M/s Classic Binding Industries, Solan V. DCIT,Circle, Parwanoo

ITA 90/CHANDI/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 7610 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 16-05-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARVIND SUDERSHAN
• Keywords: Gift
• Section: 11; 80IC; 80IC

Judgement Text

आयकर य कर , य य “A”, IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH ‘A’, CHANDIGARH BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER ITA No. 90/Chd/2021 (Assessment Year: 2015-16) M/s. Classic Binding Industries, Khasra No. 677/3, Vill. Kishanpura, P.O. Gurumajra, Baddi, Distt. Solan (HP). बनाम Deputy Commissioner of Income-tax, Circle, Parwanoo (H.P) थायी लेखा सं./PAN/TAN NO: AAEFC 4390 H नधा रती क ओर से/Assessee by : Shri Harry Rikhy, Adv. राज व क ओर से/ Revenue by : Shri Arvind Sudershan, Sr. D.R स ु नवाई क तार ख/Date of Hearing: 07.04.2022 उदघोषणा क तार ख/Date of Pronouncement: 14.06.2022 आदेश/ORDER Per Vikram Singh Yadav, Accountant Member: This is an appeal filed by the assessee against the order of Learned Commissioner of Income Tax ( A p p e a l s ) S h i m l a [ i n s h o r t t h e ‘ L d . C I T ( A ) ’ ] passed u/s 250(6) of the Income Tax Act, 1961 (in short ‘the Act’) dated 15.02.2019 wherein the relevant grounds of appeal read as under :- 2 ITA No. 90/JP/2021 M/s. Classic Binding Industries, Solan. 1. That the order of the learned Commissioner of Income Tax (Appeals) Shimla is defective both in law and facts of the case. 2. That the learned Commissioner of Income Tax (Appeals), Shimla is unjustified in upholding the order of the ld. Assessing Officer regarding disallowance of deduction amounting to Rs. 3,61,759/- claimed u/s 80IC of the I.T. Act, 1961 on account of exchange rate difference an cash discount which are derived from business eligible for deduction claimed u/s 80IC of the I.T. Act, 1961. This addition is uncalled for and deserves to be deleted. 3. That the learned Commissioner of Income Tax (Appeals), Shimla is unjustified in upholding the order of the ld. Assessing Officer regarding disallowance of deduction amounting to Rs. 15,17,708/- by restricting the claim of deduction u/s 80IC to 25% as against 100% claimed by the appellant on the basis of substantial expansion done during the F.Y. 2010-11 and fulfilling all the requisite conditions u/s 11 and fulfilling all the requisite conditions u/s 80IC of I.T. Act, 1961. This disallowance is uncalled for and deserves to be deleted. 4. That the learned Commissioner of Income Tax (Appeals), Shimla is unjustified in upholding the order of the ld. Assessing Officer concluding that the benefit of substantial expansion is available only to the pre- existing units i.e. the units that existed and were operational as on 07-01-2003 and not to the appellant which came in existence after 07-01-2003 which is discriminatory and unjustified as the section does not specify that the benefit of substantial expansion is available only to pre-existing units operational as on 07-01,03. This observation is unjustified and against the spirit of the law. 5. That the learned Commissioner of Income Tax (Appeals), Shimla is unjustified in upholding the order of the ld. Assessing Officer concluding that once an initial assessment year is determined in case of an 3 ITA No. 90/JP/2021 M/s. Classic Binding Industries, Solan. industrial undertaking claiming benefit u/s 80IC it cannot be changed even if the same undertaking completes substantial expansion which is unjustified as it is clearly mentioned u/s 80IC(8)(v) of the I.T. Act, 1961 that initial assessment year means the assessment year in which the undertaking completes the substantial expansion as done by the appellant in AY 2011-12 and there can be more than one initial assessment years as held by the Hon’ble Supreme Court in the case of Pr. CI T vs. Aarham Softronics (412 ITR 623). 6. That the learned Commissioner of Income Tax (Appeals), Shimla is unjustified in upholding the order of the ld. Assessing Officer regarding disallowance of expenditure amounting to Rs. 6,53,907/- as it has been incurred in due course of appellant’s business. This addition is uncalled for and deserves to be deleted. 7. That any other ground may kindly be allowed to be taken at the time of appeal with due permission.” 1. First we refer to ground nos. 3 to 5 of the assessee’s appeal. These relate to claim of deduction under section 80IC of the I.T. Act, 1961. 2. Briefly the facts of the case are that the assessee firm is engaged in manufacturing of printed embossed book binding cover material made of cotton and fibre. It started its manufacturing activity on 11.07.2005 and the initial assessment year for claim of deduction under section 80IC of the Act was assessment year 2006-07. The assessee had claimed deduction under section 80IC 4 ITA No. 90/JP/2021 M/s. Classic Binding Industries, Solan. to the extent of 100% of the eligible profits for the five years period starting from A.Y. 2006-07 to 2010-11. During the course of assessment proceedings, the AO observed that the assessee firm had again claimed 100% deduction against eligible profits in the year under consideration i.e. 2015-16 which is the 10 t h year of production activities carried out by the assessee by claiming that it had carried out substantial expansion in F.Y. 2011-12 and, therefore, claiming that the said year be treated as initial assessment year. The assessee’s reply was sought but the same was not found acceptable to the AO. As per the A.O, the interpretation adopted by the assessee firm that at the time of initial set up of the new unit, an entity can claim deduction for 100% of their profits for first five years and thereafter carry out the substantial expansion of the same unit and claim 100% deduction for the next five years thereby giving a new definition to the term “initial assessment year” cannot be accepted. As per the AO, the benefit of substantial expansion is available only to the existing units i.e. units that existed and were operational as on 07.01.2003 in order to make them eligible for 100% deduction under section 80IC for first five years and is not at all meant for units that came into being on or after the introduction of the Scheme i.e. 07.01.2003. Accordingly, the assessee’s claim of substantial 5 ITA No. 90/JP/2021 M/s. Classic Binding Industries, Solan. expansion was denied and the assessee was allowed to claim deduction under section 80IC to the tune of 25% of eligible profits for the impugned assessment year. 3. Being aggrieved, the assessee carried the mater in appeal before the ld. CIT (A). The ld. CIT (A) following the decision of Hon’ble Supreme Court in assessee’s own case in Civil Appeal No. 7208 of 2018 dated 20.8.2018 decided the issue against the assessee. Against the said findings of the ld. CI T (A), the assessee is in appeal before us. 4. During the course of hearing, the ld. A/R submitted that it is not in dispute that the Hon’ble Supreme Court in assessee’s own case for earlier year has decided the matter against the assessee. At the same time, it was submitted that in a subsequent decision in case of PCI T vs. Aarham Softronics reported in 412 ITR 623 (SC), the Hon’ble Supreme Court has considered its earlier decision in case of Classic Binding Industries case and has held that an error has occurred in the said decision wherein the definition of “initial assessment year” as contained in section 80IC(8)(v) has not been considered. It was accordingly submitted that in view of the later decision of Hon’ble Supreme Court in case of PCIT vs. Aarham 6 ITA No. 90/JP/2021 M/s. Classic Binding Industries, Solan. Softronics (supra), the assessee be allowed deduction @ 100% for the impugned assessment year under section 80IC of the Act. 5. Per Contra, the ld. D/R has relied on the findings of the lower authorities. 6. We have heard the rival submissions and perused the material available on record. In case of PCIT vs. Aarham Softronics (supra), the question of law which came up for consideration before the Hon’ble Supreme Court reads as under :- “Whether an assessee who sets up a new industry of a kind mentioned in sub-section (2) of Section 80-IC of the Act and starts availing exemption of 100 per cent tax under sub-section (3) of Section 80-IC (which is admissible for five years) can start claiming the exemption at the same rate of 100% beyond the period of five years on the ground that the assessee has now carried out substantial expansion in its manufacturing unit?” 7. After discussing the provisions of section 80IC, the legislative intent as well as its earlier decision in case of CI T vs. M/s. Classic Binding Industries case (supra), the Hon’ble Supreme Court has laid down the following legal proposition which are contained at para 24 of its order which reads as under :- “24. The aforesaid discussion leads us to the following conclusions: 7 ITA No. 90/JP/2021 M/s. Classic Binding Industries, Solan. (a) Judgment dated 20 th August, 2018 in Classic Binding Industries case omitted to take note of the definition ‘initial assessment year’ contained in Section 80-IC, which does not 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 Section 80-IC has made all the 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 up a new unit between 7 th January, 2003 and 1 st April, 2012 in State of Himachal 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 profits an gains for five assessment 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 carried 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 would become ‘initial assessment year’, and from that assessment year the assessee shall be 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 the expansion 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 8 th year by an assessee 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., 8 th , 9 th and 10 th assessment years.” 8 ITA No. 90/JP/2021 M/s. Classic Binding Industries, Solan. 8. Applying the legal proposition so laid down by the Hon’ble Supreme Court in the instant case where the undisputed facts are that the assessee has started its business activity on 11.7.2005 falling between the period 7th January, 2003 and 1st April, 2012 in State of Himachal Pradesh and has carried out substantial expansion in the financial year 2011-12 and the year under consideration being the 10 t h year of claim of tax holiday, it shall be eligible for claim of deduction @ 100% and not 25% of profits and gains from its business as held by the lower authorities. Therefore, respectfully following the decision of Hon’ble Supreme Court in case of PCIT vs Aarham Softronics (supra) wherein the Hon’ble Supreme Court has held that its earlier decision in case of Classic Binding Industries (supra) doesn’t lay down correct law, the findings of the ld CI T(A) are set-aside and the matter is decided in favour of the assessee and against the Revenue and the grounds of appeal of the assessee are thus allowed. 9. In Ground no. 2, the assessee has challenged the disallowance of claim of deduction under section 80-IC on account of exchange rate fluctuation. In this regard it was submitted by the ld. A/R that the difference in the foreign exchange rate is a part and parcel of income derived from eligible business and the same should be allowed. In support, copies of invoices raised by the assessee have 9 ITA No. 90/JP/2021 M/s. Classic Binding Industries, Solan. been submitted wherein the invoices have been raised in US Dollar and it was submitted that there is always a difference between the exchange rate at the time of booking of the invoices and the subsequent realization thereof at the time of receipt of payment and it was accordingly submitted that the exchange rate fluctuation is clearly flowing from the eligble business and, therefore eligible for deduction under section 80-IC of the Act. In support reliance was placed on the Coordinate Chandigarh Bench decision in case of DCIT vs. Ansysco, 184 TTJ 1 (Chd) wherein it was held that where the foreign exchange fluctuations relate to the export activity carried out by the assessee, the foreign exchange fluctuations is to be treated as trading receipts/receipts from manufacturing activity and which is eligible for claiming deduction under section 80-IC of the Act. Similarly, reliance was placed on the earlier decision of Chandigarh Benches in case of JCBL India Pvt. Ltd. in I TA No. 368/Chd/2012 darted 15.06.2015 wherein similar proposition has been laid down. It was accordingly submitted that the assessee is eligible for claim of deduction under section 80-IC in respect of foreign exchange fluctuations. 10. Per Contra, the ld. D/R submitted that the ld. CIT (A) has already allowed the relief to the assessee and the AO has been directed to delete the addition made after due verification. 10 ITA No. 90/JP/2021 M/s. Classic Binding Industries, Solan. 11. We have heard the rival contentions and pursued the material available on record. Basis the invoices placed on record and following the Coordinate Bench decisions referred supra, the claim of the assessee is allowed. 12. In ground no. 6, the assessee has challenged the disallowance of expenditure amounting to Rs. 6,53,907/-. In this regard it is noted that these expenses relate to gifts, charity and donations and during the course of assessment proceedings, the assessee was asked to provide necessary explanation. However, in absence of any reply filed by the assessee these expenses were disallowed. However, given the fact that the assessee was eligible for claim of deduction under section 80-IC to the extent of 25%, the amount of disallowance was restricted to 75% of Rs. 6,53,907/- which amount to Rs. 4,90,430/-. 13. In light of our aforesaid findings where the claim of the assessee has been allowed @ 100% instead of 25% u/s 80IC of the Act, even where the whole of the expenses are disallowed on merits, the profits so enhanced and adjusted taking into consideration the disallowance will be eligible for 100% tax holiday and thus, the assessee shall be eligible for relief. In the result, the ground of appeal is allowed. 11 ITA No. 90/JP/2021 M/s. Classic Binding Industries, Solan. In the result, the appeal of the assessee is allowed. O r d e r p r o n o u n c e d o n 1 4 . 0 6 . 2 0 2 2 . S d / - S d / - (SANJAY GARG) (VIKRAM SINGH YADAV) याय क सद य/Judicial Member लेखा सद य/Accountant Member Dated: 14.06.2022 *Das* आदेश क % त&ल'प अ*े'षत/ Copy of the order forwarded to : 1. अपीलाथ+/ The Appellant 2. %,यथ+/ The Respondent 3. आयकर आय ु -त/ CIT 4. आयकर आय ु -त (अपील)/ The CIT(A) 5. 'वभागीय % त न0ध, आयकर अपील य आ0धकरण, च2डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड फाईल/ Guard File # $ स / By order, सह (ंज / Assistant Registrar Draft dictated 25.04.2022 Sr.PS Draft placed before author 27.04.2022 Sr.PS Approved Draft comes to the Sr.PS/PS 14.06.2022 Sr.PS Order signed and pronounced on 14.06.2022 File sent to the Bench Clerk 14.06.2022 Sr.PS Date on which file goes to the AR Date on which file goes to the Head Clerk. Date of dispatch of Order. 12 ITA No. 90/JP/2021 M/s. Classic Binding Industries, Solan.