Income Tax Appellate Tribunal - Chandigarh
Acit, Chandigarh vs Shri Subhash Chand, Chandigarh on 27 November, 2018
आयकर अपील
य अ धकरण,च डीगढ़ यायपीठ "ए" , च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH "A", CHANDIGARH
ी संजय गग , या यक सद य एवं डा. बी.आर.आर, कुमार, लेखा सद य
BEFORE: Sh. SANJAY GARG, JM & DR. B.R.R. KUMAR, AM
आयकर अपील सं./ ITA NO. 860/Chd/2018
नधा रण वष / Assessment Year : 2014-15
ACIT बनाम Shri Subhash Chand
Circle 5(1), Chandigarh SCF 12, Sctor 26
Chandigarh
थायी लेखा सं./PAN NO: ABUPC8069N
अपीलाथ /Appellant यथ /Respondent
नधा रती क! ओर से/Assessee by : None
राज व क! ओर से/ Revenue by : Shri. Manjit Singh
सन
ु वाई क! तार&ख/Date of Hearing : 05/11/2018
उदघोषणा क! तार&ख/Date of Pronouncement : 27/11/2018
आदे श/Order
PER DR. B.R.R. KUMAR, A.M:
The present appeal has been filed by the Revenue against the order of the Ld. CIT(A)-2, Chandigarh dt. 29/03/2018.
2. In the present appeal Revenue has raised the following grounds:
(i) Whether in the facts and circumstances of the case and in law, the Ld.CIT(A) has not erred in partly allowing the appeal of the assessee without appreciating the facts of the case ?
(ii) Whether on the facts and circumstances of the case, the Ld.CIT(A) has not erred in law and fact in deleting the addition of Rs. 85,31,403/-(made on account of restricting the claim of deduction u/s 80-IC of the Income Tax Act, 1961 @ 25%) without discussing the merits of the issue involved and by relying on the decision of Hont>le Himachal Pradesh High Court in the case of M/s Stovekraft India and the decision of Hon'ble Jurisdictional Tribunal in the case of M/s/ Eurolinks, when these judgments have not been accepted by the department on merits and SLP has been filed in such cases ?
(iii) Whether on the facts and circumstances of the case, the CIT(A) has not erred in allowing the deduction u/s 80IC @ 100% to the assessee for 10 years without appreciating and ignoring the real intent and purpose of insertion of section of 80IC and the CBDT circular No. 7 of 2003 dated 05.09.2003 and circular No. 49 of 2003 of Central Excise Department and the subsidy scheme issued by Ministry of Commerce and Industry, DIPP, GOI, which are binding in law on authorities and anything which is legally relevant, is to be considered for implementation as laid down by SC in 131 ITR 597(SC).
(iv) Whether on the facts and circumstances of the case, the CIT(A) has not erred in allowing the deduction u/s 80IC @ 100% to the assessee for 10 years without appreciating and ignoring the fact that a Perusal of the proviso would show that before the introduction of section 80IC, the deduction to the backward states was available in terms of section 80IB (4), the third proviso makes clear that after 31.03.2004, this deduction will be available only under section 2 80IC, and deduction would be @ 100% for the first five years that there after @ 25%.
(v) Whether on the facts and circumstances of the case and in law the CIT(A) has not ignored the explicit statutory provision of the Second proviso that clarifies that in the case of states of North-Eastern regions, the deduction would be @100% was allowable for 10 years whereas in the case of States of Himachal Pradesh, the deduction was allowable @ 100% for first five years and 25% for the next five years.
(vi) Whether on the facts and circumstances of the case, the CIT(A) (by relying on the judgments in the case of M/s STovekraft India (supra), Nirmal Singh Prop. K.N. Paper & Packages (supra), in the case of M/s Eurolinks in ITA No. 1049/Chd/2017 ) has not erred in holding that those undertakings or enterprises which commenced production after 07.01.2013 can carry out multiple "substantial expansion" prior to 01.04.2012 and there will be initial year for each "substantial expansion" as long as provision of section 80IC(ix) are met without appreciating that as per provision of section 80IC(2)(ii) of the Income Tax Act and as explained in CBDT Circular No. 7/2003, read with circular No. 49/2003 issued by Central Excise Department that benefit of substantial expansion was available only to units that existed and were operational as on 07.01.2003 and substantial expansion could have been carried out only on or after 07.01.2003 by an undertaking that existed prior to 07.01.2003.
(vii) Whether on the facts and circumstances of the case, the CIT(A) has not erred in allowing the deduction u/s 80IC @ 100% to the assessee for 10 years without appreciating and ignoring the fact that the expression substantial expansion has been used in both section 80IC(2)(a) and 80IC(2)(b) however 80IC(2)(a)(ii) and 80IC(2)(b)(ii) is applicable to H.P. or Uttrakhand and 80IC(a)(iii) and 80IC(b)(iii) are applicable to the north eastern states when compared with rate of deduction provided u/s 80IC(3)(ii), the rate given is 100% for five years, and 25% for next five years, whereas under sub section 3(i), the rate has been given @ 100% for NE states and Sikkim for all 10 years and the meaning of substantial expansion will be rendered redundant.
(viii) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in holding that an undertaking which has carried out substantial expansion in any assessment year prior to 01.04.2012 can opt for that assessment year as initial assessment year for the purpose of claiming deduction u/s 80IC(3) of the Income Tax Act without appreciating the fact that an undertaking set up after 07.01.2003 is not entitled to benefit of "substantial expansion" in view of the provisions of Section 80IC(2)(a)(ii) and 80IC(2)(b)(ii) and as clarified in CBDT circular No. 7 of 2003?"
(ix) It is prayed that the order of Ld. CIT(A) be set aside and that of the Assessing officer may be restored.
3. Brief facts of the case are that the assessee was engaged in business of manufacturing of corrugated boxes in the name of proprietorship concern M/s. Shree Bhagwati Industries at Baddi. Besides this, the assessee is also a partner in the firm namely M/s. Shimla Kinnaur Fruit Agency from which he received remuneration during the year under consideration. The assessee was claiming 100% deduction of Rs.
1,14,12,659/- u/s 80IC of the I.T Act. As per form 10CCB, the date of commencement of operation is 10.07.2007 and initial assessment year 3 was 2008-09. During assessment proceedings AO noticed that A.Y 2014 -
15 was the 7th year of claiming deduction u/s 801C and assessee had claimed 100% deduction u/s 80IC for this year also. The assessee had made substantial expansion in F.Y- 2011-12, on the basis of which it had claimed 100% deduction during A.Y. 2010-11. The assessee was asked to show cause as to why deduction u/s 80IC should not be restricted to 25%. The assessee furnished his reply but was not accepted by AO. The AO relying on the judgment of Hon'ble IT AT, Chandigarh in case of Hycron Electronics, Baddi, Solan vs. ITO, Ward-2, Baddi, restricted the claim of deduction to 25% against 100% as claimed by the assessee.
4. Ld. CIT(A) deleted the addition on the grounds that the Hon'ble High Court of Himachal Pradesh in the case of M/s Stovekraft India (supra) have quashed and set-aside the assessments. Further the matter travelled upto the Hon'ble Supreme Court which ruled as under the case titled CIT Vs Classic Binding Industries (2018) 96 taxmann.com 405 (SC):
"12.Dissatisfied with the aforesaid order dated 11th August, 2016, assessee filed appeal under Section 260A of the Act, 1961 before the High Court of Himachal Pradesh, Shimla raising therein substantial questions of law. The result of other assessees was also on almost same pattern, who filed their respective appeals as well. The High Court has decided the issue in a composite judgment, in favour of all these assessees. The High Court held that there is no restriction that undertaking or enterprise established after 7th January, 2003 cannot carried out 'Substantial Expansion' cannot be carried out more than once as long as period of eligibility for claiming deduction under Section 80-IC of the Act. The High Court further held hat since the language of Section is very clear, reliance cannot be placed on Circular No. 7 of 2003 issued y CBDT on this issue substantial questions of law were answered in favour of assessee and appeals were allowed with direction that with respect to each of the assessees the Assessing Officer shall carry out fresh assessment and pass appropriate orders.
13. With the aforesaid factual background, we now proceed to answer the question of law formulated above.
14. A gist of the legislative history and purpose behind the insertion of Section 80-IA, 80-IB and 80-IC has already been mentioned above. We have to keep in mind that these cases are confined to Section 80-IC alone. As mentioned above, sub-section (2) of Section 80-IC provides for tax benefit to those undertakings or enterprises which had set up their manufacturing units in certain specified areas including State of Himachal Pradesh to which this case is belonged.4
15. It also gives benefit to these undertakings and enterprises which have undertaken substantial expansion during the periods mentioned therein. As there is no dispute that all these assessees are covered by the provisions of sub- section (2), that aspect need not be stated in detail. We, thus, reproduce those portions of the provision which are relevant for our discussion:
"S. 80-IC. Special Provisions in respect of certain undertakings or enterprises in certain special category States. -- (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3).
** ** ** (3) The deduction referred to in sub-section (1) shall be-(I) in the case of any undertaking or enterprise referred to in sub-clauses (I) and (iii) of clause (a) or sub-
clauses (I) and (iii) or clause (b), of sub-section (2), one hundred per cent, of such profits and gains for ten assessment years commencing with the initial assessment years;
(ii) in the case of any undertaking or enterprise referred to in sub-clause (ii) of clause (a) or sub-clause (ii) of clause (b), of sub-section (2), one hundred per cent of such profits and gains for five assessment years commencing with the initial assessment year and thereafter, twenty-five per cent, (or thirty per cent where the assessee is a company) of the profits and gains.
(6) Notwithstanding anything contained in this Act, no deduction shall be allowed to any undertaking or enterprise under this section, where the total period of deduction inclusive of the period of deduction under this section, or under the second proviso to sub-section (4) of section 80-IB or under section IOC, as the case may be, exceeds ten assessment years............"
16. The essence of Section 3 as well as Section 6 have already been reproduced above. Whereas the exemption is provided @ 100% of such profits and gains for five assessment years commencing with the initial assessment years and, thereafter, 25% (or 30% where the assessee is a company) of the profits and gains for next five years. The deduction is limited to a period of 10 years.
17. In this backdrop, the question is as to whether these assessees, who had availed deductions @ 100% for first five years on the 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 period mentioned in sub-section (2)? The answer has to be in the negative 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 undertakings or enterprises in certain special category States. Section 80-IC was inserted by the Finance Act, 2003 w.e.f. April 1, 2004. As per this provision, certain undertakings or enterprises in certain special category 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 provided 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. The deduction was available @ 100% for ten Assessment Years for the units located in North- Eastern and in the State of Sikkim and for the units located in Himachal Pradesh, the deduction was available @ 100% for five 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 Himachal Pradesh. Sub-section 5 (3), as noted above, mentions the period of 10 years commencing with the initial Assessment Year. Sub-section (6) puts 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, starting 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 Years commencing with the initial Assessment Year and thereafter the deduction is allowable at 25% (or 30% where the assessee is a company) of the profits and gains. Cumulative reading of these provisions brings out the following aspects:
(a) Those undertakings or enterprises fulfilling the 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 Assessment Year. "Initial Assessment Year" is defined in Section 80-IB(14)(c) of the Act.
(c) The deduction is @ 100% of such profits and gains for first 5 Assessment Years and thereafter a deduction is permissible @ 25% (or 30% where the assessee is a company).
(d) Total period of deduction is 10 years, which means 100% deduction for first 5 years from the initial Assessment Year and 25% (or 30% where the assessee is a company) for the next 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%o for the entire period of 10 years. If that is allowed it will amount to doing violence to the provisions of sub-section (3) read with sub- section (6) of Section 80-IC. A pragmatic and reasonable interpretation of Section 80-IC would be to hold that once the initial Assessment Year commences and an assessee, by virtue of fulfilling the conditions laid down in sub section (2) of Section 80-IC, starts enjoying deduction, there cannot be another "Initial Assessment Year" for the purposes of Section 80-IC within the aforesaid period of 10 years, on the basis that it had carried substantial expansion in its unit.
21. We are conscious of our recent judgment rendered by this very Bench in Mahabir Industries v. Principal Commissioner 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 two sets of cases. In Mahabir Industries, the assessees had availed the initial deduction under a different provision, namely, Section 80-IA of the Act, i.e. by fulfilling the conditions mentioned in sub-section (4) of Section 80-IA. Those conditions are altogether different. Deduction in respect of profits and gains under the said provision is admissible when these profits and gains are from industrial undertakings or enterprises engaged in infrastructure development etc. Even this availment started at a time when Section 80-IC was not even on the statute book. As mentioned above, 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 were allowed deductions from the Assessment Years 1998-99 and 1999-2000 under 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. Section 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 those cases are concerned, the initial Assessment Year under Section 80-IC started only from the Assessment Year 2006-07. In contrast, position here is altogether different. These assessees have availed deduction under 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 rate 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 the assessees had started claiming deduction under Section 80-IC and the initial Assessment Year has commenced within the aforesaid period of 10 years, there cannot be another initial Assessment Year thereby allowing 100% deduction for the next 5 years also when sub-section (3), in no uncertain terms, provides for deduction @ 25% only for the next 5 years. It may 6 be asserted again that the assessees accept the legal position that they cannot claim deduction of more than 10 years in all under Section 80-IC.
22. In view of the aforesaid discussion, we hold that after availing deduction for a period of 5 years @ 100% of such profits and gains from the 'units', the assessees would be entitled to deduction for remaining 5 Assessment Years. @ 25% (or 30% where the assessee is 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 appeals. No order as to costs.
5. Since the issue involved has reached the finality, in view of the judgment of Hon'ble Apex Court, respectfully following the same, we hereby allow the appeal of the Revenue.
Order pronounced in the open Court.
Sd/- Sd/-
संजय गग डा. बी.आर.आर, कुमार,
(SANJAY GARG ) ( DR. B.R.R. KUMAR, AM)
या यक सद य/ Judicial Member लेखा सद य/ Accountant Member
आदे श 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 न4ध, आयकर अपील&य आ4धकरण, च7डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File