Ita/332/2015 Of M/S Admac Formulations v. Commissioner Of Income Tax Panchkula

ITA No. 332 of 2015 1 GURBAX SINGHIN THE HIGH COURT OF PUNJAB AND HARY AWW+*A2018.10.08 10:40CHANDIGARH ITA No. 332 of 2015 |Date of decision: 06.09.2018 M/s Admac Formulations, H.No. 272, Sector-17, Panchkula, throughits Authorized Representative Shri. Ajay Batra, Vs, .....- Appell Commissioner of Income Tax, Panchkula ....KReSponden CORAM: HON’ BLE MR. JUSTICK AJAY KUMAR MITTAL HON’ BLE MR. JUSTICE AVNEESH JHINGAN Present: Ms. Radhika Suri, Sr. Advocate with Mr. Manpreet SinghKanda, Advocate for the appellant- assessee in ITA No. 332of 2015, 214 of 2016, 342, 343, 344, 351 of 2017 and 113 of|2018.Kanda, Advocate for the appellant- assessee in ITA No. 332of 2015, 214 of 2016, 342, 343, 344, 351 of 2017 and 113 of|2018. Mr. Divya Suri, Advocate and Mr. Sachin Bhardway, ©Advocate for the appellant-assessee in ITA No. 443 of 2015,112 of 2016 and 253 of 2017. Mr. B.M Monga, Advocate and Mr. Rohit Kaura, Advocatefor the appellant-assessee in ITA No. 189, 302, 304 of 2017and 135 of 2018. Mr. Vishal Gupta, Advocate for the appellant-assessee inITA N o. 420 of 2016) Mr. Munish Kapila, Advocate and Mr. Aman Parti, Advocatefor the appellant-assessee in ITA No. 137 of 2018 None for the appellant-assessee in ITA Nos. 158, 303 and330 of 2017. Mr. Yogesh Putney, Sr. Standing Counsel for the respondent-revenue in ITA No. 332 and 443 of 2015, 112, 214 of2016, 158, 253, 304, 330 of 2017. Ms. Urvashi Dhugga, Sr. Standing Counsel for therespondent-revenue in ITA No. 189, 302, 303, 342, 343, 344,351 of 2017, 137 of 2018 and 420 of 2016. ITA No. 332 of 2015 2 Ajay Kumar Mittal,J1].This order shall dispose of ITA Nos. 332, 443 of 2015, 112,214, 420 of 2016, 158, 189, 253, 302, 303, 304, 330, 342, 343, 344, 351of 2017, 113, 135 and 137 of 2018 as according to the learned counsel forthe parties, the issue involved in all these appeals 1s identical. However,the facts are being extracted from ITA No.332 of 2015. ).ITA No.332 of 2015 has been filed by the appellant-assesseeunder Section 260A of the Income Tax Act, 1961 (in short, “the Act’)against the order dated 27.5.2015, Annexure A.3 passed by the IncomeTax Appellate Tribunal, Chandigarh Bench (in short, “the Tribunal’) inITA No.1007/Chd/2014, for the assessment year 2011-12, claimingfollowing substantial questions of law:-. 1)“Whether on the facts and 1n the circumstances of the|case, the Tribunal erred in law in holding that benefitof deduction under section 80IC @ 100% of profit wasnot available to units set up after 7.1.2003, onundertaking substantial expansion from the year ofcompletion of substantial expansion’? 11)Whether on the facts and in the circumstances of the|case, the Tribunal erred in law in holding that units setup after 7.1.2003 would not be entitled to enlargeddeduction under section 80IC of the Act @ 100% ofprofit, even on undertaking substantial expansionwithin the specified period?| 111)Whether on the facts and in the circumstances of the|case, the Tribunal erred in law in disallowing thebenefit of substantial expansion under Section 8OIC tothe units that came into existence after 7.1.2003 bystating that initial assessment year can’t be re-fixed forsuch units? ITA No. 332 of 2015 3 Iv)Whether on the facts and in the circumstances of the|case, the Tribunal erred in law in not following the)decision of the coordinate benches of the Tribunal,without referring the matter to the larger bench’? v) Whether the learned Income Tax Appellate Tribunal isright in law and facts in holding that definition ofinitial assessment year does not allow the undertaking|to claim deduction under Section 80IC of 100% upontheir substantial expansion? ITA No. 332 of 2015 3 Iv)Whether on the facts and in the circumstances of the|case, the Tribunal erred in law in not following the)decision of the coordinate benches of the Tribunal,without referring the matter to the larger bench’? v) Whether the learned Income Tax Appellate Tribunal isright in law and facts in holding that definition ofinitial assessment year does not allow the undertaking|to claim deduction under Section 80IC of 100% upontheir substantial expansion? V1)Whether the orders of the learned Income Tax|Appellate Tribunal is perverse as the same 1s based onincorrect application of the provisions of law?” 3. | A few facts relevant for the decision of the controversy involved as narrated in ITA No. 332 of 2015 may be noticed. Theappellant-assessee filed return of income on 23.9.2011 for the assessmentyear 2011-12 declaring an income of492,883/- after claiming deductionunder Section 8OIC of the Act. The assessee was asked to explain thecomputation of the deduction under Section 80IC of the Act at the rate of100% for the financial year 2010-11 relevant to the assessment year 2011-12. The assessee produced bills showing the purchase of plant andmachinery amounting to’L1,63,63,460/- which was more than 50% of thetotal book value of plant and machinery contending that the unit waseligible for 100% deduction under Section 8OIC of the Act as it hadundertaken substantial expansion in the financial year 2010-11. It wasreiterated by the assessee that as per the provisions of Section 80IC(2)(b)of the Act, it was eligible for benefit of 100% deduction on the substantialexpansion undertaken from 7.1.2003 to 1.4.2012 since the expansion wasundertaken in the financial year 2010-11 within the time period prescribedunder Section 80IC(2)(b) of the Act. The Assessing Officer disallowed theclaim under Section SOIC of the Act vide order dated 29.01.2014, ITA No. 332 of 2015 4 Annexure A.1l, holding that the claim for 100% deduction was notpermissible under Section 80IC of the Act and the same was to berestricted only to the extent of 25%. Aggrieved by the order, the assesseefiled an appeal before the Commissioner of Income Tax (Appeals)[CIT(A)]. Vide order dated 22.09.2014, Annexure A.2, the CIT(A) heldthat the deduction at 100% of profits 1s available for only five assessmentyears including the initial assessment year and, thereafter, the assesseewas eligible for deduction to the extent of 25% as the definition of initialassessment year provided under section 80I1C(8)(v) of the Act would berestricted to only one initial assessment year. Relying upon thenotification of the Central Excise Department, the CIT(A) held that theassessee was eligible for deduction under Section 80IC of the Act only tothe extent of 25% for the assessment year in question. Still not satisfied,the assessee filed an appeal before the Tribunal. Vide order dated27.05.2015, Annexure A.3, the Tribunal held that the benefit ofsubstantial expansion @ 100% deduction would not be granted to theexisting units where the assessee had already availed the period of fulldeduction @ 100% in the earlier five years and in such a situation, thebenefit @ 25% deduction would be available for the remaining periodwhere the substantial expansion had taken place after 07.1.2003 andbefore 01.04.2012.Hence the instant appeals. 4We have heard learned counsel for the parties.5.Before adjudicating the issue involved in these appeals, itwould be advantageous to reproduce the relevant statutory provision 1.e.Section 8OIC of the Act which reads thus:- 4We have heard learned counsel for the parties.5.Before adjudicating the issue involved in these appeals, itwould be advantageous to reproduce the relevant statutory provision 1.e.Section 8OIC of the Act which reads thus:- *“80-IC. Specialprovisionsinrespectofcertainundertakings or enterprises in certain special categoryStates—(l1) Where the gross total income of an assesseeincludes any profits and gains derived by an undertaking oran enterprise from any business referred to 1n sub-section (2),there shall, in accordance with and subject to the provisionsof this section, be allowed, 1n computing the total income ofthe assessee, a deduction from such profits and gains, asspecified in sub-section (3). (2) This section applies to any undertaking or enterprise,—| (G) which has begun or begins to manufacture or produce|any article or thing, not being any article or thing|specified in the Thirteenth Schedule, or which|manufactures or produces any article or thing, not being|any article or thing specified in the Thirteenth Scheduleand undertakes substantial expansion during the period|any article or thing, not being any article or thing|specified in the Thirteenth Schedule, or which|manufactures or produces any article or thing, not being|any article or thing specified in the Thirteenth Scheduleand undertakes substantial expansion during the period| beginning— (1) on the 23rd day of December, 2002 and ending)before the Ist day of April, 2012, in any ExportProcessing|ZoneOTIntegratedInfrastructureDevelopment Centre or Industrial Growth Centre orIndustrial Estate or Industrial Park or Software Tech-nology Park or Industrial Area or Theme Park, asnotified by the Board in accordance with the scheme.framed and notified by the Central Government inthis regard, in the State of Sikkim; or before the Ist day of April, 2012, in any ExportProcessing|ZoneOTIntegratedInfrastructureDevelopment Centre or Industrial Growth Centre orIndustrial Estate or Industrial Park or Software Tech-nology Park or Industrial Area or Theme Park, asnotified by the Board in accordance with the scheme.framed and notified by the Central Government inthis regard, in the State of Sikkim; or (I]) on the 7th day of January, 2003 and ending beforethe Ist day of April, 2012, in any Export ProcessingZone or Integrated Infrastructure DevelopmentCentre or [Industrial Growth Centre or IndustrialEstate or Industrial Park or Software TechnologyPark or Industrial Area or Theme Park, as notifiedby the Board in accordance with the scheme framedand notified by the Central Government in thisthe Ist day of April, 2012, in any Export ProcessingZone or Integrated Infrastructure DevelopmentCentre or [Industrial Growth Centre or IndustrialEstate or Industrial Park or Software TechnologyPark or Industrial Area or Theme Park, as notifiedby the Board in accordance with the scheme framedand notified by the Central Government in this ITA No. 332 of 2015 6 regard, in the State of Himachal Pradesh or the Stateof Uttaranchal; orof Uttaranchal; or (111) on the 24th day of December, 1997 and ending)before the Ist day of April, 2007, in any ExportProcessing|ZoneOTIntegratedInfrastructureDevelopment Centre or Industrial Growth Centre orIndustrial Estate or Industrial Park or Software|Techno-logy Park or Industrial Area or Theme Park,as notified by the Board in accordance with thescheme framed and notified by the CentralGovernment in this regard, in any of the North-Eastern States;before the Ist day of April, 2007, in any ExportProcessing|ZoneOTIntegratedInfrastructureDevelopment Centre or Industrial Growth Centre orIndustrial Estate or Industrial Park or Software|Techno-logy Park or Industrial Area or Theme Park,as notified by the Board in accordance with thescheme framed and notified by the CentralGovernment in this regard, in any of the North-Eastern States; (b) which has begun or begins to manufacture or produce|any article or thing, specified in the Fourteenth Scheduleor commences any operation specified in that Schedule,or which manufactures or produces any article or thing,specified in the Fourteenth Schedule or commences any|Operation specified in that Schedule and undertakes|substantial expansion during the period beginning—any article or thing, specified in the Fourteenth Scheduleor commences any operation specified in that Schedule,or which manufactures or produces any article or thing,specified in the Fourteenth Schedule or commences any|Operation specified in that Schedule and undertakes|substantial expansion during the period beginning— (1) on the 23rd day of December, 2002 and ending)before the Ist day of April, 2012, in the State ofSikkim; orbefore the Ist day of April, 2012, in the State ofSikkim; or (7]) on the 7th day of January, 2003 and ending beforethe Ist day of April, 2012, in the State of HimachalPradesh or the State of Uttaranchal; orthe Ist day of April, 2012, in the State of HimachalPradesh or the State of Uttaranchal; or (II) on the 24th day of December, 1997 and endingbefore the Ist day of April, 2007, in any of theNorth-Eastern States..before the Ist day of April, 2007, in any of theNorth-Eastern States.. (3) The deduction referred to in sub-section (1) shall be—| (|) 1n the case of any undertaking or enterprise referred|to in sub-clauses (1) and (Il) of clause (|O) or sub-clauses (]) and (11]) of clause (|b), of sub-section (2),one hundred per cent of such profits and gains forten assessment years commencing with the initialassessment year;to in sub-clauses (1) and (Il) of clause (|O) or sub-clauses (]) and (11]) of clause (|b), of sub-section (2),one hundred per cent of such profits and gains forten assessment years commencing with the initialassessment year; ITA No. 332 of 2015 7 (I]) in the case of any undertaking or enterprise referredto in sub-clause (I]) of clause (6) or sub-clause (11) ofclause (|b), of sub-section (2), one hundred per cent)of such profits and gains for five assessment years.commencing with the initial assessment year andthereafter, twenty-five per cent (or thirty per centwhere the assessee 1s a company) of the profits andgains.to in sub-clause (I]) of clause (6) or sub-clause (11) ofclause (|b), of sub-section (2), one hundred per cent)of such profits and gains for five assessment years.commencing with the initial assessment year andthereafter, twenty-five per cent (or thirty per centwhere the assessee 1s a company) of the profits andgains. (4) This section applies to any undertaking or enterprisewhich fulfils all the following conditions, namely:—|which fulfils all the following conditions, namely:—| (1) 1t 1s not formed by splitting up, or the reconstruc- tion, of a business already 1n existence : Providedthat this condition shall not apply inrespect of an undertaking which 1s formed as a resultof the re-establishment, reconstruction or revival bythe assessee of the business of any such undertakingas 1S referred to 1n section 33B, in the circumstancesand within the period specified in that section;respect of an undertaking which 1s formed as a resultof the re-establishment, reconstruction or revival bythe assessee of the business of any such undertakingas 1S referred to 1n section 33B, in the circumstancesand within the period specified in that section; (1]) 1t 1s not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation-The provisions ofExplanationsTand.yTosub-section (3) of section 8Q-IA shall apply for the|purposes of clause (II) of this sub-section as they apply.for the purposes of clause (a) of that sub-section. sub-section (3) of section 8Q-IA shall apply for the|purposes of clause (II) of this sub-section as they apply.for the purposes of clause (a) of that sub-section. (1]) 1t 1s not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation-The provisions ofExplanationsTand.yTosub-section (3) of section 8Q-IA shall apply for the|purposes of clause (II) of this sub-section as they apply.for the purposes of clause (a) of that sub-section. sub-section (3) of section 8Q-IA shall apply for the|purposes of clause (II) of this sub-section as they apply.for the purposes of clause (a) of that sub-section. (5) Notwithstanding anything contained in any otherprovision of this Act, in computing the total income of theassessee, no deduction shall be allowed under any othersection contained in Chapter VIA or in section IOA orsection LOB, in relation to the profits and gains of theundertaking or enterprise. (6) Notwithstanding anything contained in this Act, nodeduction shall be allowed to any undertaking or enterpriseunder this section, where the total period of deductioninclusive of the period of deduction under this section, orunder the second proviso to sub-section (4) of section 80-IB ITA No. 332 of 2015 8 or under section 1OC, as the case may be, exceeds tenassessment years. (7) The provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80-IA shall, so far as may be,apply to the eligible undertaking or enterprise under thissection. (8) For the purposes of this section,— (1) "Industrial Area" means such areas, which the Board,|may, by notification in the Official Gazette, specify in|accordance with the scheme framed and notified by theCentral Government;may, by notification in the Official Gazette, specify in|accordance with the scheme framed and notified by theCentral Government; (I]) "Industrial Estate" means such estates, which theBoard, may, by notification in the Official Gazette,|specify 1n accordance with the scheme framed and|notified by the Central Government;Board, may, by notification in the Official Gazette,|specify 1n accordance with the scheme framed and|notified by the Central Government; (111) “Industrial Growth Centre" means such centres, which|the Board, may, by notification in the Official Gazette,|specify 1n accordance with the scheme framed and|notified by the Central Government;the Board, may, by notification in the Official Gazette,|specify 1n accordance with the scheme framed and|notified by the Central Government; (lv) “Industrial Park" means such parks, which the Board, |may, by notification in the Official Gazette, specify in|accordance with the scheme framed and notified by theCentral Government;may, by notification in the Official Gazette, specify in|accordance with the scheme framed and notified by theCentral Government; (V) "Initial assessment year" means the assessment yearrelevant to the previous year in which the undertaking orthe enterprise begins to manufacture or produce articles|or things, or commences operation or completes|substantial expansion;relevant to the previous year in which the undertaking orthe enterprise begins to manufacture or produce articles|or things, or commences operation or completes|substantial expansion; (Vl) “IntegratedInfrastructure|DevelopmentCentre"means such centres, which the Board, may, by|notification in the Official Gazette, specify in|accordance with the scheme framed and notified by theCentral Government;|means such centres, which the Board, may, by|notification in the Official Gazette, specify in|accordance with the scheme framed and notified by theCentral Government;| ITA No. 332 of 2015 9 (VII) "North-Eastern States" means the States of Arunachal|Pradesh,Assam,Manipur,Meghalaya,|Mizoram,Nagaland and Tripura;Pradesh,Assam,Manipur,Meghalaya,|Mizoram,Nagaland and Tripura; (Vl) “IntegratedInfrastructure|DevelopmentCentre"means such centres, which the Board, may, by|notification in the Official Gazette, specify in|accordance with the scheme framed and notified by theCentral Government;|means such centres, which the Board, may, by|notification in the Official Gazette, specify in|accordance with the scheme framed and notified by theCentral Government;| ITA No. 332 of 2015 9 (VII) "North-Eastern States" means the States of Arunachal|Pradesh,Assam,Manipur,Meghalaya,|Mizoram,Nagaland and Tripura;Pradesh,Assam,Manipur,Meghalaya,|Mizoram,Nagaland and Tripura; (VILI) "Software Technology Park" means any park set up inaccordance with the Software Technology Park Schemenotified by the Government of India in the Ministry ofCommerce and Industry;accordance with the Software Technology Park Schemenotified by the Government of India in the Ministry ofCommerce and Industry; (1x) “substantial expansion" means increase in the invest-ment in the plant and machinery by at least fifty per centof the book value of plant and machinery (before takingdepreciation in any year), as on the first day of the|previous year 1n which the substantial expansion 1s undertaken;ment in the plant and machinery by at least fifty per centof the book value of plant and machinery (before takingdepreciation in any year), as on the first day of the|previous year 1n which the substantial expansion 1s undertaken; (X) "Theme Park" means such parks, which the Board,may, by notification in the Official Gazette, specify inaccordance with the scheme framed and notified by the Central(sovernment.’may, by notification in the Official Gazette, specify inaccordance with the scheme framed and notified by the Central(sovernment.’ Section 80-IC was inserted by Finance Act, 2003 w.e.f. April 1, 2004. It makes special provisions in respect of certain undertakings or enterprisesin certain special category States. According to this provision, certainundertakings or enterprises 1n certain special category States are alloweddeduction from such profits and gains, as specified in sub-section (3) ofSection 80-IC of the Act. The provisions of this Section provideddeduction to manufacturing units situated in the States of Sikkim,Himachal Pradesh and Uttaranchal and North-Eastern States. Thededuction was provided to new units established in the aforesaid States,and also to existing units in those States 1f substantial expansion wascarried out. The deduction was available @ 100% for ten AssessmentYears 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. 6.The Tribunal in view of the opinion expressed by it 1n itsdecision 1n the case of M/s. Hycron Electronics, Badd, 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 in)Stovkraft India vs. Commissioner ofIncome Tax>alongwith other appeals reported as(2018) 400 ITR225, to contend thatin the batch of appeals including the case ofHycron Electronics(supra),the order of the Tribunal was set aside and the issue was decided in favouroft the assessee. Ty.The issue before the Himachal Pradesh High Court inStovkraft India’scase (supra)was as to whether “undertaking or anenterprise” established after 7[th]January 2003 carrying out “substantialexpansion” within the window period between 07.01.2003 to 01.04.2012would be entitled to deduction on profits at the rate of 100% underSection 80IC of the Act and if so then for what period. The answer wasgiven in the affirmative. It was held as under: Ty.The issue before the Himachal Pradesh High Court inStovkraft India’scase (supra)was as to whether “undertaking or anenterprise” established after 7[th]January 2003 carrying out “substantialexpansion” within the window period between 07.01.2003 to 01.04.2012would be entitled to deduction on profits at the rate of 100% underSection 80IC of the Act and if so then for what period. The answer wasgiven in the affirmative. 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 for whichthey were not entitled to the benefit of deduction underSection SO0-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 for whichthey were not entitled to the benefit of deduction underSection SO0-IB. ITA No. 332 of 2015 11 (b) Such of those units which have commenced production after07.01.2003 and carried out substantial expansion prior to01.04.2012, 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 to01.04.2012, 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)(1x) 1s met, therecan be number of multiple substantial expansions.As long as requirement of Section 80-IC(8)(1x) 1s met, therecan be number of multiple substantial expansions. (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. (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 inChapter VI-A or Section IOA or 10B of the Act [Section 80-IB(5) |.)entitled to deduction under any other Section, contained inChapter VI-A or Section IOA or 10B of the Act [Section 80-IB(5) |.) 8. The view of the Himachal Pradesh High Court 1n|Stovkraft India’scase (Supra) and other appeals was not approved by the SupremeCourt. The Apex Court in|Commissioner ofIncome Tax vs. M/s Classic.Binding Industries,Civil Appeal No(s) 7208 of 2018 decided on20.8.2018, dealing with the issue whether the assessee who had availeddeductions at the rate of 100 for first five years on the ground that theyhad set up a manutacturing unit as prescribed under sub section (2) ofSection 80IC of the Act can start claiming deduction at the rate of 100%again for the next five years as they had undertaken substantial expansionduring the period mentioned in sub section (2) thereof. The answer was given in the negative. The matter is no longer res integra. It was held by the Apex Court as under:- 8. The view of the Himachal Pradesh High Court 1n|Stovkraft India’scase (Supra) and other appeals was not approved by the SupremeCourt. The Apex Court in|Commissioner ofIncome Tax vs. M/s Classic.Binding Industries,Civil Appeal No(s) 7208 of 2018 decided on20.8.2018, dealing with the issue whether the assessee who had availeddeductions at the rate of 100 for first five years on the ground that theyhad set up a manutacturing unit as prescribed under sub section (2) ofSection 80IC of the Act can start claiming deduction at the rate of 100%again for the next five years as they had undertaken substantial expansionduring the period mentioned in sub section (2) thereof. The answer was given in the negative. The matter is no longer res integra. It was held by the Apex Court as under:- “17. In this backdrop, the question 1s 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 startclaiming deductions @ 100% again for next five years as theyhad undertaken “substantial expansion” during the periodmentioned in sub-section (2) thereof? The answer has to be inthe 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 startclaiming deductions @ 100% again for next five years as theyhad undertaken “substantial expansion” during the periodmentioned in sub-section (2) thereof? The answer has to be inthe negative for the following reasons: 18. We are dealing with the deductions in respect of profits andgains under Section 80-IC of the Act. No other provision isinvolved. This section makes special provisions in respect ofcertain undertakings or enterprises in certain special categoryStates. Section 80-IC was inserted by the Finance Act, 2003.w.e.f. April 1, 2004. As per this provision, certain undertakingsor enterprises in certain special category States are alloweddeduction from such profits and gains, as specified in sub-section (3) of Section 80-IC. The provisions of Section 80-ICprovided deduction to manufacturing units situated in the Stateof Sikkim, 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 wasavailable @ 100% for ten Assessment Years for the units locatedin 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.gains under Section 80-IC of the Act. No other provision isinvolved. This section makes special provisions in respect ofcertain undertakings or enterprises in certain special categoryStates. Section 80-IC was inserted by the Finance Act, 2003.w.e.f. April 1, 2004. As per this provision, certain undertakingsor enterprises in certain special category States are alloweddeduction from such profits and gains, as specified in sub-section (3) of Section 80-IC. The provisions of Section 80-ICprovided deduction to manufacturing units situated in the Stateof Sikkim, 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 wasavailable @ 100% for ten Assessment Years for the units locatedin 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. Inthe instant case, we are concerned with the assessees who hadestablished their undertakings 1n 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 maximum period for whichthe deduction can be allowed to any undertaking or enterpriseestablished their undertakings 1n 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 maximum period for whichthe deduction can be allowed to any undertaking or enterprise ITA No. 332 of 2015 13 under this section, starting from the initial Assessment Year.Another significant feature under sub-section (3) 1s that thededuction allowable is 100% of such profits and gains from anundertaking or an enterprise for five Assessment Yearscommencing with the initial Assessment Year and thereafter thededuction is allowable at 25% (or 30% where the assessee is acompany) of the profits and gains. Cumulative reading of theseprovisions 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. deduction under this provision. (b) This deduction is allowable from the initial Assessment Year. “Initial Assessment Year’ 1s defined in Section 80Q IB(14)(c) of the Act. (c) The deduction is @ 100% of such profits and gains for first 5 Assessment Years and thereafter a deduction 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 and25% (or 30% where the assessee is a company) for the next 5VCdIs.| 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 doingviolence to the provisions of sub-section (3) read with sub-section (6) of Section 80-IC. A pragmatic and reasonableinterpretation 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) ofSection 80-IC, starts enjoying deduction, there cannot be another“Initial Assessment Year” for the purposes of Section 80-ICwithin the aforesaid period of 10 years, on the basis that it had carried substantial expansion in its unit.” ITA No. 332 of 2015 14 Q_While the Apex Court adjudicated the issue in favour of therevenue, it specifically distinguished its earlier pronouncement inMahabir Industries vs. Principal Commissioner of Income Tax(CivilAppeal Nos.4765-4766 of 2018 decided on May 18, 2018 in the followingterms:- “21. We are conscious of our recent judgment rendered bythis very Bench in|Mahabir Industries ys. 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 initialdeduction under a different provision, namely, Section 80-IAof 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 “21. We are conscious of our recent judgment rendered bythis very Bench in|Mahabir Industries ys. 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 initialdeduction under a different provision, namely, Section 80-IAof 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 01, 2004. Theassessees in those cases had started claiming and wereallowed deductions from the Assessment Years 1998-99 and1999-2000 under Section SO-[A and from the AssessmentYear 2000-01 to Assessment Year 2005-06 under Section 8Q-IB of the Act. The deduction was, thus, claimed by theassessees 1n 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 theAssessment Year 2006-07. Thus, insofar as those cases areconcerned, the initial Assessment Year under Section 80-ICstarted only from the Assessment Year 2006-07. ITA No. 332 of 2015 15 In contrast, position here is altogether different. Theseassessees have availed deduction under Section 8Q-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 beasserted again that the assessees accept the legal position thatthey cannot claim deduction of more than 10 years in allunder 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 laware answered against the assessee and in favour of the revenue.Consequently, all the appeals stand dismissed. September 06, 2018. Whether speaking/reasonedWhether reportable (Ajay Kumar Mittal)Judge | (Avneesh Jhingan) Judge Yes Yes