2019 (9) TMI 142 - AT - Income Tax

Tribunal grants full deduction under section 80IC, allowing 100% deduction for eligible profits.

M/s Valco Industries Ltd. Versus The A.C.I.T., Central Circle-1, Chandigarh.

The tribunal dismissed the legal grounds related to the validity of reopening the assessment as the assessee's counsel did not press them. Concerning the ... Deduction u/s 80IC - substantial expansion - claimed allowed 30% as against 100% claimed by the assessee - HELD THAT:- As gone through the order of the Hon'ble Apex Court in the case of M/s Aarham Softronics [2019 (2) TMI 1285 - SUPREME COURT] and find that the entire scheme of the Act relating to the relevant section i.e. section 80IC of the Act, and arrived at the conclusion that the definition of the initial assessment year contained in clause (v) of sub- section(8) of section 80IC of the Act can lead to a situation where there can be more than one initial assessment year within the said period of ten years. A newly set up undertaking or enterprise in the State of Himachal Pradesh would be entitled to deduction @ 100% of the Act its profits for the first five years and even thereafter in the case of substantial expansion is carried out by it, then the assessment year relevant to the previous year in which substantial expansion is undertaken becoming the initial assessment year. That in any case, the period of deduction u/s 80IC of the Act would not exceed 10 years. It is now settled law that even a new undertaking, which has claimed deduction of its eligible profits @ 100% thereof for the first five years, is entitled to claim deduction @ 100% of its profits thereafter on account of substantial expansion undertaken by it. Since in the present case the fact that the assessee had undertaken substantial expansion in the impugned year is not disputed, the assessee, we hold, is entitled to claim deduction @ 100% of its eligible profits even if it has already claimed deduction of its profits at the said rate for first five years - Decided in favour of assessee. Issues:1. Validity of reopening of assessment u/s 147 read with section 148 of the Income Tax Act, 1961.2. Restriction of deduction u/s 80IC of the Act to 30% instead of 100% claimed by the assessee.Issue 1: Validity of Reopening of Assessment:The assessee appealed against the consolidated order of the Commissioner of Income Tax (Appeals) regarding the validity of reopening the assessment u/s 147 read with section 148 of the Income Tax Act, 1961. The legal grounds related to this issue were not pressed by the assessee's counsel, leading to their dismissal by the tribunal. Thus, the issue of the validity of reopening the assessment was not further considered by the tribunal.Issue 2: Restriction of Deduction u/s 80IC of the Act:The assessee challenged the lower authorities' decision to restrict the deduction u/s 80IC of the Act to 30% instead of the 100% claimed by the assessee due to substantial expansion. The assessee had initially claimed 100% deduction for eligible profits for five years but later claimed the same rate for subsequent years citing substantial expansion. The Assessing Officer (A.O.) limited the deduction to 30% based on a previous ITAT Chandigarh Bench decision.The assessee appealed to the CIT(A), who upheld the decision of the A.O. However, during the tribunal hearing, the assessee's counsel referred to a Supreme Court judgment in favor of the assessee in a similar case. The tribunal noted that the Supreme Court's decision clarified that an undertaking could claim 100% deduction for profits even after the initial five years if substantial expansion was undertaken.The tribunal, following the Supreme Court's ruling, concluded that the assessee, having undertaken substantial expansion, was entitled to claim 100% deduction of eligible profits, even after claiming the same rate for the initial five years. Therefore, the tribunal set aside the CIT(A)'s order and allowed the appeals of the assessee, granting them the full deduction as claimed.In conclusion, the tribunal dismissed the legal grounds related to the validity of reopening the assessment due to the assessee's counsel not pressing them. Regarding the restriction of deduction u/s 80IC of the Act to 30%, the tribunal ruled in favor of the assessee based on the Supreme Court's judgment, allowing them to claim 100% deduction for eligible profits due to substantial expansion.