TMI Blog2010 (9) TMI 577X X X X Extracts X X X X X X X X Extracts X X X X ..... on the 1st day of the previous year , in which the substantial expansion was undertaken. In such a case depreciation on the plant and machinery of the said unit would be availed of for the first time only in the AY, when the plant and machinery of the said unit is first used for the purpose of business - In such a case depreciation on the plant and machinery of the said unit would be availed of for the first time only in the AY, when the plant and machinery of the said unit is first used for the purpose of business - therefore, set aside the orders of the authorities below on this issue, and remit the matter back to the file of the Assessing Officer with the direction that afresh order be passed in the light of our above observations and as per law after giving the assessee adequate opportunity of being heard - Appeal are allowed - ITA Nos.110 & 401/Kol/2010 - - - Dated:- 24-9-2010 - B.R. MITTAL, JUDICIAL MEMBER AND B.K. HALDAR, ACCOUNTANT MEMBER P.J. Bhide for the Appellant. P.K. Kolhe for the Respondent. ORDER Shri B.K. Haldar, Accountant Member: These are two appeals filed by the assessee against the respective orders of the learned Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Before the ld. Commissioner of Income-tax (Appeals) the contention of the assessee was as under:- The appellant carries on business of cultivation and manufacture of tea at its Joonktollee Tea Estate situated in the state of Assam. The appellant also carries on business of cultivation of coffee at its coffee plant in Cowcoody estate in Karnataka. The income derived by the appellant from cultivation of coffee is considered as agricultural income to the extent of 75%. There is also a rubber estate at Kalasa in South India, income from which to the extent of 35% is taxable under IT Act, 1961. The income derived by the appellant from the business of cultivation and manufacture of tea is first computed under the head Profits and Gains of Business of profession as per provisions of Chapter-IV, para-D of the IT Act and 60% thereof is considered as agriculture income and 40% as central income. There are two grounds which have been raised in this appeal. The first ground is against the disallowance made by the ACIT in rejecting the claim of the appellant for deduction uls.80-IC of the Act. The appellant has claimed such deduction in its return in respect of income derived from Jo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 assessment years commencing with the initial assessment year. Thus it will be seen that in the case of an assessee cultivating and manufacturing tea and undertaking substantial expansion during the period commencing on 24th December, 1997 and ending on 31st March, 2007 is entitled with deduction of 100% profit derived from such undertaking for a period of 10 assessment years, commencing from the initial assessment year, i.e., year in which substantial expansion is completed. Sir, the process of substantial expansion cannot be completed in one accounting year. Such expansion involving additions to plant and machinery at a considerable cost involving purchase and installing of various plant equipment takes a long time. In this connection, abstracts from the reports of the Board of Directors of the appellant for the financial year ending on 31-03-1999 to 31-03-2004 are enclosed and marked annexure A. The same clearly proves that the process of substantial expansion has been undertaken by the appellant in the financial year 1998-99 and completed in the financial year 2003-04. Such expansion involves not only addition to the plant and machinery but also addition to factory buildin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted to the Assessing Officer the particulars of plant and machinery added at the above cost during the aforesaid years. Thus the appellant then and now also claims that the substantial expansion of its business of producing tea from green leaves cultivated at its own gardens or purchased from others was undertaken in the financial year 1997-98 and was completed in the financial year 2003-04. The cost of Plant Machinery added during this period far exceeded the cost there of at the beginning of the undertaking such substantial expansion, i.e. 24-12-1997. The appellant therefore, claimed that it was entitled to a deduction to the extent specified in section 80-IC (3) for a period of 10 years commencing from assessment year 2004-05 being the initial year for 10 years. The Assessing Officer however, rejected the appellant s claim as according to the Assessing Officer, the expansion has to be completed only in a single previous year accordingly the Assessing Officer held, that in the case of appellant the substantial expansion has taken place over a period of 5 previous years, hence he rejected the appellant s claim. The Assessing Officer further held that the appellant has s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bstantial expansion has been defined in section 80-IC(8)(ix) and initial assessment year has also been defined in section 80-IC(8)(v). It was submitted by him that the assessee fulfils all the conditions of substantial expansion and the initial assessment year as per the Act should only be the AY 2004-05. It is contended by him that substantial expansion as defined in the Act could be carried out during the period 24-12-1997 to 31-3-2007 and need not be carried out only in one AY. Reliance was placed on Board s Circular No.7/03 para 49. As the assessee produces item No.12 of Part-A of schedule-XIV of the Act, it was contended by him that the assessee was entitled to deduction u/s.80-IC of the Act, AY 2004-05 being the initial assessment year. 10. The ld. DR, on the other hand, in addition to relying on the orders of the authorities below, submitted that initial assessment year as defined in section 80-IA(2) is similar to that defined in section 80-IC(8)(v). As there is no ambiguity in the language used in section 80-IC, it was contended by him that the assessee was not entitled to benefit u/s.80-IC of the Act. Reliance was placed on the order of the Pune Bench of the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt where the assessee is a company) of the profits and gains. (4) This section applies to any undertaking or enterprise which fulfils all the following conditions, namely: (i) it is not formed by splitting up, or the reconstruction, of a business already in existence : Provided that this condition shall not apply in respect of an undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation - The provisions of Explanations 1 and 2 to sub-section (3) of section 80-IA shall apply for the purposes of clause (ii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section. (5) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee, no deduction shall be allowed under any other section contained in Chapter VIA or in section 10A or section 10B, in relation to the profits and gains of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day of the previous year in which the substantial expansion is undertaken. 49.2 The section provides that the deduction shall be available to such undertakings or enterprises which manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth schedule and which commence operation in any Export Processing Zone, or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate, or Industrial Park, or Software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with rules prescribed in this regard. Similar deduction shall be available to thrust sector industries, as specified in the Fourteenth Schedule. 49.3 The amount of deduction in case of undertakings or enterprises in the States of Sikkim, and the North-Eastern States shall be one hundred per cent of the profits of the undertaking for ten assessment years. The amount of deduction in case of undertakings or enterprises in the States of Uttaranchal, Himachal Pradesh shall be one hundred per cent of the profits of the undertaking for five assessment years, and thereafter twenty-five per cent (thirty per cent for companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eginning on 24th day of December, 1997 and ending before the 1st day of April ,2007. 11.5 It is also to be noted that as per sub-section(4) of section 80IC, the eligible undertaking or enterprise should also fulfill the following two conditions: - i) It is not formed by splitting up or the reconstruction of a business already in existence; ii) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose. 11.6 The combined reading of the above would show that if there is an existing undertaking/enterprise carrying on a particular operation, it will be eligible for the deduction under this section only when it undertakes substantial expansion of eligible business and such expanded business commences its operation in the Assessment Year 2004-05 or in any of the subsequent Assessment Years. This would mean substantial expansion would constitute a distinct business, which would be separate from the existing business of the undertaking or enterprise. Any other interpretation would make some of the provisions of section 80-IC of the Act redundant. The definition of initial AY and substantial expansion given in sub section (8) of this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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