The High Court of Calcutta has held that the deduction under Section 80IC of the Income Tax Act, 1961 for substantial expansion cannot be rejected for subsequent assessment years unless the relief for the initial year is withdrawn.
The ruling came in response to an appeal filed by M/S. C and E Limited directed against the order passed by the Income Tax Appellate Tribunal, Kolkata, pertaining to the Assessment Year 2013-14.
The appellant assessee was represented by J.P. Khaitan, Saurabh Bagaria, Rites Goel, and Arindam Halder and the respondent revenue, The Principal Commissioner of Income Tax was represented by Prithu Dudheria.
The appellant assessee argued that the Income Tax Appellate Tribunal (ITAT) failed to consider that if deduction under Section 80IC was granted for substantial expansion in the initial Assessment Year (AY), it cannot be rejected for subsequent AYs without withdrawing the initial year relief.
The appellant contended that ITAT was not justified in holding that the assessment order for the AY 2013-14 was erroneous and prejudicial to revenue due to a lack of proper inquiry regarding Form 10CCB submission.
The appellant emphasised that ITAT was not right in upholding the orders passed by the Commissioner of Income Tax under Section 263 of the Income Tax Act since the order under Section 263 of the Act exceeded the scope of the notice under the same section.
The Court analysed that the appellant company had undergone substantial expansion in its operations as indicated by Form 10CCB.
The bench noted that the Assessing Officer had granted a 100% deduction under Section 80IC for the initial year of expansion and had maintained this allowance for subsequent years as well.
The bench pointed out that the Assessing Officer had already conducted a detailed inquiry into the matter during the initial year of expansion and had accepted the claim for deduction under Section 80IC.
The bench held that this acceptance should carry forward to subsequent years unless there is a material change justifying a different view.
The Court also emphasised that once a relief has been granted and accepted, it should not be disturbed unless there is a significant alteration in circumstances.
The Court further noted that while the appellant had not submitted Form 10CCB during the assessment proceedings for the relevant year, the same Form had been submitted during the assessment proceedings for the initial expansion year.
The bench asserted that this submission provided ample evidence of the substantial expansion and the genuineness of the claim is proved.
In result, the division bench comprising Chief Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya ruled in favour of the appellant, holding that the assessment order for the year under consideration was justified since the claim for deduction under Section 80IC had already been accepted in the initial year of substantial expansion.
The Court emphasised that the assessing officer’s power to revisit and deny the claim for subsequent years could not be exercised without disturbing the relief granted for the initial year.
The bench thus found that the order passed by ITAT and the Principal Commissioner of Income Tax lacked due consideration of the relevant documents and circumstances.
The judgment underscored the principle that once a legitimate claim has been accepted for a specific benefit, the assessing authority should not deny the same benefit for subsequent years unless substantial grounds necessitate re-evaluation, bringing clarity to the application of Section 80IC for companies undergoing substantial expansion.
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