Appell v. Principal Commissioner Of Income [Tax-Ii, Ludhiana

ITA No. 217 of 2017 1 GURBAX SINGHIN THE HIGH COURT OF PUNJAB AND HARYANA A}:2018.10.08 10:45CHANDIGARH ITA No. 217 of 2017Date of decision: 06.09.2018 M/s Ray Industries, Village-Pawa, G.I. Road, Ludhiana, through Its|Authorised Representative, .....- Appell Vs. Principal Commissioner of Income [Tax-II, Ludhiana ....KReSponden CORAM: HON’ BLE MR. JUSTICK AJAY KUMAR MITTALHON’ BLE MR. JUSTICE AVNEESH JHINGAN Present: Mr. Amrinder Singh, Advocate for the appellant. | Mr. Z.S. Klar, Sr. Standing Counsel for the respondent. | Ajay Kumar Mittal,J 1].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 8.12.2016, Annexure A.4, passed by the Income Tax AppellateTribunal, Chandigarh Bench, *A’ (in short, “the Tribunal’) in ITANo.981/CHD/2016, for the assessment year 2013-14,claiming following substantial questions of law:- 1)“\Whether in the facts and in the circumstances of thecase, the Hon’ble Tribunal was justified dismissing theappeal of the Appellant without giving an opportunityof being heard?case, the Hon’ble Tribunal was justified dismissing theappeal of the Appellant without giving an opportunityof being heard? 11)Whether in the facts and in the circumstances of thecase, the Hon’ble Tribunal was justified in dismissingthe appeal following the decision in the case offAlycronElectronics Vs. Income Tax Officer, Ward-2, Badal[2015] 41 ITR (T) 486 (Chandigarh-Trib.) instead ofcase, the Hon’ble Tribunal was justified in dismissingthe appeal following the decision in the case offAlycronElectronics Vs. Income Tax Officer, Ward-2, Badal[2015] 41 ITR (T) 486 (Chandigarh-Trib.) instead of ITA No. 217 of 2017 2 referring the matter to a larger bench in view of thecontrary view taken in an earlier decision in the case ofTirupati LPG Industries Limited, Vs. DCIT(2014) 45)taxman.com 3276 ° 111)Whether in the facts and in the circumstances of thecase, the Hon’ble Tribunal was not wrong in holdingthat once an exemption under Section 8Q0IC of the Act isgiven to an undertaking, the undertaking cannot haveanother initial year even if substantial expansion 1sundertaken?case, the Hon’ble Tribunal was not wrong in holdingthat once an exemption under Section 8Q0IC of the Act isgiven to an undertaking, the undertaking cannot haveanother initial year even if substantial expansion 1sundertaken? Iv)Whether in the facts and circumstances of the case theHon’ble Tribunal was not wrong 1n holding that SectionSOIC of the Act recognizes only one initial assessmentyear when Section 80IC(8)(v) of the Act provides forthe initial assessment year with reference to setting up anew undertaking as well as substantially expanding theexisting undertaking?”Hon’ble Tribunal was not wrong 1n holding that SectionSOIC of the Act recognizes only one initial assessmentyear when Section 80IC(8)(v) of the Act provides forthe initial assessment year with reference to setting up anew undertaking as well as substantially expanding theexisting undertaking?” Iv)Whether in the facts and circumstances of the case theHon’ble Tribunal was not wrong 1n holding that SectionSOIC of the Act recognizes only one initial assessmentyear when Section 80IC(8)(v) of the Act provides forthe initial assessment year with reference to setting up anew undertaking as well as substantially expanding theexisting undertaking?”Hon’ble Tribunal was not wrong 1n holding that SectionSOIC of the Act recognizes only one initial assessmentyear when Section 80IC(8)(v) of the Act provides forthe initial assessment year with reference to setting up anew undertaking as well as substantially expanding theexisting undertaking?” ) - |A few facts relevant for the decision of the controversy|involved as narrated in the appeal may be noticed. The appellant-assesseeis engaged in the business of manufacturing of soap, soap noodles, toiletsoap etc. On 27.04.2007, the assessee set up an undertaking at Nalagarh,Himachal Pradesh, being an undertaking eligible for claiming deductionunder Section 80IC of the Act which started commercial production. Itclaimed 100% deduction from profit and gains of the undertaking eligibleto claim deduction at the rate of 100°% under Section 8OIC of the Act. Theassessee undertook substantial expansion of the undertaking eligible fordeduction under Section 80IC of the Act by investing,412,69,35,755/- 1n|the plant and machinery undertaking. It filed its original return of incomeon 6.11.2013 for assessment year 2013-14 declaring total income of=4,09,99,160/- after erroneously claiming deduction at the rate of 25%instead of 100% on the profits and gains of the eligible undertaking. Realising its mistake of claiming lower rate of deduction, it filed therevised return of income claiming 100% deduction on the profits and gainsof the eligible undertaking. The said return was processed under Section|143(1) of the Act and the case was selected for scrutiny. Assessment was|framed under Section 143(3) of the Act for the assessment year 2013-14 on)23.10.2015, whereby deduction claimed under Section 80IC of the Act wasreduced to 25% from 100%. Aggrieved by the order, the assessee preferredan appeal before the Commissioner of Income Tax, Appeals [CIT(A)]..Vide order dated 01.06.2016, Annexure A.3, the CIT(A) dismissed theappeal. Not satisfied with the order, the assessee filed an appeal before theTribunal. Vide order dated 08.12.2016, Annexure-4, the Tribunaldismissed the appeal, relying upon the decision in the case of)fAlycroElectronics Vs. Income Tax Officer, Ward 2, Baddi [2015] 41 ITR (1) 486.Hence the instant appeal by the appellant-assessee. 3. We have heard learned counsel for the parties. 4.Learned counsel for the appellant-assessee inter alia|contended that there 1s a conceptual difference between the scope of initialassessment year as defined in Section 80IB and Section 80IC of the Act.Section 8OIB of the Act provides primarily for commencement of)production/commercial activities. There is no concept of substantialexpansion in the said section. However, 1n Section 8OQIC of the Act, thedefinition of initial assessment year 1s specifically provided which caneither be on setting up or on undertaking substantial expansion. Therefore,a combined reading of Section 80IC(8)(v) and 80IC(8)(1x) makes it clearthat there 1s no restriction on more than one initial assessment year. | 5.On the other hand learned counsel for the respondent-revenuesupported the impugned order passed by the Tribunal and relied upon thepronouncement of the Apex Court inM/sClassic Binding Industriescase’s (Supra). 6.The 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:- 5.On the other hand learned counsel for the respondent-revenuesupported the impugned order passed by the Tribunal and relied upon thepronouncement of the Apex Court inM/sClassic Binding Industriescase’s (Supra). 6.The 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 of.M/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 issue was decided in favour of the assessee. — ‘|.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 SQ-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 SQ-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. (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 theAct [Section 80-IB(5)].”.be entitled to deduction under any other Section,|contained in Chapter VI-A or Section LOA or 10B of theAct [Section 80-IB(5)].”. S.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 isinvolved. This section makes special provisions 1n respect ofgains under Section 80-IC of the Act. No other provision isinvolved. This section makes special provisions 1n respect of 18. We are dealing with the deductions in respect of profits and|gains under Section 80-IC of the Act. No other provision isinvolved. This section makes special provisions 1n respect ofgains under Section 80-IC of the Act. No other provision isinvolved. This section makes special provisions 1n respect of certain 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, andalso to existing units in those States if substantial expansionwas carried out. The deduction was available @ 100% forten Assessment Years for the units located in 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. Inthe instant case, we are concerned with the assessees whohad 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. ITA No. 217 of 2017 8 (b) This deduction is allowable trom the initial AssessmentYear. “Initial Assessment Year’ is defined in Section &80IB(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. 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.” 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. [InMahabir Industries, the assessees had availed the initial. ITA No. 217 of 2017 9 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 S80O-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. Theassessees 1n those cases had started claiming and were alloweddeductions from the Assessment Years 1998-99 and 1999-2000 under Section 8O0O-[A 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 1nthose 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, insofar as those cases are concerned, the initial)Assessment Year under Section 80-IC started only trom theAssessment Year 2006-07. In contrast, position here is altogether different. Theseassessees have availed deduction under Section 80-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 for ITA No. 217 of 2017 10 deduction @ 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.’ TdIn view of the above, the substantial questions of law are|answered against the assessee and in favour of the revenue. Accordingly,the appeal stands dismissed. September 06, 2018. Whether speaking/reasonedWhether reportable (Ajay Kumar Mittal)sudge > (Avneesh Jhingan) Judge Yes Yes