M/s Vardhman Industries, Solan V. Income Tac Officer, Baddi

ITA 318/CHANDI/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2880 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 06-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ASHISH GOYALCA
• Keywords: Depreciation

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH , !' # $ % &' , '( BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.317 & 318/CHD/2018 / ASSESSMENT YEAR : 2010-11 & 2011-12 M/S VARDHMAN INDUSTRIES, 55,HPSIDC INDUSTRIAL AREA, BADDI, DISTT.SOLAN (H.P.) THE ITO., BADDI (H.P.) ./PAN NO: AAEFV7858F / APPELLANT /RESPONDENT ! /ASSESSEE BY : ASHISH GOYAL,C.A ' ! / REVENUE BY : SMT. ZEENIA HANDA SR.DR # $ % /DATE OF HEARING : 05.04.2019 &'() % / DATE OF PRONOUNCEMENT : 05.04.2019 ')/ ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER: THE CAPTIONED APPEALS PREFERRED BY THE ASSESSEE, W ERE EARLIER DECIDED VIDE ORDER DATED 13.11.2018 OF THIS TRIBUNA L. HOWEVER, THE SAID ORDER DATED 13.11.2018 HAS BEEN RECALLED VIDE ORDER OF EVEN DATE 05.04.2019 PASSED IN M.A.NO. 61 & 62/CHD/2019, FILE D BY THE ASSESSEE FOR THE LIMITED PURPOSE OF ADJUDICATING GROUND NO.2 & 4 (II) IN ITA NO.317/CHD/2016 RELATING TO A.Y 2010-11 AND GROUND NO.2 IN ITA NO.318/CHD/2016 RELATING TO A.Y 2011-12. THE APPEAL S FOR THE SAID LIMITED PURPOSE WERE, THEREFORE, HEARD AFRESH. 2. THE AFORESTATED GROUNDS READ AS UNDER: ITA NO.317/CHD/2016 2.(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW BY UPHOLD ING THE ITA NO.317 & 318/CHD /2018 ASSESSMENT YEARS.2010-11 & 2011-12 2 ORDER OF THE AO RESTRICTING THE DEDUCTION CLAIMED . BY THE ASSESSEE U/S 80IC OF THE ACT TO RS.31,39,394/-, I.E . 25% DEDUCTION, AS AGAINST RS. 1,25,57,577/-, I.E. 100% DEDUCTION CLAIMED BY THE ASSESSEE. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW IN CONFI RMING THE SAID ADDITION BY MISINTERPRETING THE PROVISIONS OF SECTION 80IC OF THE ACT REGARDING 'SUBSTANTIAL EXPANSION'. 4.(II) THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW IN RESTRICTING THE DISALLOWANCE MADE BY THE AO TO 25% O F THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 80IC OF THE AC T ON ACCOUNT OF MISCELLANEOUS RECEIPTS OF RS.1,27,000/-, DES PITE THE FACT THAT THE ASSESSEE IS ELIGIBLE FOR 100% DED UCTION U/S 80IC. ITA NO.318/CHD/2016 2.(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW BY UPHOLDING ORDER OF THE AO RESTRICTING THE DEDUCTION CLAIMED BY THE ASSESSEE U /S 80IC OF THE ACT TO RS.44,00,333/-, I.E. 25% DEDUCTION, AS AGAINS T RS.1,76,01,333/-, I.E. 100% DEDUCTION CLAIMED BY TH E ASSESSEE. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW IN CONFIRMING THE S AID ADDITION BY MISINTERPRETING THE PROVISIONS OF SECTION 8 0IC OF THE ACT REGARDING 'SUBSTANTIAL EXPANSION'. 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUES INVOLVED IN THE GROUND NO.2 OF BOTH THE AP PEALS WAS AS TO WHETHER THE ASSESSEE WAS ENTITLED TO DEDUCTION AT THE RATE OF 100% OF THE ELIGIBLE PROFITS U/S 80IC OF THE INCOME-TAX ACT, 1961 (IN SH ORT 'THE ACT') FOR ANOTHER FIVE YEARS IN THE CASE OF SUBSTANTIAL EXPANSION OF UNIT. IN OTHER WORDS, WHETHER THE YEAR IN WHICH THE SUBSTANTIAL EXPANSION IS CARRIED OUT IS TO BE TAKEN AS INITIAL ASSESSMENT YEAR FOR THE PURPOSE OF GRANT OF DEDUCTION U/S 80IC OF THE ACT. AS FOR GROUND NO.4(II) IN ITA NO.3 17/CHD/2016,IT WAS POINTED OUT THAT THE SAME RELATED TO CLAIM OF DEDU CTION U/S 80IC OF THE ACT ON MISC. INCOME OF RS.1,27,000/- WHICH AFTER BEING HELD AS ALLOWABLE , WAS RESTRICTED TO 25% OF THE ELIGIBLE PROFITS ,DESP ITE SUBSTANTIAL EXPANSION HAVING BEEN UNDERTAKEN. ITA NO.317 & 318/CHD /2018 ASSESSMENT YEARS.2010-11 & 2011-12 3 4. HE HAS FURTHER SUBMITTED THAT THE ISSUE RAISED I N THESE GROUNDS HAD BEEN EARLIER ADJUDICATED BY THE HON'BLE H.P. HIGH C OURT IN THE CASE OF M/S STOVEKRAFT INDIA VS. CIT ITA NO. 20 OF 2015 DATED 28.11.2017, WHEREIN, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. HO WEVER, THE DEPARTMENT ON THE ISSUE OF SUBSTANTIAL EXPANSION WENT IN APPEA L BEFORE THE HON'BLE SUPREME COURT AND THE HON'BLE SUPREME COURT DECIDED THE ISSUE IN FAVOUR OF THE REVENUE BY THE DECISION DATED 20.8.2018 IN T HE GROUP OF CASES WITH THE LEAD CASE TITLED AS CIT VS. M/S CLASSIC BINDIN G INDUSTRIES, IN CIVIL APPEAL NO(S) 7208 OF 2018 DATED 20.08.2018. 5. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER SUB MITTED THAT THE ORDER OF THE HON'BLE SUPREME COURT IN M/S CLASSIC BINDING INDUSTRIES (SUPRA) HAS BEEN RECALLED IN A REVIEW PETITION FILED BY THE PETITIONERS AND PROPOSITION OF LAW LAID DOWN BY THE HON'BLE H.P. HI GH COURT IN THE CASE OF M/S STOVEKRAFT INDIA VS. CIT ITA NO. 20 OF 2017 D ATED 28.11.2017 HAS BEEN REAFFIRMED RECENTLY BY THE HON'BLE SUPREME COU RT IN THE GROUP OF CASES WITH THE LEAD CASE IN PR. CIT VS. M/S AARHAM SOFTRONICS IN ITA NO. 1784 OF 2019 VIDE ORDER DATED 20.02.2019. 6. LD.DR FAIRLY ADMITTED THAT THE ISSUE NOW STOOD C OVERED IN FAVOUR OF THE ASSESEE ENTITLING IT TO 100% DEDUCTION OF ITS E LIGIBLE PROFITS ON SUBSTANTIAL EXPANSION, VIDE THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF M/S AARHAM SOFTRONICS(SUPRA). 7. WE HAVE GONE THROUGH THE ORDER OF THE HON'BLE AP EX COURT IN THE CASE OF 'PR.CIT, SHIMLA VS. M/S AARHAM SOFTRONICS (SUPRA) AND FIND 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 ITA NO.317 & 318/CHD /2018 ASSESSMENT YEARS.2010-11 & 2011-12 4 CONCLUSION THAT THE DEFINITION OF THE INITIAL ASSES SMENT YEAR CONTAINED IN CLAUSE (V) OF SUB-SECTION(8) OF SECTION 80IC OF THE ACT CAN LEAD TO A SITUATION WHERE THERE CAN BE MORE THAN ONE INITIAL ASSESSMENT YEAR WITHIN THE SAID PERIOD OF TEN YEARS. THE RELEVANT FINDING OF THE HON'BLE APEX 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 INITIAL ASSE SSMENT YEAR CONTAINED IN CLAUSE (V) OF SUB-SECTION (8) OF SECTION 80-IC CAN LEAD TO A SITUATION WHERE THERE CAN BE MORE THAN ONE INITIAL ASSESSMENT YEAR WITHIN THE SAID PERIOD OF 10 YEARS. AS PER SUB-SECTION (6), CAP IS ON THE 10ASSESSMENT YEARS. IT IS NOT ON QUANTUM. WE HAVE ALSO TO KEEP I N MIND THE PURPOSE FOR WHICH SECTION 80-IC WAS ENACTED. THE PURPOSE WAS TO ESTABLISH THE BUSINESS OF THE NATURE SPECIFIED IN THE SAID PROVIS ION IN THE SPECIFIED STATES. THIS PROVISION WAS, THUS, AIMED AT ENCOURAG ING THE UNDERTAKINGS OR ENTERPRISES TO ESTABLISH AND SET UP SUCH UNITS I N THE AFORESAID STATES TO MAKE THEM INDUSTRIALLY ADVANCED STATES AS WELL. UND OUBTEDLY, THESE ARE DIFFICULT STATES AS MOST OF THESE STATES FALL IN HI LLY 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 GRA NT 100% DEDUCTION OF THE PROFITS AND GAINS EVEN FROM THE YEAR WHEN THERE IS SUBSTANTIAL EXPANSION IN THE EXISTING UNIT. AFTER ALL, THIS SUBSTANTIAL E XPANSION 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 I N ANY YEAR. WITH AN EXPANSION OF SUCH A NATURE NOT ONLY THERE WOULD BE INCREASE IN PRODUCTION BUT GENERATION OF MORE EMPLOYMENT AS WELL, WHICH WO ULD BENEFIT THE LOCAL POPULACE. IT IS FOR THIS REASON, CARRYING OUT SUBST ANTIAL EXPANSION BY ITSELF IS TREATED AS INITIAL ASSESSMENT YEAR. IT WOULD M EAN THAT EVEN WHEN AN OLD UNIT COMPLETES SUBSTANTIAL EXPANSION, SUCH A UN IT ALSO BECOMES ENTITLED TO AVAIL THE BENEFIT OF SECTION 80-IC. IF THAT IS THE PURPOSE OF THE LEGISLATURE, WE SEE NO REASON AS TO WHY 100% DEDUCT ION OF THE PROFITS AND GAINS BE NOT ALLOWED TO EVEN THOSE UNITS WHO HAD AV AILED THIS DEDUCTION ON SETTING UP OF A NEW UNIT AND HAVE NOW INVESTED H UGE AMOUNT WITH SUBSTANTIAL EXPANSION OF THOSE UNITS. 8. THE HON'BLE APEX COURT THEREAFTER CONCLUDED THAT A NEWLY SET UP UNDERTAKING OR ENTERPRISE IN THE STATE OF HIMACHAL PRADESH WOULD BE ENTITLED TO DEDUCTION @ 100% OF THE ACT ITS PROFITS FOR THE FIRST FIVE YEARS AND EVEN THEREAFTER IN THE CASE OF SUBSTANTIA L EXPANSION IS CARRIED OUT BY IT, WITH THE PREVIOUS YEAR IN WHICH SUBSTANT IAL EXPANSION IS UNDERTAKEN BECOMING THE INITIAL ASSESSMENT YEAR. TH AT IN ANY CASE THE ITA NO.317 & 318/CHD /2018 ASSESSMENT YEARS.2010-11 & 2011-12 5 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: 24. THE AFORESAID DISCUSSION LEADS US TO THE FOLLO WING CONCLUSIONS: (A) JUDGMENT DATED 20TH AUGUST, 2018 IN CLASSIC BINDING INDUSTRIES CASE OMITTED TO TAKE NOTE OF THE DEFINITION INITIA L ASSESSMENT YEAR CONTAINED IN SECTION 80-IC ITSELF AND INSTEAD BASED ITS CONCLUSION ON THE DEFINITION CONTAINED IN SECTION 80-IB, WHICH DOES N OT APPLY IN THESE CASES. THE DEFINITIONS 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 SECTION80-IC HAS MADE ALL TH E DIFFERENCE. THEREFORE, WE ARE OF THE OPINION THAT THE 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 STATE OF H IMACHAL PRADESH 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 PR OFITS AND GAINS FOR FIVE ASSESSMENT YEARS COMMENCING WITH THE INITIAL ASSES SMENT 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 SECTION 80-IC BY SUCH AN UNDERTAKING OR ENTERPRISE, WITHIN THE AFORESAID PERIOD OF 10 YEARS , THE SAID PREVIOUS YEAR IN WHICH THE SUBSTANTIAL EXPANSION IS UNDERTAKEN WO ULD BECOME INITIAL ASSESSMENT YEAR, AND FROM THAT ASSESSMENT YEAR THE ASSESSEE SHALL BEEN ENTITLED TO 100% DEDUCTIONS OF THE PROFITS AND GAIN S. (D) SUCH DEDUCTION, HOWEVER, WOULD BE FOR A TOTAL P ERIOD OF 10YEARS, AS PROVIDED IN SUB-SECTION (6). FOR EXAMPLE, IF THE EX PANSION IS CARRIED OUT IMMEDIATELY, ON THE COMPLETION OF FIRST FIVE YEARS, THE ASSESSEE WOULD BE ENTITLED TO 100% DEDUCTION AGAIN FOR THE NEXT FIVE YEARS. ON THE OTHER HAND, IF SUBSTANTIAL EXPANSION IS UNDERTAKEN, SAY, IN 8TH YEAR BY AN ASSESSEE SUCH AN ASSESSEE WOULD BE ENTITLED TO100% DEDUCTION FOR THE FIRST FIVE YEARS, DEDUCTION @ 25% OF THE PROFITS AN D 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% DED UCTION WOULD BE FOR REMAINING THREE YEARS, I.E., 8TH, 9TH AND 10TH ASSE SSMENT YEARS. 25. IN VIEW OF THE AFORESAID, WE AFFIRM THE JUDGMEN T OF THE HIGH COURT ON THIS ISSUE AND DISMISS ALL THESE APPEALS OF THE REVENUE. LIKEWISE, APPEALS FILED BY THE ASSESSEES ARE HEREBY ALLOWED. 9. IN VIEW OF THE ABOVE, IT IS NOW SETTLED LAW THA T EVEN A NEW UNDERTAKING, WHICH HAS CLAIMED DEDUCTION OF ITS ELI GIBLE PROFITS @ 100% THEREOF FOR THE FIRST FIVE YEARS, IS ENTITLED TO CL AIM DEDUCTION @ 100% OF ITA NO.317 & 318/CHD /2018 ASSESSMENT YEARS.2010-11 & 2011-12 6 ITS PROFITS THEREAFTER ON ACCOUNT OF SUBSTANTIAL EX PANSION UNDERTAKEN BY IT. 10. SINCE IN THE PRESENT CASE, THE FACT THAT THE AS SESSEE HAD UNDERTAKEN SUBSTANTIAL EXPANSION IS NOT DISPUTED, THE ASSESSEE , WE HOLD, IS ENTITLED TO CLAIM DEDUCTION @ 100% OF ITS ELIGIBLE PROFITS E VEN IF IT HAS ALREADY CLAIMED DEDUCTION OF ITS PROFITS AT THE SAID RATE F OR 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).WE, THEREFORE ALLOW GROUND NO.2 & 4(II) RAISED BY THE ASSESSEE IN ITA NO.317 & GROU ND NO.2 RAISED IN ITA NO. 318/CHD/2016. THE REMAINING PART OF BOTH TH E ORDERS WILL REMAIN UNCHANGED. 11. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05.04.2019. SD/- SD/- ( / SANJAY GARG) / JUDICIAL MEMBER ( # $ % &' / ANNAPURNA GUPTA) / ACCOUNTANT MEMBER DATED :05.04.2019 .. '+ ,- .- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. # / / CIT 4. # / ( )/ THE CIT(A) 5. -01 2 , % 2 , 34516 / DR, ITAT, CHANDIGARH 6. 157$ / GUARD FILE '+ # / BY ORDER, 8 ' / ASSISTANT REGISTRAR