Assessee Carrying Out Substantial Expansion During Window Period is Eligible Again for 100 percent Deduction Under Section 80-IC--Supreme Court Revisits Controversy

CA Manoj Gupta

In the case of CIT v. Classic Binding Industries 2018 TaxPub(DT) 5253 (SC) : (2018) 407 ITR 429 : (2018) 304 CTR 225 : (2018) 257 Taxman 324, the assessee started its business activity/operation on 11-7-2005 and initial assessment year for claim of deduction under Section 80-IC of the Act was assessment year 2006-07. The assessee had already claimed deduction under Section 80-IC to the extent of the 100% eligible profit for five assessment years 2006-07 to assessment year 2010-11. However, it was noticed that the assessee firm had again claimed 100% deduction against eligible profits in the relevant assessment year 2012-13 which was seventh year of production for the firm by claiming substantial expansion in Financial Year 2010-11. Lower authorities denied 100 percent deduction under Section 80-IC in respect of second expansion. The High Court held that the assessee was entitled to deduction for 100 percent if it carries out second expansion within the window period provided for in Section 80-IC in such manner that total period of deduction cannot exceed the period of 10 years. The Supreme Court held that after availing deduction for a period of 5 years @ 100% of such profits and gains from the 'units', the assessees would be entitled to deduction for remaining 5 assessment years @ 25% (or 30% where the assessee is a company), as the case may be, and not @ 100%. Recently, in the case of Principal Commissioner of Income-tax v. Aarham Softronics 2019 TaxPub(DT) 1345 (SC), the Supreme Court revisited the controversy and held that there can be two initial assessment years for the purposes of Section 80-IC if substantial expansion is carried out within window period and hence deduction can be claimed at 100 per cent for ten assessment years.

1. Question for consideration