Deductions under Section 80IC should be calculated based on profits of each eligible undertaking separately

The tribunal partly allowed the appeal of the assessee in ITA 871/CHD/2017 and fully allowed the appeals in ITA 784/CHD/2017 and ITA 1180/CHD/2017. The decision emphasized that deductions under Section 80IC should be calculated based on the profits of each eligible undertaking separately, without netting the profits and losses of different units.

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Issues Involved:
1. Entitlement to 100% deduction under Section 80IC for substantial expansion.
2. Restriction of deduction under Section 80IC to 30% instead of 100%.
3. Quantification of deduction under Section 80IC by setting off losses of one priority unit against profits of another.

Detailed Analysis:

1. Entitlement to 100% Deduction under Section 80IC for Substantial Expansion:
The assessee firm, engaged in manufacturing with units at Baddi and Rudrapur, claimed 100% deduction under Section 80IC of the Income Tax Act, 1961, for substantial expansion in the seventh year of production. The Assessing Officer (AO) restricted the deduction to 30%, stating that as per Section 80IC, 100% deduction is only allowable for the first five years, and thereafter, it is restricted to 30%. The CIT(A) upheld the AO's decision, referencing the ITAT Chandigarh Bench's decision in the case of Hycron Electronics Vs ITO. The assessee conceded that the issue was settled against them by the Hon'ble Apex Court in CIT Vs M/s Classic Binding Industries. Consequently, the tribunal dismissed the grounds related to this issue.

2. Restriction of Deduction under Section 80IC to 30% Instead of 100%:
The AO noted that the Baddi unit, which had completed substantial expansion in 2005-06, was eligible for 100% deduction for the first five years. In the seventh year, the assessee again claimed 100% deduction after another substantial expansion in 2010-11. The AO restricted this to 30%, and the CIT(A) upheld this decision. The tribunal, referencing the Apex Court's decision in CIT Vs M/s Classic Binding Industries, found no reason to interfere with the CIT(A)’s order, thus dismissing the related grounds of appeal.

3. Quantification of Deduction under Section 80IC by Setting Off Losses of One Priority Unit Against Profits of Another:
The assessee had two manufacturing units eligible for deduction under Section 80IC, one showing profits and the other showing losses. The AO set off the losses of one unit against the profits of the other for calculating the deduction. The CIT(A) upheld this decision, citing the jurisdictional High Court's decision in M/s Him Teknoforge Ltd. However, the tribunal noted that the ITAT Chandigarh Bench had decided a similar issue in favor of the assessee in Milestone Gears Pvt. Ltd. Vs ACIT, distinguishing the case from Him Teknoforge Ltd. The tribunal held that under Section 80IC, each eligible undertaking should be considered separately for deduction purposes, without netting the profits and losses of different units. Therefore, the tribunal allowed the assessee’s appeal on this issue, directing the AO to allow the deduction based on the profits of each eligible undertaking independently.

Conclusion:
The tribunal partly allowed the appeal of the assessee in ITA 871/CHD/2017 and fully allowed the appeals in ITA 784/CHD/2017 and ITA 1180/CHD/2017. The decision emphasized that under Section 80IC, deductions should be calculated based on the profits of each eligible undertaking separately, without netting the profits and losses of different units.

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