INCOME TAX ACT, 1961

Section 80-IC

Deduction under section 80-IC - Profits and gains derived from certain undertakings or enterprises in specified States - Substantial expansion within period of eligibility for 100% deduction -

Assessee-company claimed deduction under section 80-IC. AO noticed that the assessee's business of manufacturing and trading of LPG cylinders had been established in year 2003-04 relevant to assessment year 2004-05. AO was of view that the assessee was entitled for 100% deduction under section 80-IC for initial five assessment years, i.e. 2004-05 to 2008-09 and thereafter for another five assessment years, i.e. 2009-10 to 2013-14 @ 30%. Since the relevant assessment year was 2013-14, the AO accordingly restricted the claim of deduction to 30%. Assessee submitted that due to substantial expansion in assessment year 2009-10, it became eligible for 100% deduction under section 80-IC for five years starting from assessment year 2009-10. Held: In case substantial expansion is carried out as defined in clause (ix) of sub-section (8) of section 80-IC within the period of 10 years, as provided in sub-section (6) the previous year in which substantial expansion is undertaken would become 'initial assessment year', and from that assessment year, assessee would be entitled to 100% deduction of profits and gains. Such deduction, however, would be for a total period of 10 years, as provided in sub-section (6) of section 80-IC. For example, if expansion is carried out immediately, on completion of first five years, the assessee would be entitled to 100% deduction again for the next five years. On the other hand, if substantial expansion is undertaken, say, in 8th year, assessee would be entitled to 100% deduction for the first five years, deduction @ 25% of the profits and gains for the next two years and @ 100% again from 8th year as this year becomes 'initial assessment year' once again. However, this 100% deduction would be for remaining three years, i.e., 8th, 9th and 10th assessment years. Thus, in instant case, the assessee's eligibility of 100% deduction under section 80-IC would start from initial assessment year 2009-10. Further, the AO allowed the deduction from assessment years 2009-10 to 2012-13, which was evident from the assessment orders of the relevant assessment years on record and accordingly, he was not correct in disturbing the claim in the 5th year, i.e. 2013-14, especially when earlier assessment years have not been disturbed.

Followed:Pr. CIT, Shimla v. M/s. Aarham Softronics (2019) 102 taxman.com 343 (SC) : 2019 TaxPub(DT) 1345 (SC).

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2013-14

INCOME TAX ACT, 1961

Section 14A read with Rule 8D

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