High Court allows 100% profit deduction for new undertakings under Income-tax Act

The Hon'ble Himachal Pradesh High Court ruled that new undertakings set up after 07-01-2003 are entitled to deduction @100% of profits on carrying out substantial expansion under section 80IC of the Income-tax Act, 1961. The ITAT allowed all appeals, directing the Assessing Officer to grant the deduction of eligible profits as per the High Court ruling. Additionally, specific expenses disallowed under section 36(i)(iii) and bad debts claimed as expenses were allowed based on relevant case law and circulars, resulting in the deletion of the additions made on these accounts.

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Issues involved:
1. Disallowance of claim of benefit of substantial expansion for deduction u/s 80IC of the Income-tax Act, 1961.
2. Disallowance of specific expenses u/s 36(i)(iii) and bad debts claimed as an expense.
3. Claiming deduction u/s 80IC on the additions made.

Issue 1: Disallowance of claim of benefit of substantial expansion for deduction u/s 80IC:
The appeals were filed against orders of Ld. Commissioner of Income Tax (Appeals) regarding disallowance of the claim of benefit of substantial expansion for deduction u/s 80IC. The Hon'ble Himachal Pradesh High Court ruled that new undertakings set up after 07-01-2003 are entitled to deduction @100% of profits on carrying out substantial expansion. The ITAT directed the Assessing Officer to grant the deduction of hundred percent of eligible profits as per the ruling of the High Court, allowing the grounds raised by the assessee in this regard.

Issue 2: Disallowance of specific expenses u/s 36(i)(iii) and bad debts claimed as an expense:
Additional grounds were raised challenging the disallowance of specific expenses u/s 36(i)(iii) and bad debts claimed as an expense. The ITAT admitted these grounds following the decision of the apex court in NTPC Ltd. vs CIT. The Board's Circular No.37/2016 clarified that disallowances relating to business activity, against which Chapter VI-A deduction had been claimed, would be eligible for deduction under the said chapter. The ITAT allowed the additional grounds raised by the assessee, directing the deletion of additions made on account of interest and bad debts.

Issue 3: Claiming deduction u/s 80IC on the additions made:
The ITAT found merit in the contention that the disallowances challenged in the additional grounds resulted in increasing the business profits of the assessee. As the assessee was entitled to claim deduction of its profits @ 100% in the impugned year, the additions made were entitled to deduction u/s 80IC of the Act. Consequently, the ITAT directed that the additions made on account of interest and bad debts be deleted, allowing the additional grounds raised by the assessee.

In conclusion, the ITAT allowed all the appeals of the assessee, directing the Assessing Officer to grant the deduction of hundred percent of eligible profits as per the ruling of the jurisdictional High Court. The ITAT also allowed the additional grounds raised by the assessee regarding disallowance of specific expenses, directing the deletion of additions made on account of interest and bad debts.

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