ITAT Ahmedabad Upholds 100% Deduction After Expansion Of Sintex's Himachal Unit

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has upheld the eligibility of Sintex Industries Ltd. to claim 100% deduction on profits under Section 80-IC of the Income Tax Act even after the initial five-year period where the eligible unit had undertaken substantial expansion.

The tribunal coram of Judicial Member Sanjay Garg and Accountant Member Annapurna Gupta dismissed the Revenue's appeal challenging the deletion of an addition of Rs 59.53 crore made by the Assessing Officer for Assessment Year 2010-11.

Section 80-IC of the Income Tax Act grants profit-linked tax deductions to certain manufacturing units set up in notified special category states such as Himachal Pradesh and Uttarakhand.

Under the provision, an eligible undertaking can claim 100% deduction of profits for the first five assessment years, after which the deduction is restricted to a lower percentage for the remaining eligible period. A recurring dispute in litigation has been whether an undertaking that carries out substantial expansion after the first five years can again claim deduction at 100% instead of the reduced rate.

In the present case, the Assessing Officer reopened the assessment under Section 147 of the Act on the ground that the assessee had wrongly claimed 100% deduction under Section 80-IC on profits of its Baddi manufacturing unit even after expiry of the first five-year period. According to the officer, the law permitted 100% deduction only for the initial five years and only 30% thereafter, irrespective of whether the unit had undertaken substantial expansion. The officer accordingly reduced the deduction and made an addition of Rs 59,57,39,492 to the income of the assessee.

On appeal, the Commissioner of Income Tax (Appeals) dismissed the assessee's challenge to the reopening of the assessment but allowed the appeal on merits.

Relying on the Supreme Court's ruling in PCIT v. Aarham Softronics, the appellate authority held that where substantial expansion is carried out in an eligible unit, the assessee is entitled to claim deduction at 100% of profits even after the expiry of the initial five-year period and deleted the addition of Rs 59,53,16,925.

Before the tribunal, the Revenue argued that a second substantial expansion cannot trigger a fresh period of 100% deduction and that tax exemptions must be strictly interpreted. It was also contended that the decision in Aarham Softronics did not justify grant of 100% deduction in the present facts.

The tribunal, however, noted that the issue stood settled by the Supreme Court and that the departmental representative was unable to point out any distinguishing facts. The bench observed:

“We see no reason to interfere in the order of the Ld. CIT(A) who has rightly held the assessee entitled to claim deduction of 100% of its profit on substantial expansion carried out by it in its eligible unit in Baddi, even after the expiry of 5 years of claim of 100% deduction of profits u/s 80IC of the Act, following the law laid down by the Hon'ble Apex Court in the case of Aarham Softronics.”

Accordingly, the revenue's appeal was dismissed.

Sintex had also filed a cross-objection challenging the validity of the reassessment proceedings. However, the tribunal held that since the issue on merits had already been conclusively decided in favour of it on the basis of binding Supreme Court precedent, the legal grounds raised in the cross-objection were academic in nature.

The tribunal therefore did not adjudicate those grounds and dismissed the cross-objection as infructuous while leaving the legal issues open to be raised at an appropriate stage