My Himachal unit took the 100 per cent deduction under section 80-IC for five years and then I put in substantial expansion. Do I drop to 25 per cent, or can I go back to 100 per cent?
You go back to 100 per cent. A three-judge bench of the Supreme Court held that the definition of initial assessment year in section 80-IC(8)(v) includes the year in which substantial expansion is completed, so there can be more than one initial assessment year within the ten year window. From the year of substantial expansion the unit is entitled to 100 per cent deduction again under section 80-IC(3)(ii). The ceiling in sub-section (6) is on the number of years, not on quantum. The Court held that its own earlier judgment in Classic Binding Industries, which had said otherwise, does not lay down the correct law.
Decided by the Supreme Court (Supreme Court of India, Civil Appellate Jurisdiction; A.K. Sikri, S. Abdul Nazeer and M.R. Shah, JJ (judgment by A.K. Sikri, J)) on 2019-02-20, reported as AIRONLINE 2019 SC 2418; AIRONLINE 2019 SC 2214; (2019) 3 SCALE 688. It bears on section 80-IC, section 80-IC(8)(v), section 80-IC(3), section 80-IC(6), section 80-IC(8)(ix), section 80-IB of the Income Tax Act 1961, in Deductions & Disallowances and How Tax Law Is Read matters.
This is the decision that settles the substantial expansion question under section 80-IC, and it does so by correcting the Supreme Court's own ruling six months earlier. The two-judge bench in Classic Binding Industries (20 August 2018) had reversed the Himachal Pradesh High Court and held there cannot be two initial assessment years in a ten year span; it reached that conclusion on the definition in section 80-IB, having overlooked that section 80-IC carries its own and materially different definition. Aarham Softronics restores the High Court's view and puts the position beyond argument for every unit in the special category States. It also gives the arithmetic: expansion right after year five buys a fresh 100 per cent run for years six to ten, while expansion in year eight gives 100 per cent for years one to five, 25 per cent for years six and seven, and 100 per cent for years eight to ten only. And it aligns the section 80-IC position with Mahabir Industries, where a unit moving from section 80-IB to section 80-IC on expansion had already been allowed 100 per cent beyond five years.
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The assessees had set up new units in Himachal Pradesh of the kind described in section 80-IC(2). Under section 80-IC(3) such a unit gets 100 per cent of profits and gains for five assessment years from the initial assessment year and 25 per cent, or 30 per cent for a company, for the next five, the whole run being capped at ten years by sub-section (6). Each assessee took the 100 per cent deduction for five years and then, after the fifth year but within ten years, carried out substantial expansion as defined in section 80-IC(8)(ix). They claimed 100 per cent again from the year of expansion instead of 25 per cent, accepting throughout that the total period could not exceed ten years. The Himachal Pradesh High Court, by a judgment of 28 November 2017 in a batch of appeals, decided that question in their favour. The Revenue appealed. A Division Bench of the Supreme Court, in Classic Binding Industries on 20 August 2018, reversed the High Court on that issue. Some assessees had not been served and were unrepresented; their applications to recall were allowed and their appeals restored, and the Revenue's later special leave petitions against the same High Court judgment were heard with them. All were heard afresh and decided by this judgment.
The Revenue's appeals were dismissed and the assessees' appeals allowed; the High Court's judgment on this issue was affirmed. The Court held that the definition of initial assessment year in section 80-IC(8)(v) can produce more than one initial assessment year within the ten year period. A unit setting up in Himachal Pradesh under clause (ii) of sub-section (2) gets 100 per cent for five assessment years from the initial assessment year and 25 per cent, or 30 per cent for a company, for the next five. But where substantial expansion as defined in clause (ix) of sub-section (8) is carried out within those ten years, the previous year of the expansion becomes an initial assessment year and 100 per cent deduction runs from that assessment year. The total deduction remains ten years under sub-section (6): expansion immediately after year five gives 100 per cent for the next five, while expansion in the eighth year gives 100 per cent for years one to five, 25 per cent for years six and seven and 100 per cent for years eight, nine and ten only. The Court held that Classic Binding Industries omitted the section 80-IC definition, relied instead on the materially different definition in section 80-IB, and does not lay down the correct law.
The Court's reasoning rests on a single textual point that the earlier bench had missed. Section 80-IC contains its own definition of initial assessment year in clause (v) of sub-section (8): the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things, or commences operation, or completes substantial expansion. The first two limbs are about new units, the third about existing ones. Since the statute itself makes completion of substantial expansion a trigger, an existing unit that expands has an initial assessment year on that event, and the deduction rate that attaches to an initial assessment year under sub-section (3)(ii) is 100 per cent for five years. The Court then read sub-sections (2)(a)(ii), (3)(ii), (6) and (8)(v) and (ix) conjointly. The 25 per cent rate for years six to ten proceeds on the assumption that the unit stays static; the moment substantial expansion occurs, a fresh initial assessment year is triggered and the higher rate revives, but no fresh ten year period begins because sub-section (6) caps the period and not the quantum. Purpose supported the text: section 80-IC was enacted to industrialise difficult hill States where costs of production and transport are high, and substantial expansion requires at least a 50 per cent increase in investment in plant and machinery, bringing more production and more local employment. Following the Constitution Bench in Dilip Kumar and Company, the Court held that strict interpretation does not mean a literalism that defeats the apparent legislative intent. Finally, the Court reconciled the authorities: Mahabir Industries had already allowed two initial assessment years across sections 80-IB and 80-IC, and once it is accepted that section 80-IC's own definition permits two initial assessment years, the fine distinction drawn in Classic Binding Industries disappears.
As per sub-section (6), cap is on the 10 assessment years. It is not on quantum.
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Handle my notice → Ask a CA on WhatsAppYou go back to 100 per cent. A three-judge bench of the Supreme Court held that the definition of initial assessment year in section 80-IC(8)(v) includes the year in which substantial expansion is completed, so there can be more than one initial assessment year within the ten year window. From the year of substantial expansion the unit is entitled to 100 per cent deduction again under section 80-IC(3)(ii). The ceiling in sub-section (6) is on the number of years, not on quantum. The Court held that its own earlier judgment in Classic Binding Industries, which had said otherwise, does not lay down the correct law. This was decided by the Supreme Court (Supreme Court of India, Civil Appellate Jurisdiction; A.K. Sikri, S. Abdul Nazeer and M.R. Shah, JJ (judgment by A.K. Sikri, J)) and bears on section 80-IC, section 80-IC(8)(v), section 80-IC(3), section 80-IC(6), section 80-IC(8)(ix), section 80-IB of the Income Tax Act 1961. It is reported as AIRONLINE 2019 SC 2418; AIRONLINE 2019 SC 2214; (2019) 3 SCALE 688. This is the decision that settles the substantial expansion question under section 80-IC, and it does so by correcting the Supreme Court's own ruling six months earlier. The two-judge bench in Classic Binding Industries (20 August 2018) had reversed the Himachal Pradesh High Court and held there cannot be two initial assessment years in a ten year span; it reached that conclusion on the definition in section 80-IB, having overlooked that section 80-IC carries its own and materially different definition. Aarham Softronics restores the High Court's view and puts the position beyond argument for every unit in the special category States. It also gives the arithmetic: expansion right after year five buys a fresh 100 per cent run for years six to ten, while expansion in year eight gives 100 per cent for years one to five, 25 per cent for years six and seven, and 100 per cent for years eight to ten only. And it aligns the section 80-IC position with Mahabir Industries, where a unit moving from section 80-IB to section 80-IC on expansion had already been allowed 100 per cent beyond five years. If it applies to you, the first step is this: Date the substantial expansion precisely and prove the 50 per cent test in section 80-IC(8)(ix) - the increase in investment in plant and machinery measured against book value before depreciation as on the first day of that previous year.
The assessees had set up new units in Himachal Pradesh of the kind described in section 80-IC(2). Under section 80-IC(3) such a unit gets 100 per cent of profits and gains for five assessment years from the initial assessment year and 25 per cent, or 30 per cent for a company, for the next five, the whole run being capped at ten years by sub-section (6). Each assessee took the 100 per cent deduction for five years and then, after the fifth year but within ten years, carried out substantial expansion as defined in section 80-IC(8)(ix). They claimed 100 per cent again from the year of expansion instead of 25 per cent, accepting throughout that the total period could not exceed ten years. The Himachal Pradesh High Court, by a judgment of 28 November 2017 in a batch of appeals, decided that question in their favour. The Revenue appealed. A Division Bench of the Supreme Court, in Classic Binding Industries on 20 August 2018, reversed the High Court on that issue. Some assessees had not been served and were unrepresented; their applications to recall were allowed and their appeals restored, and the Revenue's later special leave petitions against the same High Court judgment were heard with them. All were heard afresh and decided by this judgment. The matter was decided on 2019-02-20 by the Supreme Court (Supreme Court of India, Civil Appellate Jurisdiction; A.K. Sikri, S. Abdul Nazeer and M.R. Shah, JJ (judgment by A.K. Sikri, J)). On those facts the Supreme Court held as follows. The Revenue's appeals were dismissed and the assessees' appeals allowed; the High Court's judgment on this issue was affirmed. The Court held that the definition of initial assessment year in section 80-IC(8)(v) can produce more than one initial assessment year within the ten year period. A unit setting up in Himachal Pradesh under clause (ii) of sub-section (2) gets 100 per cent for five assessment years from the initial assessment year and 25 per cent, or 30 per cent for a company, for the next five. But where substantial expansion as defined in clause (ix) of sub-section (8) is carried out within those ten years, the previous year of the expansion becomes an initial assessment year and 100 per cent deduction runs from that assessment year. The total deduction remains ten years under sub-section (6): expansion immediately after year five gives 100 per cent for the next five, while expansion in the eighth year gives 100 per cent for years one to five, 25 per cent for years six and seven and 100 per cent for years eight, nine and ten only. The Court held that Classic Binding Industries omitted the section 80-IC definition, relied instead on the materially different definition in section 80-IB, and does not lay down the correct law.
The Court's reasoning rests on a single textual point that the earlier bench had missed. Section 80-IC contains its own definition of initial assessment year in clause (v) of sub-section (8): the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things, or commences operation, or completes substantial expansion. The first two limbs are about new units, the third about existing ones. Since the statute itself makes completion of substantial expansion a trigger, an existing unit that expands has an initial assessment year on that event, and the deduction rate that attaches to an initial assessment year under sub-section (3)(ii) is 100 per cent for five years. The Court then read sub-sections (2)(a)(ii), (3)(ii), (6) and (8)(v) and (ix) conjointly. The 25 per cent rate for years six to ten proceeds on the assumption that the unit stays static; the moment substantial expansion occurs, a fresh initial assessment year is triggered and the higher rate revives, but no fresh ten year period begins because sub-section (6) caps the period and not the quantum. Purpose supported the text: section 80-IC was enacted to industrialise difficult hill States where costs of production and transport are high, and substantial expansion requires at least a 50 per cent increase in investment in plant and machinery, bringing more production and more local employment. Following the Constitution Bench in Dilip Kumar and Company, the Court held that strict interpretation does not mean a literalism that defeats the apparent legislative intent. Finally, the Court reconciled the authorities: Mahabir Industries had already allowed two initial assessment years across sections 80-IB and 80-IC, and once it is accepted that section 80-IC's own definition permits two initial assessment years, the fine distinction drawn in Classic Binding Industries disappears. In the words reproduced by the source cited on this page: "As per sub-section (6), cap is on the 10 assessment years. It is not on quantum."
It was decided by the Supreme Court on 2019-02-20 and is reported as AIRONLINE 2019 SC 2418; AIRONLINE 2019 SC 2214; (2019) 3 SCALE 688. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 80-IC, section 80-IC(8)(v), section 80-IC(3), section 80-IC(6), section 80-IC(8)(ix), section 80-IB, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Revenue's appeals were dismissed and the assessees' appeals allowed; the High Court's judgment on this issue was affirmed. The Court held that the definition of initial assessment year in section 80-IC(8)(v) can produce more than one initial assessment year within the ten year period. A unit setting up in Himachal Pradesh under clause (ii) of sub-section (2) gets 100 per cent for five assessment years from the initial assessment year and 25 per cent, or 30 per cent for a company, for the next five. But where substantial expansion as defined in clause (ix) of sub-section (8) is carried out within those ten years, the previous year of the expansion becomes an initial assessment year and 100 per cent deduction runs from that assessment year. The total deduction remains ten years under sub-section (6): expansion immediately after year five gives 100 per cent for the next five, while expansion in the eighth year gives 100 per cent for years one to five, 25 per cent for years six and seven and 100 per cent for years eight, nine and ten only. The Court held that Classic Binding Industries omitted the section 80-IC definition, relied instead on the materially different definition in section 80-IB, and does not lay down the correct law. It arises in Deductions & Disallowances and How Tax Law Is Read matters, on section 80-IC, section 80-IC(8)(v), section 80-IC(3), section 80-IC(6), section 80-IC(8)(ix), section 80-IB of the Income Tax Act 1961, and was decided by Supreme Court of India, Civil Appellate Jurisdiction; A.K. Sikri, S. Abdul Nazeer and M.R. Shah, JJ (judgment by A.K. Sikri, J). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Count from the original initial assessment year, not from the expansion; the total run of deduction under sections 80-IB and 80-IC together cannot exceed ten assessment years. If an assessment or appeal was decided against you on Classic Binding Industries, take this judgment - it holds that decision does not lay down the correct law and gives grounds for rectification or appeal. Keep the plant and machinery register and the valuation working from the year of expansion; the whole claim turns on that one computation.
Still good law. The judgment is applied widely and without demur. The High Courts gave effect to it at once: the Punjab and Haryana High Court decided PCIT-1 v M/s Pacific India (19 March 2019), PCIT v M/s Virgo Industries (2 April 2019), PCIT-2 v M/s Raj Industries (29 April 2019) and PCIT-2 v M/s Health Biotech Ltd (9 July 2019) as covered by it, and the Himachal Pradesh High Court modified its own earlier order in its terms (23 December 2021) and recorded in M/s J.C. International v DCIT (4 June 2025) that the contrary judgment stood over-ruled by it. It continues to be applied at Tribunal level, most recently in ACIT, Circle-6(1), Hyderabad v DP Chocolates (21 March 2025). Nothing overruling it, doubting it or referring it to a larger bench is recorded. Whether section 80-IC still operates for the year in hand is a separate question, which this note does not examine. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The batch line lists sections 80-IC, 80-IC(3) and 80-IC(8)(ix). The provision the case actually turns on is the definition of initial assessment year in section 80-IC(8)(v), which is added here, together with sub-section (6) and section 80-IB. The judgment carries an internal inconsistency on the window for setting up a unit: paragraph 18 gives it as between 7 January 2003 and 1 April 2015, while conclusion (b) in paragraph 24 gives 7 January 2003 to 1 April 2012, and paragraph 47 of the extract the Court approves refers to a window of 7 January 2003 to 31 March 2012. A reader must check the statutory dates for himself. The judgment does not record the individual facts of any assessee - the dates of setting up, the years of expansion or the amounts - so it gives the rule and not a worked example on real figures. It also does not deal with the other issues decided by the Himachal Pradesh High Court in the same batch judgment of 28 November 2017. Whether the recalled appeals of the unserved assessees were disposed of on identical terms is not separately stated beyond the direction that all the appeals stand disposed of by this judgment. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeals were dismissed and the assessees' appeals allowed; the High Court's judgment on this issue was affirmed. The Court held that the definition of initial assessment year in section 80-IC(8)(v) can produce more than one initial assessment year within the ten year period. A unit setting up in Himachal Pradesh under clause (ii) of sub-section (2) gets 100 per cent for five assessment years from the initial assessment year and 25 per cent, or 30 per cent for a company, for the next five. But where substantial expansion as defined in clause (ix) of sub-section (8) is carried out within those ten years, the previous year of the expansion becomes an initial assessment year and 100 per cent deduction runs from that assessment year. The total deduction remains ten years under sub-section (6): expansion immediately after year five gives 100 per cent for the next five, while expansion in the eighth year gives 100 per cent for years one to five, 25 per cent for years six and seven and 100 per cent for years eight, nine and ten only. The Court held that Classic Binding Industries omitted the section 80-IC definition, relied instead on the materially different definition in section 80-IB, and does not lay down the correct law.
TaxSphere, “Principal CIT v Aarham Softronics”, https://taxnotice.vittsphere.com/caselaw/case/principal-cit-v-aarham-softronics/ (validity last checked 2026-08-29)
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My Himachal unit has had five years of 100 per cent deduction under section 80-IC. I have now carried out substantial expansion. Can I go back to 100 per cent for the next five years instead of 25 per cent?
My unit gets transport, power and interest subsidies from the State — does that money count as profit derived from the undertaking for section 80-IB or 80-IC?
After Apex Laboratories, has the Assessing Officer to disallow my entire sales promotion budget as freebies to doctors, or only part of it?
The officer has thrown Liberty India at us and removed foreign exchange gain, an excise duty refund and scrap sale proceeds from our s.80-IC profits. Are all three really outside 'derived from'?
