DCIT, C-1(1), Chandigarh V. M/s Bnal Prefabs (P) Ltd., Chandigarh

ITA 1268/CHANDI/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4408 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 04-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH A , CHANDIGARH , . . , #$% BEFORE SHRI N.K. SAINI, VICE RPESIDENT AND SHRI SANJAY GARG, JUDICIAL MEMBER ./ ITA NO.1268/CHD/2018 / ASSESSMENT YEAR : 2011-12 THE D.C.I.T., CIRCLE-1(1), CHANDIGARH. M/S BNAL PREFABS PVT. LTD., SR.NO.19, SECTOR 7, CHANDIGARH. ./PAN NO: AAACB7859D /APPELLANT /RESPONDENT /ASSESSEE BY : SHRI VINEET KRISHAN, ADV. ! / REVENUE BY : SMT.MEENAKSHI VOHRA, SR.DR ' # $ /DATE OF HEARING : 07.03.2019 %&'( $ /DATE OF PRONOUNCEMENT : 13 .05.2019 /ORDER PER SANJAY GARG, JUDICIAL MEMBER : THE PRESENT APPEAL HAS BEEN PREFERRED BY THE DEPART MENT AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)- 1, CHANDIGARH [(IN SHORT CIT(A)] DATED 3.7.2018 PER TAINING TO ASSESSMENT YEAR 2011-12. 2 2. THE SOLE ISSUE INVOLVED IN THE APPEALS RELATES TO ALLOWANCE OF CLAIM OF DEDUCTION U/S 80IC OF THE ACT @ 100% OF PROFITS FROM THE ELIGIBLE BUSINESS OF THE ASSESSEE, ON ACCOUNT OF SUBSTANTIAL EXPANSION UNDERTAKEN, AFTER AVAILING 10 0% DEDUCTION OF THE PROFITS FOR THE FIRST FIVE YEARS. 3. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE A SSESSEE STARTED ITS MANUFACTURING ACTIVITY/OPERATION ON 7.1 .2005 AND WAS ELIGIBLE TO CLAIM DEDUCTION U/S 80IC OF THE IN COME TAX ACT, 1961 (IN SHORT THE ACT) W.E.F ASSESSMENT YEA R 2005-06. THE ASSESSEE HAD ALREADY CLAIMED DEDUCTION U/S 80IC OF THE ACT TO THE EXTENT OF 100% OF THE ELIGIBLE PROFIT FO R FIVE YEARS PERIOD. IT WAS NOTICED BY THE A.O. THAT THE ASSESS EE FIRM HAD AGAIN CLAIMED 100% DEDUCTION AGAINST ELIGIBLE PROFI TS IN THE IMPUGNED ASSESSMENT YEAR, I.E. A.Y 2011-12, WHICH W AS THE 7 TH YEAR BY CLAIMING TO HAVE CARRIED OUT SUBSTANTIAL EX PANSION DURING THE YEAR UNDER CONSIDERATION. THE A.O. FOR T HE DETAILED REASONS MENTIONED IN THE ASSESSMENT ORDER AND FOLL OWING THE DECISION OF THE ITAT CHANDIGARH BENCH IN THE CASE O F M/S HYCRON ELECTRONICS VS. ITO IN ITA NO.798/CHD/2012, HELD THAT 3 THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S 80IC ON LY @ 30% AS AGAINST THE CLAIM OF 100% MADE BY THE ASSESSEE. 4. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) WH O ALLOWED THE ASSESSEES APPEAL. 5. AGGRIEVED BY THE SAME, THE REVENUE HAS COME UP I N APPEAL BEFORE US. 6. DURING THE COURSE OF HEARING BEFORE US, THE LD.C OUNSEL FOR THE ASSESSEE, AT THE OUTSET ITSELF, POINTED OUT THA T THE HON'BLE APEX COURT HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE IN BUNCH OF CASES WITH THE LEAD CASE BEING PR.CIT, SHI MLA VS. M/S AARHAM SOFTRONICS IN CIVIL NO.1784 OF 2019 DATE D 20.2.2019. 7. LD.DR FAIRLY CONCEDED THAT THE ISSUE WAS SETTLED IN FAVOUR OF THE ASSESSEE BY THE ABOVE DECISION OF THE APEX C OURT. 8. WE HAVE GONE THROUGH THE ORDER OF THE HON'BLE AP EX COURT IN THE CASE OF M/S AARHAM SOFTRONICS (SUPRA) AND FI ND THAT THE HON'BLE APEX COURT DEALT WITH THE ENTIRE SCHEME OF THE ACT RELATING TO THE RELEVANT SECTION I.E. SECTION 80IC OF THE ACT, 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 4 BE MORE THAN ONE INITIAL ASSESSMENT YEAR WITHIN THE SAID 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 IN ITIAL ASSESSMENT YEAR CONTAINED IN CLAUSE (V) OF SUB-SECTION (8) OF SECTION 80-IC CAN LEAD TO A SITUATION WHERE THERE CAN BE MORE THAN ON E INITIAL ASSESSMENT YEAR WITHIN THE SAID PERIOD OF 10 YEARS . AS PER SUB- SECTION (6), CAP IS ON THE 10 ASSESSMENT YEARS. IT IS NOT ON QUANTUM. WE HAVE ALSO TO KEEP IN MIND THE PURPOSE F OR WHICH SECTION 80-IC WAS ENACTED. THE PURPOSE WAS TO ESTAB LISH THE BUSINESS OF THE NATURE SPECIFIED IN THE SAID PROVIS ION IN THE SPECIFIED STATES. THIS PROVISION WAS, THUS, AIMED A T ENCOURAGING THE UNDERTAKINGS OR ENTERPRISES TO ESTABLISH AND SE T UP SUCH UNITS IN THE AFORESAID STATES TO MAKE THEM INDUSTRIALLY A DVANCED STATES AS WELL. UNDOUBTEDLY, THESE ARE DIFFICULT ST ATES AS MOST OF THESE STATES FALL IN HILLY AREAS. THEREFORE, COST O F 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 EVEN FROM T HE YEAR WHEN THERE IS SUBSTANTIAL EXPANSION IN THE EXISTING UNIT . AFTER ALL, THIS SUBSTANTIAL EXPANSION INVOLVES GREAT DEAL OF INVEST MENT WHICH HAS TO BE, AT LEAST 50% IN THE PLANT AND MACHINERY, OF THE BOOK VALUE THEREOF BEFORE TAKING DEPRECIATION IN ANY YEA R. WITH AN EXPANSION OF SUCH A NATURE NOT ONLY THERE WOULD BE INCREASE IN PRODUCTION BUT GENERATION OF MORE EMPLOYMENT AS WEL L, WHICH WOULD BENEFIT THE LOCAL POPULACE. IT IS FOR THIS RE ASON, CARRYING OUT SUBSTANTIAL EXPANSION BY ITSELF IS TREATED AS INIT IAL ASSESSMENT YEAR. IT WOULD MEAN THAT EVEN WHEN AN OLD UNIT COM PLETES SUBSTANTIAL EXPANSION, SUCH A UNIT ALSO BECOMES ENT ITLED TO AVAIL THE BENEFIT OF SECTION 80-IC. IF THAT IS THE PURPOS E OF THE LEGISLATURE, WE SEE NO REASON AS TO WHY 100% DEDUCT ION OF THE PROFITS AND GAINS BE NOT ALLOWED TO EVEN THOSE UNIT S WHO HAD AVAILED THIS DEDUCTION ON SETTING UP OF A NEW UNIT AND HAVE NOW INVESTED HUGE AMOUNT WITH SUBSTANTIAL EXPANSION OF THOSE UNITS. 5 9. THE HON'BLE APEX COURT THEREAFTER CONCLUDED THAT A NEWLY SET UP UNDERTAKING OR ENTERPRISE IN THE STATE OF HI MACHAL 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, THEN TH E ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH SUBSTAN TIAL EXPANSION IS UNDERTAKEN BECOMING THE INITIAL ASSESS MENT YEAR. THAT IN ANY CASE, THE PERIOD OF DEDUCTION U/S 80IC OF THE ACT WOULD NOT EXCEED 10 YEARS. THE CONCLUSION OF THE HO N'BLE APEX COURT AT PARA 24 OF ITS ORDER IS AS UNDER: 24. THE AFORESAID DISCUSSION LEADS US TO THE FOLLO WING 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-I C ITSELF AND INSTEAD BASED ITS CONCLUSION ON THE DEFINITION CONT AINED IN SECTION 80-IB, WHICH DOES NOT APPLY IN THESE CASES. THE DEF INITIONS OF INITIAL ASSESSMENT YEAR IN THE TWO SECTIONS, VIZ. SECTIONS 80-IB AND 80-IC ARE MATERIALLY DIFFERENT. THE DEFINITION OF INITIAL ASSESSMENT YEAR UNDER SECTION 80-IC HAS MADE ALL T HE DIFFERENCE. THEREFORE, WE ARE OF THE OPINION THAT T HE AFORESAID JUDGMENT DOES NOT LAY DOWN THE CORRECT LAW. (B) AN UNDERTAKING OR AN ENTERPRISE WHICH HAD SET U P A NEW UNIT BETWEEN 7TH JANUARY, 2003 AND 1ST APRIL, 2012 IN ST ATE OF HIMACHALPRADESH OF THE NATURE MENTIONED IN CLAUSE ( II) OF SUB- SECTION (2) OF SECTION 80-IC, WOULD BE ENTITLED TO DEDUCTION AT THE RATE OF 100% OF THE PROFITS AND GAINS FOR FIVE ASSE SSMENT YEARS COMMENCING WITH THE INITIAL ASSESSMENT YEAR. FOR THE NEXT FIVE YEARS, THE ADMISSIBLE DEDUCTION WOULD BE 25% (OR 30 % WHERE THE ASSESSEE IS A COMPANY) OF THE PROFITS AND GAINS. (C) HOWEVER, IN CASE SUBSTANTIAL EXPANSION IS CARRI ED OUT AS DEFINED IN CLAUSE (IX) OF SUB-SECTION (8) OF SECTIO N 80-IC BY SUCH AN UNDERTAKING OR ENTERPRISE, WITHIN THE AFORESAID PERIOD OF 10 YEARS, THE SAID PREVIOUS YEAR IN WHICH THE SUBSTANT IAL EXPANSION 6 IS UNDERTAKEN WOULD BECOME INITIAL ASSESSMENT YEAR , AND FROM THAT ASSESSMENT YEAR THE ASSESSEE SHALL BEEN ENTITL ED TO 100% DEDUCTIONS OF THE PROFITS AND GAINS. (D) SUCH DEDUCTION, HOWEVER, WOULD BE FOR A TOTAL P ERIOD OF 10 YEARS, AS PROVIDED IN SUB-SECTION (6). FOR EXAMPLE, IF THE EXPANSION IS CARRIED OUT IMMEDIATELY, ON THE COMPLE TION OF FIRST FIVE YEARS, THE ASSESSEE WOULD BE ENTITLED TO 100% DEDUCTION 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 FOR 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 HOWEVER, THIS 100% DEDUCTION WOULD BE FOR REMAINING THREE YEARS, I.E., 8TH, 9TH AND 10TH ASSESSMENT YEARS. 25. IN VIEW OF THE AFORESAID, WE AFFIRM THE JUDGMEN T OF THE HIGH COURT ON THIS ISSUE AND DISMISS ALL THESE APPEALS O F THE REVENUE. LIKEWISE, APPEALS FILED BY THE ASSESSEES ARE HEREBY ALLOWED. 10. IN VIEW OF THE ABOVE, IT IS NOW SETTLED LAW TH AT EVEN A NEW UNDERTAKING, WHICH HAS CLAIMED DEDUCTION OF ITS ELI GIBLE PROFITS @ 100% THEREOF FOR THE FIRST FIVE YEARS, IS ENTITLE D TO CLAIM DEDUCTION @ 100% OF ITS PROFITS THEREAFTER ON ACCOU NT OF SUBSTANTIAL EXPANSION UNDERTAKEN BY IT. 11. SINCE IN THE PRESENT CASE THE FACT THAT THE ASS ESSEE HAD UNDERTAKEN SUBSTANTIAL EXPANSION IN THE IMPUGNED YE AR IS NOT DISPUTED, THE ASSESSEE, WE HOLD, IS ENTITLED TO CLA IM DEDUCTION @ 100% OF ITS ELIGIBLE PROFITS EVEN IF IT HAS ALREA DY CLAIMED DEDUCTION OF ITS PROFITS AT THE SAID RATE FOR FIRST FIVE YEARS, IN VIEW OF THE LAW LAID DOWN BY THE APEX COURT IN THIS REGARD IN ITS DECISION IN THE CASE OF M/S AARHAM SOFTRONICS(SUPRA ). 7 12. WE, THEREFORE, UPHOLD THE ORDER OF THE CIT(A) A ND DISMISS THE APPEAL OF THE REVENUE. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.05.2019. SD/- SD/- . . (N.K. SAINI) (SANJAY GARG) #$% VICE PRESIDENT / JUDICIAL MEMBER ' /DATED: 13 TH MAY, 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. /35# / GUARD FILE &) ' / BY ORDER, / ASSISTANT REGISTRAR