the process of substantial expansion was set in by the appellant in the financial year commencing on 01-04-1997, i.e., financial year 1997-98, assessment year 1999-2000. Such substantial expansion was completed by the appellant in the financial year 2003-04. Therefore, the. appellant became entitled to deduction under section 80-IC only on completion of 2004-05, which thus became the initial assessment year. The fact that the appellant's capacity has certainly increased is evident from the figures of production of tea as specified by the Assessing Officer in the assessment order itself. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted whenever the assessee has undertaken and completed substantial expansion within the period 24-12-1997 to 31-03-2007. In the appellant's case the appellant has undertaken substantial expansion in the financial year 1997-98 and completed the same in the financial years 2003-04 by carrying out the process of expansion in all intermediary consecutive years without any brake. The appellant has also submitted to the Assessing Officer, in the course of assessment of a Chartered Accountant as required by the said section. A copy there of is enclosed for ready reference. It is submitted that on proper interpretation and application of the provisions of section 80-IC to the facts of the appellant was entitled to deduction under section 80-IC of the Act for a period of 10 years, commencing from assessment year 2004-05". 7. The Ld. Commissioner of Income-tax (Appeals), after considering the facts and circumstances of the case, was of the opinion that AY 2004-05 could not be treated as the initial year for the purpose of claim of deduction u/s.80IC of the Act because the appellant has not fulfilled the condition of 'substantial expansion' as defined in the Act. He was of the opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3). 2) This section applies to any undertaking or enterprise- (a) *** *** *** *** *** *** *** *** (i) to (iii) *** *** *** *** *** *** *** (b) which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule, or which manufactures or produces any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule and undertakes substantial expansion during the period beginning - (i) on the 23rd day of December, 2002 and ending before the 1st day of April, 91[2007], in the State of Sikkim; or (ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in the State of Himachal Pradesh or the State of Uttaranchal; or (iii) on the 24th day of December, 1997 and ending before the 1st day of April, 2007, in any of the North-Eastern States; (3) The deduction referred to in sub-section (1) shall be- (i) in the case of any undertaking or enterprise referred to in subclauses (i) and (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year' means the assessment year relevant to the previous year in which the undertaking or the enterprise begins to manufacture or produce articles or things, or commences operation or completes substantial expansion. (vi) *** *** *** *** *** *** *** (vii) 'North Eastern States' means the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura. (viii) *** *** *** *** *** *** *** (ix) 'substantial expansion' means increase in the investment in the plant and machinery by at least fifty per cent of the book value of plant and machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken; 11.2 Board's Circular: No.7/2003 49. New provisions allowing a ten years tax holiday in respect of certain undertakings in the States of Himachal Pradesh, Sikkim, Uttaranchal and North-Eastern States 49.1 The Union Cabinet has announced a package of Fiscal and non-fiscal concessions for the special category states of Himachal Pradesh, Uttaranchal, Sikkim and North-Eastern States, in order to give boost to the economy in these states. With a view to give effect to these new packag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings, which are ineligible for the purpose of deduction under section 80-IC. Further, a new Fourteenth Schedule has also been inserted, which specifies the list of articles and things, being thrust sector industries, which are eligible for the purposes of availing deduction under this section. Consequent to these amendments, the provisions of section 1OC and sub-section (4) of section 80-IB have been made inoperative in respect of the undertakings or enterprises in the State of Himachal Pradesh or in North- Eastern region including Sikkim, with effect from the 1st day of April, 2004. 49.6 These amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-2005 and subsequent years. 11.3 Section 80IC of the Act was brought on statute by the Finance Act, 2003 w.e.f 1-4-2004. Thus, it is applicable only w.e.f AY 2004-05. As per sect ion 80-IC(2) (b) undertaking/enterprise, which commences any operation specified in schedule XIV and under takes substantial expansion beginning on 24th day of December , 1997 and ending before the 1st day of April, 2007 in any of the north-eastern state is eligible for the deduct ion. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sect ion and the processing starts in the AY 2004-05 or any of the subsequent Assessment Years, then the assessee will be entitled to deduct ion u/s.80IC of the Act, that too if the actual cost of plant and machinery of such new unit is at least 50% of the book value of plant and machinery as on the 1st day of the previous year , in which the substantial expansion was undertaken. In such a case depreciation on the plant and machinery of the said unit would be availed of for the first time only in the AY, when the plant and machinery of the said unit is first used for the purpose of business. There is nothing in the Board's circular relied on by the assessee, which goes against the above interpretation of the section. 11.7 We find that the above aspect of the matter has not been considered by the Assessing Officer and the ld. Commissioner of Income-tax (Appeals). We, therefore, set aside the orders of the authorities below on this issue, and remit the matter back to the file of the Assessing Officer with the direction that afresh order be passed in the light of our above observations and as per law after giving the assessee adequate opportunity of being heard. 12. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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