DCIT, Circle, Parwanoo V. M/s Vardhman Industries, Solan

ITA 789/CHANDI/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4420 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 30-05-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MADAN GOPAL GARG MANAGER
• Assessee Lawyers: MANJIT SINGH
• Keywords: Question of law; Set aside

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, B, CHANDIGARH , ! . .., # $, %& BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ./ ITA NOS. 788 & 789/CHD/2018 / ASSESSMENT YEARS : 2012-13 & 2013-14 THE DCIT, CIRCLE, PARWANOO M/S VARDHMAN INDUSTRIES, 55,HPSIDC, INDUSTRIAL AREA, BADDI, SOLAN ./PAN NO: AAEFV7858F / APPELLANT /RESPONDENT ! /ASSESSEE BY : SHRI MANJIT SINGH, SR. DR ' ! / REVENUE BY : SHRI MADAN GOPAL GARG, MANAGER # $ % /DATE OF HEARING : 22.10.2018 &'() % / DATE OF PRONOUNCEMENT : 22 .10. 2018 %'/ ORDER PER BENCH: THE PRESENT APPEALS HAVE BEEN PREFERRED BY THE ASS ESSEE AGAINST THE ORDER DATED 21.3.2018 OF THE COMMISSIONER OF INCOME TAX (APPEALS), SHIMLA [HEREINAFTER REFERRED TO AS CIT(A)]. 2. AT THE OUTSET, THE LD. DR, HAS SUBMITTED THAT TH E ISSUE RELATING TO THE SUBSTANTIAL EXPANSION RAISED IN THESE APPEALS HAS BEEN DULY ADJUDICATED BY THE HON'BLE SUPREME COURT AND IS NOW DECIDED IN FAVOUR OF THE REVENUE BY THE RECENT DECISION DATED 20.8.20 18 IN THE GROUP OF CASES WITH THE LEAD CASE TITLED AS CIT VS. M/S CLA SSIC BINDING INDUSTRIES, IN CIVIL APPEAL NO(S) 7208 OF 2018. THE RELEVANT PART OF THE ORDER IS REPRODUCED AS UNDER:- ITA NOS. 788 & 789/CHD/2018- M/S VARDHMAN INDUSTRIES, BADDI 2 17. THE QUESTION IS AS TO WHETHER THESE ASSE SSEES, WHO HAD AVAILED DEDUCTIONS @ 100% FOR FIRST FIVE YEARS ON T HE GROUND THAT THEY HAD SET UP A MANUFACTURING UNIT AS PRESCRIBED UNDER SUB -SECTION (2) OF THE ACT, CAN START CLAIMING DEDUCTIONS @ 100% AGAIN FOR NEXT FIVE YEARS AS THEY HAD UNDERTAKING SUBSTANTIAL EXPANSION DURING THE PERI OD MENTIONED IN SUBSECTION (2)? THE ANSWER HAS TO BE IN THE NEGATIV E FOR THE FOLLOWING THE REASONS: 18. WE ARE DEALING WITH THE DEDUCTIONS IN RESPECT OF PROFITS AND GAINS UNDER SECTION 80-IC OF THE ACT. NO OTHER PROVISION IS INVOLVED. THIS SECTION MAKES SPECIAL PROVISIONS IN RESPECT OF CERTAIN UNDE RTAKINGS OR ENTERPRISES IN CERTAIN SPECIAL CATEGORY STATES. SECTION 80-IC W AS INSERTED BY THE FINANCE ACT, 2003 W.E.F. APRIL 1, 2004. AS PER THIS PROVISION, CERTAIN UNDERTAKINGS OR ENTERPRISES IN CERTAIN SPECIAL CATE GORY STATES ARE ALLOWED DEDUCTION FROM SUCH PROFITS AND GAINS, AS SPECIFIED IN SUB-SECTION (3) OF SECTION 80-IC. THE PROVISIONS OF SECTION 80-IC PROV IDED DEDUCTION TO MANUFACTURING UNITS SITUATED IN THE STATE OF SIKKIM , HIMACHAL PRADESH AND UTTARANCHAL AND NORTH-EASTERN STATES. THE DEDUCTION WAS PROVIDED TO NEW UNITS ESTABLISHED IN THE AFORESAID STATES, AND ALSO TO EXISTING UNITS IN THOSE STATES IF SUBSTANTIAL EXPANSION WAS CARRIED OUT. TH E DEDUCTION WAS AVAILABLE @ 100% FOR TEN ASSESSMENT YEARS FOR THE U NITS LOCATED IN NORTH- EASTERN AND IN THE STATE OF SIKKIM AND FOR THE UNIT S LOCATED IN HIMACHAL PRADESH, THE DEDUCTION WAS AVAILABLE @ 100% FOR FIV E YEARS AND @ 25% FOR NEXT FIVE YEARS. 19. IN THE INSTANT CASE, WE ARE CONCERNED WITH THE ASSESSEES WHO HAD ESTABLISHED THEIR UNDERTAKINGS IN THE STATE OF HIMA CHAL PRADESH. SUB- SECTION (3), AS NOTED ABOVE, MENTIONS THE PERIOD OF 10 YEARS COMMENCING WITH THE INITIAL ASSESSMENT YEAR. SUBSECTION (6) PU TS A CAP OF 10 YEARS, WHICH IS THE MAXIMUM PERIOD FOR WHICH THE DEDUCTION CAN BE ALLOWED TO ANY UNDERTAKING OR ENTERPRISE UNDER THIS SECTION, S TARTING FROM THE INITIAL ASSESSMENT YEAR. ANOTHER SIGNIFICANT FEATURE UNDER SUB-SECTION (3) IS THAT THE DEDUCTION ALLOWABLE IS 100% OF SUCH PROFITS AND GAINS FROM AN UNDERTAKING OR AN ENTERPRISE FOR FIVE ASSESSMENT YE ARS COMMENCING WITH THE INITIAL ASSESSMENT YEAR AND THEREAFTER THE DEDU CTION IS ALLOWABLE AT ITA NOS. 788 & 789/CHD/2018- M/S VARDHMAN INDUSTRIES, BADDI 3 25% (OR 30% WHERE THE ASSESSEE IS A COMPANY) OF THE PROFITS AND GAINS. CUMULATIVE READING OF THESE PROVISIONS BRINGS OUT T HE FOLLOWING ASPECTS: (A) THOSE UNDERTAKINGS OR ENTERPRISES FULFILLING TH E CONDITIONS MENTIONED IN SUB-SECTION (2) OF SECTION 80-IC BECOME ENTITLED TO DEDUCTION UNDER THIS PROVISION. (B) THIS DEDUCTION IS ALLOWABLE FROM THE INITIAL AS SESSMENT YEAR. INITIAL ASSESSMENT YEAR IS DEFINED IN SECTION 80- IB(14)(C) OF THE ACT. (C) THE DEDUCTION IS @ 100% OF SUCH PROFITS AND GAI NS FOR FIRST 5 ASSESSMENT YEARS AND THEREAFTER A DEDUCTION IS PERM ISSIBLE @ 25% (OR 30% WHERE THE ASSESSEE IS A COMPANY). (D) TOTAL PERIOD OF DEDUCTION IS 10 YEARS, WHICH M EANS 100% DEDUCTION FOR FIRST 5 YEARS FROM THE INITIAL ASSESS MENT YEAR AND 25% (OR 30% WHERE THE ASSESSEE IS A COMPANY) FOR THE NE XT 5 YEARS. 20. WHEN WE KEEP IN MIND THE AFORESAID SCHEME AND SPIRIT BEHIND THIS PROVISION, SUCH A SITUATION CANNOT BE COUNTENANCED WHERE AN ASSESSEE IS ABLE TO SECURE DEDUCTION @ 100% FOR THE ENTIRE PERI OD OF 10 YEARS. IF THAT IS ALLOWED IT WILL AMOUNT TO DOING VIOLENCE TO THE PRO VISIONS OF SUB-SECTION (3) READ WITH SUB-SECTION (6) OF SECTION 80-IC. A PRAGM ATIC AND REASONABLE INTERPRETATION OF SECTION 80-IC WOULD BE TO HOLD TH AT ONCE THE INITIAL ASSESSMENT YEAR COMMENCES AND AN ASSESSEE, BY VIRTU E OF FULFILLING THE CONDITIONS LAID DOWN IN SUB-SECTION (2) OF SECTION 80-IC, STARTS ENJOYING DEDUCTION, THERE CANNOT BE ANOTHER INITIAL ASSESSM ENT YEAR FOR THE PURPOSES OF SECTION 80-IC WITHIN THE AFORESAID PERI OD OF 10 YEARS, ON THE BASIS THAT IT HAD CARRIED SUBSTANTIAL EXPANSION IN ITS UNIT. 21. WE ARE CONSCIOUS OF OUR RECENT JUDGMENT RENDER ED BY THIS VERY BENCH IN MAHABIR INDUSTRIES V. PRINCIPAL COMMISSION ER OF INCOME TAX (CIVIL APPEAL NOS. 4765-4766 OF 2018 DECIDED ON MAY 18, 2018). HOWEVER, A FINE DISTINCTION NEEDS TO BE NOTED BETWEEN THE TW O SETS OF CASES. IN MAHABIR INDUSTRIES, THE ASSESSEES HAD AVAILED THE I NITIAL DEDUCTION UNDER A DIFFERENT PROVISION, NAMELY, SECTION 80-IA OF THE A CT, I.E. BY FULFILLING THE CONDITIONS MENTIONED IN SUB-SECTION (4) OF SECTION 80-IA. THOSE CONDITIONS ITA NOS. 788 & 789/CHD/2018- M/S VARDHMAN INDUSTRIES, BADDI 4 ARE ALTOGETHER DIFFERENT. DEDUCTION IN RESPECT OF P ROFITS AND GAINS UNDER THE SAID PROVISION IS ADMISSIBLE WHEN THESE PROFITS AND GAINS ARE FROM INDUSTRIAL UNDERTAKINGS OR ENTERPRISES ENGAGED IN I NFRASTRUCTURE DEVELOPMENT ETC. EVEN THIS AVAILMENT STARTED AT A T IME WHEN SECTION 80-IC WAS NOT EVEN ON THE STATUTE BOOK. AS MENTIONED ABOV E, SECTION 80-IC WAS INSERTED BY THE FINANCE ACT, 2003 WITH EFFECT FROM APRIL 01, 2004. THE ASSESSEES IN THOSE CASES HAD STARTED CLAIMING AND W ERE ALLOWED DEDUCTIONS FROM THE ASSESSMENT YEARS 1998-99 AND 1999-2000 UND ER SECTION 80-IA AND FROM THE ASSESSMENT YEAR 2000-01 TO ASSESSMENT YEAR 2005-06 UNDER SECTION 80-IB OF THE ACT. THE DEDUCTION WAS, THUS, CLAIMED BY THE ASSESSEES IN THOSE APPEALS UNDER THE NEW PROVISION I.E. SECTI ON 80-IC ON FULFILLING CONDITIONS CONTAINED IN SUB-SECTION (2) OF SECTION 80-IC FOR THE FIRST TIME FOR THE ASSESSMENT YEAR 2006-07. THUS, INSOFAR AS T HOSE CASES ARE CONCERNED, THE INITIAL ASSESSMENT YEAR UNDER SECTIO N 80-IC STARTED ONLY FROM THE ASSESSMENT YEAR 2006-07. IN CONTRAST, POSI TION HERE IS ALTOGETHER DIFFERENT. THESE ASSESSEES HAVE AVAILED DEDUCTION U NDER SECTION 80-IC ALONE. INITIALLY, THEY CLAIMED THE DEDUCTION ON THE GROUND THAT THEY HAD SET UP THEIR UNITS IN THE STATE OF HIMACHAL PRADESH AND AFTER AVAILING THE DEDUCTION @ 100% THEY WANT CONTINUATION OF THIS RAT E OF 100% FOR THE NEXT 5 YEARS ALSO UNDER THE SAME PROVISION ON THE GROUND THAT THEY HAVE MADE SUBSTANTIAL EXPANSION. AS POINTED OUT ABOVE, ONCE T HE ASSESSEES HAD STARTED CLAIMING DEDUCTION UNDER SECTION 80-IC AND THE INIT IAL ASSESSMENT YEAR HAS COMMENCED WITHIN THE AFORESAID PERIOD OF 10 YEA RS, THERE CANNOT BE ANOTHER INITIAL ASSESSMENT YEAR THEREBY ALLOWING 10 0% DEDUCTION FOR THE NEXT 5 YEARS ALSO WHEN SUB-SECTION (3), IN NO UNCER TAIN TERMS, PROVIDES FOR DEDUCTION @ 25% ONLY FOR THE NEXT 5 YEARS. IT MAY B E ASSERTED AGAIN THAT THE ASSESSEES ACCEPT THE LEGAL POSITION THAT THEY C ANNOT CLAIM DEDUCTION OF MORE THAN 10 YEARS IN ALL UNDER SECTION 80-IC. 22. IN VIEW OF THE AFORESAID DISCUSSION, WE HOLD T HAT AFTER AVAILING DEDUCTION FOR A PERIOD OF 5 YEARS @ 100% OF SUCH PR OFITS AND GAINS FROM THE UNITS, THE ASSESSEES WOULD BE ENTITLED TO DED UCTION FOR REMAINING 5 ASSESSMENT YEARS @ 25% (OR 30% WHERE THE ASSESSEE I S A COMPANY), AS THE CASE MAY BE, AND NOT @ 100%. THE QUESTION OF LAW IS , THUS, ANSWERED IN FAVOUR OF THE REVENUE THEREBY ALLOWING ALL THESE AP PEALS. ITA NOS. 788 & 789/CHD/2018- M/S VARDHMAN INDUSTRIES, BADDI 5 3. IN VIEW OF THE ABOVE DISCUSSION AND AS PER THE R ECENT RULING OF HON'BLE SUPREME COURT ON THE ISSUE IN THE CASE OF CIT VS. M/S CLASSIC BINDING INDUSTRIES (SUPRA), THE IMPUGNED OR DER OF THE CIT(A) IS SET ASIDE. AS SUCH, THE ASSESSEE IS ENTITLED TO ONLY 25% OF DEDUCTION DURING THE PRESENT YEAR BECAUSE THE ASSESSEE HAS AL READY AVAILED THE PERIOD OF FULL DEDUCTION @ 100% IN THE EARLIER FIVE YEARS. ACCORDINGLY, BOTH THE APPEALS OF THE REVENUE STAND ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.10.2018 SD/- SD/- ( . . , # $ / B.R.R. KUMAR) %& / ACCOUNTANT MEMBER ( / SANJAY GARG ) / JUDICIAL MEMBER DATED : 22.10.2018 .. '+ ,- .- / 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. 15 7$ / GUARD FILE '+ # / BY ORDER, 8 ' / ASSISTANT REGISTRAR