DP CHOCOLATES,HYDERABAD V. ACIT., CIRCLE-6(1), HYDERABAD

CO 7/HYD/2025

AI Insights

The case involves DP Chocolates, a company engaged in manufacturing chocolates, which claimed a deduction under Section 80IC of the Income-tax Act, 1961, for the assessment year 2018-19. Initially, the company claimed a deduction of 25% of its eligible profits, which was later modified to 100% following a substantial expansion of its manufacturing capacity and a Supreme Court judgment in 'PCIT, Shimla vs. Aarham Softronics'. The Assessing Officer (A.O) declined the modified claim as it was not supported by a revised return of income. The Commissioner of Income-Tax (Appeals) allowed the company's appeal, leading to the Revenue's appeal to the ITAT. The ITAT found merit in both parties' arguments and restored the matter to the CIT(A) for further verification of the pre-conditions for the modified deduction claim.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 45933 (ITAT-HYDERABAD)
• Appeal Type: Cross Objection
• Pronouncement Date: 21-03-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Assessment Year: 2018-2019
• Other Referred Cases: PCIT, Shimla vs. Aarham Softronics, Goetze (India) Ltd vs. CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Set aside; Revised return
• Section: 143(3); 143(2); 80IC; 80IC

Judgement Text

"ACIT VS. DP CHOCOLATESSPS5 ATH ITA NO. 1381/HYD/2024 1 आयकर अपीलȣय Ûयायाͬधकरण मɅ, हैदराबाद ‘बी’ बɅच, हैदराबाद IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ B ‘ Bench, Hyderabad Įी मंजूनाथ जी, माननीय लेखा सदèय एवं Įी रवीश सूद, माननीय ÛयाǓयक सदèय SHRI G. MANJUNATHA, HON’BLE ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, HON’BLE JUDICIAL MEMBER आयकरअपीलसं./I.T.A.No.1381/Hyd/2024 (िनधाŊरण वषŊ/ Assessment Year:2018-19) ACIT, Circle-6(1), Hyderabad. VS. DP Chocolates, Hyderabad. PAN: AARFM4581D (अपीलाथŎ/ Appellant) (ŮȑथŎ/ Respondent) C.O. No. 7/Hyd/2025 (In आयकरअपीलसं./I.T.A.No.1381/Hyd/2024) (िनधाŊरण वषŊ/ Assessment Year:2018-19) DP Chocolates, Hyderabad. PAN: AARFM4581D VS. ACIT, Circle-6(1), Hyderabad. (अपीलाथŎ/ Appellant) (ŮȑथŎ/ Respondent) करदाता का Ůितिनिधȕ/ Assessee Represented by : Shri CA T. Rajendra Prasad & Adv. P. Rosi Reddy राजˢ का Ůितिनिधȕ/ Department Represented by : Mrs. M. Narmada, CIT-DR सुनवाई समाɑ होने की ितिथ/ Date of Conclusion of Hearing : 05.03.2025 घोषणा की तारीख/ Date of Pronouncement : 21.03.2025 ACIT VS. DP CHOCOLATESSPS5 ATH ITA NO. 1381/HYD/2024 2 O R D E R Ůित रवीश सूद, जे.एम./PER RAVISH SOOD, J.M. The present appeal filed by the revenue is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 28/10/2024, which in turn arises from the order passed by the A.O under Section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 22/04/2021 for the assessment year 2018-19. 2. The revenue has assailed the impugned order on the following grounds of appeal before us: “1. Whether CIT(A) was right in holding that for claiming deduction U/s. 80IC, the revised computation of total income is sufficient and a revised return is not required to be filed. 2. Apart from the above principle ground of appeal, any other ground deemed fit that may be craved to be added, amended during the course of hearing.” On the other hand, the assessee-company is before us as a Cross- Objector on the following grounds: “1. The order passed by the CIT(A) of NFAC allowing the appeal filed by the respondents against the order passed by the Assessing Officer is legal, proper and not perverse. 2. The learned CIT(A) of NFAC rightly directed the Assessing Officer to grant deduction U/s. 80IC at 100% of the profits earned rather than at 25% of the profits earned as the respondents are entitled for deduction at 100% in view of the Apex Court’s judgment in ‘PCIT, Shimla vs. Aarham Softronics’ reported in 102 Taxmann.com 343 (2019); 3. The learned CIT(A) of NFAC rightly directed the Assessing Officer to grant deduction at 100% of the profits earned duly following the Board’s Circular No. 14(XL-35), dated 11/04/1955. ACIT VS. DP CHOCOLATESSPS5 ATH ITA NO. 1381/HYD/2024 3 4. The Department is estopped from preferring an appeal particularly in view of the fact that they granted enhanced deduction for the immediate preceding previous year based on the same set of facts. 5. The substantial benefit of 100% deduction cannot be denied based on small procedural infractions particularly in view of the fact that all the material conditions for claiming enhanced deduction were satisfied by the Respondent. 6. The Respondents plead that in view of the fact that substantia compliance with relevant material provisions of the Act has been complied with, a liberal view is to be adopted in granting the enhanced deduction considering that section 80IC is a beneficial provision. 7. The learned CIT(A) passed the order duly considering the spirit of section 80IC and following the Hon'ble Apex Court’s judgment referred supra and the Departmental instruction quoted supra and hence the appeal filed by the Department against the CIT(A)’s order is requested to be set aside. 8. The Apex Court’s judgment in ‘Goetze (India) Ltd vs. CIT 157 Taxman 1 (Supreme Court) (2006) relied upon by the Revenue is not applicable to the facts of the present case as the Respondent never made a fresh claim but rather modified its claim in the assessment proceedings. 9. In view of the above, it is prayed that the Revenue’s appeal may please be set aside in the interest of justice and fair play.” 3. Succinctly stated, the assessee-company, which is engaged in the business of manufacturing of chocolates had e-filed its return of income for the A.Y 2018-19 on 07/03/2019, declaring an income of Rs. 22,09,47,350/-. Subsequently, the case of the assessee company was selected for scrutiny assessment under Section 143(2) of the Act. During the course of the assessment proceedings, the A.O observed that the assessee-company which had established an “eligible unit” in Katha Bhatoli, Baddi-173205, Himachal Pradesh in Financial Year 2009-10, had during the subject year raised a claim for deduction under Section ACIT VS. DP CHOCOLATESSPS5 ATH ITA NO. 1381/HYD/2024 4 80IC(2)(a)(ii) of the Act of Rs. 6,96,41,501/- i.e. @ 25% of its eligible profits. 4. The assessee-company in the course of the assessment proceedings, submitted before the A.O that as it had in the Financial Year 2014-15 carried out “substantial expansion” of its existing manufacturing activity i.e. from 12000 TPA to 20000 TPA, therefore, as per clause (ix) of sub-section (8) of section 80IC of the Act read in light of the recent judgment of Hon'ble Supreme Court in the case of Pr. Commissioner of Income Tax vs. Aarham Softronics [2019] 102 taxmann.com 343 (SC), it was eligible for deduction under Section 80IC(2)(a)(ii) of the entire amount of its eligible profits for the year under consideration i.e @100%. 5. Although, the Assessing Officer found the aforesaid claim of the assessee company to be in order, but at the same time was of the view that as the said modified claim for deduction was not raised by the assessee company by filing a revised return of income, therefore, as per the judgment of the Hon'ble Apex Court in the case of Goetze (India) Ltd vs. Commissioner of Income Tax [2006] 157 Taxman 1 (SC) the same could not be considered by him. Accordingly, the A.O. after declining the modified claim of the assessee company for deduction under Section 80IC(2)(a)(ii) of the Act i.e @ 100% of its profits from the eligible ACIT VS. DP CHOCOLATESSPS5 ATH ITA NO. 1381/HYD/2024 5 business, determined its income at Rs. 22.09 crores (approx.) i.e. as was originally returned. 6. Aggrieved, the assessee-company carried the matter in appeal before the CIT(A). The CIT(A) being guided by his conviction that the assessee-company had, in the course of the assessment proceedings, not raised a fresh claim for deduction under Section 80IC(2)(a)(ii) of the Act, but based on the judgment of the Hon'ble Apex Court in the case of Pr. Commissioner of Income Tax vs. Aarham Softronics (supra) merely modified and re-quantified the claim that was raised in its return of income, thus, found favor with its contention and allowed the appeal. For the sake of clarity, the observations of the CIT(A) are culled out as under: “I have perused facts of the case, assessment order of the Assessing Officer, submission of the appellant and the documents available on record. On perusal of the record, it is seen that the only addition made is in respect of disallowance of additional deduction U/s. 80IC of the Act during the year. On perusal of the submissions and the documents filed during appellate proceedings, it is observed that the appellant is a firm engaged in manufacture of Chocolates at Himachal Pradesh enjoying benefit U/s. 80IC of the IT Act. The contention of the appellant is that as the assessee has undertaken substantial expansion of its production capacity as defined in clause(ix) of sub-section (8) of section 80IC of the IT Act, 1961 @ 100% of its profits earned with effect from F.Y 2014-15. The above position was confirmed by the Hon'ble Supreme Court in its decision dated 20/02/2019 I the case of Pr. Commissioner of Income Tax vs. Aarham Softronics (2019) 412 ITR 623 (SC) where it categorically held that “in case an unit undertaking a substantial expansion is carried out as defined in clause(ix) of subsection (8) of section 80IC within the period of 10 years as provided in the sub-section (6) the previous year in which substantial expansion is undertaken would become “initial assessment year” and from that assessment year assessee would be entitled to 100% deduction of the profits and gains. Such deduction, however, would be for a total period of 10 years, as provided in subsection (6). “As per the binding verdict ACIT VS. DP CHOCOLATESSPS5 ATH ITA NO. 1381/HYD/2024 6 of the Hon'ble Supreme Court in the above case, the assessee is very much entitled to claim deduction @ 100% of its profit U/s. 80IC of the IT Act, 1961 for the A.Y 2018-19. The appellant further stated that in the assessee’s own case, under similar circumstances for the A.Y 2017- 18 the Learned Assessing Officer allowed the enhanced claim of the assessee at 100% made during the course of scrutiny assessment proceedings though the assessee claimed deduction @ 25% in the return of income. The A.O had denied the claim as the appellant did not file a revised return for making the claim of deduction at 100% as per the decision of the Hon'ble Supreme Court in the case of Pr. Commissioner of Income Tax vs. Aarham Softronics (2019) 412 ITR 623 (SC). The appellant has also placed reliance on the CBDT’s Circular No. 14(XL- 35) dated 11/04/55 and also placed reliance on various citations on the issue in his submissions. After examining the detailed submission, I am of the considered opinion that the appellant is entitled to 100% deduction on the profit earned against 25% of the profits, as it is not a fresh claim but merely modification of the claim in view of the Hon'ble Supreme Court decision, referred supra. Accordingly, the grounds of appeal No.1 and 2 are allowed and the Assessing Officer is directed to allow the deduction U/s. 80IC at 100% of the profits earned.” 7. The Revenue, being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. Also, the assessee-company is before us as a cross-objector. 8. As the issue involved in the Revenue’s appeal and the assessee’s cross-objection are inextricably interwoven, therefore, we shall take up and dispose off the same together. 9. Sri T. Rajendra Prasad, Learned Authorized Representative (in short, “Ld. AR\") for the assessee company, at the threshold of hearing supported the order of the CIT(A). Elaborating on his contention, the Ld. AR submitted that as the assessee-company had, in the course of the assessment proceedings, not raised any fresh claim for deduction ACIT VS. DP CHOCOLATESSPS5 ATH ITA NO. 1381/HYD/2024 7 under Section 80IC(2)(a)(ii) of the Act, but had only modified and re- quantified its said claim for deduction considering the judgment of the Hon'ble Supreme Court in the case of Pr. Commissioner of Income Tax vs. Aarham Softronics (supra), therefore, the CIT(A) had rightly allowed the same. Carrying his contention further, the Ld.AR submitted that the AO by misconstruing the correct factual position had wrongly relied upon the judgment of the Hon'ble Supreme Court in the case of Goetze (India) Ltd vs. Commissioner of Income Tax [2006] 157 Taxman 1 (SC) and declined to consider the modified claim for deduction raised by the assessee company. The Ld. AR on being queried as to whether a revised “audit report” in Form 10CCB was filed by the assessee company before the AO to support its modified claim for deduction U/s. 80IC of the Act, answered in the negative. Rather, the Ld. AR, to support its claim that the assessee-company which had commenced its commercial production of chocolates w.e.f 30/03/2010, had thereafter, in the Financial Year 2013-14 undertaken “substantial expansion” of its existing manufacturing capacity i.e. from 12000 TPA to 20000 TPA, relied upon the “Certificate of commencement of commercial production” issued by the Joint Director (Industries), State Government of Himachal Pradesh, dated 21/12/2010, Page 168 of the “Assessee’s Paper Book” (APB). Apart from that, the Ld. AR had drawn our attention to a “Chart” wherein a breakup of the “substantial expansion” (investment made in Plant & machinery/Other assets) for the Financial ACIT VS. DP CHOCOLATESSPS5 ATH ITA NO. 1381/HYD/2024 8 Year 2009-10 to Financial Year 2013-14 was provided, Page 169 of APB. The Ld. AR based on the aforesaid facts submitted that as the assessee- company per the mandate of clause (ix) of sub-section (8) of section 80IC of the Act had carried out “substantial expansion” of its existing manufacturing capacity, therefore, the CIT(A), as per the judgment of the Hon'ble Supreme Court in the case of Pr. Commissioner of Income Tax vs. Aarham Softronics (supra) had rightly allowed its modified claim for deduction to which it was duly entitled for under law. 10. Per contra, the Learned CIT-Departmental Representative (in short “Ld. CIT-DR”) vehemently assailed the order of the CIT(A). Elaborating on her contentions, the Ld. CIT-DR submitted that as the assessee-company had not filed any revised return of income, therefore, the A.O being guided by the judgment of the Hon'ble Apex Court in the case of Goetze (India) Ltd vs. Commissioner of Income (supra) had rightly refrained from considering its modified claim for deduction under Section 80IC(2)(a)(ii) of the Act. Carrying her contention further, the Ld. CIT-DR submitted that the assessee-company had not only failed to file a revised “audit report” in Form 10CCB to support its modified and enhanced claim for deduction under Section 80IC(2)(a)(ii) of the Act, but also at Column No.25(d) of the “audit report” that was filed/uploaded with the AO, had stated, that it had not undertaken any substantial expansion of its existing manufacturing capacity. The Ld. CIT-DR to buttress her aforesaid claim had drawn our attention to the ACIT VS. DP CHOCOLATESSPS5 ATH ITA NO. 1381/HYD/2024 9 “audit report” filed by the assessee-company in “Form 10CCB” (Pages 170 to 174 of APB). The Ld. CIT-DR submitted that in the backdrop of the aforesaid fact, now, when the assessee-company had admitted that no “substantial expansion” of its existing business was carried out, therefore, the modified claim for deduction so raised by it had no legs to stand upon. The Ld. CIT-DR rebutted the averment of the assessee’s counsel that once the “Form No. 10CCB” is uploaded/filed by the assessee, then, the same despite a mistake being identified in the same cannot be revised. The Ld. CIT-DR had filed before us a clarification downloaded from the Income Tax e-filing Portal which revealed that multiple filing of “Form 10CCB” was permitted. Also, the Ld. CIT-DR i to impress upon us that the claim for deduction under Section 80IC(2)(a)(ii) of the Act is mandatorily required to be supported by the “audit report” in Form 10CCB and is not a mere procedural requirement, had drawn support from the judgment of the Hon'ble Supreme Court in the case of Pr. CIT vs. Wipro Ltd. [2022] 446 ITR 1 (SC). The Ld. CIT-DR based on her aforesaid contention, submitted, that as the assessee-company till date had not supported its claim for deduction under Section 80IC of the Act by a revised “audit report” in Form 10CCB, therefore, there was no justification for the CIT(A) to have dispensed with the said statutory requirement and summarily allow its unsubstantiated enhanced claim for deduction. ACIT VS. DP CHOCOLATESSPS5 ATH ITA NO. 1381/HYD/2024 10 11. We have heard the Ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. 12. Controversy involved in the present appeal lies in a narrow compass, i.e. whether or not the CIT(A) is right in law and facts of the case in summarily accepting the modified claim of deduction raised by the assessee-company under Section 80IC(2)(a)(ii) of the Act? 13. Before proceeding any further, we may herein observe that the Hon'ble Supreme Court in the case of Goetze (India) Ltd vs. Commissioner of Income Tax [2006] 157 Taxman 1 (SC), had circumscribed the scope of the powers of an A.O, and held, that an A.O cannot entertain a fresh claim for deduction raised by an assessee except for where the same has been raised by filing a revised return of income. At the same time, the Hon'ble Apex Court had observed that the said limitation on the powers of the A.O. will not impinge on the powers of the Income-Tax Appellate Tribunal under Section 254 of the Act. We thus, in the backdrop of the aforesaid judgment of the Hon’ble Apex Court find no infirmity in the view taken by the Assessing Officer, who in the absence of a revised return of income of the assessee ACIT VS. DP CHOCOLATESSPS5 ATH ITA NO. 1381/HYD/2024 11 company had rightly declined to consider its modified claim for deduction under Section 80IC(2)(a)(ii) of the Act. 14. Ostensibly, the CIT(A) while disposing off the appeal was of the view that as the assessee-company based on the ratio decidendi of the recent judgment of the Hon'ble Supreme Court in the case of Pr. CIT vs. Aarham Softronics [2019] 102 taxmann.com 343 (SC), had only modified its claim for deduction under Section 80IC(2)(a)(ii) of the Act and not raised any new claim of deduction, therefore, the same did merit acceptance. 15. We concur with the CIT(A) that the core issue involved in the present case i.e., as to whether or not an assessee, which had set up a new industry of a kind mentioned in Section 80IC(2) of the Act between 07th January, 2003 and 01st April, 2012 in the State of Himachal Pradesh, and started availing exemption of 100 percent tax under Section 80IC(3) of the Act (which is admissible for five years), could thereafter start claiming exemption at the same rate of 100 percent beyond the period of five years if it had carried out “substantial expansion” of its manufacturing unit in terms of section 80IC(8)(ix) of the Act; had been settled by the Hon'ble Apex Court in the case of Pr. CIT vs. Aarham Softronics (supra) and is no more res integra. The Hon’ble Apex Court, had observed, that if an eligible undertaking or an enterprise within the period of ten years carries out “substantial ACIT VS. DP CHOCOLATESSPS5 ATH ITA NO. 1381/HYD/2024 12 expansion” as defined in clause (ix) of sub-section (8) of section 80IC of the Act, then, the previous year in which the “substantial expansion” is undertaken would become the “initial assessment year”, and the assessee from that assessment year shall be entitled to 100% deduction of its profits and gains. 16. Although we are principally in agreement with the aforesaid view taken by the CIT(A), but, at the same time, are unable to persuade ourselves to subscribe to the manner, in which, he without verifying as to whether or not the assessee-company had satisfied the pre- conditions for claiming the modified/enhanced claim for deduction under Section 80IC(2)(a)(ii) of the Act, summarily allowed the same. We say so, because there is neither any whisper in the order of the CIT(A) as to whether or not the assessee-company had in substance carried out “substantial expansion” as defined in clause (ix) of sub-section (8) of section 80IC of the Act; nor he had verified to his satisfaction that the other pre-conditions for supporting the aforesaid modified claim of deduction raised by the assessee company were duly complied with. Apropos, the Ld. AR’s claim that the AO had allowed the enhanced claim for deduction under Sec. 80IC to the assessee company in the immediately preceding year, the same in our considered view, would though support the latter’s claim for modified deduction for the subject year, but cannot be stretched to the extent of justifying dispensing with verification as regards the cumulative satisfaction of the pre-conditions ACIT VS. DP CHOCOLATESSPS5 ATH ITA NO. 1381/HYD/2024 13 for claiming the modified/enhanced deduction during the year under consideration. Accordingly, we, though principally concur with the CIT(A), that as per the judgment of the Hon'ble Supreme Court in the case of Pr. CIT vs. Aarham Softronics (supra), the assessee-company on carrying out “substantial expansion” as defined in clause (ix) of sub- section (8) of section 80IC would pass the eligibility criterion to claim 100 percent deduction of its profits and gains reckoned from the previous year in which such “substantial expansion” was undertaken by treating the same as the “initial assessment year”, but are unable to approve his summarily allowing of the modified claim for deduction by dispensing with the verification of the cumulative satisfaction of the pre-conditions contemplated in the said statutory provision. 17. We thus, are of a firm conviction, that the matter in all fairness requires to be restored to the file of the CIT(A), who is directed to re- adjudicate the same after verifying the cumulative satisfaction by the assessee company of the pre-conditions for claiming the modified deduction so raised by it under Sec. 80IC(2)(a)(ii) of the Act. 18. Resultantly, both the appeal filed by the Revenue and the cross- objection filed by the assessee company are allowed for statistical purposes in terms of our aforesaid observations. 21st माच[, 2025 को खुलȣ अदालत मɅ सुनाया गया आदेश। ACIT VS. DP CHOCOLATESSPS5 ATH ITA NO. 1381/HYD/2024 14 Order pronounced in the Open Court on 21st March, 2025. Sd/- Sd/Sd/-- (मंजूनाथ जी) (MANJUNATHA G.) लेखा सद˟/ACCOUNTANT MEMBER Sd/-/Sd/-- (Įी रवीश सूद) (RAVISH SOOD) Ɋाियक सद˟/JUDICIAL MEMBER Sd/- Sd Hyderabad, dated 21.03.2025. ***#OKK/sps आदेशकी Ůितिलिप अŤेिषत/ Copy of the order forwarded to:- 1. िनधाŊįरती/The Assessee : DP Chocolates, 8-3-945, Flat No.304, Pancom Business Centre, Ameerpet, Hyderabad,Telangana-500073. 2. राजˢ/ The Revenue : Asst. Commissioner of Income Tax, Circle-6(1), 6th Foor, B-Block, IT Towers, AC Guards, Hyderabad. 3. The Principal Commissioner of Income Tax, Hyderabad 4. िवभागीयŮितिनिध, आयकर अपीलीय अिधकरण, हैदराबाद / DR, ITAT, Hyderabad 5. The Commissioner of Income Tax 6. गाडŊफ़ाईल / Guard file आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Hyderabad "