Appell v. Vijay Kumar Batra

CHANDIGARH. ITA No. 289 of 2018Date of decision: 14.01.2019. Principal Commissioner of Income Tax-1, Chandigarh. .--.--Appell Vs. Vijay Kumar Batra, Proprietor, M/s Adley Formulations, SCO 915,|NAC, Manimajra, Chandigarh. ..--Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL,HON’BLE MRS. JUSTICEK MANJARI NEHRU KAUL Present: | Ms. Urvashi Dhugga, Sr. Standing Counsel for the appellant(s). | Mr. Saurav Verma, Advocate with Mr. Ahosh Soni, Advocate for| respondent in ITA No. 289 of 2018 Mr. Akash Garg, Advocate for respondent in ITA Nos. 402 &|A78 of 2018. Ajay Kumar Mittal,J. 1.This order shall dispose of ITA Nos. 289, 402 and 478 of 2018as learned counsel for the parties are agreed that the issue involved in all|three appeals 1s identical. However, the facts are being extracted from ITA|No. 289 of Z2OL1 2 |ITA No. 289 of 2018 has been preferred by the appellant-revenue against the order dated 15.02.2018, Annexure A.4, passed by the|Income Tax Appellate Tribunal, Chandigarh Bench ‘B’ (in short, “the|Tribunal’) in ITA No.586/Chd/2017 dated 15.02.2018, tor the assessment|year 2013-14, claiming following substantial questions of law:- GURBAX SINGHWhether on the facts and 1n the circumstances,@6 Halscaseg2019.02.25 13:08the Hon’ble ITAT has erred in deleting the addition ofZL2,10,51,286/- (made on account of restricting the claim ofdeduction under Section 80IC of Income Tax Act, 1951@ 25%) without discussing the merits of the issueinvolved and by relying on the decision of Hon’bleHimachal Pradesh High Court in the case of|M/sStovekraft India, When this judgment has not been)accepted by the department on merits?the Hon’ble ITAT has erred in deleting the addition ofZL2,10,51,286/- (made on account of restricting the claim ofdeduction under Section 80IC of Income Tax Act, 1951@ 25%) without discussing the merits of the issueinvolved and by relying on the decision of Hon’bleHimachal Pradesh High Court in the case of|M/sStovekraft India, When this judgment has not been)accepted by the department on merits? 11)Whether on the facts and in the circumstances of the case,the Hon’ble ITAT (by relying on the judgments discussedabove) has erred in holding that those undertakings orenterpriseswhich.commencedproduction|after|07/01/2003 can carry out multiple “substantial expansion”as long as provisions of Section 8Q0IC(8)(1x) are metwithout appreciating that as per provision of Section 80ICof the Income Tax Act and as explained in CBDT CircularNo. 7/2003, such enterprise or undertaking cannot carryout any “substantial expansion’’?the Hon’ble ITAT (by relying on the judgments discussedabove) has erred in holding that those undertakings orenterpriseswhich.commencedproduction|after|07/01/2003 can carry out multiple “substantial expansion”as long as provisions of Section 8Q0IC(8)(1x) are metwithout appreciating that as per provision of Section 80ICof the Income Tax Act and as explained in CBDT CircularNo. 7/2003, such enterprise or undertaking cannot carryout any “substantial expansion’’? 111)Whether on the facts and 1n the circumstances of the case,the Hon’ble ITAT (by relying on the judgments discussedabove) has erred in holding that those undertakings orenterpriseswhich.commenced.productionbefore07/01/2003 can carry out multiple “substantial expansion”prior to O1/ 04/2012 and there will be initial year for each“substantial expansion” as long as provisions of SectionSOIC(8)(1x) are met without appreciating that as perprovision of Section 80IC of the Income Tax Act and asexplained in CBDT Circular No. 7/2003, such enterpriseor undertaking can carry “substantial expansion” onlyonce?the Hon’ble ITAT (by relying on the judgments discussedabove) has erred in holding that those undertakings orenterpriseswhich.commenced.productionbefore07/01/2003 can carry out multiple “substantial expansion”prior to O1/ 04/2012 and there will be initial year for each“substantial expansion” as long as provisions of SectionSOIC(8)(1x) are met without appreciating that as perprovision of Section 80IC of the Income Tax Act and asexplained in CBDT Circular No. 7/2003, such enterpriseor undertaking can carry “substantial expansion” onlyonce? 3In ITA Nos. 402 and 478 of 2018, the following substantial|questions of law have been claimed:-| GURBAX SINGHWhether on the facts and 1n the circumstances 13:08and in law, the Hon’ble ITAT has erred in allowingappeal of the assessee without appreciating the facts of thecase wherein the Hon’ble Himachal Pradesh High Courthad set aside the case for examining the facts ofsubstantial expansion’?and in law, the Hon’ble ITAT has erred in allowingappeal of the assessee without appreciating the facts of thecase wherein the Hon’ble Himachal Pradesh High Courthad set aside the case for examining the facts ofsubstantial expansion’? 11)Whether on the facts and in the circumstances of the caseand in law, the Hon’ble ITAT has erred in deleting theaddition ofzy5,59,41,054/- (made on account of)restricting the claim of deduction under Section 80IC ofIncome Tax Act, 1961 @ 30%) without discussing themerits of the issue involved and by relying on the decisionof Hon’ble Himachal Pradesh High Court in the case ofM/s Stovekraft Indiawhen this judgment has not beenaccepted by the department on merits?and in law, the Hon’ble ITAT has erred in deleting theaddition ofzy5,59,41,054/- (made on account of)restricting the claim of deduction under Section 80IC ofIncome Tax Act, 1961 @ 30%) without discussing themerits of the issue involved and by relying on the decisionof Hon’ble Himachal Pradesh High Court in the case ofM/s Stovekraft Indiawhen this judgment has not beenaccepted by the department on merits? 111)Whether on the facts and in the circumstances of the case.and in law, the Hon’ble ITAT has erred in allowing thededuction under Section 80IC @ 100% to the assesseeefor 10 years without appreciating and ignoring the realintent and purpose of insertion of Section of 80IC and theCBDT circular No. 7 oft 2003 dated 05.09.2003 andcircular No. 49 of 2003 of Central Excise Department andthe subsidy scheme issued by Ministry of Commerce andIndustry, DIPP, GOI, which are binding in law onauthorities and anything which 1s legally relevant, is to beconsidered for implementation as laid down by SC 1n 131ITR 597 (SC)?and in law, the Hon’ble ITAT has erred in allowing thededuction under Section 80IC @ 100% to the assesseeefor 10 years without appreciating and ignoring the realintent and purpose of insertion of Section of 80IC and theCBDT circular No. 7 oft 2003 dated 05.09.2003 andcircular No. 49 of 2003 of Central Excise Department andthe subsidy scheme issued by Ministry of Commerce andIndustry, DIPP, GOI, which are binding in law onauthorities and anything which 1s legally relevant, is to beconsidered for implementation as laid down by SC 1n 131ITR 597 (SC)? Iv)Whether on the facts and 1n the circumstances of the case.and in law, the Hon’ble ITAT has erred in allowing thededuction under Section 80IC @ 100% to the assessee for0[th]year without appreciating and ignoring the fact that aperusal of the proviso would show that before theintroduction of Section 80IC, the deduction to thebackward states was available in terms of Section SO[B)and in law, the Hon’ble ITAT has erred in allowing thededuction under Section 80IC @ 100% to the assessee for0[th]year without appreciating and ignoring the fact that aperusal of the proviso would show that before theintroduction of Section 80IC, the deduction to thebackward states was available in terms of Section SO[B) GURBAX SINGH(4), the third proviso makes clear that aftebo34 Aso2Z404e2019.02.25 13:08this deduction will be available only under Section 80IC,and deduction would be @ 100% for the first five yearsand there after @ 30%? v)Whether on the facts and 1n the circumstances of the case.and in law, the Hon’ble ITAT has erred in ignoring theexplicit statutory provision of the Second proviso thatclarifies that 1n the case of states of North-Eastern regions,the deduction would be @ 100% was allowable for 10years whereas in the case of States of Himachal Pradesh,the deduction was allowable @ 100% for first five yearsand 30% for the next five years’?and in law, the Hon’ble ITAT has erred in ignoring theexplicit statutory provision of the Second proviso thatclarifies that 1n the case of states of North-Eastern regions,the deduction would be @ 100% was allowable for 10years whereas in the case of States of Himachal Pradesh,the deduction was allowable @ 100% for first five yearsand 30% for the next five years’? v1)Whether on the facts and in the circumstances of the case.and in law, the Hon’ble ITAT by relying on the judgmentsin the case ofM/s Stovekraft India(supra), has erred 1n|holding that those undertakings or enterprises whichcommenced production after 07.01.2003 can carry outmultiple “substantial expansion” prior to 01.04.2012 andthere will be initial year for each “substantial expansion”as long as provisions of Section 80IC(ix) are met withoutappreciating that as per provisions of Section 80IC(2)(11)of the Income Tax Act and as explained in CBDT CircularNo. 7/2003, read with circular No. 49/2003 issued byCentral Excise Department that benefit of substantialexpansion was available only to units that existed andwere operational as on Q7.01.2003 and _ substantiaexpansion could have been carried out only on or after07.01.2003 by an undertaking that existed prior to07.01.2003 whereas this undertaking was set up only inBF.Y. 2006-07?and in law, the Hon’ble ITAT by relying on the judgmentsin the case ofM/s Stovekraft India(supra), has erred 1n|holding that those undertakings or enterprises whichcommenced production after 07.01.2003 can carry outmultiple “substantial expansion” prior to 01.04.2012 andthere will be initial year for each “substantial expansion”as long as provisions of Section 80IC(ix) are met withoutappreciating that as per provisions of Section 80IC(2)(11)of the Income Tax Act and as explained in CBDT CircularNo. 7/2003, read with circular No. 49/2003 issued byCentral Excise Department that benefit of substantialexpansion was available only to units that existed andwere operational as on Q7.01.2003 and _ substantiaexpansion could have been carried out only on or after07.01.2003 by an undertaking that existed prior to07.01.2003 whereas this undertaking was set up only inBF.Y. 2006-07? V11)Whether on the facts and in the circumstances of the case.and in law, the Hon’ble ITAT has erred in allowing thededuction under Section 80IC @ 100% to the assessee for10 years without appreciating and ignoring the fact thatand in law, the Hon’ble ITAT has erred in allowing thededuction under Section 80IC @ 100% to the assessee for10 years without appreciating and ignoring the fact that V11)Whether on the facts and in the circumstances of the case.and in law, the Hon’ble ITAT has erred in allowing thededuction under Section 80IC @ 100% to the assessee for10 years without appreciating and ignoring the fact thatand in law, the Hon’ble ITAT has erred in allowing thededuction under Section 80IC @ 100% to the assessee for10 years without appreciating and ignoring the fact that GURBAX SINGHthe expression substantial expansion has beermaisegb iss be2019.02.25 13:08Section 8O0IC(2)(a) and 80IC(2)(b) however 80IC(2)(a)(11)and 8OIC(2)(b)(11) 1s applicable to H.P. or Uttrakhand andsOlC(a)n) and 8OIC(b)(111) are applicable to the northeastern states when compared with rate of deductionprovided under Section 80IC(3 )(11), the rate given is 100%for five years, and 25% for next five years, whereas undersub Section 3(1), the rate has been given @ 100% for NEstates and Sikkim for all 10 years and the meaning ofsubstantial expansion will be rendered redundant?Section 8O0IC(2)(a) and 80IC(2)(b) however 80IC(2)(a)(11)and 8OIC(2)(b)(11) 1s applicable to H.P. or Uttrakhand andsOlC(a)n) and 8OIC(b)(111) are applicable to the northeastern states when compared with rate of deductionprovided under Section 80IC(3 )(11), the rate given is 100%for five years, and 25% for next five years, whereas undersub Section 3(1), the rate has been given @ 100% for NEstates and Sikkim for all 10 years and the meaning ofsubstantial expansion will be rendered redundant? vill) Whether on the facts and in the circumstances of the case|and in law, the Hon’ble ITAT 1s justified in holding thatan undertaking which has carried out substantialexpansion in any assessment year prior to 01.04.2012 canopt for that assessment year as initial assessment year forthe purpose of claiming deduction under Section 80IC(3)of the Income Tax Act without appreciating the fact thatan undertaking like this set up after 07.01.2003, 1.e. inFY. 2006-07 1s not entitled to benefit of “Substantialexpansion” in view of the provisions of SectionsOIC(2)(a)(1) and 801C(2)(b)(11) and as clarified in CBDTcircular No.7 of 2003?and in law, the Hon’ble ITAT 1s justified in holding thatan undertaking which has carried out substantialexpansion in any assessment year prior to 01.04.2012 canopt for that assessment year as initial assessment year forthe purpose of claiming deduction under Section 80IC(3)of the Income Tax Act without appreciating the fact thatan undertaking like this set up after 07.01.2003, 1.e. inFY. 2006-07 1s not entitled to benefit of “Substantialexpansion” in view of the provisions of SectionsOIC(2)(a)(1) and 801C(2)(b)(11) and as clarified in CBDTcircular No.7 of 2003? 1X)Whether on the facts and 1n the circumstances of the case.and in law, the Hon’ble ITAT has erred in not allowingthe AO to examine, whether substantial expansion hastaken place, holding that they do not find any justificationfor allowing a second innings to AO to reexamine facts,even though this is a violation of natural justice and aperverse order, since Hon’ble ITAT 1s the final factfinding authority?and in law, the Hon’ble ITAT has erred in not allowingthe AO to examine, whether substantial expansion hastaken place, holding that they do not find any justificationfor allowing a second innings to AO to reexamine facts,even though this is a violation of natural justice and aperverse order, since Hon’ble ITAT 1s the final factfinding authority? X)Whether on the facts and in the circumstances of the case.and in law, the Hon’ble ITAT has erred in failing toadjudicate the issue of depreciation on merits holding thatin view of allowance of 80IC, the matter was academic?and in law, the Hon’ble ITAT has erred in failing toadjudicate the issue of depreciation on merits holding thatin view of allowance of 80IC, the matter was academic? X)Whether on the facts and in the circumstances of the case.and in law, the Hon’ble ITAT has erred in failing toadjudicate the issue of depreciation on merits holding thatin view of allowance of 80IC, the matter was academic?and in law, the Hon’ble ITAT has erred in failing toadjudicate the issue of depreciation on merits holding thatin view of allowance of 80IC, the matter was academic? GURBAX SINGHWhether on the facts and 1n the circumstances 13:08and in law, the Hon’ble ITAT has erred in failing toadjudicate the issue of depreciation which would havesubstantial ramification for taxable income of SOIC 1s.restricted to 30% per scheme and deserves to beadjudicated, Hon’ble ITAT being final fact findingauthority?and in law, the Hon’ble ITAT has erred in failing toadjudicate the issue of depreciation which would havesubstantial ramification for taxable income of SOIC 1s.restricted to 30% per scheme and deserves to beadjudicated, Hon’ble ITAT being final fact findingauthority? X11)Whether on the facts and 1n the circumstances of the case.and in law, the Hon’ble ITAT has erred in failing toadjudicate the admissible depreciation which had beencorrectly restricted by AO based on finding of facts thatrates claimed were incorrect and appellant had notsupported its claim with relevant bills of assets eitherbefore AO or before Ld. CIT(A)?”and in law, the Hon’ble ITAT has erred in failing toadjudicate the admissible depreciation which had beencorrectly restricted by AO based on finding of facts thatrates claimed were incorrect and appellant had notsupported its claim with relevant bills of assets eitherbefore AO or before Ld. CIT(A)?” 4A few facts relevant for the decision of the controversy involvedas narrated in ITA No. 289 of 2018 may be noticed. The respondent-assesseeis in the business of production of pharmaceutical products. It has unit|located in Baddi. It has been claiming deduction under Section 80IC of the|Act since the financial year 2005-06. For the first five years, it has claimed|100% deduction as per the provisions of the Act. However, in the financial|year 2010-11 (6[th]year), the assessee undertook substantial expansion ofbusiness by making more than 50% investment over and above the book|value of plant and machinery. Thus, the assessee was claiming 100%|deduction in the 8[th]year (financial year 2012-13 relevant to assessment year|2013-14) as it undertook substantial expansion in the assessment year 201 112. The return of income was filed on 28.09.2013 by the respondent-assesseedeclaring an income of=4,43,270/-. The assessment was completed underSection 143(3) of the Act on 30.12.2015 at an assessed income ofy2,14,95,090/- after making addition on account of disallowance of deduction| GURBAX SINGHunder Section SOIC of the Act to the tune ofS|2,10,51,826/- 6435/05 totab2019.02.25 13:08deduction claimed ofL2,80,69,101/-). Vide order dated 30.12.2015,Annexure A.1, the Assessing Officer restricted the deduction to 25% by.relying on the judgment of the Tribunal in the case ofM/s Hycron)Flectronics Vs. ITOin ITA No. 798/Chd/2012 dated 27.05.2015. Aggrieved|by the order, the respondent-assessee filed an appeal before the|Commissioner of Income Tax (Appeals), [CIT(A)]. Vide order dated|17.01.2017, Annexure A.2, the CIT(A) confirmed the addition and dismissed|the appeal. Still not satisfied, the assessee filed appeal before the Tribunal.|Vide order dated 24.07.2017, Annexure A.3, the Tribunal dismissed theappeal on the ground that the respondent-assessee did not appear for any|hearing. Thereafter, the assessee filed a miscellaneous application before the|Tribunal which was accepted vide order dated 15.02.2018, in view of the|decision of the Himachal Pradesh in the case ofM/s Stovekraft India Vs.Commissioner ofIncome Taxin ITA No. 20 of 2018 deleting the addition.Hence the instant three appeals by the appellant-revenue before this Court. — 5. We have heard learned counsel for the parties. 5. We have heard learned counsel for the parties. 6.)The issue that arises for consideration in these appeals 1s|whether the assessee who had availed deduction at the rate of 100% for first 5years could start claiming deduction at the rate of 100% again for the next|five years as they had undertaken substantial expansion under Section 80IC|of the Act. The matter is no longer res integra. The issue involved in the|present appeals has already been decided in favour of the appellant-revenue,in a recent judgment of this Court dated 06.09.2018 inM/s Admac|Formulations Vs. Commissioner ofIncome Tax, PanchkulamITA No. 332of 2015. In the said case, the statutory provision of Section 80IC of the Act| GURBAX SINGHwas discussed in detail. The decision rendered by the Himachal FasleslacH ra2019.02.25 13:08 Court 1n)M/s Stovekraft India’scase (supra) was also considered. The issue)therein was as to whether “undertaking or an enterprise” established after 7[th]January 2003 carrying out “substantial expansion” within the window periodbetween 07.01.2003 to 01.04.2012 would be entitled to deduction on profits|at the rate of 100°%% under Section 8OIC of the Act and if so then for whaperiod. The relevant paras of the judgment in|M/s Admac Formulations’case (supra) read thus:- “Section 80-IC was inserted by Finance Act, 2003 w.e.f. April 1, 2004.It makes special provisions in respect of certain undertakings orenterprises in certain special category States. According to thisprovision, certain undertakings or enterprises in certain specialcategory States are allowed deduction from such profits and gains, asspecified in sub-section (3) of Section 80-IC of the Act. The provisionsof 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 inthe aforesaid States, and also to existing units in those States ifsubstantial expansion was carried out. The deduction was available @100% for ten Assessment Years for the units located zn North-Eastern|and in the State of Sikkim, and for the units located in HimachalPradesh, 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 in its decision inthe case of|M/s. Hycron Electronics, Baddi, Solanin ITA No.|798/Chd/2012 dated 27.05.2015 for the assessment year 2009-10adjudicated the issue against the assessee. Learned counsel for theassessee had placed strong reliance on the decision of the HimachalPradesh High Court inStovekraft India vs. Commissioner ofIncomeTax, alongwith other appeals reported as(2018) 400 ITR225, to|contend that in the batch of appeals including the case of|Aycron GURBAX SINGHFlectronics(supra), the order of the Tribunal was set agtdenane 1 th2019.02.25 13:081ssue was decided in favour of the assessee. | 7. The issue before the Himachal Pradesh High Court 1n)StovekraftIndia’scase (supra)was as to whether “undertaking or 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 beentitled to deduction on profits at the rate of 100% under Section 80ICof the Act and if so then for what period. The answer was given in theatfirmative. It was held as under: “(a) Such of those undertakings or enterprises which wereestablished, became operational and functional prior to)07.01.2003 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)07.01.2003 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. “(a) Such of those undertakings or enterprises which wereestablished, became operational and functional prior to)07.01.2003 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)07.01.2003 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 after07.01.2003 and carried out substantial expansion prior to)01.04.2012, would also be entitled to benefit of deduction atdifferent rates of percentage stipulated under Section 80-IC..07.01.2003 and carried out substantial expansion prior to)01.04.2012, would also be entitled to benefit of deduction atdifferent rates of percentage stipulated under Section 80-IC.. (c) Substantial expansion cannot be confined to one expansion.As long as requirement of Section 80-IC(8)(ix) 1s met, there|can be number of multiple substantial expansions.As long as requirement of Section 80-IC(8)(ix) 1s met, there|can be number of multiple substantial expansions. (d) Correspondingly, there can be more than one _ initiaAssessment 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. (f) All this, of course, 1s 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 in)entitled to deduction under any other Section, contained in) GURBAX SINGHChapter VI-A or Section LOA or 10B of the Acooagégtion jay2019.02.25 13:08IB(5)]."| 8. The view of the Himachal Pradesh High Court 1n)Stovekraft India’s case (supra) and other appeals was not approved by the SupremeCourt. The Apex Court in|Commissioner of Income Tax vs. M/sClassic Binding Industries,Civil Appeal No(s) 7208 of 2018 decided|on 20.8.2018, dealing with the issue whether the assessee who hadavailed deductions at the rate of 100% for first five years on the groundthat they had set up a manutacturing unit as prescribed under subsection (2) of Section 8O0IC of the Act can start claiming deduction atthe rate of 100% again for the next five years as they had undertakensubstantial expansion during the period mentioned in sub section (2)thereof. The answer was given in the negative.” © InCommissioner ofIncome Tax Vs. M/s Classic Binding Industries(Civil,Appeal No. 7208 of 2018 decided on 20.08.2018), the view taken by the|Himachal Pradesh High Court inM/s Stovekraft India’scase (supra) was notaccepted by the Apex Court. The issue before the Apex Court 1n M/s Classicbinding Industriescase (supra) was as to whether the assessee who hadavailed deductions at the rate of 100% for first 5 years on the ground that|they had set up a manufacturing unit as prescribed under sub Section (2) ofSection 80IC of the Act, could 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) thereto. The answer was givenin the negative. It was inter alia held by Apex Court that a pragmatic and_reasonable interpretation of Section 80IC of the Act would be to hold that|once the initial assessment year commences and an assessee, by virtue offulfilling the conditions laid down in Sub section (2) of Section 80IC of the|Act, starts enjoying deduction, there cannot be another assessment year for|the purposes of Section 8OIC of the Act within the aforesaid period of ten| GURBAX SINGHyears, on the basis that it had carried substantial expansion 1n 1p ymob dé yeap|2019.02.25 13:08further recorded that Section 80IC of the Act makes special provisions in|respect of certain undertakings or enterprises in certain special categoryStates. The provisions of Section 80IC provided deduction to manufacturing|units situated in the States of Sikkim, Himachal Pradesh, Arunachal Pradeshand North Eastern States. The deduction was provided to new units|established in the aforesaid States, and also to existing units in those States 11substantial expansion was carried out. The deduction was available at the rateof 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, thededuction was available at the rate of 100% for five years and at the rate of25% for next five years. Consequently, relying upon the law laid down by theApex Court 1nM/s Stovekraft India’scase (supra), the issue was decidedagainst the assessee and in favour of the revenue. The relevant observations|read thus:-. “17. In this backdrop, the question 1s as to whether these assessees, ©who had availed deductions @ 100% for first five years on the|eround that they had set up a manufacturing unit as prescribed|under 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 in|the negative for the following reasons:who had availed deductions @ 100% for first five years on the|eround that they had set up a manufacturing unit as prescribed|under 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 in|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 of|certain undertakings or enterprises 1n 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|gains under Section 80-IC of the Act. No other provision 1s involved. This section makes special provisions 1n respect of|certain undertakings or enterprises 1n 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| GURBAX SINGHdeduction from such profits and gains, as specpheslodias Su2019.02.25 13:08 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 1n|the aforesaid States, and also to existing units in 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 in the State of Sikkim and for theunits located in Himachal Pradesh, the deduction was available|the aforesaid States, and also to existing units in 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 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. 19. In the instant case, we are concerned with the assessees who hadestablished their undertakings 1n the State of Himachal Pradesh.established their undertakings 1n the State of Himachal Pradesh. @ 100 for five years and @ 25% for next five years. 19. In the instant case, we are concerned with the assessees who hadestablished their undertakings 1n the State of Himachal Pradesh.established their undertakings 1n the State of Himachal Pradesh. Sub-section (3), as noted above, mentions the period of 10 yearscommencing 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) 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 thededuction 1s 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: 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) 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 thededuction 1s 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. 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’ 1s defined in Section &0QIB(14)(c) of the Act.IB(14)(c) of the Act. (c) The deduction is @ 100% of such profits and gains for first 5Assessment Years and thereafter a deduction 1s permissible @25% (or 30% where the assessee 1s a company).|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| GURBAX SINGH25% (or 30% where the assessee 1s a company) for, 6he pexX4-2019.02.25 13:08YCadls.YCadls. 20. When we keep in mind the aforesaid scheme and spirit behindthis provision, such a situation cannot be countenanced where anperiod 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.”this provision, such a situation cannot be countenanced where anperiod 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.” 9. While the Apex Court adjudicated the issue 1n favour of the revenue,it specifically distinguished its earlier pronouncement inMahabirIndustries vs. Principal Commissioner ofIncome Tax(Civil AppealNos.4765-4766 of 2018 decided on May 18, 2018 in the followingCterms:- “21. We are conscious of our recent judgment rendered by thisvery Bench 1n|Mahabir Industries vs. Principal Commissioner|of Income Tax(Civil Appeal Nos. 4765-4766 of 2018 decidedon 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 differentprovision, 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 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.very Bench 1n|Mahabir Industries vs. Principal Commissioner|of Income Tax(Civil Appeal Nos. 4765-4766 of 2018 decidedon 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 differentprovision, 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 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. GURBAX SINGHAs mentioned above, Section 80-IC was inserted byptlagspaanae2019.02.25 13:08Act, 2003 with effect from April Ol, 2004. The assessees in)those cases had started claiming and were allowed deductions|from the Assessment Years 1998-99 and 1999-2000 under|Section SO-[A and from the Assessment Year 2000-01. toAssessment Year 2005-06 under Section S$O-IB of the Act. Thededuction was, thus, claimed by the assessees in those appeals|under the new provision 1.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 1s 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 SO-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|be asserted again that the assessees accept the legal position that,they cannot claim deduction of more than 10 years in all under|Section S0-IC.” 10.In view of the law laid down by the Apex Court inMs Classic|binding Industries’sCaSc(supra), the substantial questions of law areanswered against the assessee and in favour of the revenue.” ofIn view of the above, the substantial questions of law in all the|three appeals are decided against the assessee and in favour of the revenue. the Tribunal in all the three appeals are set aside. Judge| (Ajay Kumar Mittal) | January 14, 2019(Manjari Nehru Kaul)JudgeWhether speaking/reasonedYes/NoWhether reportableYes/No |