ACIT, C-2(1), Chandigarh V. M/s Micro Turners, Chandigarh

ITA 1166/CHANDI/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4041 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 06-03-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 05-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MANJIT SINGH
• Keywords: Depreciation
• Section: 80IC

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH B , CHANDIGARH , !' # $ % &' , BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.1166/CHD/2018 / ASSESSMENT YEAR : 2014-15 THE A.C.I.T., CIRCLE-2(1), CHANDIGARH. M/S MICRO TURNERS, SCO 80-81, SECTOR 17-C, CHANDIGARH. ./ PAN NO. AABFM5301M / APPELLANT / RESPONDENT /ASSESSEE BY : SHRI MANJIT SINGH, SR.DR ! / REVENUE BY : SHRI T.N. SINGLA, CA ' # $ /DATE OF HEARING : 06.03.2019 %&'( $ /DATE OF PRONOUNCEMENT: 08.03.2019 /ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1, CHANDIGARH (IN SHORT CIT(A) DATED 22 .6.2018 PASSED U/S 250(6) OF THE INCOME TAX AT, 1961 (HEREI NAFTER REFERRED TO AS ACT). 2. THE SOLE ISSUE IN THE PRESENT APPEAL RELATES TO ALLOWANCE OF CLAIM OF DEDUCTION U/S 80IC OF THE ACT @ 100% OF PROFITS FROM THE ELIGIBLE BUSINESS OF THE ASSESS EE ON ACCOUNT OF SUBSTANTIAL EXPANSION UNDERTAKEN, AFTER AVAILING 100% DEDUCTION OF THE PROFITS FOR THE FIRST FIVE YE ARS. ITA NO.1166/CHD/2018 A.Y.2014-15 2 3. BRIEF FACTS RELATING TO THE CASE ARE THAT THE AS SESSEE IS IN THE BUSINESS OF MANUFACTURING AUTOMOBILE COMPONE NTS WHICH INCLUDES SHAFTS, SHIFTING RODS, ROCKER ARM AS SEMBLIES, CON ROD ASSEMBLIES AND VARIOUS TRANSMISSION ASSEMBL IES. THE ASSESSEE HAD FOUR WORKING UNITS I) AT NARYAL, P ARWANOO; II)TRACTOR PARTS DIVISION (TPD) AT PARWANOO; III)CO NNECTING ROD DIVISION (CRD) AT PARWANOO AND; IV)UNIT AT MANESAR, GURGAON. DURING THE IMPUGNED ASSESSMENT YEAR THE AS SESSEE HAD CLAIMED DEDUCTION U/S 80IC OF THE ACT @ 25% OF THE PROFITS OF NARYAL UNIT, @ 100% OF PROFITS OF TPD UN IT AND @ 100% OF PROFITS OF CRD UNIT. THE A.O. RESTRICTED TH E ASSESSEES CLAIM OF DEDUCTION OF 100% OF THE PROFIT S OF THE TDP UNIT TO 25% THEREOF ON NOTING THAT THE ASSESSEE HAD ALREADY CLAIMED 100% DEDUCTION OF THE PROFITS FOR A PERIOD OF FIVE YEARS AND THE IMPUGNED ASSESSMENT YEAR WAS THE 8 TH YEAR AND THAT THE ASSESSEE HAD CLAIMED 100% DEDUCTI ON ON ACCOUNT OF SUBSTANTIAL EXPANSION UNDERTAKEN IN THE FINANCIAL YEAR 2011-12. THE A.O. NOTED THAT THE ITAT CHANDIGA RH BENCH IN THE CASE OF HYCRON ELECTRONICS VS. ITO IN ITA NO.798/CHD/2012 HAD HELD THAT THE BENEFIT OF SUBSTA NTIAL EXPANSION WAS AVAILABLE ONLY TO UNITS WHICH WERE IN EXISTENCE AT THE TIME OF ANNOUNCEMENT OF SCHEME AND NOT TO NEW UNITS WHICH CAME INTO THE EXISTENCE THEREAFTER AND THAT THERE WAS NO PROVISION OF LAW ALLOWING FOR MULTIPLE INITIAL ASSESSMENT YEARS. ACCORDINGLY THE A.O. RESTRICTED T HE DEDUCTION CLAIMED BY THE ASSESSEE ON ITS TDP UNIT T O 25% OF THE ELIGIBLE UNITS. ITA NO.1166/CHD/2018 A.Y.2014-15 3 4. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD.C IT(A). DURING THE COURSE OF HEARING BEFORE HIM IT WAS BROU GHT TO HIS NOTICE THAT THE HON'BLE JURISDICTIONAL HIGH COU RT HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN THE CASE OF STOVECRAFT INDIA VS. CIT, REPORTED IN 160 DTR 378, HOLDING THAT THE BENEFIT OF DEDUCTION U/S 80IC @ 100% OF TH E ELIGIBLE PROFITS WAS ALLOWABLE EVEN IN THE CASE A NEW UNDERT AKING GOING FOR SUBSTANTIAL EXPANSION AFTER FIVE YEARS OF COMMENCEMENT OF PRODUCTION. THE LD.CIT(A) FOLLOWING THE AFORESAID DECISION OF THE HON'BLE JURISDICTIONAL HI GH COURT ALLOWED THE ASSESSEES APPEAL. 5. AGGRIEVED BY THE SAME, THE REVENUE HAS COME UP I N APPEAL BEFORE US, RAISING FOLLOWING GROUNDS OF APPE AL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, TH E LD.CIT(A)HAS ERRED IN ALLOWING APPEAL OF THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CLT(A)HAS ERRED IN DELETING THE ADDITION OF RS.1,55,47 ,172 /- (MADE ON ACCOUNT OF RESTRICTING THE CLAIM OF DEDUCTION U/S 80IC OF INCOME TAX ACT, 1961 @ 25%) WITHOUT DISCUSS ING THE MERITS OF THE ISSUE INVOLVED AND BY RELYING ON TH E DECISION OF HON'BLE HIMACHAL PRADESH HIGH COURT IN THE CASE OF M/S STOVEKRAFT INDIA. 3. THE LD.CIT(A) HAS ERRED IN HOLDING THAT THOSE UNDERTAKINGS OR ENTERPRISES WHICH COMMENCED PRODUCT ION AFTER 07/01/2003 CAN CARRY OUT MULTIPLE 'SUBSTANTIAL EXPANSION' PRIOR TO 01/04/2012 AND THERE WILL BE INITI AL YEAR FOR EACH 'SUBSTANTIAL EXPANSION' AS LONG AS PROVISI ON OF SECTION 80IC(8)(IX) ARE MET WITHOUT APPRECIATING THAT AS PER PROVISION OF SECTION 80IC OF THE INCOME TAX ACT AND AS EXPLAINED IN CBDT CIRCULAR NO. 7/2003, SUCH ENTERPRI SE OR UNDERTAKING CANNOT CARRY OUT ANY 'SUBSTANTIAL EXPANS ION' ONLY ONCE. 4. ALSO, THE HON'BLE SUPREME COURT OF INDIA IN THE CIVIL APPEAL NO 7229 OF 2018 OF M/S STOVEKRAFT INDIA BUNC HED IN THE LEAD CASE OF CIT VS. M/S CLASSIC BINDING IND USTRIES VIDE APPEAL NO. 7208 OF 2018 & OTHERS HAS HELD THAT AFTER AVAILING DEDUCTION AT 100% FOR FIRST 5 YEARS FROM TH E INITIAL ITA NO.1166/CHD/2018 A.Y.2014-15 4 ASSESSMENT YEAR, THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION FOR REMAINING 5 ASSESSMENT YEARS @ 25% AN D NOT @ 100%. THUS, THE ISSUE IS SETTLED IN THE FAVOUR OF REVENUE BY THE HON'BLE APEX COURT. 5. IT IS PRAYED THAT THE ORDER OF THE LD.CIT(A) BE CAN CELLED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROU NDS OF APPEAL BEFORE THE APPEAL IS HEARD OR IS DISPOSED OFF . 6. A BARE PERUSAL OF THE ABOVE GROUNDS REVEALS THAT THE REVENUE HAS CHALLENGED THE ORDER OF THE LD.CIT(A) R ELYING UPON THE DECISION OF THE HON'BLE APEX COURT IN BUNC H OF CASES WITH THE LEAD CASE BEING CIT VS. M/S CLASSIC BINDING INDUSTRIES IN CIVIL APPEAL NO.7208 OF 2018 & OTHERS . THE SAID ORDER WAS DATED 20 TH AUGUST 2018. 7. DURING THE COURSE OF HEARING BEFORE US THE LD. D R AT THE OUTSET ITSELF POINTED OUT THAT THE HON'BLE APEX COURT HAD THEREAFTER DECIDED THIS ISSUE AGAIN IN BUNCH OF CAS ES WITH THE LEAD CASE BEING PR.CIT, SHIMLA VS. M/S AARHAM SOFTRONICS IN CIVIL NO.1784 OF 2019 DATED 20.2.2019 , DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE AND FU RTHER HOLDING THAT THE DECISION IN THE CASE OF M/S CLASSI C BINDING INDUSTRIES (SUPRA) DID NOT LAY DOWN THE CORRECT LAW . 8. WE HAVE GONE THROUGH THE ORDER OF THE HON'BLE AP EX COURT IN THE CASE OF M/S AARHAM SOFTRONICS (SUPRA) AND FIND THAT THE HON'BLE APEX COURT HAD NOTED THAT THESE AP PEALS WERE EARLIER HEARD AND DECIDED BY ITS JUDGMENT DATE D 20.8.2018 REVERSING THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT ON THE ISSUE BUT IN SOME OF THE APPEALS THE ASSESSEES WHO WERE RESPONDENTS WERE NOT SERVED WITH NOTICES AND THEY REMAINED UNREPRESENTED AND ON THEIR ITA NO.1166/CHD/2018 A.Y.2014-15 5 MISCELLANEOUS APPLICATION FILED FOR RECALL OF THE O RDER, WHICH WAS ALLOWED BY THE HON'BLE APEX COURT, THE APPEALS WERE RESTORED AND WERE HEARD AFRESH. THAT THEREAFTER TH E HON'BLE APEX COURT DEALT WITH THE ENTIRE SCHEME OF THE ACT RELATING TO THE RELEVANT SECTION I.E. SECTION 80IC OF THE AC T, AND ARRIVED AT THE CONCLUSION THAT THE DEFINITION OF TH E INITIAL ASSESSMENT YEAR CONTAINED IN CLAUSE (V) OF SUB-SECT ION(8) OF SECTION 80IC OF THE ACT CAN LEAD TO A SITUATION WHE RE THERE CAN BE MORE THAN ONE ASSESSMENT YEAR WITHIN THE SAI D PERIOD OF TEN YEARS. THE RELEVANT FINDING OF THE HON'BLE A PEX COURT AT PARA 19 OF ITS ORDER IS AS UNDER: 19. HAVING EXAMINED THE SCHEME IN THE AFORESAID MA NNER, WE ARRIVE AT THE CONCLUSION THAT THE DEFINITION OF I NITIAL ASSESSMENT YEAR CONTAINED IN CLAUSE (V) OF SUB-SECTIO N (8) OF SECTION 80-IC CAN LEAD TO A SITUATION WHERE THERE CAN BE MORE THAN ONE INITIAL ASSESSMENT YEAR WITHIN THE SAID PERIO D OF 10 YEARS. AS PER SUB-SECTION (6), CAP IS ON THE 10 ASSE SSMENT YEARS. IT IS NOT ON QUANTUM. WE HAVE ALSO TO KEEP IN MI ND THE PURPOSE FOR WHICH SECTION 80-IC WAS ENACTED. THE PUR POSE WAS TO ESTABLISH THE BUSINESS OF THE NATURE SPECIFI ED IN THE SAID PROVISION IN THE SPECIFIED STATES. THIS PROVISI ON WAS, THUS, AIMED AT ENCOURAGING THE UNDERTAKINGS OR ENTERPR ISES TO ESTABLISH AND SET UP SUCH UNITS IN THE AFORESAID STA TES TO MAKE THEM INDUSTRIALLY ADVANCED STATES AS WELL. UNDOUBTEDLY, THESE ARE DIFFICULT STATES AS MOST OF T HESE STATES FALL IN HILLY AREAS. THEREFORE, COST OF PRODUCTION AND TRANSPORTATION MAY ALSO GO UP. 20. WHEN WE KEEP IN MIND THESE OBJECTIVES FOR WHICH SECTION 80-IC WAS ENACTED, AN IRRESISTIBLE CONCLUSION WOULD BE TO GRANT 100% DEDUCTION OF THE PROFITS AND GAINS EV EN FROM THE YEAR WHEN THERE IS SUBSTANTIAL EXPANSION IN THE EXIS TING UNIT. AFTER ALL, THIS SUBSTANTIAL EXPANSION INVOLVES GREAT DEAL OF INVESTMENT WHICH HAS TO BE, AT LEAST 50% IN THE PLANT AND MACHINERY, OF THE BOOK VALUE THEREOF BEFORE TAKING DEPRECIATION IN ANY YEAR. WITH AN EXPANSION OF SUCH A NATURE NOT ONLY THERE WOULD BE INCREASE IN PRODUCTION BUT G ENERATION OF MORE EMPLOYMENT AS WELL, WHICH WOULD BENEFIT THE LOCA L POPULACE. IT IS FOR THIS REASON, CARRYING OUT SUBSTANT IAL EXPANSION BY ITSELF IS TREATED AS INITIAL ASSESSMENT YEAR. IT WOULD MEAN THAT EVEN WHEN AN OLD UNIT COMPLETES SUBSTA NTIAL EXPANSION, SUCH A UNIT ALSO BECOMES ENTITLED TO AVAIL TH E BENEFIT OF SECTION 80-IC. IF THAT IS THE PURPOSE OF THE LEGISLATURE, WE SEE NO REASON AS TO WHY 100% DEDUCTIO N OF THE ITA NO.1166/CHD/2018 A.Y.2014-15 6 PROFITS AND GAINS BE NOT ALLOWED TO EVEN THOSE UNITS WHO HAD AVAILED THIS DEDUCTION ON SETTING UP OF A NEW UNIT A ND HAVE NOW INVESTED HUGE AMOUNT WITH SUBSTANTIAL EXPANSION O F THOSE UNITS. 9. THE HON'BLE APEX COURT THEREAFTER NOTED THAT IN ITS JUDGMENT IN THE CASE OF M/S CLASSIC BINDING INDUSTR IES (SUPRA) THE OBSERVATION OF THE HON'BLE COURT THAT A LLOWING DEDUCTION @ 100% FOR THE ENTIRE PERIOD OF TEN YEARS WOULD BE DOING VIOLENCE TO THE LANGUAGE OF SEC 80IC OF THE A CT, WAS MADE WITHOUT NOTICING THE DEFINITION OF INITIAL ASS ESSMENT YEAR CONTAINED IN SECTION 80IC OF THE ACT. THE FIND ING OF THE HON'BLE APEX COURT AT PARA 22 OF ITS ORDER IS AS UN DER: 22. IT WOULD BE PERTINENT TO POINT OUT THAT IN PARA 20 OF THE JUDGMENT IN CLASSIC BINDING INDUSTRIES , THIS COURT OBSERVED THAT IF DEDUCTION @ 100% FOR THE ENTIRE PERIOD OF 1 0 YEARS, IT WOULD BE DOING VIOLENCE TO THE LANGUAGE OF SUB-SECTION (6) OF SECTION 80-IC. HOWEVER, THIS OBSERVATION CAME WITHOUT NOTICING THE DEFINITION OF INITIAL ASSESSMENT YEAR CONT AINED IN THE SAME VERY PROVISION. 10. THE HON'BLE APEX COURT THEREAFTER CONCLUDED THA T THIS DECISION IN THE CASE OF M/S CLASSIC BINDING INDUSTR IES (SUPRA) DID NOT LAY DOWN THE CORRECT LAW AND THAT A NEWLY SET UP UNDERTAKING OR ENTERPRISE IN THE STATE OF HIMACH AL PRADESH WOULD BE ENTITLED TO DEDUCTION @ 100% OF TH E ACT ITS PROFITS FOR THE FIRST FIVE YEARS AND EVEN THEREAFTE R IN THE CASE OF SUBSTANTIAL EXPANSION IS CARRIED OUT BY IT WITH THE PREVIOUS YEAR IN WHICH SUBSTANTIAL EXPANSION IS UND ERTAKEN BECOMING THE INITIAL ASSESSMENT YEAR. THAT IN ANY C ASE THE PERIOD OF DEDUCTION U/S 80IC OF THE ACT WOULD NOT E XCEED 10 YEARS. THE CONCLUSION OF THE HON'BLE APEX COURT AT PARA 24 OF ITS ORDER IS AS UNDER: ITA NO.1166/CHD/2018 A.Y.2014-15 7 24. THE AFORESAID DISCUSSION LEADS US TO THE FOLLOWIN G CONCLUSIONS: (A) JUDGMENT DATED 20TH AUGUST, 2018 IN CLASSIC BINDINGINDUSTRIES CASE OMITTED TO TAKE NOTE OF THE DEFINITION INITIAL ASSESSMENT YEAR CONTAINED IN SECTION 80-IC IT SELF AND INSTEAD BASED ITS CONCLUSION ON THE DEFINITION CONTA INED IN SECTION 80-IB, WHICH DOES NOT APPLY IN THESE CASES. T HE DEFINITIONS OF INITIAL ASSESSMENT YEAR IN THE TWO SE CTIONS, VIZ. SECTIONS 80-IB AND 80-IC ARE MATERIALLY DIFFERENT. TH E DEFINITION OF INITIAL ASSESSMENT YEAR UNDER SECTION 80 -IC HAS MADE ALL THE DIFFERENCE. THEREFORE, WE ARE OF THE OPIN ION THAT THE AFORESAID JUDGMENT DOES NOT LAY DOWN THE CORRECT LAW. (B) AN UNDERTAKING OR AN ENTERPRISE WHICH HAD SET UP A NEW UNIT BETWEEN 7TH JANUARY, 2003 AND 1ST APRIL, 2012 IN STATE OF HIMACHALPRADESH OF THE NATURE MENTIONED IN CLAUSE (II) OF SUB-SECTION (2) OF SECTION 80-IC, WOULD BE ENTITLED TO D EDUCTION AT THE RATE OF 100% OF THE PROFITS AND GAINS FOR FI VE ASSESSMENT YEARS COMMENCING WITH THE INITIAL ASSESSMEN T YEAR. FOR THE NEXT FIVE YEARS, THE ADMISSIBLE DEDUCTIO N WOULD BE 25% (OR 30% WHERE THE ASSESSEE IS A COMPANY) OF T HE PROFITS AND GAINS. (C) HOWEVER, IN CASE SUBSTANTIAL EXPANSION IS CARRIED OU T AS DEFINED IN CLAUSE (IX) OF SUB-SECTION (8) OF SECTION 8 0-IC BY SUCH AN UNDERTAKING OR ENTERPRISE, WITHIN THE AFORESA ID PERIOD OF 10 YEARS, THE SAID PREVIOUS YEAR IN WHICH THE SUBS TANTIAL EXPANSION IS UNDERTAKEN WOULD BECOME INITIAL ASSESSMEN T YEAR, AND FROM THAT ASSESSMENT YEAR THE ASSESSEE SHA LL BEEN ENTITLED TO 100% DEDUCTIONS OF THE PROFITS AND GAINS. (D) SUCH DEDUCTION, HOWEVER, WOULD BE FOR A TOTAL PERIOD OF 10 YEARS, AS PROVIDED IN SUB-SECTION (6). FOR EXAMPLE, IF T HE EXPANSION IS CARRIED OUT IMMEDIATELY, ON THE COMPLETION OF FIRST FIVE YEARS, THE ASSESSEE WOULD BE ENTITLED TO 100% DEDU CTION AGAIN FOR THE NEXT FIVEYEARS. ON THE OTHER HAND, IF SUBSTANTIAL EXPANSION IS UNDERTAKEN, SAY, IN 8TH YEAR BY AN ASS ESSEE SUCH AN ASSESSEE WOULD BE ENTITLED TO 100% DEDUCTION F OR THE FIRST FIVE YEARS, DEDUCTION @ 25% OF THE PROFITS AND GAINS FOR THE NEXT TWO YEARS AND @ 100% AGAIN FROM 8 TH YEAR AS THIS YEAR BECOMES INITIAL ASSESSMENT YEAR ONCE AGAIN HOWE VER, THIS 100% DEDUCTION WOULD BE FOR REMAINING THREE YEAR S, I.E., 8TH, 9TH AND 10TH ASSESSMENT YEARS. 25. IN VIEW OF THE AFORESAID, WE AFFIRM THE JUDGMENT OF THE HIGH COURT ON THIS ISSUE AND DISMISS ALL THESE APPEALS OF THE REVENUE. LIKEWISE, APPEALS FILED BY THE ASSESSEES ARE H EREBY ALLOWED. 11. IN VIEW OF THE ABOVE, IT IS NOW SETTLED LAW TH AT EVEN A NEW UNDERTAKING WHICH HAS CLAIMED DEDUCTION OF ITS ELIGIBLE PROFITS @ 100% THEREOF FOR THE FIRST FIVE YEARS IS ENTITLED TO ITA NO.1166/CHD/2018 A.Y.2014-15 8 CLAIM DEDUCTION @ 100% OF ITS PROFITS THEREAFTER ON ACCOUNT OF SUBSTANTIAL EXPANSION UNDERTAKEN BY IT. WE, THER EFORE, SEE NO REASON TO INTERFERE IN THE ORDER OF THE LD.CIT(A ) AND THE APPEAL OF THE REVENUE IS, THEREFORE, DISMISSED. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- # $ % &' (SANJAY GARG ) (ANNAPURNA GUPTA) / JUDICIAL MEMBER ( / ACCOUNTANT MEMBER *# /DATED: 8 TH MARCH, 2019 * ' * &) *+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ' - / CIT 4. ' - ( )/ THE CIT(A) 5. +./ 0 , $ 0 , 123/4 / DR, ITAT, CHANDIGARH 6. /3 5# / GUARD FILE &) ' / BY ORDER, ! / ASSISTANT REGISTRAR