2025 (4) TMI 1263 - AT - Income Tax

Tax Deduction Claim Under Section 80IC Upheld, Supreme Court Precedent Guides Tribunal's Decision on Procedural Correction

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The ITAT resolved a tax dispute involving section 80IC deduction. The Tribunal upheld the assessee's entitlement to 100% deduction under section 80IC for ... Deduction u/s 80-IC - assessee's claim for 100% deduction based on substantial expansion - HELD THAT:- We noticed that the assessee, engaged in manufacturing in Himachal Pradesh, claimed 100% deduction u/s 80IC for the 10th year on the basis of substantial expansion. AO restricted the claim to 25%, but the Supreme Court in Aarham Softronics [2019 (2) TMI 1285 - SUPREME COURT] has clearly held that units undergoing substantial expansion are eligible for 100% deduction for another five years, within the overall 10-year period. It was also noticed that the assessee’s claim has already been accepted by the Coordinate Bench in earlier years i.e AY 2014–15 and 2015–16, therefore there is no reason to take a different view on this issue. Accordingly, we hold that the assessee is entitled to 100% deduction u/s 80IC for AY 2016–17, and the appeal of the assessee is allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered by the Tribunal in this appeal are:(a) Whether the order passed by the CIT(A) contravened the provisions of section 250(6) of the Income Tax Act, 1961.(b) Whether the Assessing Officer (AO) was correct in restricting the deduction under section 80-IC to 25% despite the assessee's claim for 100% deduction based on substantial expansion as per the Supreme Court's ruling in Aarham Softronics.(c) Whether the issue raised by the assessee through an application under section 154 (rectification) was beyond the scope of such rectification proceedings.(d) Whether the AO and CIT(A) erred in passing orders without affording the assessee a reasonable opportunity of being heard.2. ISSUE-WISE DETAILED ANALYSISIssue (a) and (c): Validity of the CIT(A)'s order and scope of rectification under section 154Relevant legal framework and precedents: Section 154 of the Income Tax Act provides for rectification of mistakes apparent from the record. The scope of rectification is limited to correcting errors that are apparent and does not extend to reappreciation of facts or introduction of new facts. The CIT(A) relied on this principle in rejecting the rectification application.Court's interpretation and reasoning: The CIT(A) observed that although the Supreme Court's decision in Aarham Softronics supported the assessee's claim for 100% deduction under section 80IC, the rectification application under section 154 could only succeed if all relevant facts, such as proof of substantial expansion, were already on record at the time of assessment. Since the assessee had not claimed 100% deduction initially and had not placed any evidence of substantial expansion on record, the CIT(A) held that the issue involved fresh facts and was not a mere mistake apparent from record. Therefore, it could not be corrected through a section 154 application.Key evidence and findings: The absence of any claim or evidence of substantial expansion in the original return or assessment proceedings was a critical factor. The CIT(A) found that the rectification application was an attempt to introduce new facts rather than correct a clerical or apparent mistake.Application of law to facts: The Tribunal agreed with the CIT(A)'s interpretation that rectification under section 154 is not a substitute for an appeal or revision on merits where new facts can be introduced. The Tribunal noted that the CIT(A) did not err in confirming the AO's rejection of the rectification application.Treatment of competing arguments: The assessee contended that the CIT(A) erred in not allowing rectification, relying on the Supreme Court's Aarham Softronics judgment. However, the Tribunal distinguished between entitlement to deduction and the procedural mechanism of rectification, emphasizing that the latter cannot be used to introduce new facts.Conclusions: The Tribunal upheld the CIT(A)'s decision that the rectification application was beyond the scope of section 154 since it involved fresh facts and was not a mistake apparent from record.Issue (b): Entitlement to 100% deduction under section 80IC on account of substantial expansionRelevant legal framework and precedents: Section 80IC of the Income Tax Act provides for deductions to industrial undertakings in specified states. The deduction is generally available for a period of ten years from the commencement of production. The Supreme Court in Aarham Softronics (2019) held that if an undertaking undergoes substantial expansion, it is entitled to claim 100% deduction for a further period of five years within the overall ten-year limit.Court's interpretation and reasoning: The Tribunal noted that the AO restricted the deduction to 25% relying on an earlier Supreme Court decision in Classic Binding Industries, which was distinguishable on facts. The Tribunal emphasized that the Aarham Softronics Larger Bench ruling is binding and clarifies that substantial expansion entitles the assessee to claim 100% deduction for the extended period.Key evidence and findings: The Tribunal observed that the assessee's claim for 100% deduction for AY 2016-17 was consistent with earlier years (AY 2014-15 and 2015-16) where the same claim was accepted by coordinate benches. This consistency supported the assessee's entitlement.Application of law to facts: Applying the Aarham Softronics ruling, the Tribunal concluded that the assessee was eligible for 100% deduction under section 80IC for AY 2016-17 due to substantial expansion. The AO's restriction to 25% was therefore incorrect.Treatment of competing arguments: The Revenue relied on the AO and CIT(A) orders restricting the deduction. The Tribunal found these orders inconsistent with the binding Supreme Court decision and prior acceptance of the claim in earlier years.Conclusions: The Tribunal allowed the appeal on this ground and held that the assessee is entitled to 100% deduction under section 80IC for AY 2016-17.Issue (d): Alleged denial of reasonable opportunity of hearingThis ground was raised but not separately adjudicated by the Tribunal, as it was general in nature and not substantiated with specific facts or arguments. The Tribunal implicitly rejected this ground by allowing the appeal on merits without recording any procedural infirmity.3. SIGNIFICANT HOLDINGS(i) 'The benefit under section 154 can only be given if all the required facts like proof of substantial expansion were already part of the assessment record. In this case, the assessee had not claimed 100% deduction in its return, and there was nothing on record to show that any substantial expansion had taken place.'(ii) 'This was not a simple or clear mistake that could be corrected under section 154. The issue involved checking new facts, which can't be done through a rectification application.'(iii) 'The Supreme Court in Aarham Softronics has clearly held that units undergoing substantial expansion are eligible for 100% deduction for another five years, within the overall 10-year period.'(iv) 'The assessee's claim has already been accepted by the Coordinate Bench in earlier years; therefore, there is no reason to take a different view on this issue.'(v) 'Accordingly, we hold that the assessee is entitled to 100% deduction under section 80IC for AY 2016-17.'