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2021 (1) TMI 916 - AT - Income TaxExemption u/s 80IC - initial assessment year - AO has rejected claim of the assessee of claiming 100% deduction under section 80-IC and allowed deduction only to the extent of 25% as per clause (ii) of sub-section 3 of section 80-IC - 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? - assessee contended that the Act does not create distinction between the old units i.e. units established prior to 7.1.2003 and new units established thereafter, which is being specifically highlighted by the Assessing Officer HELD THAT:- In Prl.CIT Vs. Aarham Softronics Civil [2019 (2) TMI 1285 - SUPREME COURT]the Hon’ble Supreme Court overruled its earlier decision in the case of Classic Binding Industries [2017 (12) TMI 69 - HIMACHAL PRADESH HIGH COURT] by observing that it omitted to take note of the definition ‘initial assessment year’ contained in Section 80-IC itself and instead based its conclusion on the definition contained in Section 80-IB, which does not apply in these cases. The definitions of ‘initial assessment year’ in the two sections, viz. Sections 80-IB and 80-IC are materially different. The definition of ‘initial assessment year’ under Section 80-IC has made all the difference. The Court therefore held that judgement in the case of Classic Binding Industries (supra) does not lay down the correct law. An undertaking or an enterprise which had set up a new unit between 7th January, 2003 and 1st April, 2012 in State of Himachal Pradesh of the nature mentioned in clause (ii) of sub-section (2) of Section 80-IC, would be entitled to deduction at the rate of 100% of the profits and gains for five assessment years commencing with the ‘initial assessment year’. For the next five years, the admissible deduction would be 25% (or 30% where the assessee is a company) of the profits and gains. - in case substantial expansion is carried out as defined in clause (ix) of sub-section (8) of Section 80-IC by such an undertaking or enterprise, within the aforesaid period of 10 years, the said previous year in which the substantial expansion is undertaken would become ‘initial assessment year’, and from that assessment year the assessee shall been entitled to 100% deductions of the profits and gains. Such deduction, however, would be for a total period of 10 years, as provided in sub-section (6). If the expansion is carried out immediately, on the completion of first five years, the assessee would be entitled to 100% deduction again for the next five On the other hand, if substantial expansion is undertaken, say, in 8th year by an assessee such an 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. In the light of the decision of the Hon’ble Supreme Court in Aarham Softronics that there is merit in this appeal by the assessee and the same is allowed.
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