2020 (2) TMI 145 - AT - Income Tax

Tax Tribunal Overturns Penalty and Confirms Deduction Entitlement; Limits Total Deduction Period to 10 Years.

Shri Vijay Kumar Batra, Prop M/s Adley Foundations Versus The ACIT, Circle 3 (1), Chandigarh

The ITAT Chandigarh resolved two appeals in favor of the assessee. First, the penalty under section 271(1)(c) of the Income Tax Act, 1961, was deemed ... Penalty u/s 271(l)(c) - substantial expansion - claim of 100% deduction u/s 80-IC based on substantial expansion done by it during AY 2011-12 - act of concealment of income or furnishing inaccurate particulars of income - HELD THAT:- Since the quantum additions, on the basis of which the impugned penalty was levied, already stood deleted by the Hon'ble Supreme Court in Aarham Subtonics’ [2019 (2) TMI 1285 - SUPREME COURT] the very basis on which the penalty was levied had ceased to exist. In view of this, the impugned penalty levied by the Assessing Officer is not sustainable in the eyes of law, the same is accordingly ordered to the deleted. So far as the findings of the Ld. CIT(A) that the Assessing Officer has made a observation that the assessee has not proved that any substantial expansion has been carried out, in our view, the said observation of the Ld. CIT(A) is misplaced. We have gone through the order of the Assessing Officer in quantum proceedings as well as the order of the Assessing Officer in penalty proceedings and find that the Assessing Officer has made a general observation by picking up certain lines as such from the order of the Tribunal in the case of ‘M/s Hycron Electronics, Baddi, Solan vs ITO’ [2015 (6) TMI 725 - ITAT CHANDIGARH] and no separate observation has been made by the Assessing Officer in the case of the assessee that no substantial expansion has been carried out. In view of this, the order of the CIT(A) is not sustainable in the eyes of law and the same is hereby set aside. The penalty levied by the Assessing Officer is accordingly ordered to be deleted. Denial of deduction @ 100% in the assessment year under consideration which is the fifth year of claiming deduction - (A.Y. 2015-16) - HELD THAT:- As laid down by the Hon'ble Supreme Court in the case of ‘Pr. CIT, Shimla vs M/s Aarham Subtonics’ [2019 (2) TMI 1285 - SUPREME COURT] the total deduction period u/s 80IC of the Act will not exceed 10 years from the initial year of setting up / commencement of the unit. To be made more clearer, since the assessment year 2015-16 under consideration is the 10th year of claiming deduction u/s 80IC of the Act, thus, the assessee will not be entitled to claim deduction u/s 80IC of the Act for any subsequent year. Issues:1. Confirmation of penalty under section 271(1)(c) of the Income Tax Act, 1961 by the Ld. CIT(A).2. Denial of deduction @ 100% in the assessment year under consideration for claiming deduction on account of substantial expansion.Analysis:Issue 1: Confirmation of penalty under section 271(1)(c) by the Ld. CIT(A)The assessee challenged the penalty levied by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961, in ITA No. 120/Chd/2019. The dispute arose from the assessee's claim of 100% deduction under section 80-IC based on substantial expansion. The Assessing Officer restricted the deduction to 25% for the 6th year, contending that the benefit of 100% deduction for substantial expansion was not available to units that had already claimed 100% deduction for the initial five years. The Ld. CIT(A) upheld the penalty, prompting the assessee to appeal. The Hon'ble Supreme Court's judgment in another case, 'M/s Adley Formulations vs CIT, Chandigarh,' highlighted the issue's complexity and the evolving legal interpretations. The Supreme Court's decision favored the assessee, leading to the deletion of the quantum additions on which the penalty was based. Consequently, the penalty levied by the Assessing Officer was deemed unsustainable and ordered to be deleted. The Ld. CIT(A)'s finding that the assessee failed to prove substantial expansion was deemed misplaced, and the penalty was set aside.Issue 2: Denial of deduction @ 100% for substantial expansionIn ITA No.121/Chd/2019, the appeal related to the denial of deduction @ 100% in the fifth year after the initial assessment year for claiming deduction on account of substantial expansion. The issue was resolved in favor of the assessee based on the Hon'ble Supreme Court's judgment in 'M/s Adley Formulations vs CIT, Chandigarh.' The lower authorities' disallowance was set aside, confirming the assessee's entitlement to deduction @ 100% for substantial expansion. However, it was clarified that the total deduction period under section 80IC of the Act should not exceed 10 years from the initial year of setting up the unit. As the assessment year under consideration marked the 10th year of claiming deduction, the assessee was not entitled to claim further deductions under section 80IC for subsequent years. Consequently, both appeals of the assessee were allowed, providing a comprehensive resolution to the deduction issue.This detailed analysis of the judgment showcases the legal intricacies involved in the disputes and the subsequent resolution by the Appellate Tribunal ITAT Chandigarh.