Appell v. Commissioner Of Income Tax, Chandigarh

ITA No. 158 of 2018 (O&M) 1 GURBAX SINGHIN THE HIGH COURT OF PUNJAB AND HARYANA A}:2018.10.08 10:48CHANDIGARH Date of decision: 26.09.2018 ITA No. 158 of 2018 (O&M) | Parvinder Singh Sahni, H.No. 2082, Sector-44C, Chandigarh. .....- Appell Vs. Commissioner of Income Tax, Chandigarh ....KReSponden CORAM: HON’ BLE MR. JUSTICK AJAY KUMAR MITTALHON’ BLE MR. JUSTICE AVNEESH JHINGAN Present: Mr. Pankaj Jain, Senior Advocate with Mr. Sachin Bhardwaj],Advocate for the appellant.Advocate for the appellant. Ajay Kumar Mittal,J l.The appellant-assessee has filed the present appeal under|Section 260A of the Income Tax Act, 1961 (in short, “the Act’) against the|order dated 12.10.2017, Annexure A.6, passed by the Income TaxAppellate Tribunal, Chandigarh Bench, ‘A’ (in short, “the Tribunal’’) inITA No.386/CHD/2017, for the assessment year 2013-14,claimingfollowing substantial questions of law:- 1)“Whether under the facts and circumstances of the case,the impugned order is unreasonable, in holding thatunits set up after 07.01.2003 would not be entitled toenlarged deduction under Section 80IC of the Act @the impugned order is unreasonable, in holding thatunits set up after 07.01.2003 would not be entitled toenlarged deduction under Section 80IC of the Act @ 100% of profit, even after undertaking substantialexpansion within the specified period?expansion within the specified period? 11)Whether under the facts and circumstances of the case,the Tribunal has erred in holding that benefit ofdeduction under Section 80IC @ 100%_ of profit wasnot available to units set up after 07.01.2003, onundertaking substantial expansion from the year ofcompletion of substantial expansion’?the Tribunal has erred in holding that benefit ofdeduction under Section 80IC @ 100%_ of profit wasnot available to units set up after 07.01.2003, onundertaking substantial expansion from the year ofcompletion of substantial expansion’? 111)Whether under the facts and circumstances of the case,theOrder1Sunsubstantial,forolding uphthedisallowance of the claim for substantial expansionunder Section 8OI[IC to the units that came into existencafter 07.01.2003 by stating that initial assessment yearcannot be re-fixed for such units?theOrder1Sunsubstantial,forolding uphthedisallowance of the claim for substantial expansionunder Section 8OI[IC to the units that came into existencafter 07.01.2003 by stating that initial assessment yearcannot be re-fixed for such units? Iv)Whether under the facts and circumstances of the case,in case of difference of opinion amongst the decisionsof co-ordinate benches, the matte 1s to be referred to thelarger bench?”in case of difference of opinion amongst the decisionsof co-ordinate benches, the matte 1s to be referred to thelarger bench?” ) - |A few facts relevant for the decision of the controversy|involved as narrated in the appeal may be noticed. The appellant-assessee1s a proprietor of Windstor Industries which is primarily engaged in thebusiness of manufacturing and trading in EPS Thermocole MouldedPackaging, Disposable Glass and BOPP Tapes at Baddi (HimachalPradesh). Deduction of|42,10,46,729/- under Section 80IC of the Act was|claimed. As per Form 10-CCB, the date of commencement of operation atBaddi was on 29.06.2004 and the initial year was assessment year 2005-06. The assessee filed its return of income under Section 139(1) of the Actat an income of413,78,980/- which was processed under Section 143(1) of|the Act on 2.08.2014. However, the case was selected for initiation ofscrutiny proceedings. Notice under Section 143(2) of the Act was issued to’the assessee. Thereafter, notice under Section 142(1) of the Act was also issued along with questionnaire. The assessee furnished the writtenpleadings on 15.12.2015 before the Assessing Officer. After examining thematter, the Assessing Officer disallowed the deduction under Section 80IC|of the Act by arriving at chargeable assessed income amounting to)L1,71,64,027/- by passing an order under Section 143(2) of the Act on31.12.2015. Aggrieved by the order, the assessee filed an appeal before theCommissioner of Income Tax, Appeals |CIT(A)]|. The assessee reiteratedthe pleadings of having made substantial expansion in the terms of Section:SOIC of the Act in the financial year 2009-10 by making an addition 1n theplant and machinery by more than 50% of its original cost of plant andmachinery as on 01.04.2009 and thereby becoming eligible for claimingdeduction to the extent of 100% for five assessment years beginning fromassessment year 2010-11; placing reliance on the provisions of SectionSOIC of the Act; Explanatory note to the Finance Act, 2003 and variousorders passed by the Tribunal. Vide order dated 17.01.2017, AnnexureA.4, the CIT(A) dismissed the appeal, by following the earlier order passedby the Tribunal dated 27.05.2015. Still not satisfied, the assessee filed anappeal before the Tribunal. Vide order dated 12.10.2017, Annexure A.6,the Tribunal dismissed the appeal. Hence the instant appeal by theappellant-assessee. | 3.We have heard learned counsel for the appellant-assessee. 4The matter is no longer res integra. The issue has already|been decided against the assessee in a judgment passed on 06.09.2018 inITA No. 332 of 2015)(M/s Admac Formulations, H.No. 272, Sector-17,Panchkula Vs. Commissioner ofIncome Tax, Panchkula)wherein after considering the relevant statutory provision and the case law on the point, 1t has been recorded as under:- “Section 80-IC was inserted by Finance Act, 2003 w.e.f. April1, 2004. It makes special provisions in respect of certain|undertakings or enterprises 1n certain special category States.According to 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 of the Act. The provisions of this|Section provided deduction to manufacturing units situated inthe States 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 1n those States 1f substantial expansion was carried out.The deduction was available @ 100% for ten Assessment|Years for the units located in North-Eastern and 1n the State ofSikkim, and for the units located in Himachal Pradesh, the|deduction was available @ 100% for five years and @ 25%|for next five years. 6.The Tribunal in view of the opinion expressed by it in1ts decision in the case oftM/s. Hycron Electronics, Baddi,Solanin ITA No. 798/Chd/2012 dated 27.05.2015 for the!assessment year 2009-10 adjudicated the issue against the|assessee. Learned counsel for the assessee had placed strong|reliance on the decision of the Himachal Pradesh High Court|In|Stovkraft India vs. Commissioner of Income Tax5alongwith other appeals reported as(2018) 400 ITR225, to!contend that in the batch of appeals including the case of|Hycron Electronics(supra), the order of the Tribunal was setaside and the 1ssue was decided 1n favour of the assessee. 7.The issue before the Himachal Pradesh High Court inStovkraft India’scase (supra)was as to whether “undertakingor an enterprise” established after 7[th]January 2003 carrying| out “substantial expansion” within the window period!between 07.01.2003 to 01.04.2012 would be entitled to’deduction on profits at the rate of 100% under Section 80IC ofthe Act and 1f so then for what period. The answer was given|1n the affirmative. It was held as under: 7.The issue before the Himachal Pradesh High Court inStovkraft India’scase (supra)was as to whether “undertakingor an enterprise” established after 7[th]January 2003 carrying| out “substantial expansion” within the window period!between 07.01.2003 to 01.04.2012 would be entitled to’deduction on profits at the rate of 100% under Section 80IC ofthe Act and 1f so then for what period. The answer was given|1n the affirmative. It was held as under: ‘“(a) Such of those undertakings or enterprises which wereestablished, became operational and functional prior to|Q7.01.2003 and have undertaken substantial expansion|between 07.01.2003 upto 01.04.2012, should be entitled|to benefit of Section 80-IC of the Act, for the period for|which they were not entitled to the benefit of deduction|under Section 80-IB.established, became operational and functional prior to|Q7.01.2003 and have undertaken substantial expansion|between 07.01.2003 upto 01.04.2012, should be entitled|to benefit of Section 80-IC of the Act, for the period for|which they were not entitled to the benefit of deduction|under Section 80-IB. (b) Such of those units which have commenced production|after 07.01.2003 and carried out substantial expansion|prior to 01.04.2012, would also be entitled to benefit ofdeduction at different rates of percentage stipulated underSection 80-IC.after 07.01.2003 and carried out substantial expansion|prior to 01.04.2012, would also be entitled to benefit ofdeduction at different rates of percentage stipulated underSection 80-IC. (c) Substantial expansion cannot be confined to one}expansion. As long as requirement of Section 80-IC(8)ax) 1s met, there can be number of multiple|substantial expansions. expansion. As long as requirement of Section 80-IC(8)ax) 1s met, there can be number of multiple|substantial expansions. (d) Correspondingly, there can be more than one initial|Assessment Years.Assessment Years. (e) Within the window period of 07.01.2003 to 01.04.2012,|an undertaking or an enterprise can be entitled to|deduction @ 100% for a period of more than five years.an undertaking or an enterprise can be entitled to|deduction @ 100% for a period of more than five years. (f) All this, of course, is subject to a cap of ten years.||Section 80-IC(6)||Section 80-IC(6)| (g) Units claiming deduction under Section 80-IC shall not|be entitled to deduction under any other Section,|contained in Chapter VI-A or Section LOA or 10B of the|Act [Section 80-IB(5)].”.be entitled to deduction under any other Section,|contained in Chapter VI-A or Section LOA or 10B of the|Act [Section 80-IB(5)].”. 8.The view of the Himachal Pradesh High Court inStovkraftIndia’scase (supra) and other appeals was not approved by theSupreme Court. The Apex Court inCommissioner of Income Taxvs. M/s Classic Binding Industries,Civil Appeal No(s) 7208 of2018 decided on 20.8.2018, dealing with the issue whether theassessee who had availed deductions at the rate of 100% for firstfive years on the ground that they had set up a manufacturing unit asprescribed under sub section (2) of Section 80IC of the Act can startclaiming deduction at the rate of 100% again for the next five yearsas they had undertaken substantial expansion during the periodmentioned in sub section (2) thereof. The answer was given in thenegative. The matter is no longer res integra. It was held by theApex Court as under:- 8.The view of the Himachal Pradesh High Court inStovkraftIndia’scase (supra) and other appeals was not approved by theSupreme Court. The Apex Court inCommissioner of Income Taxvs. M/s Classic Binding Industries,Civil Appeal No(s) 7208 of2018 decided on 20.8.2018, dealing with the issue whether theassessee who had availed deductions at the rate of 100% for firstfive years on the ground that they had set up a manufacturing unit asprescribed under sub section (2) of Section 80IC of the Act can startclaiming deduction at the rate of 100% again for the next five yearsas they had undertaken substantial expansion during the periodmentioned in sub section (2) thereof. The answer was given in thenegative. The matter is no longer res integra. It was held by theApex Court as under:- “17. In this backdrop, the question 1s as to whether theseassessees, who had availed deductions @ 100% for first fiveyears on the ground that they had set up a manufacturingunit as prescribed under sub-section (2) of Section 80IC ofthe Act, can start claiming deductions @ 100% again fornext five years as they had undertaken “substantialexpansion” during the period mentioned in sub-section (2)thereof? The answer has to be in the negative for thefollowing reasons:assessees, who had availed deductions @ 100% for first fiveyears on the ground that they had set up a manufacturingunit as prescribed under sub-section (2) of Section 80IC ofthe Act, can start claiming deductions @ 100% again fornext five years as they had undertaken “substantialexpansion” during the period mentioned in sub-section (2)thereof? The answer has to be in the negative for thefollowing reasons: 18. We are dealing with the deductions in respect of profits and|gains under Section 80-IC of the Act. No other provision 1sinvolved. This section makes special provisions 1n respect ofcertain undertakings or enterprises in certain specialcategory States. Section 80-IC was inserted by the FinanceAct, 2003 w.e.f. April 1, 2004. As per this provision, certainundertakings or enterprises 1n certain special category Statesare allowed deduction from such profits and gains, asspecified in sub-section (3) of Section 80-IC. The provisionsof Section 80-IC provided deduction to manufacturing unitssituated in the State of Sikkim, Himachal Pradesh andUttaranchal and North-Eastern States. The deduction wasprovided to new units established in the aforesaid States, andgains under Section 80-IC of the Act. No other provision 1sinvolved. This section makes special provisions 1n respect ofcertain undertakings or enterprises in certain specialcategory States. Section 80-IC was inserted by the FinanceAct, 2003 w.e.f. April 1, 2004. As per this provision, certainundertakings or enterprises 1n certain special category Statesare allowed deduction from such profits and gains, asspecified in sub-section (3) of Section 80-IC. The provisionsof Section 80-IC provided deduction to manufacturing unitssituated in the State of Sikkim, Himachal Pradesh andUttaranchal and North-Eastern States. The deduction wasprovided to new units established in the aforesaid States, and also to existing units in those States if substantial expansionwas carried out. The deduction was available @ 100% forten Assessment Years for the units located 1n North-Easternand in the State of Sikkim and for the units located inHimachal Pradesh, the deduction was available @ 100% forfive years and @ 25% for next five years. also to existing units in those States if substantial expansionwas carried out. The deduction was available @ 100% forten Assessment Years for the units located 1n North-Easternand in the State of Sikkim and for the units located inHimachal Pradesh, the deduction was available @ 100% forfive 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 HimachalPradesh. Sub-section (3), as noted above, mentions theperiod of 10 years commencing with the initial AssessmentYear. Sub- section (6) puts a cap of 10 years, which 1s themaximum period for which the deduction can be allowed toany undertaking or enterprise under this section, startingfrom the initial Assessment Year. Another significantfeature under sub-section (3) is that the deduction allowableis 100% of such profits and gains from an undertaking or anenterprise tor five Assessment Years commencing with theinitial Assessment Year and thereafter the deduction 1sallowable at 25% (or 30% where the assessee 1s a company)of the profits and gains. Cumulative reading of theseprovisions brings out the following aspects: (a) Those undertakings or enterprises fulfilling theconditions mentioned in sub-section (2) of Section 80-ICbecome entitled to deduction under this provision. (b) This deduction is allowable trom the initial AssessmentYear. “Initial Assessment Year’ is defined in Section &80 IB(14)(c) of the Act. (c) The deduction is @ 100% of such profits and gains forfirst 5 Assessment Years and thereafter a deduction 1spermissible @ 25% (or 30% where the assessee 1S acompany). (d) Total period of deduction is 10 years, which means100% deduction for first 5 years from the initial AssessmentYear and 25% (or 30% where the assessee 1s a company) forthe next 5 years. ITA No. 158 of 2018 (O&M) 8 20. When we keep in mind the aforesaid scheme and spiritbehind this provision, such a_ situation cannot becountenanced where an period of 10 years. If that is allowedit will amount to doing violence to the provisions of sub-section (3) read with sub-section (6) of Section 80-IC. Apragmatic and reasonable interpretation of Section 80-ICwould be to hold that once the initial Assessment Yearcommences and an assessee, by virtue of fulfilling theconditions laid down in sub-section (2) of Section 80-IC,Starts enjoying deduction, there cannot be another “InitialAssessment Year” for the purposes of Section 80-IC withinthe aforesaid period of 10 years, on the basis that it hadcarried substantial expansion in its unit.”behind this provision, such a_ situation cannot becountenanced where an period of 10 years. If that is allowedit will amount to doing violence to the provisions of sub-section (3) read with sub-section (6) of Section 80-IC. Apragmatic and reasonable interpretation of Section 80-ICwould be to hold that once the initial Assessment Yearcommences and an assessee, by virtue of fulfilling theconditions laid down in sub-section (2) of Section 80-IC,Starts enjoying deduction, there cannot be another “InitialAssessment Year” for the purposes of Section 80-IC withinthe aforesaid period of 10 years, on the basis that it hadcarried substantial expansion in its unit.” Q_While the Apex Court adjudicated the issue in favour of the|revenue, it specifically distinguished its earlier pronouncement 1n|Mahabir Industries vs. Principal Commissioner of Income Tax(Civil Appeal Nos.4765-4766 of 2018 decided on May 18, 2018 in|the following terms:- Q_While the Apex Court adjudicated the issue in favour of the|revenue, it specifically distinguished its earlier pronouncement 1n|Mahabir Industries vs. Principal Commissioner of Income Tax(Civil Appeal Nos.4765-4766 of 2018 decided on May 18, 2018 in|the following terms:- “21. We are conscious of our recent judgment rendered by|this very Bench inMahabir Industries vs. PrincipalCommissioner ofIncome Tax(Civil Appeal Nos. 4765-4766of 2018 decided on May 18, 2018). However, a finedistinction 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, 1.e. by fulfilling the conditions mentioned in sub-section (4) of Section 80-IA. Those conditions are altogetherdifferent. Deduction in respect of profits and gains under thesaid provision 1s admissible when these profits and gains arefrom industrial undertakings or enterprises engaged ininfrastructure development etc. Even this availment started ata time when Section 80-IC was not even on the statute book. As mentioned above, Section 80-IC was inserted by theFinance Act, 2003 with effect from April O01, 2004. The assessees in those cases had started claiming and were alloweddeductions from the Assessment Years 1998-99 and 1999-2000 under Section SO0O-IA and from the Assessment Yea2000-01 to Assessment Year 2005-06 under Section 80-IB ofthe Act. The deduction was, thus, claimed by the assessees inthose appeals under the new provision 1.e. Section 80-IC onfulfilling conditions contained in sub-section (2) of Section80-IC for the first time for the Assessment Year 2006-07.|Thus, imsofar as those cases are concerned, the initial.Assessment Year under Section 80-IC started only from theAssessment Year 2006-07. In contrast, position here is altogether different. Theseassessees have availed deduction under Section 8O0-IC alone.Initially, they claimed the deduction on the ground that theyhad set up their units in the State of Himachal Pradesh andafter availing the deduction @ 100% they want continuationof this rate of 100% for the next 5 years also under the sameprovision on the ground that they have made substantialexpansion. As pointed out above, once the assessees hadstarted claiming deduction under Section 80-IC and the initialAssessment Year has commenced within the aforesaid periodof 10 years, there cannot be another initial Assessment Yearthereby allowing 100% deduction for the next 5 years alsowhen sub-section (3), in no uncertain terms, provides fordeduction @ 25% only for the next 5 years. It may be assertedagain that the assessees accept the legal position that theycannot claim deduction of more than 10 years in all underSection 80-IC.” 10.In view of the law laid down by the Apex Court 1n M/sClassic Binding Industries’sCaSc(supra), the substantialquestions of law are answered against the assessee and infavour of the revenue. Consequently, all the appeals standdismissed.’ 5In view of the above pronouncement of this Court inM/sAdmac Formulations’case (supra), there 1s no substantial question of law|arising in the present appeal. Accordingly, the appeal stands dismissed. September 26, 2018.Whether speaking/reasonedWhether reportable (Ajay Kumar Mittal)sudge > (Avneesh Jhingan) Judge YesYes