100% Deduction not available u/s 80-IC If Substantial Expansion in Manufacturing was carried out after 5 Years: SC [Read Judgment]

ICSI Deduction - Supreme Court of India - Taxscan

A two-judge bench of the Supreme Court comprising Justice A.K. Sikri and Justice Ashok Bhushan has held that 100% Deduction under Section 80-IC of the Income Tax Act, 1961 is not available if the substantial expansion in manufacturing was carried out after five Years.

The assessee firm derives income from manufacturing of printed embossed book binding cover material of cotton in sheet from and security fiber of dual coloured combination. The assessee claimed deduction under Section 80-IC of the Income Tax Act. The assessee had already claimed deduction under the same to the extent of the 100% eligible profit for 5 A.Y.s. However, it was noticed that the assessee firm had again claimed 100% deduction against eligible profits in the relevant A.Y. which is seventh year of production for the firm by claiming substantial expansion on the basis of which they should be allowed a further exemption from profits and gains for another 5 years @ 100% instead of 25% from 6th to 10th year as well. The High Court ruling in favor of the assessees declared an extended exemption of 100% for 10 years. Hence, the revenue is in appeal before the Apex Court.

The issue before the Hon’ble Court was “Whether an assessee who sets up a new industry of a kind mentioned in sub-section (2) of Section 80-IC of the Act and starts availing exemption of 100 per cent tax under sub-section (3) of Section 80-IC (which is admissible for five years) can start claiming the exemption at the same rate of 100% beyond the period of five years on the ground that the assessee has now carried out substantial expansion in its manufacturing unit?

The Assessing Officer (AO) and the revenue in the present case contended that in view of the provisions of Section 80-IC of the Act, the assessee firm had already claimed at the rate of 100% for 5 years from relevant A.Y. i.e. from the date of setting up of the industrial undertaking and in view of the same, it would be eligible for claim of deduction @ 25% of its eligible business profits for the remaining five years.

The Hon’ble Court after placing its reliance on the provisions involved, case laws related was of the view that the assessees have availed deduction on the ground that they had set up their units in the State of Himachal Pradesh and after availing the deduction @ 100% they want continuation of this rate of 100% for the next 5 years also under the same provision on the ground that they have made substantial expansion. “Once the assessees had started claiming deduction under Section 80-IC and the initial Assessment Year has commenced within the aforesaid period of 10 years, there cannot be another initial Assessment Year thereby allowing 100% deduction for the next 5 years also when sub-section (3), in no uncertain terms, provides for deduction @ 25% only for the next 5 years. It may be asserted again that the assessees accept the legal position that they cannot claim deduction of more than 10 years in all under Section 80-IC.”

Hence, ruling in favor of the revenue, the Hon’ble Court held that the assessees were only entitled to a deduction for remaining 5 A.Y.s at the rate of 25% and not 100%.

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