Indo Farm Equipment Ltd., Chandigarh vs Department Of Income Tax

The AC IT, Circle 3(1), Vs. M/s Indo Farm Equipment Ltd., Chandigarh Chandigarh

PAN No. AAAC1982A

(Appellant) (Respondent)

Appellant By : Smt. J yoti Kumari Respondent By : Shri Ajay Jain

Date of hearing : 16/06/2015 Date of Pronouncement : 19/06/2015

ORDER

PER T.R.SOOD, A.M.

The appeal by the Revenue is directed against the order dated 24.04.2014

of C IT(A), Chandigarh.

2. In this appeal the Revenue has raised the following grounds:-

1. The order of the Ld. CIT(A) is erroneous & contrary to facts and law.

2. The Ld. CIT(A) is not right in holding that deduction u/s 80 IC can be continued @ 100% of net profits of eligible business beyond five years on the pretext of substantial expansion.

3. The Ld. CIT(A) is not right in allowing deduction @ 100% u/s 80 IC beyond five years and thereby implying that the Initial Assessment Year, as defined under the provisions of Section 80 IC can be changed or that there can be multiple Initial Assessment Years in the absence of any such provision in the act.

2 4. The Ld. CIT(A) is not right in allowing 100% deduction to the assessee beyond 5 years on a claim made by the assessee that substantial expansion has taken place where the facts and circumstances of the case points towards a mere reconstruction of business at the most, inviting the prohibitory clauses u/s 80 IC into operation.

3. After hearing both the parties we find that assessee had set up its unit in

financial year 2001-02 and started claiming deduction u/s 80IB from assessment

year 2002-03 (i.e. first year of operation). Later on, the assessee carried out

substantial expansion and started claiming 100% deduction from assessment year

2007-08 for next five years. Therefore, claim was for 100% deduction for all the

ten years. According to Assessing Officer, this claim was not justified in view of

section 80IC(6). He further observed that assessee was entitled to deduction

onl y for 30% from assessment years 2007-08 to 2012-13 and accordingl y a show

cause notice was issued why deduction u/s 80IC should not be restricted to 30%

of the profit. In response it was stated as under:-

"As per the provisions of section 80 IC (3), in the case of any undertaking or enterprise referred to in sub-clause(ii) of clause (a) or sub-clause(ii) of clause(b) of sub-section (2), one hundred percent of such profit & gains for give assessment years, commenting with the initial assessment year and thereafter, twenty-five percent (or thirty percent where the assessee is a company) of profit & gains."

Further, as per 80 IC(8)(v), initial assessment year means the assessment year relevant to be previous year in which the undertaking or the enterprise begins to manufacture or produce articles or things, or commences operation or completes substantial expansion.

So, from the above definition, it is very much clear that even if an enterprise has made substantial expansion it is again eligible for 100% deduction for five assessment years u/s 80 IC, but subject to the overall limit for deduction years of within 10 years from the first years of taking deduction u/s 80IB/80IC.

In our case, the assessee had first availed the deduction u/s 80 IB, for setting up its tractors unit for initial assessment year of 3

2002-03. Later on during the Asstt. Year 2007-08, it went into substantial expansion & therefore claimed the benefits of deduction u/s 80 IC".

4. The Assessing Officer did not find force in these submissions and

restricted the claim of the assessee for deduction u/s 80IC to 30%.

5. On appeal, Ld C IT(A) allowed full 100% deduction by following the order

of his predecessor for assessment year 2007-08 in ITA No. 521 / 2009-10 vide

order dated 26.3.2010.

6. Before us Ld. DR strongl y supported the order of Assessing Officer.

7. On the other hand Ld. Counsel for the assessee submitted that this issue is

now squarel y covered by the decision of the Chandigarh Bench of the Tribunal in

the case of Hycron Electronics, Solan v CIT in 798/Chd/2012 and others wherein

it is clearl y held that benefit of substantial expansion is available onl y to

existing unit. Since the unit of the assessee was existing as on 1.4.2004 when

provisions of section 80IC were introduced, therefore, assessee is entitled to

benefit of 100% deduction on substantial expansion.

8. We have considered the rival submissions carefull y and find force in the

submissions of Ld. Counsel for the assessee. We have discussed this issue in

detail in the case of Hycron Electronics, Solan v CIT (supra). Therein it was

ultimatel y held that benefit of deduction u/s 80IC on substantial expansion was

available onl y to the existing undertaking. The existing undertaking for this

purpose would mean the undertaking which was existing on the date of

introduction of section 80IC i.e. 1.4.2004. Therefore, in our opinion, the assessee

is entitled to 100% deduction after doing the substantial expansion of the

existing unit which came into existence in assessment year 2002-03 i.e. much

before the incorporation of section 80IC. Therefore, we find nothing wrong with 4

the order of Ld. C IT(A) and upheld the same.

9. In the result, appeal of the Revenue is dismissed.

Order pronounced in the open Court on 19/06/2015.

Sd/- Sd/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 19 t h June, 2015 Rkk Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR