ITAT upholds 100% deduction for industrial expansion beyond 5 years, aligning with SC ruling

The ITAT Chandigarh upheld the CIT(A)'s decision, allowing the assessee to claim a 100% deduction under Section 80IC for substantial expansion beyond the initial five years. Citing a Supreme Court ruling, the Court emphasized the purpose of the provision to promote industrial growth in specified regions, permitting full deductions for expansions. The judgment clarified that the initial assessment year for expansions would trigger a new 10-year deduction period. The ITAT's decision aligned with the Supreme Court's precedent, granting the assessee the full deduction for the expansion despite already benefiting from the same rate for the initial five years.

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Issues:
Allowance of claim of deduction u/s 80IC @ 100% of profits for substantial expansion undertaken after initial deduction for first five years.

Analysis:
The appeal before the ITAT Chandigarh involved the Department challenging the order of the CIT(A) regarding the allowance of deduction u/s 80IC of the Act @ 100% of profits for substantial expansion after availing the deduction for the first five years. The assessee had claimed 100% deduction against eligible profits in the 7th year, asserting substantial expansion. The AO limited the deduction to 30% based on a previous ITAT decision. However, the CIT(A) ruled in favor of the assessee.

During the hearing, the assessee cited a Supreme Court decision in Pr.CIT, Shimla Vs. M/s Aarham Softronics, where the Court favored the assessee's position. The Department also acknowledged the decision's impact. The Supreme Court's ruling emphasized the purpose of Section 80-IC to encourage industrial advancement in specified States, allowing 100% deduction for substantial expansions. The Court clarified that if substantial expansion occurs, the assessment year relevant to that expansion becomes the initial assessment year.

The Supreme Court concluded that an enterprise in Himachal Pradesh would be entitled to 100% deduction for the first five years and subsequently for expansions. The deduction period under Section 80IC would not exceed 10 years. The Court differentiated between the initial assessment year definitions in Sections 80-IB and 80-IC, emphasizing the latter's relevance. The judgment clarified the deduction entitlement for expansions within the 10-year period.

Based on the Supreme Court's decision, the ITAT upheld the CIT(A)'s order, allowing the assessee to claim 100% deduction for the substantial expansion undertaken, even after availing the same rate for the initial five years. The ITAT dismissed the Revenue's appeal, affirming the settled law established by the Supreme Court's ruling in M/s Aarham Softronics.

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