TMI Blog2016 (7) TMI 1588X X X X Extracts X X X X X X X X Extracts X X X X ..... t, that the applicability of the provisions of section 80IC(6) have to be construed. The ld. CIT(A) has erred in not doing so. Section 80IC(8)(v) states that initial assessment year means the assessment year relevant to the previous year in which the undertaking or enterprise, inter-alia, begins manufacture, or completes substantial expansion. In the present case, substantial expansion was brought about in the assessment year 2004-05 and that being so, the period of 10 years tax holiday is to commence with reference to this assessment year, i.e., A.Y. 2004-05. The assessee claimed deduction under section 80-IC with respect to Unit-II. This was wrongly disallowed by the AO and the ld. CIT(A) erroneously confirmed the disallowance. The initial assessment year for the proposed Unit-II, for the purposes of section 80-IC(6), was A.Y. 2004- 05. - Decided in favour of assessee. - ITA No. 600(Asr)/2011 - - - Dated:- 19-7-2016 - SH. A.D. JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER For the Appellant : Sh. Sandeep Vijh, cA For the Respondent : Sh. A,N.Mishra, DR ORDER PER A.D. JAIN, JM: This is the assessee s appeal for the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ister for the two Units. The common excise registration number and sales tax number for both the Units was stated to be due to the fact that both the Units were of the same assessee. It was submitted that the employees of both the Units were separately identifiable and that the old Unit and the new Unit had different machinery, which was found at the time of on the spot inspection by the Inspector deputed by the earlier AO. It was further submitted that since new machinery had been purchased, this could not be a case of splitting up. Details of the machinery purchased for substantial expansion were stated to have been filed during the assessment proceedings for A.Y.2006-07. A copy of the certificate issued by the Department of Industries, wherein, the substantial expansion had been accepted, was also submitted by the assessee. 2.1 The AO was not satisfied with the assessee s reply. The AO noted that the assessee had accepted that both the Units had common premises, common invoice book, consolidated stock register and common sales tax and excise registration number. These facts were also noted in the hearing held on 18.11.2010, during which, these facts were recorded again after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nected to the issue under appeal which shall be discussed in due course. The entire thrust of the argument of the assessing officer for the year under consideration was that the assessee had not carried out substantial expansion and it was a case of splitting up of the old unit. This is clear from para no. 4 at page no. 2 to 15 of the impugned assessment order u/s 143(3). The assessing officer had relied heavily on the assessment order for the assessment year 2006-07 and this fact been clearly mentioned in the opening lines of para no. 4.4 at page no. 14 of the assessment order. Even the replies filed in the assessment year 2006-07 have been incorporated and discussed by the Assessing Officer while deciding the issue. As submitted above the issue in the order for the assessment year 2006-07 was decided in favour of the assessee by the C1T(A) and the action of the CIT(A) was upheld by the ITAT, Amritsar Bench in the appeal filed by the revenue. Copy of the order of the ITAT is enclosed at page no. 18 to 31. T(re allegation that there was splitting up of the old unit did not find favour with any judicial authorities. While deciding the appeal for the Assessment Year 2008-09, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in the present appeal. Section 80- IC(1) reads as Where the gross total income of an assessee includes any profit and gains derived by an undertaking or any enterprise from any business . . . . A plain reading of the above leaves no doubt that the words undertaking and enterprise does not represent an assessee. The interpretation of the CIT(A) is thus not in accordance with the provisions of law as the time limit has to be referred to from the date of the substantial expansion which resulted in a new unit. Attention is also drawn to the decision of the Gujarat High Court in the case of CIT vs. Shree Digvijay Cement Company reported at 144 ITR 532 wherein it was held that the expanded unit has a separate identity. Copy of the decision is enclosed at page no. 39 to 42 [please see the head notes at page no 39/40 and the last five lines of the first para at page no. 41]. The two case laws mentioned above were highlighted during the appellate proceedings itself and stand mentioned in the second last para at page no. 5 of the order of CIT(A) but these cases have not been dealt with at all while disposing off the appeal. Itt may also be submitted that the Unit-II had been set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section providing for quantification and period of deduction is section 80-IC(3) and it provides for deduction in the case of substantial expansion for ten years commencing from the initial assessment year. Sub-section (8) of section 80- IC as defined initial assessment year and this definition is reproduced below: 80-IC(8)(v) initial assessment year means the assessment year relevant to the previous year in which the undertaking or the enterprise begins to manufacture or produce articles or things, or commences operations or completes substantial expansion The sub-section (3) will also be rendered irrelevant if the years are to be inferred from the year in which the original unit was set up. If this was the intention of the legislature, then there was no need to refer to the year of substantial expansion which has to be after the setting up of the main unit. Substantial expansion is different from normal expansion and no benefit is available for normal expansion. The period of ten years has thus to be considered from the substantial expansion where such expansion has been carried out by the assessee. If this was not so, there was not need to even coin the word substant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year in which the undertaking or enterprise begins to manufacture or produce articles or things, or commences operatic or completes substantial expansion. For different situation the word used is or and each clause is independent of the other. It is also pertinent to mention that no overall restriction has been placed by using words such as whichever is earlier . In the present case sir substantial expansion which resulted in the creation of new unit, the initial assessment year is Assessment Year 2004-05 and the period of ten year is to commence w reference to the Assessment Year 2004-05. Since the period of deduction has not be linked to the date when the original unit was put into place, no such assumption of presumption can be made in view of the decisions cited in the preceding paragraph. The CIT(A) has thus not justified in upholding the disallowance of deduction u/s 80-IC claimed at ₹ 25,44,945 which was claimed only with respect of the substantial expansion unit i.e Unit No.-II where the initial assessment year is Assessment Year 2004- OS. The finding given at the end of para no. 5.4 of the order of CIT(A) [please see page no. 16 of the order of CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve of the period of deduction under this section, or under the second proviso to sub-section (4) of section 80-IB or under section 10C, as the case may be, exceeds ten assessment years. 8. Section 80-IC(6) thus, evidently, talks of an undertaking or enterprise . Section 80-IC(8)(v) states that initial assessment year means the assessment year relevant to the previous year in which the undertaking or the enterprise begins to manufacture or produce articles or things, or commences operation or completes substantial expansion. 9. Section 80-IV(8)(v), therefore, makes it further clear that the substantial expansion being considered as that of the undertaking or enterprises. 10. Thus, the assessee is correct in contending that whereas the relevant provisions of the Act are clear with regard to the entitlement therein being that of the undertaking or enterprise and not of the assessee. Obviously, therefore, the restriction of the period of deduction pertains to an undertaking or enterprise belonging to an assessee and not to the assessee, as has erroneously been done by the ld. CIT(A). 11. In CIT vs. Premier Cotton Mills , 240 ITR 434 (Mad.), it has been held that a si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. From the above sections, as a whole, it is clear that it is the undertaking or enterprise , rather than the assessee , or the profits and gains, which is to be subjected to deduction therein and that undertaking and enterprise are the terms which are not mutually inter-changeable with the term assessee . In the present case, as seen, the substantial expansion carried out by the assessee resulted in a new unit, i.e. Unit II, which is the undertaking or enterprise that to be subjected to be deduction, and not the assessee itself. As such, the provisions of section 80-IC(b) is to be construed vis- -vis Unit-II. 17. The ld. CIT(A) has not responded either to Premier Cotton Mills Ltd. (supra) or to Shri Digvijay Cement Co. (supra), though they were cited. Even before us, the Department has not cited any case law in contra-distinction to these decisions. It remains unchallenged on record that Unit-II of the assessee is an entirely independent unit from the erstwhile unit. It was set up by installing new machinery worth ₹ 71 lacs. Obviously, it has a separate electricity connection. It is being worked by separate employees. The purchases to and sales from Unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, are Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance ;s prescribed in this regard. Similar deduction shall be available to thrust sector industries, as specified in the Fourteenth Schedule. The amount of deduction in case of undertakings or enterprises in the States of Sikkim, and the 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 Uttranchal, 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 companies) for the next five assessment years. The section also provides that no deduction shall be allowed to any undertaking or enterprise :p s section, where the total period of deduction inclusive of the period of deduction under this - or under section 80-IB or under section 10C, as th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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