Case Law Details

Case Name : Lakshmi Ram Thakuria Vs ITO (ITAT Guwahati)
Appeal Number : ITA No. 194/Gau/2019
Date of Judgement/Order : 18/09/2019
Related Assessment Year : 2015-16
Courts : All ITAT (7024) ITAT Guwahati (6)

Lakshmi Ram Thakuria Vs ITO (ITAT Guwahati)

Assessee has two industrial unit Viz: – M/s Charu Engineering Industries, an existing industrial undertaking established and commenced its commercial production w.e.f 26.12.1994 in terms of the erstwhile North East Industrial Policy, 1997. The assessee availed exemption as per the Industrial Policy, 1997.

The assessee unit subsequently undergone substantial expansion in terms of North East Industrial & Investment Promotion Policy, 2007 (NEIIP, 2007) and commenced its commercial production w.e.f. 02.05.2008 after undergoing substantial expansion in its plant & machinery. Copy of the North East Industrial Policy, 1997 and NEIIP, 2007 is enclosed in paper book page 29.

The assessee availed benefit of Income Tax exemption in terms of Sec. 80-IA and 80IB and 10C in the earlier assessment years and availed benefit of exemption under Chapter VIA of the Income Tax Act 1961 and after undergoing substantial expansion of its existing plant and machinery and production capacity by investing more than 25 % of its existing capital investment in terms of NEIIP,2007 in the Financial Year 2008-09 .

The other one M/s. Charu Innovation Department and Industries, a new Industrial Undertaking, established in the year 2011-12 and commenced its commercial production w.e.f 23.11.2011, engaged in production of polyethylene Water Storage Tank and other plastic articles such as, Dustbin, Traffic Signal Point and injunction moulded Item and moulded filter etc. We note that after implementation of North-East Industries Investment Promotion Policy (NEIIP), 2007, the Assessee undergone modernization of its unit M/s. Charu Engineering Industries, in the year 2008, w.e.f 02.05.2008 by additional capital outlay in plant & machinery amounting to Rs. 29,85,6 1 1/- in comparison to the previous capital outlay in plant & machinery (i.e prior to the expansion/ modernization) Rs. 22,51,982/-, an increase in capital outlay by 133 % of the initial capital outlay in the financial year 2008-09. Therefore, the Assessee is eligible for income tax exemption from the Financial year 2008-09 and onwards due to modernization in its plant & machinery by infusing additional capital investment by more than 25 % of the initial investment in plant & machinery as envisaged in clause (iii) of sub-sec. 7 of Sec. 80-IE of the Income Tax Act, 1961, effective from 01.04.2008.

We note that the purpose of section 80IE was to establish the business of the nature specified in the said provision in the specified States. This provision was, thus, aimed at encouraging the undertakings or enterprises to establish and set up such units in the aforesaid States to make them industrially advanced States as well.Hence, we note that assessee is entitled to claim deduction under section 80IE of the Act.

FULL TEXT OF THE ITAT JUDGEMENT

These five appeals filed by the group assessees, pertaining to assessment years2006-07, 2007-08, 2010-11, 2012-13 and 2015-16, are directed against the separate orders passed by the Commissioner of Income Tax- (Appeals)-2 [in short ‘CIT(A)-2’], Guwahati, in appeal Nos. ,Gua-253/20 13-14, Guwa-254/20 13-14, Guwa-32/2016-17/83, guwa-594/2014-15/79 and 840978231300915 respectively,which in turn arise out of separate assessment order passed bythe Assessing Officer (in short AO) u/s 143(3)/147 of the Income Tax Act, 1961.

2. Since, the issues involved in all the appeals are common and identical; therefore, these appeals have been heard together and are being disposed of by this consolidated order. For the sake of convenience, the grounds as well as the facts narrated in the assessee`s appeal in ITA No. 279/GAU/2018, in the case of M/s Charu Engineering Industries & Charu Innovation Department Industries for AY 2012-13, is taken as the lead case for deciding the above appeals en masse.

3. Grounds of appeals raised the assessee as per its lead case in ITA No. 279/GAU/2018 are as follows: –

“(i). For that the ld. Commissioner of Income Tax (Appeals), Guwahati, is not legally justified disallowing 100% of the profits and gains derived out of the manufacture activities during the assessment year 2012-13 holding that the assessee has already availed the exemption u/s 80IB and 10C in the earlier periods prior to Assessment Year 2010-1 1 for 10 years. Hence, the assessee is not eligible u/s 80IE after its expansion/modernization in its plant & machineries by further investing 133 % of its initial capital outlay in plant & machineries in the Financial Year 2008-09. The Id. Commissioner, of Income Tax has wrongly invoked the provisions of Sec. 80IE(5) of the Income Tax Act, 1961 which is not applicable in this present case. It is submitted that provisions of sec. 80IE(5) is not applicable for those units undertaken substantial expansion and modernization. That in case of Charu Innovation Department and Industries, the AO disallowed the benefit allowed u/s 80IE due to non- availability of eligibility documents for inspection by the inspector of Income Tax, Guwahati. The Ld. Commissioner of Income Tax (Appeal) failed to appreciate the contentions of the appellant and disallowed the substantial benefit allowed under law on the grounds of procedural lapses by the Assessee ‘s end. The Ld. CIT (A) is legally not justified rejecting the substantial benefit allowed under the law. The impugned Order-in-Appeal is liable to be set aside in the ends of justice.

(II) For that the Id. Commissioner of Income Tax (Appeals)-2, Guwahati, failed to appreciate the contentions of the petitioner on wrong interpretation of the provisions of 80IE of the I T Act, 1961.The stand point of the Ld. DCIT, Circle -3, Guwahati, is not legally justified disallowing 100% of the profits and gains derived out of the manufacture activities during the assessment year 2010-11 disallowing exemption allowable to the appellant in terms of NEIIP,2007 as declared by the Central Govt, on the ground that the petitioner has already exempted u/s 80IB and 10C of the Act periods prior to Assessment Year 2010-1 1 for 10 years.

(III) For that the Ld. Commissioner (Appeals)-2, Guwahati, failed to consider the conditions of North East Industrial Investment Policy, 2007, (NEIIP, 2007) as declared by the Central Govt. The Id. Appellate Authority failed to appreciate the legislative intention of the lawmakers and directly disallowed the exemption allowable to the appellant u/s. Sec. 80IE of the Income Tax Act, 1961 simply referring the provisions of 80IE(5) of the IT Act,1961 isolate without referring other provisions and Industrial Policy of the Central Govt. The contention of the Commissioner of IT (Appeals) -2, is against the Legislative intention of the lawmakers and is liable to be set aside in the ends of justice.

(IV) For that the Id. Commissioner of Income Tax (Appeals)-2, failed to interpret the provisions of Sec. 80IE(5) inasmuch as a new Section 80IE has been inserted to provide tax benefits and it applies to any undertaking which is located in any of the North Eastern States including the state of Sikkim during the period beginning on 1st April,2007 and ending on 31st March, 2017 and the benefit is applicable to existing undertakings undergoing substantial expansion during the prescribed period as mentioned in the said section. The impugned Order-in-Appeal is not sustainable in law as the impugned Assessment Order was not in accordance with the decision of the Hon’ble Apex Court decided in Civil Appeal No. 4765-4766 of 2018 in the case of Mahabir Industries Vs. Principal Commissioner of Income Tax, Shimla, wherein the law has been settled that appellants are allowed exemption u/s. 80IC of the IT Act, 1961 from the date of undergoing substantial expansion for a period of 10 years. In the present case in hand the Id. Commissioner Appeals has not considered the law points applying has judicious mind. Hence, the demand for the AY 2012-13 is not sustainable in law and is liable to be set aside in the ends of justice.

(V) For that the Ld. Commissioner (Appeals) committed an error in interpreting the provisions of sub-sec. 5 of Sec. 80IE which supersedes the other conditions of Sec. 80IE only for those undertakings availed benefits under the NEIIP, 2007 if the said undertaking availed benefit under Sec. 80IE only and not any other previous policies as declared by the Central Govt. The interpretation of sub-sec. 5 of Sec. 80IE cannot be interpreted isolate without considering the NEIIP, 2007. The interpretation of the Id. Commissioner Appeals is not sustainable in law and the demand raised for the A. Y 2012-1 3 is liable to be set aside in the ends of justice.

(Vi) For that the impugned Order-in-Appeal has been passed by the Appellate authority without giving the appellant an opportunity of personal hearing and order is passed in his absence and thereby causing violation of principles of natural justice. The impugned Order-in-Appeal is not sustainable on this ground and liable to be set aside in the ends of justice.

(VII). For that the Ld. Commissioner Appeals fail to consider of brief facts that the Assessing Officer as allow the exemption for the Assessment Year 2015-16 on the basic of the document available on record and allow the exemption on section 80IE of the Income Tax Act, 1961 being on eligible in the Industry under the Industrial Policy 2007. However the Ld. Assessing Officer has not considered the eligibility of unit on the grounds of non availability of the relevant document which is not sustainable in law. This impugned Order in Appeal is not sustainable in law and is liable to be set aside in the ends of justice.

4.The facts of the case which can be stated quite shortly are as follows: The assessee filed its return of income for A.Y.2012-13 declaring total income at Rs. 18,29,380/-, after claiming deduction under chapter VI-A of Rs.2,13,21,284/-. During the year, the assessee is having two proprietorship concerns, namely, M/s Charu Engineering Industries and M/s Charu Innovation Department and Industries. M/s Charu Engineering Industries deals in manufacturing of UPVC Pipes and fittings and M/s Charu Innovation Department and Industries deals with manufacturing of Polyethylene Water Storage Tank and Other plastic articles such as Dustbin, Traffic Signal Point add Injection Moulded Item, Moulded Filter. In the return of income filed dated 29.09.20 12, assessee has claimed deduction under Chapter VI-A of Rs 2,13,21,284/-. In the computation of total income it is noted that claim of deduction under Chapter VI-A includes claim of deduction u/s 80-IE in the case of M/s Charu Engineering Industries at Rs.1,25,60,390/- and claim of deduction u/s 80-IE in the case of M/s Charu Innovation Department and Industries at Rs. 87,60,893/-. Assessee has furnished copy of Tax Audit Report u/s 44AB in the case off both, M/s Charu Engineering Industries and M/s Charu Innovation Department and Industries, along with audited accounts. However, AO noticed that assessee has not furnished audit reports u/s 80-IC/80-IE in Form No. 10CCB for both proprietary concerns.

5. The AO noticed that M/s Charu Engineering Industries commenced commercial production w.e.f 26.12.1994 and has already exhausted the claim of deduction u/s 80-IB of the Act in the earlier assessment years. Thereafter, on the premise of having infused additional capital investment by more than 25% of theinitial investment in Plant & Machinery of Rs. 22,51,982/- in financial year 2008-09, assessee again claimed deduction under section 80-IE of the Income Tax Act, 1961 from assessment year 2009-10 onwards. The assessee is claiming deduction under section 80-IE on the pretext that it has made a ‘substantial expansion’ as defined in clause (iii) of sub-section (7) of section 80-IE of the Act. In doing so, assessee has failed to understand a very important condition given in sub section (5) of section80-IE of the Act. The Sub-section (5) of section 80-IE lays down the condition that no deduction shall be allowed to any undertaking under section 80-IE, where the total period of deduction inclusive of the period of deduction under section 80-IE, or under section 80-IC or section 80-IB or section 10-C, as the case may be, exceeds ten assessment years.

In the light of the above provisions, the AO noted that in the case of M/s Charu Engineering Industries, a proprietary concern of the assessee undertaking has already claimed deduction u/s 80-IB of the Act for the earlier assessment years for full 10 (Ten) assessment years. M/s Charu Engineering Industries had already exhausted the maximum limit of assessment years in which deduction u/s 80IE/80IC/ 80IB/10C, as the case may be, can be claimed and allowed, if eligible. Therefore, M/s Charu Engineering Industries, having exhausted its claim of tax exemption/deduction, is no longer eligible for claim of deduction u/s 80-IE of the Income Tax Act, 1961 for the assessment year 2012-13, under consideration. Hence, assessee’s claim of deduction u/s 80-IE of the Act, at Rs. 1,25,60,390/-, for its proprietary concern, M/s Charu Engineering Industries, was disallowed.

6. With regards to assessee`s claim of deduction u/s 80-IE of the Act, for another proprietary concern i.e. M/s Charu Innovation Department and Industries, assessee was asked to furnish detailed justification regarding eligibility for deduction u/s 80-IE of the Act. In response, during the assessment proceedings, the assessee furnished written submission dated 18.12.2014, which reads as follows:

“Charu Innovation Deportment & Industries, an 55I unit for manufacturing of Polyethylene Water 5torage Tank and other plastics moulded articles has newly set-up comprising New Plant & Machinery, new building, new manpower, new electricity with new concept with effect from 23.11.2011 valid to 22.11.2021 as per Eligibility Certificate/permanent Registration Certificate No. 1801291400 issued by the District Industries & Commerce Centre, Government of Assam ‘under the NEIIPP-2007 for exemption of income tax as per the said policy.

The NEIIP -2007 policy stated that all new units as well as existing units which go in for substantial expansion/modernization, unless otherwise specified and which commercial production within the 10 year period from the date of notification of NEIIPP-2007 will be eligible for incentives for a period of ten years from the date of commencement of commercial production.

Here, refer the incentive clause under the NEIIPP-2007 Policy dated New Delhi the 1st April 2007 issued from file No. 10(3)2007-DBE-lI/NER, Government of India, Ministry of Commerce & Industry, Department of Industrial Policy and Promotion, incentives Clause No (VI) of the policy stated hereunder:

“100% Income Tax Exemption will continue under NEIIPP-2007”

And also refer the said Policy Serial No. 4 for wherein a directives had been, issued to all concern Ministries/Department of the Government of India to amend their, respective Act/Rules/Notification etc and issue necessary instruction giving effect to these decisions”

The factory/production unit of M/s Charu Innovation Department & industries located at Thakuria Industrial Area, Chandrapur, Guwahati, had also been visited by the inspector of Income Tax 04.03.2015. The Inspector’s Report dated 04.03.2015 had also been examined by AO. As per relevant report, the unit has a pucca structure but the concerned persons present on the site were unable to tell ownership status of land & building and extent of area of the unit/premises. The Inspector’s Report mentions 3 (Three) principal machines, apart from the transformer. The production process was also explained by the concerned person present at the site. However, copy of DIC Certificate, Factory License, Land Documents etc were not available at the production site. These important documents were also not furnished by the assessee subsequently.

The assessee has failed to prove with necessary evidences the set-up of a new unit by the name of M/s Charu Innovation & industries. Such documents or evidences like copy of DIC Certificate, Factory License, Land Documents, ASEB permission, etc has not been produced. The assessee and its group has other proprietary concerns and many sister concerns. In the absence of any concrete evidence, it is not possible to establish as to whether the factory unit shown to the Inspector is of M/s Charu Innovation & Industries or common factory area or of any other group concerns. The ássessee has failed to prove with evidence the actual manufacturing or production of ‘eligible article or thing’ during the relevant previous year under consideration. The assessee has also not furnished any details and evidences VAT/Excise Duty/Sales Tax, etc deducted or paid by the unit. The assessee has also failed to furnish required audit report u/s 80-IE in Form 10 CCB as per sub-section (7) of section 80-IA of the Act. The assessee therefore failed to satisfy condition laid down in sub-section (6) of section 80-IE of the Income Tax Act, 1961. Therefore, assessee’s claim of deduction u/s 80-IE of the Act amounting to Rs.87,60,893/- for its proprietary concern, namely, M/s Charu Innovation & Industries was disallowed.

7.Aggrieved, by the order of AO, the assessee carried the matter in appeal before the learned CIT(A), who has confirmed the disallowance made by AO under section 80-IE of the Act.

8. Ld Counsel, for the assessee relied on the submissions made before the authorities below.

9. On the other hand, ld DR for the Revenue has submitted before us written submissions which are reproduced below:

“The brief and undisputed facts in the instant appeals are that the assessee had set up its proprietorship M/s. Charu Engineering Industries on 26.12.1994[A.Y. 1995-96] and subsequently undergone 1st and 2nd substantial expansions on 10.12.2001 [A. Y .2002- 03] and on 02.05.2008 [A. Y .2009-10] respectively. A second proprietorship concern, M/s. Charu Engineering Innovation Department & Industries was further set up as a new industrial undertaking on 23.11.2011 [A. Y .2012-13]. On the above facts, it was held by the AO and CIT(A) that the period of deduction available for a span of 10yrs starting from the initial assessment year, being A Y .1995-96 was exhausted in A. Y. 2004-05 and hence the assessee was ineligible for further deductions U/s. 80IC/80IE beyond that period. The assessee on the other hand claimed further deduction of 10yrs from the date of 1st substantial expansion i.e. 10.12.2001 [A. Y .2002-03] U/s.80IC and was also under the impression that it would be eligible for deduction U/s.80IE for another span of 10yrs following its 2nd substantial expansion on 02.05.2008[A.Y.2009- 10).

Before proceeding further, it is relevant to mention that the Hon ’ble Apex Court judgment in M/s Dilip Kr. And company & Others lays down the rules of interpretation of a tax exemption provision / notification, hence the said judgment should be followed and deduction claimed by the assessee on account of ‘substantial expansion’ should be denied.

10. We have heard both the parties and perused the material available on record. The solitary issue before us to examine the allowability of deduction with respect to M/s. Charu Engineering Industries, Rs. 1,25,60,390/- and amounting to Rs. 87,60,893/- for its proprietary concern, namely, M/s Charu Innovation & Industries. We note that the moot question involved qua the claim of the deduction under section 80IE of the Act by the assessee with respect to the above undertaking is as to whether an assessee who had earlier claimed deduction under sections 80IB and also under section 10C of the Act can still claim the deduction under section 80IE beyond the 10 years? The undisputed fact is that the assessee is proprietor of an industrial undertaking namely, M/s Charu engineering Industries and had commenced its industrial production w.e.f. 26/12/1994. The assessee accordingly claimed deduction under section 10C and 80IB in the earlier assessment years. The said industrial undertaking of the assessee had further claimed to have undergone ‘substantial expansion’ during the period relevant to AY 2009-10 and therefore it is the contention of the assessee. The assessee had accordingly claimed deduction under section 80IE of the Act for the above assessment year of Rs. 1,25,60,390/-, while treating the AY 2009-10 to be the ‘initial assessment year’ for the purpose of claim of deduction under section 80IE of the Act. It is not in dispute that the assessee had claimed deductions under section 80IB and also under section 10C for and in respect of earlier years based on the commencement of its industrial undertaking w.e.f. 26/12/1994 (i.e. FY 1994-95, and corresponding assessment year 1995-96). The issue arises as to whether an assessee who had earlier claimed deduction under sections 80IB and also under section 10C of the Act, would still be entitled to deduction under section 80IE of the Act on account of any ‘substantial expansion’, even though such an assessee had claimed deduction under section 80IB/ 10C for ten years prior to the year in which substantial expansion has taken place. For the above assessment year, the Ld. AOs has disallowed the claims of deduction of the Assessee on the grounds which, inter-alia, include the fact that the Assessee is not entitled to the deduction beyond the prescribed cap of 10 years and, in the case of the Assessee, more so when the assessee had already availed deduction under section 80IB/10C earlier. We note that the contention of the assessee, before the Ld AO was that since its industrial undertaking had undergone substantial expansion during AY 2009-10 and therefore the said AY 2009-10 should be taken as the first year for claim of deduction under section 80IE of the Act.

However, ld DR submitted before us that assessee cannot claim deduction for more than 10 Years, in view of the bar/capping provided under section 80IE of the Act. The ld DR further submitted before us that the assessee shall not be entitled to claim deduction u/s 80IC and 80IE taken together for more than ten assessment years from the initial assessment year howsoever whether by way of commencement of the undertaking or the substantial expansion thereof taken together. Any other interpretation of this incentive section would only render the provisions of section 80IE(5) to be otiose.On the other hand, the contention of the Counsel is that the assessee was the proprietor of the above undertaking, which was newly set up during the above assessment year w.e.f. 23/11/2011 and had new plant and machinery, new building, new manpower, new electricity with new concept.

11. First of all let us examine the old industrial policy issued by the Government of India, dated 24.12.1997, which is reproduced below for ready reference:

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12. Let us also examine the new industrial policy issued by the Government of India, dated 01.04.2007, which is reproduced below for ready reference:

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13. We note that assessee under consideration falls in the ambit of new industrial police of Government of India dated 01.04.2007, mentioned above. We note that new industrial policy is applicable to all the new units as well as existing units which go in for substantial expansion and commence commercial production within 10 years period from the date of notification of NEIIPP,2007. That is, the incentives will be available to all industrial units, new as well as existing units on their ‘substantial expansion’ located anywhere in the North Eastern Region. The term ‘substantial expansion, has also been defined by the new Industrial Policy as follows:

(iv) Substantial Expansion: Incentives on substantial expansion will be given to units effecting ‘an increase by not less than 25% in the value of fixed capital investment in plant and machinery for the purpose of expansion of capacity/modernization and diversification, as against an increase by 33.5% which was prescribed in NEIP, 1997”

We note that assessee submitted before us the permanent registration certificate oF units which is place at page 24 to 25 of paper book. The assessee submitted Schedule of fixed assets, which shows substantial expansion (vide pb 60). The assessee also submitted before us the eligibility certificate for modernisition dated 05.11.2009, which is issued by Directorate of Industries & Commerce, Assam, Guwahati-21 ( vide pb 61to 62). These documents clearly show that assessee is entitled to claim deduction under section 80IB/80-IE of the Act.

14. We note that the assessee has two industrial unit Viz: – M/s Charu Engineering Industries, an existing industrial undertaking established and commenced its commercial production w.e.f 26.12.1994 in terms of the erstwhile North East Industrial Policy, 1997. The assessee availed exemption as per the Industrial Policy, 1997. The assessee unit subsequently undergone substantial expansion in terms of North East Industrial & Investment Promotion Policy, 2007 (NEIIP, 2007) and commenced its commercial production w.e.f. 02.05.2008 after undergoing substantial expansion in its plant & machinery. Copy of the North East Industrial Policy, 1997 and NEIIP, 2007 is enclosed in paper book page 29.The assessee availed benefit of Income Tax exemption in terms of Sec. 80-IA and 80IB and 10C in the earlier assessment years and availed benefit of exemption under Chapter VIA of the Income Tax Act 1961 and after undergoing substantial expansion of its existing plant and machinery and production capacity by investing more than 25 % of its existing capital investment in terms of NEIIP,2007 in the Financial Year 2008-09 . The other one M/s. Charu Innovation Department and Industries, a new Industrial Undertaking, established in the year 2011-12 and commenced its commercial production w.e.f 23.11.2011, engaged in production of polyethylene Water Storage Tank and other plastic articles such as, Dustbin, Traffic Signal Point and injunction moulded Item and moulded filter etc. We note that after implementation of North-East Industries Investment Promotion Policy (NEIIP), 2007, the Assessee undergone modernization of its unit M/s. Charu Engineering Industries, in the year 2008, w.e.f 02.05.2008 by additional capital outlay in plant & machinery amounting to Rs. 29,85,6 1 1/- in comparison to the previous capital outlay in plant & machinery (i.e prior to the expansion/ modernization) Rs. 22,51,982/-, an increase in capital outlay by 133 % of the initial capital outlay in the financial year 2008-09. Therefore, the Assessee is eligible for income tax exemption from the Financial year 2008-09 and onwards due to modernization in its plant & machinery by infusing additional capital investment by more than 25 % of the initial investment in plant & machinery as envisaged in clause (iii) of sub-sec. 7 of Sec. 80-IE of the Income Tax Act, 1961, effective from 01.04.2008.We note that the purpose of section 80IE was to establish the business of the nature specified in the said provision in the specified States. This provision was, thus, aimed at encouraging the undertakings or enterprises to establish and set up such units in the aforesaid States to make them industrially advanced States as well.Hence, we note that assessee is entitled to claim deduction under section 80IE of the Act. For that we rely on the Judgment of the Hon`ble Supreme Court in the case of AARHAM SOFTRONICS 412 ITR 623 (SC), wherein it was held as follows:

“Section 80-IC(2) of the Income-tax Act, 1961 applies to an undertaking or enterprise which has, inter alia, begun or begins to manufacture or produce any article or thing by setting up a new factory in the area specified therein which includes the State of Himachal Pradesh as well. Section 80-IC(3) is in two parts : in certain cases, exemption from income is provided at the rate of 100 per cent. of such profits and gains earned from the undertaking or enterprise for ten assessment years commencing with the initial assessment year. The other relates to another category of undertakings or enterprises where the exemption is at the rate of 100 per cent. of the profits and gains for five assessment years commencing with the initial assessment year and, thereafter, at 25 per cent. of the profits and gains, for the next five years. Sub-section (3) mentions the period of ten years commencing with the initial assessment year. Sub-section (6) puts a cap of ten years, which is the maximum period for which the deduction can be allowed to any undertaking or enterprise under this section, starting from the initial assessment year.

According to the definition of “initial assessment year” contained in section 80- IC(8)(c) , there can be an “initial assessment year”, relevant to a previous year, in any of the following contingencies : (i) the previous year in which the undertaking or the enterprise begins to manufacture or produce article or things, or (ii) commences operation, or (iii) completes substantial expansion. The benefit of section 80-IC is, thus, admissible not only when an undertaking or enterprise sets up a new unit and starts manufacturing or producing articles or things. The advantage of this provision also accrues to existing units, if they carry out “substantial expansion” of their units by investing the required capital, in the previous year relevant to the assessment year. “Substantial expansion” is defined in section 80-IC(8)(ix) as increase in the investment in the plant and machinery by at least fifty per cent. of the book value of plant and machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken. There can thus be another “initial assessment year” on the fulfilment of the condition mentioned in the definition, namely, completion of substantial expansion of the existing unit. This new event entitles that unit to start getting deduction at 100 per cent. of the profits and gains.

At the same time, a new period of ten years does not start. This is because the total period for which deduction can be allowed is capped at ten years, inasmuch as section 80-IC(6) in no uncertain terms stipulates that deduction shall not be allowed for a period exceeding ten assessment years. In fact, this period of ten years relates not only in respect of deduction under section 80-IC but under the second proviso to section 80-IB (4) as well. This would mean that the total deduction under section 80-IB as well as section 80-IC is for a period of ten years.

The cap under section 80-IC(6) is on the ten assessment years. It is not on quantum.

The purpose for which section 80-IC was enacted was to encourage undertakings or enterprises to establish and set up such units in specified States to make them industrially advanced States as well. Keeping in mind these objectives for which section 80-IC was enacted, the irresistible conclusion would be to grant 100 per cent. deduction of the profits and gains even from the year when there is substantial expansion in the existing unit.

COMMISSIONER OF CUSTOMS (IMPORT) v. DILIP KUMAR AND CO. [2018] 9 SCC 1 applied.

The court must give effect to the provisions of section 80-IC by reading various provisions conjointly.

Held accordingly, (i) that an undertaking or an enterprise which had set up a new unit between January 7, 2003 and April 1, 2012 in the State of Himachal Pradesh of the nature mentioned in section 80-IC(2)(ii) would be entitled to deduction at the rate of 100 per cent. of the profits and gains for the five assessment years commencing with the “initial assessment year”. For the next five years, the admissible deduction would be 25 per cent. (or 30 per cent. where the assessee is a company) of the profits and gains.

(ii) That however, in a case where substantial expansion as defined in section 80- IC(8)(ix) is carried out by such an undertaking or enterprise, within the period of ten years, the assessment year corresponding to the previous year in which the substantial expansion is undertaken would become the “initial assessment year”, and from that assessment year the assessee shall be entitled to 100 per cent. deductions of the profits and gains.

(iii) That such deduction, however, would be for a total period of ten years, as provided in section 80-IC(6) . For example, if the expansion is carried out immediately, on the completion of the first five years, the assessee would be entitled to 100 per cent. deduction again for the next five years. On the other hand, if substantial expansion is undertaken, say, in the eighth year by an assessee such an assessee would be entitled to 100 per cent. deduction for the first five years, deduction at 25 per cent. of the profits and gains for the next two years and at 100 per cent. again from eighth year as this year becomes the “initial assessment year” once again. However, this 100 per cent. deduction would be for the remaining three years, i.e., the eighth, ninth and tenth assessment years.

Decision of the Himachal Pradesh High Court in STOVEKRAFT INDIA v. CIT [2018] 400 ITR 225 (HP) affirmed. Decision of the Punjab and Haryana High Court in ADMAC FORMULATIONS v. CIT [2018] 409 ITR 661 (P&H) reversed.

In Classic Binding Industries’ case [2018] 407 ITR 429 (SC) the court, on the basis of section 80-IB(14)(c) of the Act, took the view that once the “initial assessment year” starts on the assessee fulfilling the conditions laid down in section 80-IC(2) , there cannot be another “initial assessment year” for the purposes of section 80-IC within this period of 10 years. Section 80-IB is materially different from section 80- IC of the Act. Therefore, the definition of “initial assessment year” mentioned in section 80-IB could not have been the basis of finding out the definition of “initial assessment year”. The observation in CLASSIC BINDING INDUSTRIES [2018] 407

ITR 429 (SC) that if deduction is allowed at 100 per cent. for the entire period of ten years, it would be doing violence to the language of sub-section (6) of section 80-IC was without noticing the definition of “initial assessment year” contained in the very same provision.

CIT v. CLASSIC BINDING INDUSTRIES [2018] 407 ITR 429 (SC) overruled.”

Considering the facts narrated above and the case law explained, we note that assessee is entitled to deduction under section 80IE with respect to its above industrial undertakings M/s. Charu Engineering Industries of Rs. 1,25,60,390/- & Ms. Charu Innovation Department and Industries, of Rs. 87,60,893/-.

15. In the result, all appeals filed by the assessee (in ITA No.193, 194, 279,280 and 116) are allowed.

Order pronounced in the open court on 18 -09-2019.

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