Appell v. M/S Micro Turners, Hisar Road, Rohtak

CHANDIGARH. ITA No. 447 of 2017Date of decision: 06.09.2018 The Pr. Commissioner of Income Tax, Rohtak .--.--Appell Vs. M/s Micro Turners, Hisar Road, Rohtak| ..-.Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTALHON’BLE MR. JUSTICE AVNEESH JHINGAN Present: § Mr. Urvashi Dhugga Senior Standing Counsel for the appellant. © for the respondent. | Mr. Divya Suri, Advocate and Mr. Sachin Bhardwaj, Advocate | Ajay Kumar Mittal,J. 1)The appellant-revenue has filed the instant appeal under Section260A of the Income Tax Act, 1961 (in short, “the Act”) against the orderdated 20.12.2016, Annexure A.IV, passed by the Income Tax AppellateTribunal, Delhi Bench *E’ New, Dehli (in short, “the Tribunal’) in ITA No.2028(Del)/2016, claiming following substantial question of law for theassessment year 201 1-12:- “Whether on the facts and circumstances of the case|Hon’ble ITAT is rightly in allowing the claim of|deduction at the rate of 100% under Section SOIC of the)Income Tax Act, 1961 when the assessee has refixed its|“initial assessment year” after substantial expansion in|the year 2008-2009 whereas its “initial assessment year”was assessment year 2003-2004 and there is no provisionof refixing initial assessment year?”Hon’ble ITAT is rightly in allowing the claim of|deduction at the rate of 100% under Section SOIC of the)Income Tax Act, 1961 when the assessee has refixed its|“initial assessment year” after substantial expansion in|the year 2008-2009 whereas its “initial assessment year”was assessment year 2003-2004 and there is no provisionof refixing initial assessment year?” ?)A few facts relevant for the decision of the controversyinvolved as narrated in the appeal may be noticed. Return of income for theassessment year 2011-12 was filed declaring total income of414,54,21,467/-|which was processed under Section 143(1) of the Act. The case was selectedfor scrutiny under “CASS”. During the course of assessment proceedings,the Assessing Officer by invoking the provisions of SectionSOIC(7) readwith Section 80IA(10) of the Act recomputed the deduction admissibleunder Section 8OI[C of the Act and an addition ofS|7,44,41,112/4was made totheincome of the assessee. Hence the income was assessed under Section|143(3) of the Act atzy8,98 1,13,290vide order dated 30.01.2014, AnnexureA.l. Aggrieved by the order, the assessee filed an appeal before theCommissioner of Income Tax, (Appeals), [CIT(A)]. Vide order dated30.12.2014, the CIT(A) deleted the whole addition. Thereafter, it wasnoticed that the assessee had owned seven units out of which four units werelocated in certain special category states specified under Section 80IC of theAct. Out of these four units, one unit 1s located at Barotiwala (HP) whichcommenced operation with effect from 01.04.2002 and initial assessmentyear was 2003-04. Assessment year under consideration 1s 9[th]year but the|assessee has claimed deduction at the rate of 100% instead of claiming at therate of 25%. After availing deduction at the rate of 100% for five years, theassessee has re-fixed its initial assessment year on account of substantialexpansion. Thus, the assesse has availed excess deduction ofS|8,43,78,146/-Similar deduction was also disallowed in respect of Barotiwala Unit during|the assessment year 2012-13. Accordingly, show cause notice under Section263 of the Act was issued on 28.02.2016 by the CIT. After considering thereply filed by the assessee, order under Section 263 of the Act was passed bythe CIT on 16.03.2016. Aggrieved by the order, the assessee filed an appeal before the Tribunal. Vide order dated 20.12.2016, Annexure A.IV, theTribunal quashed the order passed by the CIT under Section 263 of the Act.Hence the instant appeal by the revenue. _ 3.We have heard learned counsel for the appellant-revenue. before the Tribunal. Vide order dated 20.12.2016, Annexure A.IV, theTribunal quashed the order passed by the CIT under Section 263 of the Act.Hence the instant appeal by the revenue. _ 3.We have heard learned counsel for the appellant-revenue. 4The issue has already been decided against the assessee in ajudgmentpassed on 06.09.2018in ITA No. 332 of 2015 (M/s AdmacFormulations Vs. Commissioner of Income Tax, Panchkula),whereinafter considering the relevant statutory provision and the case law on thepoint, it was recorded as under:- “Section 80-IC was inserted by Finance Act, 2003 w.e.f. April1, 2004. It makes special provisions in respect of certainundertakings or enterprises in certain special category States.According to this provision, certain undertakings or enterprisesin certain special category States are allowed deduction fromsuch profits and gains, as specified in sub-section (3) of Section80-IC of the Act. The provisions of this Section provideddeduction to manutacturing units situated in the States ofSikkim, Himachal Pradesh and Uttaranchal and North-EasternStates. The deduction was provided to new units established inthe aforesaid States, and also to existing units in those States 1fsubstantial expansion was carried out. The deduction was.available @ 100% for ten Assessment Years for the unitslocated in North-Eastern and in the State of Sikkim, and for theunits 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 1n itsdecision in the case ofM/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 onthe decision of the Himachal Pradesh High Court inStovkraft India vs. Commissioner of Income Tax, alongwith other|appeals reported as(2018) 400 ITR225, to contend that in thebatch of appeals including the case of|Hycron Electronics (supra), the order of the Tribunal was set aside and the issuewas decided in favour of the assessee. JThe issue before the Himachal Pradesh High Court 1n|Stovkraft India’scase (supra)was as to whether “undertaking|or an enterprise” established after 7[th]January 2003 carrying out“substantial expansion” within the window period between07.01.2003 to 01.04.2012 would be entitled to deduction on|profits at the rate of 100% under Section 80IC of the Act and ifso then for what period. The answer was given in theaffirmative. It was held as under: (a) Such of those undertakings or enterprises which were.established, became operational and functional prior to07.01.2003 and have undertaken substantial expansionbetween 07.01.2003 upto 01.04.2012, should be entitled tobenefit of Section 80-IC of the Act, for the period forwhich they were not entitled to the benefit of deductionunder Section SQ-IB.established, became operational and functional prior to07.01.2003 and have undertaken substantial expansionbetween 07.01.2003 upto 01.04.2012, should be entitled tobenefit of Section 80-IC of the Act, for the period forwhich they were not entitled to the benefit of deductionunder Section SQ-IB. (b) Such of those units which have commenced productionafter 07.01.2003 and carried out substantial expansionprior 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 expansionprior 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 oneexpansion. As long as requirement of Section 80-IC(8 )(ix)is met, there can be number of multiple substantialexpansions.expansion. As long as requirement of Section 80-IC(8 )(ix)is met, there can be number of multiple substantialexpansions. (d) Correspondingly, there can be more than one initialAssessment Years.Assessment Years. (b) Such of those units which have commenced productionafter 07.01.2003 and carried out substantial expansionprior 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 expansionprior 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 oneexpansion. As long as requirement of Section 80-IC(8 )(ix)is met, there can be number of multiple substantialexpansions.expansion. As long as requirement of Section 80-IC(8 )(ix)is met, there can be number of multiple substantialexpansions. (d) Correspondingly, there can be more than one initialAssessment Years.Assessment Years. (e) Within the window period of 07.01.2003 to 01.04.2012, anundertaking or an enterprise can be entitled to deduction @100% for a period of more than five years.undertaking or an enterprise can be entitled to deduction @100% for a period of more than five years. (1) All this, of course, is subject to a cap of ten years. |Section80-IC(6)80-IC(6) (g) Units claiming deduction under Section 80-IC shall not beentitled to deduction under any other Section, contained inChapter VI-A or Section 1OA or LOB of the Act [Section8Q-IB(5)|.”entitled to deduction under any other Section, contained inChapter VI-A or Section 1OA or LOB of the Act [Section8Q-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 ofIncome Tax Ys.M/s Classic Binding Industries,Civil Appeal No(s) 7208 of 2018)decided on 20.8.2018, dealing with the issue whether the assesseewho had availed deductions at the rate of 100% for first five years onthe ground that they had set up a manutacturing unit as prescribedunder sub section (2) of Section 80IC of the Act can start claiming,deduction at the rate of 100% again for the next five years as they had.undertaken substantial expansion during the period mentioned in sub)section (2) thereof. The answer was given in the negative. The matteris no longer res integra. It was held by the Apex Court as under:-India’scase (supra) and other appeals was not approved by theSupreme Court. The Apex Court inCommissioner ofIncome Tax Ys.M/s Classic Binding Industries,Civil Appeal No(s) 7208 of 2018)decided on 20.8.2018, dealing with the issue whether the assesseewho had availed deductions at the rate of 100% for first five years onthe ground that they had set up a manutacturing unit as prescribedunder sub section (2) of Section 80IC of the Act can start claiming,deduction at the rate of 100% again for the next five years as they had.undertaken substantial expansion during the period mentioned in sub)section (2) thereof. The answer was given in the negative. The matteris no longer res integra. It was held by the Apex Court as under:- “17. In this backdrop, the question is as to whether these assessees,who had availed deductions @ 100% for first five years on theground that they had set up a manufacturing unit as prescribedunder sub-section (2) of Section 80IC of the Act, can start|claiming deductions @ 100% again for next five years as they|had undertaken “substantial expansion” during the period|mentioned in sub-section (2) thereof? The answer has to be 1n|the negative for the following reasons:who had availed deductions @ 100% for first five years on theground that they had set up a manufacturing unit as prescribedunder sub-section (2) of Section 80IC of the Act, can start|claiming deductions @ 100% again for next five years as they|had undertaken “substantial expansion” during the period|mentioned in sub-section (2) thereof? The answer has to be 1n|the negative for the following reasons: 18. We are dealing with the deductions in respect of profits and|gains under Section 80-IC of the Act. No other provision 1s involved. This section makes special provisions 1n respect ofcertain undertakings or enterprises in certain special category|States. Section 80-IC was inserted by the Finance Act, 2003gains under Section 80-IC of the Act. No other provision 1s involved. This section makes special provisions 1n respect ofcertain 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 1n 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 (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 maximumperiod tor which the deduction can be allowed to any|undertaking or enterprise under this section, starting from theinitial Assessment Year. Another significant feature under|sub-section (3) 1s 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 1S 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 &0QIB(14)(c) of the Act. (c) The deduction is @ 100% of such profits and gains for|first 5 Assessment Years and thereafter a deduction 1s/permissible @ 25% (or 30% where the assessee 1s 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 1s a company) for the|next 5 years. 20. When we keep in mind the aforesaid scheme and spirit behindthis provision, such a situation cannot be countenanced wherean 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 theinitial Assessment Year commences and an assessee, by virtueof fulfilling the conditions laid down in sub-section (2) of|Section 80-IC, starts enjoying deduction, there cannot beanother “Initial Assessment Year” for the purposes of Section|8Q-IC within the aforesaid period of 10 years, on the basis that.it had carried substantial expansion 1n its unit.” 9While the Apex Court adjudicated the issue in favour of therevenue, 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:- 9While the Apex Court adjudicated the issue in favour of therevenue, 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 thisvery Bench inMahabir Industries vs. Principal CommissionerofIncome Tax(Civil Appeal Nos. 4765-4766 of 2018 decidedon May 18, 2018). However, a fine distinction needs to be notedbetween the two sets of cases. In Mahabir Industries, theassessees had availed the initial deduction under a differentprovision, namely, Section 80-IA of the Act, 1.e. by fulfillingthe conditions mentioned in sub-section (4) of Section 80-IA.Those conditions are altogether different. Deduction in respectof profits and gains under the said provision 1s admissible when these profits and gains are from industrial undertakings orenterprises engaged in infrastructure development etc. Even thisavailment started at a time when Section §O0-IC was not even onthe statute book. As mentioned above, Section 80-IC was inserted by the FinanceAct, 2003 with effect from April 01, 2004. The assessees inthose cases had started claiming and were allowed deductionsfrom the Assessment Years 1998-99 and 1999-2000 underSection 8O-IA and from the Assessment Year 2000-01 toAssessment Year 2005-06 under Section 80-IB of the Act. Thededuction was, thus, claimed by the assessees 1n those appealsunder the new provision i.e. Section 80-IC on fulfillingconditions contained in sub-section (2) of Section 80-IC for thefirst time for the Assessment Year 2006-07. Thus, insofar asthose cases are concerned, the initial Assessment Year underSection 80-IC started only from the Assessment Year 2006-07.| In contrast, position here is altogether different. These assesseeshave availed deduction under Section 80-IC alone. Initially,they claimed the deduction on the ground that they had set uptheir units in the State of Himachal Pradesh and after availingthe deduction @ 100% they want continuation of this rate of100% for the next 5 years also under the same provision on theground that they have made substantial expansion. As pointedout above, once the assessees had started claiming deductionunder Section 8Q-IC and the initial Assessment Year hascommenced within the aforesaid period of 10 years, therecannot be another initial Assessment Year thereby allowing100% deduction for the next 5 years also when sub-section (3),In no uncertain terms, provides for deduction @ 25% only forthe next 5 years. It may be asserted again that the assesseesaccept the legal position that they cannot claim deduction ofmore than 10 years 1n all under Section 80-IC.”. 10.)In view of the law laid down by the Apex Court inM/sClassic Binding Industries’sCase(supra), the substantial| questions of law are answered against the assessee and 1n favourof the revenue. Consequently, all the appeals stand dismissed.”’ 5.In view of the above, the present appeal filed by the revenue isallowed and the substantial question claimed by revenue 1s answered against the assessee and in favour of the revenue. September 06, 2018 Whether speaking/reasoned Whether reportable (Ajay Kumar Mittal)Judge (Avnesh Jhingan) | Judge | Yes.Yes