Hycron Electronics, Solan V. ITO, Baddi

ITA 327/CHANDI/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8375 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-02-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 06-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Advance ruling; Condonation of delay
• Section: 244A; 14A; 80IB; 27; 56; 263

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 327/CHD/2015 ASSESSMENT YEAR: 2011-12 M/S HYCRON ELECTRONICS, VS. THE ITO, BADDI, SOLAN, H.P. PAN NO. AADFH1249K (APPELLANT) (RESPONDENT) APPELLANT BY: S/SH.RAJESH SHARMA (AUTHORIZED SIGNA TORY) RESPONDENT BY : SH. SUSHIL KUMAR DATE OF HEARING : 08.02.2016 DATE OF PRONOUNCEMENT : 14.03.2016 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)- SHIMLA DATED 13.2.2015 RELATING TO ASSESSMENT YEAR 2011-12. 2. GROUND NO.1 OF THE APPEAL IS GENERAL IN NATURE A ND, HENCE, NO COMMENTS ARE BEING OFFERED. 3. GROUND NO.2 OF THE APPEAL READS AS UNDER:-_ 2. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(APPEALS), SHIMLA HAS ERRED IN: I. AFFIRMING THE ORDER OF LD. ITO, BADDI IN RESTRICTING THE CLAIM OF APPELLANT OF DEDUCTION U/S 80-IC OF TH E INCOME TAX ACT, 1961 AT 25% INSTEAD OF 100% CLAIMED BY THE APPELLANT IN THE SIXTH YEAR OF OPERATION OF NEW IND USTRIAL 2 UNDERTAKING OF THE APPELLANT WHEREIN SUBSTANTIAL EX PANSION WAS CARRIED OUT IN SUCH NEW INDUSTRIAL UNDERTAKING BY THE APPELLANT. II. MISINTERPRETING THE PROVISIONS OF SECTIO N 80-IC OF THE ACT WHICH PROVIDES FOR SUBSTANTIAL EXPANSION TO BE UNDERTAKEN DURING THE PERIOD BEGINNING ON 7TH JANUA RY 2003 AND ENDING BEFORE 1ST APRIL 2012 AND ERRONEOUSLY U PHOLDING THAT THE BENEFIT OF 100% DEDUCTION U/S 80-IC OF THE ACT FOR FIRST FIVE YEARS IN CASE OF SUBSTANTIAL EXPANSION I S AVAILABLE ONLY TO THE UNITS THAT EXISTED AND WERE OPERATIONAL AS ON 07.01.2003 AND SUCH BENEFIT IS NOT AT ALL MEANT FOR THE UNITS THAT CAME INTO BEING ON OR AFTER THE INTRODUCTION O F THE SCHEME OF SUCH DEDUCTION. III. UPHOLDING THAT ONCE AN 'INITIAL ASSESSME NT YEAR 1 IS DETERMINED IN CASE OF AN UNDERTAKING CLAIMING BENEF IT U/S 80- IC OF THE ACT, IT CANNOT BE CHANGED EVEN IF SUCH U NDERTAKING COMPLETES SUBSTANTIAL EXPANSION AND AGAIN QUALIFIES FOR DEDUCTION UNDER THE SAID SECTION ON THE BASIS OF ' QUALIFYING EXPANSION'. IV. MAKING A NARROW INTERPRETATION OF THE PRO VISION OF SECTION 80-IC OF THE INCOME TAX ACT, 1961 WHICH WAS INTRODUCED AS A WELFARE LEGISLATION FOR PROVIDING S TIMULUS TO THE ECONOMY OF INDUSTRIALLY BACKWARD STATES SUCH AS HIMACHAL PRADESH. 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT A SSESSEE DERIVES INCOME FROM MANUFACTURING OF ASSEMBLIES AND SUB ASSEMBLIES FOR ELECTRONICS ENERGY METERS AND ALLIED PRODUCES. THE ASSESSING OFFICER NOTED TH AT THE ASSESSEE STARTED ITS MANUFACTURING ACTIVITIES W.E.F. 17.1.2014, I.E. DUR ING THE FINANCIAL YEAR 2003-04 AND HAD BEEN CLAIMING DEDUCTION U/S 80IC OF THE INC OME-TAX ACT, 1961 (IN SHORT 'THE ACT') FROM ASSESSMENT YEAR 2004-05 WHICH WAS T HE FIRST YEAR OF CLAIMING THE DEDUCTION U/S 80IC. THE ASSESSEE HAD ALREADY CLAIME D 100 % DEDUCTION U/S 80IC UPTO ASSESSMENT YEAR 2008-09. IT IS STATED TH AT IN THE FINANCIAL YEAR 2008- 09 RELEVANT TO ASSESSMENT YEAR 2009-10, THE ASSESSE E HAD MADE SUBSTANTIAL 3 EXPANSION IN THE PLANT AND MACHINERY AND STARTED C LAIMING 100% DEDUCTION U/S 80IC TREATING THE ASSESSMENT YEAR 2009-10 AS INITIA L YEAR AGAIN AND TREATING IT TO FIRST YEAR OF CLAIM OF DEDUCTION U/S 80IC OF THE AC T. AS PER THE ASSESSING OFFICER, SINCE THE ASSESSEE HAD CLAIMED 100% DEDUCT ION FOR FIRST 5 YEARS, THEREFORE, IT WAS ENTITLED FOR CLAIM OF DEDUCTION U /S 80IC @ 25% FOR THE 6 TH YEAR TO 10 TH YEAR IE. 2009-10 TO 2013-14. ACCORDINGLY, THE ASS ESSING OFFICER RESTRICTED THE CLAIM OF DEDUCTION U/S 80IC @ 25% AS AGAINST 100% CLAIMED BY THE ASSESSEE. 5. ON APPEAL, THE CIT(A) UPHELD THE ORDER OF THE AS SESSING OFFICER AND, HENCE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNA L. 6. AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE B Y THE ORDER OF THIS BENCH OF THE TRIBUNAL PASSED IN THE CASE OF HYCRON ELECTRONI CS VS. ITO, CHANDIGARH REPORTED IN (2015) 41 ITR (TRIB.) 486 RELATING TO A SSESSMENT YEAR 2009-10. WHILE DECIDING A SIMILAR ISSUE, THE TRIBUNAL HELD A S UNDER:- 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS INCL UDING WRITTEN SUBMISSIONS IN THE LIGHT OF MATERIAL ON RECORD, AS WELL AS JUDGMENTS CITED BY THE PARTIES. BEFORE WE CONSIDER THE RELEVANT PROVISIONS WHICH ARE REQUIRED TO BE INTERPRETED, IT WILL BE USEFUL TO DEAL WITH THE VARIOUS PRINCIPLES OF INTERPRETATION AS ENUNCIATED BY VARIOUS COURTS. 23. IT IS SETTLED THAT IF THE LANGUAGE OF A PARTICULAR STATUTE IS CLEAR THEN ONLY LITERAL MEANING HAS TO BE GIVEN TO SUCH LANGUAGE AS LONG THE SAME DOES NOT RESULT IN ABSURDITY OR UNINT ENDED CONSEQUENCES. THEREFORE, IF THE LANGUAGE OF A PART ICULAR STATUTE IS CLEAR THEN THE SAME CANNOT BE CHANGED BY APPLYING D IFFERENT PRINCIPLES OF INTERPRETATIONS. THIS IS CLEAR FROM T HE OBSERVATIONS MADE BY HON'BLE APEX COURT IN THE CASE OF ORISSA STATE WAREHOUSING CORPORATION VS. CIT 237 ITR 607 WHER EIN IT HAS BEEN OBSERVED AT PAGE 604 & 605 OF THE REPORT AS UN DER:- LET US, HOWEVER, AT THIS JUNCTURE, CONSIDER SOME O F THE OFT CITED DECISIONS PERTAINING TO THE INTERPRETATION OF THE F ISCAL STATUTES BEING THE FOCAL POINT OF CONSIDERATION IN THESE APP EALS. LORD 4 HALSBURY AS EARLY AS 1901, IN COOKE V. CHARLES A. V OGELER COMPANY [1901] AC 102 (HL) STATED THE LAW IN THE MA NNER FOLLOWING: A COURT OF LAW, HAS NOTHING TO DO WITH THE REASON ABLENESS OR UNREASONABLENESS OF A PROVISION OF A STATUTE EXC EPT SO FAR AS IT MAY H OLD IT IN INTERPRETING WHAT THE LEGISLATURE H AS SAID. IF THE LANGUAGE OF A STATUTE BE PLAIN, ADMITTING OF ONLY O NE MEANING, THE LEGISLATURE MUST BE TAKEN TO HAVE MEANT AND INT ENDED WHAT IT HAS PLAINLY EXPRESSED, AND WHATEVER IT HAS IN CLEAR TERMS ENACTED MUST BE ENFORCED THOUGH IT SHOULD NOT LEAD TO ABSUR D OR MISCHIEVOUS RESULTS. IF THE LANGUAGE OF THIS SUB-SECTION BE NOT CONTROLLED BY SOME OF THE OTHER PROVISIONS OF THE S TATUTE. IT MUST, SINCE, ITS LANGUAGE IS PLAIN AND UNAMBIGUOUS, BE EN FORCED AND YOUR LORDSHIPS HOUSE SITTING JUDICIALLY IS NOT CON CERNED WITH THE QUESTION WHETHER THE POLICY IT EMBODIES IS WISE OR UNWISE, OR WHETHER IT LEADS TO CONSEQUENCES JUST OR UNJUST, BE NEFICIAL OR MISCHIEVOUS. THE OFT-QUOTED OBSERVATIONS OF ROWLATTT J. IN THE C ASE OF CAPE BRANDY SYNDICATE V. IRC [1921] 1 KB 64 OUGHT A LSO TO BE NOTICED AT THIS JUNCTURE. THE LEARNED JUDGE OBSERVE D (PAGE 71): . . . IN A TAXING STATUTE ONE HAS TO LOOK MERELY A T WHAT IS CLEARLY SAID. THERE IS NO ROOM FOR ANY INTENDMENT. THERE IS NO EQUITY ABOUT A TAX. THERE IS NO PRESUMPTION AS T O A TAX. NOTHING IS TO BE READ IN, NOTHING IS TO BE IMPLIED. ONE CAN ONLY LOOK FAIRLY AT THE LANGUAGE USED. THE OBSERVATIONS OF ROWLATT J. AS ABOVE STAND ACCEP TED AND APPROVED BY THE HOUSE OF LORDS IN A LATER DECISION, IN THE CASE OF CANADIAN EAGLE OIL ALSO IN A MANNER SIMILAR IN IRC V. ROS AND COULTER (BLADNOCH DISTILLERY CO. LTD. V. THE KING [ 1946] HON'BLE APEX COURT 119; [1945] 2 ALL ER 499. LORD THANKERTO N ALSO IN A MANNER SIMILAR IN IRC V. ROSS AND COULTER (BLADNOCH DISTILLERY CO. LTD. [1984] 1 ALL ER 616 AT PAGE 625 OBSERVE: IF THE MEANING OF THE PROVISION IS REASONABLY CLEA R, THE COURTS HAVE NO JURISDICTION TO MITIGATE SUCH HARSHN ESS. THE DECISION OF THIS COURT IN KESHAVJI RAVJI AND C O. V. CIT[1990] 183 ITR 1 ALSO LENDS CONCURRENCE TO THE V IEWS EXPRESSED ABOVE. THIS COURT OBSERVED (PAGE 9): AS LONG AS THERE IS NO AMBIGUITY IN THE STATUTORY LANGUAGE, RESORT TO ANY INTERPRETATIVE PROCESS TO UNFOLD THE LEGISLATIVE INTENT BECOMES IMPERMISSIBLE. THE SUPPOSED INTENTIO N OF THE LEGISLATURE CANNOT THEN BE APPEALED TO TO WHITT LE DOWN THE STATUTORY LANGUAGE WHICH IS OTHERWISE UNAMBIGUO US. IF THE INTENDMENT IS NOT IN THE WORDS USED. IT IS NOWH ERE ELSE. THE NEED FOR INTERPRETATION ARISES WHEN THE WORDS U SED IN 5 THE STATUTE ARE, ON THEIR OWN TERMS, AMBIVALENT AND DO NOT MANIFEST THE INTENTION OF THE LEGISLATURE ARTIFICIAL AND UNDULY LATIDUDINARIAN RULES OF CONST RUCTION, WHICH WITH THEIR GENERAL TENDENCY TO GIVE THE TAXP AYER THE BREAKS, ARE OUT OF PLACE WHERE THE LEGISLATION HAS A FISCAL MISSION. BE IT NOTED THAT INDIVIDUAL CASES OF HARDSHIP AND I NJUSTICE DO NOT AND CANNOT HAVE ANY BEARING FOR REJECTING TH E NATURAL CONSTRUCTION BY ATTRIBUTING NORMAL MEANING TO THE WORDS USED SINCE HARD CASES DO NOT MAKE BAD LAWS. HOWEVER, IF SOME AMBIGUITY IS THERE IN THE LANGUAGE OF A PARTICULAR STATUTE BECAUSE OF VARIOUS REASONS, THE SAME IS REQ UIRED TO BE CONSTRUED SO AS TO FIND OUT THE REAL INTENTION OF T HE LEGISLATURE AND THEN EVERY POSSIBLE MATERIAL SHOULD BE CONSIDERED T O FIND OUT THE REAL INTENTION OF THE LEGISLATURE. IN THIS REGARD, THE OBSERVATION OF THE HON'BLE SUPREME COURT IN THE CELEBRATED JUDGEME NT OF K.P. VERGESE 131 ITR 598 (SUPRA) ARE RELEVANT. WE EXTRA CT THE HEAD NOTE WHICH READS AS UNDER:- A STATUTORY PROVISION MUST BE SO CONSTRUED, IF POSSIBLE, THAT ABSURDITY AND MISCHIEF MAY BE AVOIDE D. WHERE THE PLAIN LITERAL INTERPRETATION OF A STATUTO RY PROVISION PRODUCES A MANIFESTLY ABSURD AND UNJUST R ESULT WHICH COULD NEVER HAVE BEEN INTENDED BY THE LEGISLA TURE, THE COURT MAY MODIFY THE LANGUAGE USED BY THE LEGIS LATURE OR EVEN DO SOME VIOLENCE TO IT, SO AS TO ACHIEVE TH E OBVIOUS INTENTION OF THE LEGISLATURE AND PRODUCE A RATIONAL CONSTRUCTION. L UKE V . IRC [1963] H ON ' BLE A PEX C OURT 557; [1964] 54 ITR 692 (HL) FOLLOWED. SPEECHES MADE BY THE MEMBERS OF THE LEGISLATURE ON THE FLOOR OF THE HOUSE WHEN THE BILL IS BEING DEBAT ED ARE INADMISSIBLE FOR THE PURPOSE OF INTERPRETING THE ST ATUTORY PROVISION BUT THE SPEECH MADE BY THE MOVER OF THE B ILL EXPLAINING THE REASON FOR ITS INTRODUCTION CAN CERT AINLY BE REFERRED TO FOR THE PURPOSE OF ASCERTAINING THE MIS CHIEF SOUGHT TO BE REMEDIED BY THE LEGISLATION AND THE OB JECT AND PURPOSE FOR WHICH THE LEGISLATION IS ENACTED. THIS IS AN ACCORD WITH THE RECENT TREND IN JURISTIC THOUGHT NO T ONLY IN WESTERN COUNTRIES BUT ALSO IN INDIA, THAT THE INTER PRETATION OF A STATUTE BEING AN EXERCISE IN THE ASCERTAINMENT OF MEANING, EVERYTHING WHICH IS LOGICALLY RELEVANT SHO ULD BE ADMISSIBLE. THE MARGINAL NOTE TO A SECTION CANNOT BE REFERRED TO FOR THE PURPOSE OF CONSTRUING THE SECTION BUT IT CA N CERTAINLY BE RELIED UPON AS INDICATING THE DRIFT OF THE SECTION OR TO SHOW WHAT THE SECTION IS DEALING WITH . IT 6 CANNOT CONTROL THE INTERPRETATION OF THE WORDS OF A SECTION, PARTICULARLY WHEN THE LANGUAGE OF THE SECTION IS CL EAR AND UNAMBIGUOUS BUT, BEING PART OF THE STATUTE, IT PRIM A FACIE FURNISHES SOME CLUE AS TO THE MEANING AND PURPOSE O F THE SECTION. THE HIGHLIGHTED PORTION CLEARLY SHOWS THAT EVERY MA TERIAL WHICH IS LOGICALLY RELEVANT SHOULD BE TAKEN INTO ACCOUNT FOR ASCERTAINING THE TRUE MEANING OF A PARTICULAR PROVISION. THE SAME V IEW WAS TAKEN BY HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V N.K. VAIDYA 224 ITR 186 (SUPRA) AND OBSERVATIONS CONTAINED IN T HE HEAD NOTE READS ASUNDER:- THE LEGISLATIVE HISTORY OF A FISCAL STATUTE COULD BE TRACED AND CONSIDERED TO UNDERSTAND ITS SCOPE. THE COURTS ARE PERMITTED TO TRAVEL BEYOND THE WORDS USED IN A STAT UTE, TO FIND OUT THE PURPOSE FOR WHICH A PARTICULAR PROVISI ON IS ENACTED; FOR THIS PURPOSE, EVEN THE SPEECH OF THE F INANCE MINISTER, WHILE INTRODUCING THE PARTICULAR FISCAL L EGISLATION COULD BE LOOKED INTO. THE CIRCULARS ISSUED BY THE C ENTRAL BOARD OF DIRECT TAXES ARE NOT ONLY BINDING ON THE I NCOME- TAX DEPARTMENT BUT ARE ALSO IN THE NATURE OF CONTEMPORANEA EXPOSITION FURNISHING LEGITIMATE AID IN THE CONSTRUCTION OF A PROVISION. 24. THE LD. COUNSEL OF THE ASSESSEE HAD REFERRED TO THE DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF DINA KAR ULLAL VS. CIT (SUPRA) AND DECISION OF HON'BLE SUPREME COURT IN THE CASE O F COMMISSIONER OF CENTRAL EXCISE VS. M/S RATTAN MELTI NG & WIRE (SUPRA) FOR THE PROPOSITION THAT SINCE CIRCULARS AR E NOT BINDING ON THE COURTS, THEREFORE, THE SAME SHOULD NOT BE CONSI DERED FOR INTERPRETATION OF A PARTICULAR PROVISION. AS FAR A S THE DECISION IN THE CASE OF COMMISSIONER OF CENTRAL EXCISE VS. M/S RATTAN MELTING & WIRE (SUPRA) IS CONCERNED, THIS DOES NOT SUPPORT THE PROPOSITION MADE BY THE LD. COUNSEL FOR THE ASSESSEE. IN THAT CASE THE QUESTION WAS WHETHER A CIRCULAR ISSUED BY THE DEPARTMENT WHI CH IS GENERALLY BINDING ON THE AUTHORITIES WOULD TAKE PRECEDENCE OV ER THE INTERPRETATION MADE BY THE SUPREME COURT OR HIGH CO URT IN RESPECT OF PARTICULAR PROVISION. THE PARA 6 OF THIS JUDGME NT MAKE THIS POINT ABSOLUTELY CLEAR AND READS AS UNDER:- 6. CIRCULARS AND INSTRUCTIONS ISSUED BY THE BOARD ARE NO DOUBT BINDING IN LAW ON THE AUTHORITIES UNDER THE RESPECTIVE STATUTES, BUT WHEN THE SUPREME COURT OR THE HIGH COURT DECLARES THE LAW ON THE QUESTION ARISING FOR CONSIDERATION, IT WOULD NOT BE APPROPRIATE FOR THE COURT TO DIRECT THAT THE CIRCULAR SHOULD BE GIVEN EFFECT TO AND NOT THE VIEW EXPRESSED IN A DECISION OF THIS COURT OR THE HIGH COURT. SO FAR AS THE CLARIFICATIONS/CIRCULARS ISSUED BY THE CENTRAL GOVERNMENT AND OF THE STATE GOVERNMENT 7 ARE CONCERNED THEY REPRESENT MERELY THEIR UNDERSTANDING OF THE STATUTORY PROVISIONS. THEY ARE NOT BINDING UPON THE COURT. IT IS FOR THE COURT TO DECLARE WHAT THE PARTICULAR PROVISION OF STATUTE SAYS AND IT IS NOT FOR THE EXECUTIVE. LOOKED AT FORM ANOTHER ANGEL, A CIRCULAR WHICH IS CONTRARY TO THE STATUTORY PROVISIONS HAS REALLY NO EXISTENCE IN LAW. THE ABOVE SHOWS THAT CIRCULARS ARE NOT BINDING ON T HE COURT BUT THE COURT HAS RIGHT TO LOOK AT THE CIRCULAR AND ULTIMAT ELY MEANING OF A PROVISION AS INTERPRETED BY THE COURT WOULD PREVAIL IN COMPARISON TO THE INTERPRETATION GIVEN IN THE CIRCULAR. THER EFORE, IF CIRCULAR IS CONTRARY TO A PROVISION AS INTERPRETED BY THE CO URT THEN THE OPINION OF THE COURT WOULD PREVAIL. THIS DECISION NOWHERE LAYS DOWN THAT CIRCULARS CANNOT BE CONSIDERED FOR INTERP RETATION OF A PARTICULAR PROVISION. 25. IN THE CASE OF DINAKAR ULLAL VS CIT 323 ITR 45 2(KARNATAKA), THE ASSESSEE WAS A CIVIL CONTRACTOR AND HAD FILED B ELATED RETURN DECLARING INCOME OF RS. 50,240/- AND WAS CLAIMING R EFUND OF RS. 2,14,505/- ON ACCOUNT OF TAX DEDUCTED AT SOURCE. TH E LAST DATE OF FILING THE RETURN WAS 31.3.1997 BUT THE RETURN WAS FILED LATE ON 8 TH SEPTEMBER 1997. THE ASSESSEE SOUGHT CONDONATION OF DELAY BY AN APPLICATION FILED ON 21 ST SEPT, 1998 BY INVOKING SECTION 119(2)(B) OF THE ACT WHICH WAS INITIALLY REJECTED. HOWEVER, ON A WRIT PETITION THE ORDER FOR REJECTION WAS QUASHED BY A SINGLE JUD GE AND REMITTED THE MATTER BACK FOR FRESH CONSIDERATION. ON REMAND , THE COMMISSIONER WHO WAS VESTED WITH THE JURISDICTION U NDER INSTRUCTION NO.13 OF 2006 IN RESPECT OF CLAIM UPTO RS. 10 LAKHS ACCEPTED THE CAUSE SHOWN FOR DELAY IN FILING THE RE TURN BUT DENIED INTEREST ON REFUND AMOUNT IN VIEW OF THE CONDITION SET OUT IN CIRCULAR NO. 670 DATED 26 TH OCT 1993. THEREFORE, QUESTION BEFORE THE COURT WAS WHETHER THESE INSTRUCTIONS WERE CONTR ARY TO THE PROVISION OF SECTION 244A OF THE ACT WHICH PROVID ED FOR PAYMENT OF INTEREST ON REFUNDS. THIS BECOMES ABSOLUTELY CL EAR FROM THE QUESTION FRAMED BY HON'BLE COURT WHICH IS CONTAINED AT PLACITUM 6 AND READS AS UNDER:- (I) WHETHER THE CONDITION TO DENY INTEREST ON REFUND AMOUNT DUE TO AN ASSESSEE UNDER THE ACT, WHILE ADMITTING AN APPLICATION TO CONDONE THE DELAY IN MAKING A CLAIM FOR BELATED REFUND UNDER SECTION 237 OF THE ACT, AS CONTAINED IN INSTRUCTION NO. 12 OF 2003 DATED OCTOBER 30,2003 AND 13 OF 2006 DATED JANUARY 22,2006, OF THE BOARD, IS INCONSISTENT WITH SUB-SECTION (2) OF SECTION 244A OF THE ACT? (II) WHETHER IN THE FACTS AND CIRCUMSTANCES, THE RESPONDENT WAS JUSTIFIED IN DENYING INTEREST ON BELATED REFUND CLAIMED FOR THE ASSESSMENT YEAR 1995-96, BY THE ORDER IMPUGNED. 8 26. THE HON'BLE COURT DISCUSSED THE MATTER AND ULTI MATELY HELD THAT ASSESSEE WAS ENTITLED TO INTEREST U/S 244A AND CIRCULAR NO. 670 WAS CONTRARY TO THE PROVISIONS OF SECTION 244A. THE COURT ALSO OBSERVED THAT CIRCULAR COULD BE ISSUED TO CLARIFY T HE PROVISIONS FOR REMOVING THE DIFFICULTIES. THEREFORE, IT IS CLEAR THAT QUESTION WHETHER A CIRCULAR CAN BE CONSIDERED IN INTERPRETAT ION OF A PARTICULAR PROVISION WAS NEVER BEFORE THE COURT AND THEREFORE, IN OUR OPINION, THIS JUDGEMENT DOES NOT SUPPORT THE PR OPOSITION THAT CIRCULAR CANNOT BE CONSIDERED FOR THE PURPOSE OF IN TERPRETING THE PARTICULAR PROVISION. 27. IT WILL BE USEFUL TO STATE ANOTHER VERY WELL S ETTLED PRINCIPLE OF INTERPRETATION I.E. WHENEVER THE PARTICULAR PROV ISION IS REQUIRED TO BE INTERPRETED, IT SHOULD BE INTERPRETED AFTER R EADING THE WHOLE PROVISION AND NOT THE PARTS OF A PARTICULAR SECTION . HOWEVER, A PROVISION HAS TO BE READ IN CONTEXT OF THE OVERALL SCHEME OF THE ACT. IT IS ALSO WELL SETTLED THAT NO PROVISION CAN BE IN TERPRETED IN SUCH A WAY WHICH WOULD RENDER PARTS OF THE SECTION OTIOSE OR MEANINGLESS. 28. HAVING CONSIDERED THE PRINCIPLES OF INTERPRETAT ION ABOVE, LET US CONSIDER THE PROVISION OF SECTION 80IC IN THE LI GHT OF THE ABOVE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT. SECTION 80IC READS AS UNDER:- SECTION 80IC 80-IC (1) WHERE THE GROSS TOTAL INCOME OF AN ASSES SEE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERT AKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SEC TION (2), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVIS IONS OF THIS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION FROM SUCH PROFITS AND GAINS, AS SPECIFI ED IN SUB- SECTION(3). (2) THIS SECTION APPLIES TO ANY UNDERTAKING OR ENT ERPRISE,- (A) WHICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PRO DUCE ANY ARTICLE OR THING, NOT BEING ANY ARTICLE OR THIN G SPECIFIED IN THE THIRTEENTH SCHEDULE, OR WHICH MANUFACTURES O R PRODUCES ANY ARTICLE OR THING, NOT BEING ANY ARTICL E OR THING SPECIFIED IN THE THIRTEENTH SCHEDULE AND UNDERTAKES SUBSTANTIAL EXPANSION DURING THE PERIOD BEGINNING. (I) ON THE 23 RD DAY OF DECEMBER, 2002 AND ENDING BEFORE THE 1 ST DAY OF APRIL, [2007], IN ANY EXPORT PROCESSING ZON E OR INTEGRATED INFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GROWTH CENTRE OR INDUSTRIAL ESTATE OR IN DUSTRIAL PARK OR SOFTWARE TECHNOLOGY PARK OR INDUSTRIAL AREA OR THEME PARK, AS NOTIFIED BY THE BOARD IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY THE CENTRAL GOVER NMENT IN THIS REGARD, IN THE STATE OF SIKKIM; OR 9 (II) ON THE 7 TH DAY OF JANUARY, 2003 AND ENDING BEFORE THE 1 ST DAY OF APRIL, 2012, IN ANY EXPORT PROCESSING ZONE OR INTEGRATED INFRASTRUCTURE DEVELOPMENT CENTRE OR IND USTRIAL GROWTH CENTRE OR INDUSTRIAL ESTATE OR INDUSTRIAL PA RK OR SOFTWARE TECHNOLOGY PARK OR INDUSTRIAL AREA OR THEM E PARK, AS NOTIFIED BY THE BOARD IN ACCORDANCE WITH T HE SCHEME FRAMED AND NOTIFIED BY THE CENTRAL GOVERNMEN T IN THIS REGARD, IN THE STATE OF HIMACHAL PRADESH OR TH E STATE OF UTTARANCHAL; OR (III) ON THE 24 TH DAY OF DECEMBER, 1997 AND ENDING BEFORE THE 1 ST DAY OF APRIL, 2007, IN ANY EXPORT PROCESSING ZONE OR INTEGRATED INFRASTRUCTURE DEVELOPMENT CENTRE OR IND USTRIAL GROWTH CENTRE OR INDUSTRIAL ESTATE OR INDUSTRIAL PA RK OR SOFTWARE TECHNOLOGY PARK OR INDUSTRIAL AREA OR THEM E PARK, AS NOTIFIED BY THE BOARD IN ACCORDANCE WITH T HE SCHEME FRAMED AND NOTIFIED BY THE CENTRAL GOVERNMEN T IN THIS REGARD, IN ANY OF THE NORTH-EASTERN STATES; (B) WHICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PRO DUCE ANY ARTICLE OR THING, SPECIFIED IN THE FOURTEENTH SCHED ULE OR COMMENCES ANY OPERATION SPECIFIED IN THAT SCHEDULE, OR WHICH MANUFACTURES OR PRODUCES ANY ARTICLE OR THING, SPEC IFIED IN THE FOURTEENTH SCHEDULE OR COMMENCES ANY OPERATIONS SPE CIFIED IN THAT SCHEDULE AND UNDERTAKES SUBSTANTIAL EXPANSION DURING THE PERIOD BEGINNING- (I) ON THE 23 RD DAY OF DECEMBER, 2002 AND ENDING BEFORE THE 1 ST DAY OF APRIL, [2007], IN THE STATE OF SIKKIM; OR (II) ON THE 7 TH DAY OF JANUARY, 2003 AND ENDING BEFORE THE 1 ST DAY OF APRIL 2012, IN THE STATE OF HIMACHAL PRADESH OR THE STATE OF UTTARANCHAL; OR (III) ON THE 24 TH DAY OF DECEMBER, 1997 AND ENDING BEFORE THE 1 ST DAY OF APRIL, 2007, IN ANY OF THE NORTH-EASTERN STATES. (3) THE DEDUCTION REFERRED TO IN SUB-SECTION (1) SH ALL BE (I) IN THE CASE OF ANY UNDERTAKING OR ENTERPRISE REFERRED TO IN SUB-CLAUSES (I) AND (III) OF CLAUSE (A) OR SUB-CLAUSES (I) AND (III) OF CLAUSE (B), OF SUB- SECTION (2), ONE HUNDRED PER CENT OF SUCH PROFITS A ND GAINS FOR TEN ASSESSMENT YEARS COMMENCING WITH THE INITIAL ASSESSMENT YEAR; 10 (II) IN THE CASE OF ANY UNDERTAKING OR ENTERPRISE REFERRED TO IN SUB-CLAUSE (II) OF CLAUSE (A) OR SUB - CLAUSE (II) OF CLAUSE (B), OF SUB-SECTION (2),ONE HUNDRED PER CENT OF SUCH PROFIT AND GAINS FOR FIVE ASSESSMENT YEARS COMMENCING WITH THE INITIAL ASSESSMENT YEAR AND THEREAFTER TWENTY-FIVE PER CENT (OR THIRTY PER CENT WHERE THE ASSESSEE IS A COMPANY ) OF THE PROFITS AND GAINS. (4) THIS SECTION APPLIES TO ANY UNDERTAKING OR ENTE RPRISE 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 THERE-ESTABLISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASSESSEE OF THE BUSINESS OF ANY SUCH UNDERTAKING AS IS REFERRED TO IN SECTION 33B, IN TH E CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED IN THAT SECTION; (II) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSI NESS 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 PU RPOSES OF CLAUSE (II) OF THIS SUB-SECTION AS THEY APPLY FOR THE PURP OSES 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 ASSE SSEE, NO DEDUCTION SHALL BE ALLOWED UNDER ANY OTHER SECTION CONTAINED IN CHAPTER VIA OR IN SECTION 10A OR SECTION 10B, IN RE LATION TO THE PROFITS AND GAINS OF THE UNDERTAKING OR ENTERPRISE. (6) NOTWITHSTANDING ANYTHING CONTAINED IN THIS ACT, NO DEDUCTION SHALL BE ALLOWED TO ANY UNDERTAKING OR ENTERPRISE U NDER THIS SECTION, WHERE THE TOTAL PERIOD OF DEDUCTION INCLUS IVE OF THE PERIOD OF DEDUCTION UNDER THIS SECTION, OR UNDER THE SECON D PROVISO TO SUB-SECTION (4) OF SECTION 80-IB OR UNDER SECTION 1 0C, AS THE CASE MAY BE, EXCEEDS THE ASSESSMENT YEARS. (7) THE PROVISIONS CONTAINED IN SUB-SECTION (5) AND SUB-SECTIONS(7) TO (12) OF SECTION 80-IA SHALL, SO FAR AS MAY BE, A PPLY TO THE ELIGIBLE UNDERTAKING OR ENTERPRISE UNDER THIS SECTI ON. (8) FOR THE PURPOSES OF THIS SECTION,- (I) INDUSTRIAL AREA MEANS SUCH AREAS, WHICH THE BOARD, MAY, BE NOTIFICATION IN THE OFFICIAL GAZETTE , 11 SPECIFY IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY THE CENTRAL GOVERNMENT; (II) INDUSTRIAL ESTATE MEANS SUCH ESTATES, WHICH THE BOARD, MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE , SPECIFY IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY THE CENTRAL GOVERNMENT. (III) INDUSTRIAL GROWTH CENTRE MEANS SUCH CENTRES, WHICH THE BOARD, MAY, BY NOTIFICATION IN THE OFFICI AL GAZETTE, SPECIFY IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY THE CENTRAL GOVERNMENT; (IV) INDUSTRIAL PARK MEANS SUCH PARKS, WHICH THE BOARD, MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE , SPECIFY IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY THE CENTRAL GOVERNMENT; (V) INITIAL ASSESSMENT YEAR MEANS THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING OR THE ENTERPRISE BEGINS TO MANUFACTURES OR PRODUCE ARTICLES OR THINGS, OR COMMENCES OPERATION OR COMPLETES SUBSTANTIAL EXPANSION; (VI) INTEGRATED INFRASTRUCTURE DEVELOPMENT CENTRE MEANS SUCH CENTRES, WHICH THE BOARD, MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE, SPECIFY IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY THE CENTRAL GOVERNMENT (VII) NORTH-EASTERN STATES MEANS THE STATES OF ARUNACHAL PRADESH, ASSAM, MANIPUR, MEGHALAYA, MIZORAM, NAGALAND AND TRIPURA; (VIII) SOFTWARE TECHNOLOGY PARK MEANS ANY PARK SET UP IN ACCORDANCE WITH THE SOFTWARE TECHNOLOGY PARK SCHEME NOTIFIED BY THE GOVERNMENT OF INDIA IN THE MINISTRY OF COMMERCE AND INDUSTRY; (IX) SUBSTANTIAL EXPANSION MEANS INCREASE IN THE INVESTMENT IN THE PLANT AND MACHINERY BY AT LEAST FIFTY PER CENT OF THE BOOK VALUE OF PLANT AND MACHINERY (BEFORE TAKING DEPRECIATION IN ANY YEAR), AS ON THE FIRST DAY OF THE PREVIOUS YEAR IN WHICH T HE SUBSTANTIAL EXPANSION IS UNDERTAKEN; 12 (X) THEME PARK MEANS SUCH PARKS, WHICH THE BOARD , MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE, SPECI FY IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY THE CENTRAL GOVERNMENT. 29. SUB SECTION (1) OF THE ABOVE PROVISION IS A GEN ERAL PROVISION AND DOES NOT REQUIRE ANY INTERPRETATION. SUB SECTIO N [2] IS THE ENABLING PROVISION WHICH PROVIDES FOR THE TYPES OF UNDERTAKINGS AND CIRCUMSTANCES WHERE DEDUCTION UNDER SECTION 80IC WO ULD BE ALLOWED. IT ALLOWS DEDUCTION TO VARIOUS UNDERTAKING S WHICH HAVE EITHER BEGUN OR BEGINS MANUFACTURING OF ANY ARTICLE OR THINGS NOT BEING ANY ARTICLE OR THING SPECIFIED IN SCHEDULE XI II AND ALSO UNDERTAKES SUBSTANTIAL EXPANSION. THESE DEDUCTIONS WERE AVAILABLE IN DIFFERENT STATES DURING DIFFERENT WINDOW PERIODS WHICH HAVE BEEN REFERRED TO IN CLAUSE (I), (II) & (III) OF THIS SUB SECTION. THE CONTENTION ON BEHALF OF THE ASSESSEE IS THAT SINCE DEDUCTION IS AVAILABLE TO THE UNDERTAKING WHICH UNDERTAKES SUBST ANTIAL EXPANSION AND SINCE THERE IS NO RESTRICTION IN THIS SUB SECTION ITSELF, THEREFORE, THE DEDUCTION WAS AVAILABLE ON SUBSTANTI AL EXPANSION BY OLD UNDERTAKINGS AS WELL AS NEW UNDERTAKINGS DURING THE WINDOW PERIOD. HOWEVER, THERE IS NO FORCE IN THIS INTERPRE TATION. SUB SECTION (2) BEGINS WITH THE EXPRESSION THIS SECTI ON APPLIES TO ANY UNDERTAKING OR ENTERPRISE WHICH HAS BEGUN OR BEGINS THIS ITSELF SHOWS THAT PROVISION MADE EVEN THE EXISTING UNDERTA KINGS ENTITLED FOR THE DEDUCTION BECAUSE THE EXPRESSION BEGUN WO ULD REFER TO THE UNDERTAKING WHICH WERE ALREADY EXISTING AND BEGAN T HE MANUFACTURE BEFORE THE WINDOW PERIOD MENTIONED IN THE SUB SECTI ON. THE LAST LINE OF THE SUB SECTION READS AND UNDERTAKES SUBSTANTIA L EXPANSION DURING THE PERIOD BEGINNING... THIS WOULD NATUR ALLY REFER TO THE UNDERTAKING WHICH WERE ALREADY EXISTING. IF IT IS READ THE WAY THE LD. COUNSEL OF THE ASSESSEE WOULD LIKE US TO RE AD THEN THE PROVISION WOULD BECOME UNWORKABLE BECAUSE IF THERE IS AN UNDERTAKING WHICH IS ESTABLISHED DURING THE WINDOW PERIOD THEN THE SAME CANNOT POSSIBLY UNDERTAKES SUBSTANTIAL EXPANSI ON ALSO SIMULTANEOUSLY. THE EXPRESSION AND WOULD REFER T O THE CUMULATIVE CONDITION THAT IS BOTH PARTS OF THE COND ITIONS NEED TO BE COMPLIED. THE EXPRESSION AND CAN BE JOINED ONLY W ITH THE EXPRESSION BEGUN. THIS IS BECAUSE BEGUN REFERS TO SOMETHING WHICH HAS ALREADY STARTED IN THE PAST WHEREAS BEGI NS CONNOTES SOMETHING WHICH WOULD COMMENCE IN THE PRESENT. THE REFORE, THE EXPRESSION AND CAN BE CORRELATED ONLY WITH EXISTI NG UNIT BECAUSE AS WE HAVE ALREADY SEEN A NEW UNIT WHICH HAS BEEN S ET UP AND BEGINS PRODUCTION CANNOT SIMULTANEOUSLY UNDERGO SUB STANTIAL EXPANSION ALSO SO AS TO BECOME ELIGIBLE FOR DEDUCTI ON UNDER THIS SECTION. 30. AT THIS STAGE, IT CAN BE SAID THAT SECTION HAS SOME CONFUSION AND SOME EFFORT IS REQUIRED TO UNDERSTAND THE CORRE CT INTENTION OF 13 THE LEGISLATURE BY KEEPING VARIOUS PRINCIPLES OF IN TERPRETATION. THEREFORE, VARIOUS PRINCIPLES OF INTERPRETATION NEE DS TO BE LOOKED INTO. THIS PROVISION WAS BROUGHT INTO THE STATUTE I NDISPUTABLY IN THE LIGHT OF THE INCENTIVE PACKAGE ANNOUNCED BY THE U NION CABINET. THROUGH THIS INCENTIVE PACKAGE NOT ONLY INCOME TAX CONCESSION BUT EXCISE CONCESSIONS AND SOME SUBSIDIES LIKE TRANSPOR T SUBSIDY AND CAPITAL SUBSIDY WERE ALSO PROVIDED TO VARIOUS INDUS TRIES IN THE HILLY STATED COMPRISING STATES OF HIMACHAL PRADESH, UTTAR ANCHAL, SIKKIM AND NORTH-EASTERN STATES TO BOOST THE ECONOMIES OF THESE HILLY STATES. CIRCULAR NO.7 WAS ISSUED BY THE CBDT ON 5.9 .2003 IN THIS RESPECT AND THE CIRCULAR READS AS UNDER:- CIRCULAR NO. 7/2003 DATED 05.09.2003 49. NEW PROVISIONS ALLOWING A TEN YEARS TAX HOLIDAY IN RESPECT OF CERTAIN UNDERTAKINGS IN THE STATES OF HI MACHAL PRADESH, SIKKIM, UTTARANCHAL AND NORTH-EASTERN STAT ES. 49.1 THE UNION CABINET HAS ANNOUNCED A PACKAGE OF FISCAL AND NON-FISCAL CONCESSIONS FOR THE SPECIAL C ATEGORY STATES OF HIMACHAL PRADESH, UTTARANCHAL, SIKKIM AND NORTH-EASTERN STATES, IN ORDER TO GIVE BOOST TO THE ECONOMY IN THESE STATES. WITH A VIEW TO GIVE EFFECT TO THESE NEW PACKAGES A NEW SECTION 80-IC HAS BEEN INSERTED TO ALLOW A DEDUCTION FOR TEN YEARS FROM TH E PROFITS OF NEW UNDERTAKING OR ENTERPRISE OR EXISTIN G UNDERTAKINGS OR ENTERPRISES ON THEIR SUBSTANTIAL EXPANSION, IN THE STATES OF HIMACHAL PRADESH, UTTARANCHAL, SIKKIM AND NORTH-EASTERN STATES . FOR THIS PURPOSE, SUBSTANTIAL EXPANSION IS DEFINED AS INCREA SE IN THE INVESTMENT IN THE PLANT AND MACHINERY BY AT LEA ST 50% OF THE BOOK VALUE OF THE PLANT AND MACHINERY (BEFOR E TAKING DEPRECIATION IN ANY YEAR), AS ON THE FIRST D AY 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 BE ING ANY ARTICLE OR THING SPECIFIED IN THE THIRTEENTH SC HEDULE AND WHICH COMMENCE OPERATION IN ANY EXPORT PROCESSI NG ZONE, OR INTEGRATED INFRASTRUCTURE DEVELOPMENT CENT RE OR INDUSTRIAL GROWTH CENTRE OR INDUSTRIAL ESTATE, OR INDUSTRIAL PARK, OR SOFTWARE TECHNOLOGY PARK OR INDUSTRIAL AREA OR THEME PARK, AS NOTIFIED BY THE B OARD IN ACCORDANCE WITH RULES PRESCRIBED IN THIS REGARD. SIMILAR DEDUCTION SHALL BE AVAILABLE TO THRUST SECT OR INDUSTRIES, AS SPECIFIED IN THE FOURTEENTH SCHEDULE . 49.3 THE AMOUNT OF DEDUCTION IN CASE OF UNDERTAKING S OR ENTERPRISES IN THE STATES OF SIKKIM, AND THE NORTH- EASTERN 14 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 ON E HUNDRED PER CENT OF THE PROFITS OF THE UNDERTAKING FOR FIVE ASSESSMENT YEARS, AND THEREAFTER TWENTY-FIVE PER CE NT (THIRTY PER CENT FOR COMPANIES ) FOR THE NEXT FIVE ASSESSMENT YEARS. 49.4 THE SECTION ALSO PROVIDES THAT NO DEDUCTION SH ALL BE ALLOWED TO ANY UNDERTAKING OR ENTERPRISE UNDER THIS SECTION, WHERE THE TOTAL PERIOD OF DEDUCTION INCLUS IVE OF THE PERIOD OF DEDUCTION UNDER THIS SECTION OR UNDER SECTION 80-IB OR UNDER SECTION 10C, AS THE CASE MAY BE, EXCEEDS TEN ASSESSMENT YEARS. FURTHER, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, NO DEDUCTION SHALL BE ALLOWED UNDER ANY OTHER SECTION CONTAINED IN CHAPTE R VIA OR IN SECTION 10A OR 10B, IN RELATION TO THE PR OFITS AND GAINS OF THE UNDERTAKING OR ENTERPRISE. 49.5 A NEW THIRTEENTH SCHEDULE HAS BEEN INSERTED IN THE INCOME-TAX ACT TO SPECIFY THE LIST OF ARTICLES AND THINGS, WHICH ARE INELIGIBLE FOR THE PURPOSE OF DEDUCTION U NDER SECTION 80-IC. FURTHER, A NEW FOURTEENTH SCHEDULE H AS ALSO BEEN INSERTED, WHICH SPECIFIES THE LIST OF ART ICLES AND THINGS, BEING THRUST SECTOR INDUSTRIES, WHICH ARE E LIGIBLE FOR THE PURPOSES OF AVAILING DEDUCTION UNDER THIS S ECTION. CONSEQUENT TO THESES AMENDMENTS, THE PROVISIONS OF SECTION 10C AND SUB-SECTION(4) OF SECTION 80-IB HAV E BEEN MADE INOPERATIVE IN RESPECT OF THE UNDERTAKINGS OR ENTERPRISES IN THE STATE OF HIMACHAL PRADESH OR IN NORTH- EASTERN REGION INCLUDING SIKKIM, WITH EFFECT FROM T HE 1 ST DAY OF APRIL, 2004. 49.6 THESE AMENDMENTS WILL TAKE EFFECT FROM 1 ST APRIL, 2004 AND WILL, ACCORDINGLY, APPLY IN RELATION TO TH E ASSESSMENT YEAR 2004-05 AND SUBSEQUENT YEARS. 31. THE CIRCULAR MAKES IT CLEAR THAT SECTION 80IC W AS INSERTED TO GIVE EFFECT TO THE NEW PACKAGE ANNOUNCED BY THE UNI ON CABINET. THE CIRCULAR FURTHER CLARIFIES THAT THIS SECTION PROVID ES FOR DEDUCTION FOR A PERIOD OF 10 YEARS FROM THE PROFITS OF NEW UN DERTAKING OR ENTERPRISE OR EXISTING UNDERTAKING OR ENTERPRISE ON THEIR SUBSTANTIAL EXPANSION (SEE HIGHLIGHTED PORTION OF THE CIRCULAR) . THE CONTENTION OF THE LD. COUNSEL OF THE ASSESSEE WAS THAT WORD E XISTING QUALIFIES ONLY THE UNDERTAKING OR ENTERPRISES AND DOES NOT ME NTION ANY PARTICULAR DATE FOR CARRYING OUT SUBSTANTIAL EXPANS ION. WE FIND NO MERIT IN THIS CONTENTION. THE WORD EXISTING IS DE FINED IN THE DICTIONARIES ARE AS UNDER:- 32. BLACK LAW DICTIONARY 6 TH EDITION:- EXIST : TO LIVE, 15 TO HAVE LIFE OR ANIMATION TO BE IN PRESENT FORCE , ACTIVITY, OR EFFECT AT A GIVEN TIME, AS IN SPEAKING OF EXISTING CONTRACTS, CREDITORS DEBTS, LAWS, RIGHTS OR LIENS. FOR US RELEVANT MEANING WOULD BE TO BE IN PRESENT FORCE AS PER OXFORD DICTIONARY EXIST IS DEFINED AS UNDER EXIST : 1 (NOT USED IN THE PROGRESSIVE TENSES) TO BE REAL; TO BE PRESENT IN A PLACE OR SITUATION : DOES LIFE EXIST ON OTHER PLANETS? THE PROBLEM ONLY EXISTS IN YOUR HEAD, JANE . FEW OF THESE MONKEYS STILL EXIST IN THE WILD. ON HIS RETIR EMENT THE POST WILL CEASE TO EXIST. THE CHARITY EXISTS TO SUP PORT VICTIMS OF CRIME. 2- (ON STH) TO LIVE, ESPECIALLY IN A DIF FICULT SITUATION OR WITH VERY LITTLE MONEY: WE EXISTED ON A DIET OF RICE. THEY CANT EXIST ON THE MONEY HES EARNING THE ABOVE DEFINITION CLEARLY SHOWS THAT EXIST WOU LD REFER TO SOMETHING WHICH IS IN FORCE PRESENTLY. EXIST WOUL D GENERALLY AND IN COMMON SENSE REFERS TO SOMETHING WHICH IS ALREAD Y THERE. WITH REFERENCE TO THIS PROVISION, THIS WOULD REFER TO AN UNDERTAKING WHICH WAS ALREADY PRESENT ON THE DATE WHEN THIS PRO VISION WAS INTRODUCED. IN ANY CASE THE NOTIFICATION ISSUED BY THE GOVT. OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY, DEPARTMEN T OF INDUSTRIAL POLICY AND PROMOTION WHICH IS PUBLISHED IN THE GAZE TTE OF INDIA REMOVED ALL THE DOUBTS. THIS NOTIFICATION IS RELEVA NT BECAUSE THIS WAS ISSUED WITH REFERENCE TO SAME PACKAGE ANNOUNCED BY THE UNION CABINET OF INDIA FOR THE DEVELOPMENT OF THE HILLY S TATES. SECTION 5, READS AS UNDER;- DEFINITIONS: (A) .. (B) .. (C) EXISTING INDUSTRIAL UNIT MEANS AN INDUSTRIAL UNIT EXISTING AS ON 7 TH JANUARY 2003. (D) . (E) . (F) THUS THE DEFINITION GIVEN ABOVE MAKES IT CLEAR THAT EXISTING INDUSTRIAL UNIT WOULD MEAN AN UNIT WHICH EXISTED ON 7.1.2003. 33. EVEN IF THE ABOVE CONTROVERSY IS IGNORED REGARD ING EXISTING UNIT, THE INTENTION OF THE LEGISLATURE BECOME ABSOL UTELY CLEAR WHEN SUB SECTION (2) IS READ ALONGWITH SUB-SECTION (3) O F SECTION 80IC. AS NOTED EARLIER, SUB SECTION (2) IS ENABLING PROVI SION WHICH PROVIDES FOR DEDUCTION IN CERTAIN KIND OF UNDERTAKI NGS, I.E. NEW UNIT SET UP OR THE EXISTING UNITS WHICH CARRIES OUT SUBS TANTIAL EXPANSION 16 DURING THE PARTICULAR WINDOW PERIOD WHICH ARE GIVEN IN CLAUSES (I), (II) & (III) OF SUB SECTION (2). THE SUB SECTION (3 ) PROVIDES FOR RATES OF DEDUCTION. IT IS USEFUL TO NOTE THAT CLAUSE (I) OF SUB SECTION (3) PROVIDES FOR 100% DEDUCTION FOR A PERIOD OF 10 ASSE SSMENT YEARS IN CASES COVERED BY SUB CLAUSE (I) & (III) OF CLAUSE ( A) AND SUB CLAUSE (I) & (III) OF CLAUSE (B). NOW SUB CLAUSE (I ) AND (III) OF CLAUSE (A) OF SUB SECTION (2) REFERS TO THE WINDOW PERIOD IN C ASE OF STATE OF SIKKIM, NORTH-EASTERN STATES WHEREAS SUB CLAUSE (II ) REFERS TO THE WINDOW PERIOD IN CASE OF STATE OF HIMACHAL PRADESH AND STATE OF UTTARANCHAL. SIMILARLY, SUB CLAUSE (I) & (III) OF CLAUSE (B) REFERS TO WINDOW PERIOD IN CASE OF STATE OF SIKKIM AND NORTH- EASTER STATES WHEREAS SUB CLAUSE (II) REFERS TO THE WINDOW PERIOD IN CASE OF STATE OF HIMACHAL PRADESH AND UTTARANCHAL. NOW CLAUSE (I I) OF SUB SECTION (3) PROVIDES FOR 100% DEDUCTION ON SUCH PRO FITS FOR FIVE ASSESSMENT YEARS COMMENCING WITH INITIAL ASSESSMENT YEAR AND THEREAFTER 25% (OR 30% WHERE THE ASSESSEE IS A COM PANY) OF THE PROFITS AND GAINS. THEREFORE, IT IS ABSOLUTELY CLE AR THAT IN CASE OF STATE OF SIKKIM AND NORTH-EASTERN STATES, LEGISLATU RE WAS VERY CLEAR THAT IN CASE OF NEW UNDERTAKING OR IN CASE OF SUBST ANTIAL EXPANDED UNDERTAKING DEDUCTION IS TO BE ALLOWED @ 100% FOR W HOLE OF THE TEN YEARS WHEREAS IN CASE OF STATE OF HIMACHAL PRADESH AND UTTARANCHAL THE DEDUCTION WAS TO BE ALLOWED @ 100% ONLY FOR FIRST FIVE YEARS AND THEREAFTER IT WAS ONLY 25%. IF THE LEGISLATURE WANTED TO EXTEND THE BENEFIT IN THE CASE OF SUBSTANTIAL EX PANSION SEPARATELY THEN THE RATE OF DEDUCTION IN THE CLAUSE (I) & (II) OF SUB SECTION (3) WOULD NOT HAVE BEEN DIFFERENT I.E. 100% FOR WHOLE O F THE 10 YEARS IN CASE OF STATE OF SIKKIM & NORTH-EASTERN STATES UNDE R SUB CLAUSE (I) AND FOR THE STATE OF HIMACHAL PRADESH & UTTARANCHAL UNDER SUB CLAUSE (II) 100% FOR FIRST FIVE YEARS AND THEREAFTE R 25% FOR NEXT FIVE YEARS. THE CONCEPT OF SUBSTANTIAL EXPANSION REMAI NS SAME UNDER SUB SECTION (2) FOR BOTH TYPES OF STATES I.E STATE OF SIKKIM AND NORTH-EASTERN STATES AND STATE OF HIMACHAL PRADESH AND UTTRANCHAL. IF THE EXTENDED BENEFIT OF SUBSTANTIAL EXPANSION WAS TO BE SEPARATELY ALLOWED IN CASE OF STATE OF HIMACHAL PRADESH AND STATE OF UTTARANCHAL, THEN MEANING OF SUBSTANTIAL E XPANSION AS GIVEN UNDER SUB SECTION (2) WHICH IS SAME FOR THE S TATE OF SIKKIM AND NORTH-EASTERN STATES BECOME REDUNDANT. AS NOTE D EARLIER, THE PROVISION CANNOT BE INTERPRETED IN SUCH A WAY THAT PART OF THE SECTION BECOMES REDUNDANT OR OTIOSE. THEREFORE, WH ATEVER DOUBTS MAY BE THERE IN SUB SECTION (2) WHEN IT IS READ WIT H SUB SECTION (3), THOSE DOUBTS ARE TOTALLY REMOVED AND IT BECOME ABSO LUTELY CLEAR THAT RATE OF DEDUCTION HAS TO BE 100% FOR FIRST 5 YEARS AND 25% THEREAFTER. 34. THERE IS A FORCE IN THE CONTENTION OF LD. CIT/D R THAT IF THE INTERPRETATION CONTENDED ON BEHALF OF THE ASSESSEE WAS TO BE ADOPTED THEN SUB SECTION (4) OF SECTION 80IC WOULD ALSO BECOME REDUNDANT. SUB SECTION (4) CLEARLY PROVIDES THAT TH E DEDUCTION IS AVAILABLE TO ANY UNDERTAKING OR ENTERPRISE WHICH IS NOT FORMED BY SPLITTING OR RECONSTRUCTION OF THE BUSINESS ALREADY IN EXISTENCE OR IT IS NOT FORMED BY TRANSFER TO NEW BUSINESS OF MACHIN ERY OR PLANT 17 PREVIOUSLY USED FOR ANY PURPOSE. FURTHER THE EXPLAN ATION TO THIS SUB SECTION MAKES IT CLEAR THAT EXPLANATION 1 & 2 O F SUB SECTION (3) OF SECTION 80IA ARE APPLICABLE IN THIS RESPECT. EXPLANATION 2 OF SUB SECTION (3) OF SECTION 80 IA READS AS UNDER: EXPLANATION 2- WHERE IN THE CASE OF AN [UNDERTAKING], ANY MACHINERY OR PLANT OR ANY PART THEREOF PREVIOUSLY USED FOR ANY PURPOSE IS TRANSFERRED TO A NEW BUSINESS AND THE TOTAL VALUE OF THE MACHINERY OR PLANT OR PART SO TRANSFERRED DOES NOT EXCEED TWENTY PER CENT OF THE TOTAL VALUE OF THE MACHINERY OR PLANT USED IN THE BUSINESS, THEN, FOR THE PURPOSES OF CLAUSE (II) OF THIS SUB-SECTION, THE CONDITION SPECIFIED THEREIN SHALL BE DEEMED TO HAVE BEEN COMPLIED WITH. FROM THE ABOVE IT BECOMES CLEAR THAT IF 20% OF THE MACHINERY FROM THE OLD UNIT WAS USED IN THE NEW UNIT THEN SUCH UNI T WOULD NOT BE ELIGIBLE FOR DEDUCTION UNDER THIS SECTION THAT IS S ECTION 80IC. NOW FOR CARRYING OUT SUBSTANTIAL EXPANSION THE INVESTME NT IN PLANT & MACHINERY IS REQUIRED TO BE MADE BY ATLEAST 50%. S O IF 50% FRESH MACHINERY IS ADDED TO THE NEW UNIT THEN IT WILL VIO LATE SUB SECTION (4) OF SECTION 80IC, THEREFORE, INTERPRETATION CANV ASSED ON BEHALF OF THE ASSESSEE IS NOT POSSIBLE BECAUSE SECTION 80IC(4 ) WOULD BECOME REDUNDANT AND SUCH AN INTERPRETATION IS NOT POSSIBL E. 35. FURTHER, SUB SECTION (6) PROVIDES THAT IN NO CA SE THE TOTAL PERIOD OF DEDUCTION COULD EXCEED THE PERIOD OF 10 Y EARS INCLUDING DEDUCTION AVAILED UNDER SUB SECTION (4) OF SECTION 80IB AND SECTION 10A AND 10B. IT WAS CONTENDED BEFORE US THAT SIN CE THERE IS NO RESTRICTION IN CARRYING OUT OF SUBSTANTIAL EXPANSIO N IN THE NEW UNITS AND AS SUCH SUBSTANTIAL EXPANSION CAN BE CARRIED OU T ANY NUMBER OF TIMES. IF THIS INTERPRETATION IS ACCEPTED THEN SUB SECTION (6) WOULD BE RENDERED OTIOSE OR MEANINGLESS BECAUSE IF A UNIT WAS SET UP ON THE COMMENCEMENT OF THIS SECTION AND THE SAME CLAI MS DEDUCTION @ 100% AND LATER ON EVERY FIVE YEARS A SUBSTANTIAL EX PANSION IS CARRIED OUT THEN ACCORDING TO THE INTERPRETATION CA NVASSED ON BEHALF OF THE ASSESSEE, SUCH UNIT WOULD AGAIN BECOM E ENTITLED TO 100% DEDUCTION FOR ANOTHER FIVE YEARS AND FURTHER B LOCK OF FIVE YEARS EVERY TIME SUBSTANTIAL EXPANSION IS CARRIED OUT. IF THIS INTERPRETATION IS ADOPTED THEN DEDUCTION WOULD BECO ME ALMOST PERCEPTUAL AS LONG AS THE ASSESSEE HAS CARRIED OUT SUBSTANTIAL EXPANSION BUT IN THAT CASE SUB SECTION (6) WOULD LO OSE ITS MEANING. SUCH AN UNLIMITED PERIOD OF DEDUCTION WOULD NOT BE IN CONSONANCE OF LAW. AT THE COST OF REPETITION, WE WOULD LIKE T O EMPHASIZE THAT NO PRINCIPLE OF INTERPRETATION CAN BE ADOPTED WHICH LE ADS TO A SITUATION WHERE A PARTICULAR PART OF THE SECTION BE COMES TOTALLY REDUNDANT. IN FACT THOUGH IT WAS CONTENDED THAT IN THE PRESENT CASE (I.E. IN CASE OF HYCRON ELECTRONICS) DEDUCTION HAS BEEN CLAIMED ONLY OF 10 YEARS BUT ON THE DATE OF HEARING SOME OT HER APPEALS WERE ALSO LISTED WHEREIN THE DEDUCTION WAS CLAIMED FOR M ORE THAN 10 18 YEARS ADOPTING THE SAME CONTENTION WHICH HAS BEEN M ADE BEFORE US. IN CASE OF M/S MAHAVIR INDUSTRIES (ITA NO. 127/CHD/ 2011 AND ITA NO. 791/CHD/2012) THOUGH THOSE CASES WERE ADJOURNED BECAUSE SOME OTHER ISSUES WERE ALSO THERE BUT IN THOSE TWO CASES ASSESSEE HAD COMMENCED THE OPERATION ON 8.5.1997 AND CLAIMED DEDUCTION U/S 80IB FROM ASSESSMENT YEARS 1998-99 TO 2005-06. LATER ON, SUBSTANTIAL EXPANSION WAS CARRIED OUT IN ASSESSMENT YEAR 2005-06 AND ON THE BASIS OF THE CONTENTION THAT ASSESSEE IS ALLOWED TO CARRY OUT ANY NUMBER OF EXPANSIONS, DEDUCTION WAS CLAIME D FOR THE 12 TH YEAR FOR ASSESSMENT YEAR 2009-10 (WE MAY CLARIFY TH AT REFERENCE TO THESE CASES IS MADE BECAUSE OF PARTICULAR CONTENTIO N AND WE ARE NOT EXPRESSING ANY OPINION ON THE MERITS OF THESE APPEA LS HERE). THEREFORE, THE CONTENTION OF THE ASSESSEE THAT ANY NUMBER OF EXPANSIONS ARE ALLOWED IS NOT POSSIBLE IN VIEW OF T HE RESTRICTION GIVEN IN SECTION 80IC(6). 36. THE ABOVE SITUATION AS POINTED BY THE REVENUE A LSO BECOMES CLEAR IF THE PROVISION OF SECTION 80IC IS COMPARED TO THE PROVISION OF SECTION 80IB(4). RELEVANT PROVISION OF SECTION 8 0IB (4) READS AS UNDER:- (4) THE AMOUNT OF DEDUCTION IN THE CASE OF AN INDU STRIAL UNDERTAKING IN AN INDUSTRIALLY BACKWARD STATE SPECI FIED IN THE EIGHTH SCHEDULE SHALL BE HUNDRED PER CENT OF THE PR OFITS AND GAINS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING FOR FIVE A SSESSMENT YEARS BEGINNING WITH THE INITIAL ASSESSMENT YEAR AND THER EAFTER TWENTY-FIVE PER CENT (OR THIRTY PER CENT WHERE THE ASSESSEE IS A COMPANY) OF THE PROFITS AND GAINS DERIVED FROM SUCH INDUSTRIAL UNDE RTAKING: PROVIDED THAT THE TOTAL PERIOD OF DEDUCTION DOES NO T EXCEED TEN CONSECUTIVE ASSESSMENT YEARS (OR TWELVE CONSECUTIVE ASSESSMENT YEARS WHERE THE ASSESEE IS A COMPANY-OPERATIVE SOCI ETY) SUBJECT TO FULFILLMENT OF THE CONDITION THAT IT BEGINS TO MANU FACTURE OR PRODUCE ARTICLES OR THINGS OR TO OPERATE ITS COLD STORAGE P LANT OR PLANTS DURING THE PERIOD BEGINNING ON THE IST DAY OF APRIL , 1993 AND ENDING ON THE 31 ST DAY OF MARCH, [2004]: PROVIDED FURTHER THAT IN THE CASE OF SUCH INDUSTRIE S IN THE NORTH- EASTERN REGION, AS MAY BE NOTIFIED BY THE CENTRAL G OVERNMENT, THE AMOUNT OF DEDUCTION SHALL BE HUNDRED PER CENT OF PR OFITS AND GAINS FOR A PERIOD OF TEN ASSESSMENT YEARS, AND THE TOTAL PERIOD OF DEDUCTION SHALL IN SUCH A CASE NOT EXCEED TEN ASSES SMENT YEARS: PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SUB-SECT ION SHALL BE ALLOWED FOR THE ASSESSMENT YEAR BEGINNING ON THE 1 ST DAY OF APRIL, 2004 OR ANY SUBSEQUENT YEAR TO ANY UNDERTAKING OR E NTERPRISE REFERRED TO IN SUB-SECTION (2) OF SECTION 80-IC. 37. THE CAREFUL PERUSAL OF THE ABOVE PROVISION WOUL D SHOW THAT BEFORE THE INTRODUCTION OF SECTION 80IC WHICH IS BE FORE US FOR CONSIDERATION, THE DEDUCTION TO THE BACKWARD STATES WAS AVAILABLE 19 IN TERMS OF SECTION 80IB(4). THE THIRD PROVISO MAK ES IT CLEAR THAT AFTER 31.3.2004, THIS DEDUCTION WILL BE AVAILABLE O NLY U/S 80IC. THE SUB SECTION FURTHER MAKES IT CLEAR THAT DEDUCTION W OULD BE @ 100% FOR THE FIRST FIVE YEARS AND THEREAFTER @ 25%. FUR THER, THE FIRST PROVISO MAKES IT CLEAR THAT DEDUCTION WILL NOT EXCE ED 10 CONSECUTIVE ASSESSMENT YEARS. THE SECOND PROVISO FURTHER MAKES IT CLEAR THAT IN THE CASE OF STATES OF NORTH-EASTERN REGIONS, THE DE DUCTION WOULD BE @ 100% FOR ALL THE 10 YEARS. THUS, EVEN IN THE EAR LIER PROVISION ONLY IN CASE OF NORTH-EASTER STATES, THE DEDUCTION OF 100% WAS ALLOWABLE FOR 10 YEARS WHEREAS IN THE CASE OF STATE S OF HIMACHAL PRADESH, THE DEDUCTION WAS ALLOWABLE @ 100% FOR FIR ST FIVE YEARS AND 25% FOR NEXT FIVE YEARS. 38. FURTHER, IT SHOULD BE NOTED THAT SUB SECTION (6 ) STARTS WITH NON OBSTANTE CLAUSE AND THEREFORE, IN NO CASE THE D EDUCTION COULD BE FOR PERIOD EXCEEDING 10 YEARS AND IN THIS REGARD WE MAY NOTE THAT EVEN THE LD. AUTHORS IN THEIR COMMENTARY OF IN COME TAX LAWS BY CHATURVEDI & PITHISARIAS - SIXTH EDITION HAS EXPRESSED THE SAME OPINION. THE RELEVANT EXTRACT AT PAGES 6351 OF THE COMMENTARY READS AS UNDER;- NO DEDUCTION POSSIBLE FOR MORE THAN 10 ASSESSMENT YEARS.- SECTION 80-IC(6) ALSO OPENS WITH A NON OBST ANTE CLAUSE NOTWITHSTANDING ANYTHING CONTAINED IN,AND PROVIDES THAT NO DEDUCTION SHALL BE ALLOWED TO ANY UNDERTAKING OR ENTERPRISE UNDER SECTION 80-IC, - WH ERE THE TOTAL PERIOD OF DEDUCTION INCLUSIVE OF THE PERIOD O F DEDUCTION - UNDER SECTION 80-IC, OR - UNDER THE SECOND PROVISO TO SECTION 80-IB(4) OR - UNDER SECTION 10C AS THE CASE MAY BE, EXCEEDS 10 ASSESSMENT YEARS. 39. LASTLY, IT WAS CONTENDED THAT INITIAL ASSESSMEN T YEAR AS DEFINED IN CLAUSE (V) OF SUB SECTION (8) OF SECTION 80IC USES THE EXPRESSION OR THEREFORE, IT CAN BE CONSTRUED THAT IT RELATES TO BOTH SITUATIONS SEPARATELY I.E. FOR NEW UNIT AND SUBSTAN TIAL EXPANDED UNIT. WE FIND NO FORCE IN THIS CONTENTION. THE IN ITIAL ASSESSMENT YEAR HAS BEEN DEFINED AND THE EXPRESSION OR HAS B EEN USED IN RESPECT OF NEW UNITS BY STATING COMMENCES OPERATIO N OR COMPLETE SUBSTANTIAL EXPANSION. HERE THE EXPRESSION OR IS TO BE READ AS A MUTUALLY EXCLUSIVE EXPRESSION WHICH REFERS TO A PAR TICULAR SITUATION BY EXCLUDING THE OTHER SITUATION. THEREFORE, INITI AL ASSESSMENT YEAR WOULD CLEARLY COMMENCE EITHER ON COMMENCEMENT OF OP ERATION OR AT COMPLETION OF SUBSTANTIAL EXPANSION OF EXISTING UNI T. IN ANY CASE THE WORD INITIAL CANNOT BE USED TWICE BY REFERRI NG TO SERIES OF EVENTS. THIS CAN BE UNDERSTOOD WITH A VERY SIMPLE E XAMPLE. LET US SAY A PERSON A PASSES OUT HIS EXAMINATION OF LLB AND GET EMPLOYED AS LEGAL OFFICER IN AN ORGANIZATION. LATER ON, HE QUITS THE 20 JOB AND STARTS THE PRACTICE IN LEGAL PROFESSION AND ULTIMATELY HE IS ELEVATED AS A JUDGE. THEN IN SUCH A SITUATION IT CA NNOT BE SAID THAT INITIALLY A WAS WORKING IN A ORGANIZATION AND THE N INITIALLY HE WAS IN THE PROFESSION AND THEN ELEVATED AS A JUDGE. INI TIALLY CAN BE USED ONLY ONCE AS A MATTER OF USAGE OF ENGLISH LANGUAGE. THEREFORE, READING OF THE ABOVE PROVISION CLEARLY SHOWS THAT I NTENTION OF THE LEGISLATURE WAS VERY CLEAR TO ALLOW 100% FOR FIRST FIVE YEARS IN CASE OF UNITS SITUATED IN THE STATE OF HIMACHAL PRADESH (SINCE ALL THE CASES BEFORE US ARE SITUATED IN THE STATE OF HIMACH AL PRADESH) AND THEREAFTER 25% DEDUCTION FOR ANOTHER FIVE YEARS ON THE NEW UNITS OR THE EXISTING UNITS WHERE SUBSTANTIAL EXPANSION WAS CARRIED OUT. 40. IT HAS ALSO BEEN CONTENDED THAT INCENTIVE PROVISION SHOULD BE CONSTRUED LIBERALLY. FURTHER, IT WAS CONTENDED WI TH REFERENCE TO THE DECISION OF M/S NOVAPAN INDIA LTD VS COLLECTOR OF CENTRAL EXCISE AND CUSTOMS (SUPRA) BY THE REVENUE IS NOT CO RRECT BECAUSE THAT PROVISION WAS RENDERED UNDER INDIRECT TAX ACT. WE FIND NO FORCE IN THESE SUBMISSIONS. EVERY DECISION OF THE H ON'BLE SUPREME COURT OR FOR THAT MATTER OF ANY HIGH COURT HAS TO B E SEEN FOR THE RATIO LAID DOWN IN A PARTICULAR DECISION AND IT DOE S NOT MATTER UNDER WHICH PARTICULAR ACT SUCH PRINCIPLES HAS BEEN DECIDED. NO DOUBT THE INCENTIVE PROVISIONS ARE REQUIRED TO BE I NTERPRETED LIBERALLY BUT IN CASE OF M/S NOVAPAN INDIA LTD V CO LLECTOR OF CENTRAL EXCISE AND CUSTOMS (SUPRA), IT WAS OBSERVED AS UNDER:- THE LEARNED COUNSEL FOR THE APPELLANT THEN CONTEN DED THAT SINCE THERE IS AN AMBIGUITY ABOUT THE MEANING AND P URPORT OF ITEM-6 OF THE TABLE APPENDED TO THE EXEMPTION NOTIF ICATION, THE BENEFIT OF SUCH AMBIGUITY SHOULD GO TO THE ASSE SSEE MANUFACTURER AND THE ENTRY MUST BE CONSTRUED AS TAK ING IN THE MFPBS AS WELL. IT IS NOT POSSIBLE TO AGREE WITH THIS SUBMISSION. IN MANGALORE CHEMICALS& FERTILIZERS LTD.. V. DEPUTY COMMISSIONER OF COMMERCIAL TAXES & ORS., [1992) SUP PL. 1 S.C.C, 21, A BENCH OF THIS COURT COMPRISING M.N. VENKATACHALIAH, J. (AS THE LEARNED CHIEF JUSTICE TH EN WAS) AND S.C AGRAWAL, J. STATED THE RELEVANT PRINCIPLE I N THE FOLLOWING WORDS: SHRI NARASIMHAMURTY AGAIN RELIED ON CERTAIN OBSERV ATIONS IN CCE V. PARLE EXPORTS (P)LTD. [1989] 1 SCC 345, I N SUPPORT OF STRICT CONSTRUCTION OF A PROVISION CONCE RNING EXEMPTIONS. THERE IS SUPPORT OF JUDICIAL OPINION TO THE VIEW THAT EXEMPTIONS FROM TAXATION HAVE A TENDENCY TO IN CREASE THE BURDEN ON THE OTHER UN-EXEMPTED CLASS OF TAX PA YERS AND SHOULD BE CONSTRUED AGAINST THE SUBJECT IN CASE OF AMBIGUITY. IT IS AN EQUALLY WELL KNOWN PRINCIPLE THAT A PERSON WHO CLAIMS AN EXEMPTION HAS TO ESTABLISH HIS CASE. INDEED, IN 21 THE VERY CASE OF PARLE EXPORTS (P) LTD. RELIED UPON BY SHRI NARASIMHAMURTHY, IT WAS OBSERVED. WHILE INTERPRETING AN EXEMPTION CLAUSE, LIBERAL INTERPRETATION SHOULD BE IMPARTED TO THE LANGUAGE T HEREOF, PROVIDED NO VIOLENCE IS DONE TO THE LANGUAGE EMPLOY ED. IT MUST, HOWEVER, BE BORNE IN MIND THAT ABSURD RESULTS OF CONSTRUCTION SHOULD BE AVOIDED. THE CHOICE BETWEEN A STRICT AND A LIBERAL CONSTRUCT ION ARISES ONLY IN CASE OF DOUBT IN REGARD TO THE INTENTION OF THE LEGISLATURE MANIFEST ON THE STATUTORY LANGUAGE. IND EED, THE NEED TO RESORT TO ANY INTERPRETATIVE PROCESS ARISES ONLY WHERE THE MEANING IS NOT MANIFEST ON THE PLAIN WORDS OF T HE STATUTE. IT THE WORDS ARE PLAIN AND CLEAR AND DIRECTLY CONVE Y THE MEANING, THERE IS NOT NEED FOR ANY INTERPRETATION. WE ARE, HOWEVER, OF THE OPINION THAT, ON PRINCIPLE , THE DECISION OF THE COURT IN MANGALORE CHEMICALS AND IN UNION OF INDIA V. WOOD PAPERS , REFERRED TO THEREIN REPRESENTS THE CORRECT VIEW OF LAW. THE PRINCIPLE T HAT IN CASE OF AMBIGUITY, A TAXING STATUTE SHOULD BE CONSTRUED IN FAVOUR OF THE ASSESSEE ASSUMING THAT THE SAID PRINCIPLE IS GOOD AND SOUND- DOES NOT APPLY TO THE CONSTRUCTION OF AN EXCEPTION OR AN EXEMPTING PROVISION; THEY HAVE TO B E CONSTRUED STRICTLY. A PERSON INVOKING AN EXCEPTION OR AN EXEMPTION PROVISION TO RELIEVE HIM OF THE TAX LIABI LITY MUST ESTABLISH CLEARLY THAT HE IS COVERED BY THE SAID PR OVISION. IN CASE OF DOUBT OR AMBIGUITY, BENEFIT OF ITS MUST GO TO THE STATE. THE HONBLE SUPREME COURT IN ORISSA STATE WAREHOUSI NG CORPORATIONS CASE (SUPRA) HAS LAID DOWN THAT WHIL E IT IS TRUE THAT IN THE EVENT OF THERE BEING ANY DOUBT IN THE MATTER OF INTERPRETATION OF A FISCAL STATUTE, THE SAME GOE S IN FAVOUR OF THE ASSESSEE, BUT THE FACT REMAINS AND THE LAW I S WELL- SETTLED ON THIS SCORE THAT IN THE MATTER OF INTERPR ETATION OF THE TAXING STATUTES THE LAW COURTS WOULD NOT BE JUSTIFI ED IN INTRODUCING SOME OTHER EXPRESSIONS WHICH THE LEGISL ATURE THOUGHT FIT TO OMIT. IN THE PRESENT CONTEXT, THERE IS NO DOUBT AS TO THE MEANING OF THE WORDS USED IN THE SECTION BY REASON OF THE LANGUAGE USED, NEITHER THERE IS ANY DIFFICUL TY IN ASCERTAINING THE STATUTORY INTENT. INCIDENTALLY, IT CANNOT BUT BE SAID THAT AN EXEMPTION IS AN EXCEPTION TO THE GE NERAL RULE AND SINCE THE SAME IS OPPOSED TO THE NATURAL TENOR OF THE STATUTE, THE ENTITLEMENT FOR EXEMPTION, THEREFORE, OUGHT NOT TO BE READ WITH ANY LATITUDE TO THE TAX-PAYER OR EVEN WITH A WIDER CONNOTATION. 41. THEREFORE, IT BECOMES CLEAR THAT LIBERAL INTERP RETATION OF AN INCENTIVE PROVISION IS POSSIBLE IF THERE IS ANY DOU BT. AS WE HAVE SEEN ABOVE THAT IF VARIOUS SUB SECTIONS OF SECTION 80IC ARE READ 22 CAREFULLY IT LEAVES NO DOUBT THAT DEDUCTION WAS MEA NT ONLY FOR NEW UNITS OR IN CASE OF OLD UNITS IF SUBSTANTIAL EXPANS ION WAS CARRIED OUT IN SUCH OLD UNITS AND DEDUCTION WAS AVAILABLE O NLY FOR A PERIOD OF 10 YEARS. THEREFORE, THERE IS NO QUESTION OF GI VING ANY INTERPRETATION MUCH LESS LIBERAL INTERPRETATION TO SECTION 80IC WHEN THE READING OF WHOLE SECTION MAKES THE PROVISION VE RY CLEAR. AS OBSERVED IN CASE OF M/S NOVAPAN INDIA LTD V COLLECT OR OF CENTRAL EXCISE AND CUSTOMS (SUPRA) THE BURDEN WAS ON THE AS SESSEE TO SHOW UNDER WHICH CLAUSE HE WAS ENTITLED TO THE DEDUCTION BUT ASSESSEE IS SIMPLY ASSERTING BEFORE US THAT THERE IS NO RESTRIC TION FOR DEDUCTION IN CASE OF SUBSTANTIAL EXPANSION OF NEW UNITS. IN OUR OPINION, THAT IS NOT ENOUGH BECAUSE ABSENCE OF RESTRICTION DOES N OT MEAN THAT PARTICULAR DEDUCTION WAS ALLOWABLE. 42. WE ALSO FIND FORCE IN THE SUBMISSIONS OF LD. CI T-DR THAT IF INTERPRETATION GIVEN BY THE ASSESSEE IS TO BE ACCEP TED, THE PROVISION WOULD BECOME DISCRIMINATORY FOR TWO CLASSES OF UNDE RTAKINGS I.E. NEW UNITS AND OLD UNITS. BECAUSE THE OLD UNITS WOUL D BE ENTITLED TO 100% DEDUCTION ON EXPANSION FOR FIRST FIVE YEARS A ND 25% THEREAFTER WHEREAS THE NEW UNITS WOULD BECOME ENTIT LED TO DEDUCTION FOR 100% FOR FIRST FIVE YEARS AND AGAIN @ 100% ON SUBSTANTIAL EXPANSION. SUCH DISCRIMINATORY INTENTIO N CANNOT BE IMPUTED TO THE LEGISLATURE. 43. BEFORE US, RELIANCE WAS ALSO PLACED ON THE DECI SION OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF TRIPUTI LPG IN DUSTRIES LIMITED VS. DCIT(SUPRA). IN THIS DECISION, THE BENCH HAS S IMPLY OBSERVED THAT MAIN DISPUTE IS ON THE DEFINITION OF INITIAL ASSESSMENT YEAR. THE PROVISIONS OF SUB SECTION (2) AND SUB SECTION ( 3) AS DISCUSSED IN DETAIL ABOVE HAVE BEEN TOTALLY IGNORED AND, THEREFO RE, THIS DECISION, IN OUR OPINION, IS PER INQUERIM AND CANNOT BE FOLLO WED. 44. THE LD. COUNSEL HAS ALSO RELIED ON THE DECISION IN THE CASE OF S.R. PARYAVARAN ENGINEERS PVT LTD (SUPRA) OF THE CH ANDIGARH BENCH. THE FACTS IN THAT CASE ARE THAT ASSESSEE HAS CLAIMED DEDUCTION U/S 80IB IN ASSESSMENT YEAR 1999-2000 @ 100% . THE DEDUCTION WAS CLAIMED @ 100% FOR FIVE YEARS AND THE N DEDUCTION WAS CLAIMED @ 30% ON THE PROFITS IN THE NEXT YEAR. THE ASSESSEE UNDERTOOK SUBSTANTIAL EXPANSION IN FINANCIAL YEARS 2004-05 & 2005- 06 AND CLAIMED DEDUCTION AT THE RATE OF 100% ON THE BASIS OF SUCH SUBSTANTIAL EXPANSION IN ASSESSMENT YEAR 2006-07. HOWEVER, THE DEDUCTION WAS WRONGLY CLAIMED U/S 80IB INSTEAD OF S ECTION 80IC. THE CIT(A) ALLOWED THE DEDUCTION BY OBSERVING THAT DEDUCTION COULD NOT BE DENIED SIMPLY BECAUSE ASSESSEE HAS QUO TED A WRONG SECTION. ON THE APPEAL FILED BY REVENUE, THE DEDUC TION WAS HELD TO BE ALLOWABLE BECAUSE SUBSTANTIAL EXPANSION WAS CARR IED OUT IN A UNIT WHICH WAS ALREADY IN EXISTENCE AS ON 7.1.2003. THEREFORE, IN OUR OPINION, THIS DECISION DOES NOT PROVIDE ANY ASS ISTANCE TO THE CASE OF THE ASSESSEE. 45. THE LD. COUNSEL HAS ALSO RELIED ON THE DECISION OF ABHISHEK BHARGAV AAR NO. 1097 OF 2011 (SUPRA). THE FACTS IN THAT CASE ARE 23 THAT A PARTNERSHIP FIRM NAMELY M/S. HIMACHAL POWER PRODUCTS WAS FORMED ON 23.05.2009. THE FIRM COMMENCED COMMERCIAL PRODUCTION IN MARCH, 2010. SHRI ABHISHEK BHARGAV WHILE PLANNIN G TO JOIN THE FIRM AS PARTNER BY ACQUIRING 20% SHARE OF PROFIT AN D ENHANCING ADDITIONAL MANUFACTURING FACILITY BY UNDERTAKING SU BSTANTIAL EXPANSION SOUGHT ADVANCE RULING ON THE ISSUE WHETHE R THE INTRODUCTION OF NEW PARTNER WOULD BE TREATED AS REC ONSTRUCTION OF THE EXISTING BUSINESS OR THE FIRM WILL BE ENTITLED TO THE BENEFIT OF SUBSTANTIAL EXPANSION AS PER THE PROVISIONS OF SECT ION 80IC(2)(A)(II) IF IT STARTS COMMERCIAL PRODUCTION BEFORE 01.04.201 2. THE AUTHORITY HELD THAT THE ASSESSEE WAS ENTITLED TO THE BENEFIT OF SUBSTANTIAL EXPANSION IN TERMS OF AND TO THE EXTENT PROVIDED BY SECTION 80IC OF THE ACT IF IT STARTS COMMERCIAL PRODUCTION IN THE S UBSTANTIALLY EXPANDED UNIT BEFORE 01.04.2012. IN THIS CASE THE A SSESSE SHALL BE ENTITLED TO DEDUCTION OF 100% OF ITS PROFITS UPTO A .Y. 2014-15 SINCE THE INITIAL ASSESSMENT YEAR WAS A.Y. 2010-11 AND CL AIM OF DEDUCTION CANNOT BE DENIED MERELY ON THE GROUND OF EXPANSION OF MANUFACTURING CAPACITY SO LONG IT IS NOT A CASE OF RESTRUCTURING OF BUSINESS ALREADY IN EXISTENCE. HOWEVER, THE QUESTIO N WHETHER THE ASSESSEE SHALL BE ENTITLED TO DEDUCTION OF 100% OF ITS PROFIT EVEN AFTER A.Y. 2014-15 I.E. FOR 2 MORE YEARS BEYOND A.Y . 2014-15 IS LEFT OPEN AND NOT DECIDED BY THE AAR. THEREFORE THIS DEC ISION IS TOTALLY DISTINGUISHABLE AND DOES NOT HELP THE CASE OF THE A SSESSEE. 46. THE LAST DECISION RELIED ON WAS IN THE CASE OF SINTEX INDUSTRIES LTD V CIT (SUPRA). IN THIS CASE THE DED UCTION U/S 80IC WAS ALLOWED BY THE ASSESSING OFFICER BUT LATER ON A REVISIONARY ORDER WAS PASSED U/S 263 OF THE ACT. THE BENCH MAIN LY DEALT WITH THE PROVISION OF SECTION 263 AND IN VIEW OF THE DEC ISION OF HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIES CO LTD V CIT 243 ITR 83 (SC) HELD THAT SINCE VIEW TAKEN BY THE ASSE SSING OFFICER IS ALSO POSSIBLE VIEW, THEREFORE, ASSESSMENT ORDER WAS NOT ERRONEOUS. IN FACT THE BENCH REFERRED TO THE DECISION OF DELHI BENCH IN THE CASE OF TRIPUTI LPG INDUSTRIES LIMITED VS. DCIT (SUPRA) WITHOUT CONSIDERING THE PROVISION OF SECTION 80IC IN DETAIL FOR REACHING THE CONCLUSION THAT IT IS ONE OF THE POSSIBLE VIEW. SI NCE WE HAVE ALREADY DISCUSSED THE DECISION OF TRIPUTI LPG INDU STRIES LIMITED VS. DCIT (SUPRA) AND FOUND THAT ALL THE PROVISIONS OF THE SECTION WERE NOT DISCUSSED IN THAT SECTION AND THAT IS PER INQUERIM, THEREFORE, IN OUR OPINION, THIS ORDER DOES NOT HELP THE CASE OF THE ASSESSEE. 47. THE LAST ARGUMENT WAS IN RESPECT OF COLUMN IN FORM NO. 10CCB. THE COLUMN 25 OF FORM NO. 10CCB READS AS UND ER:- 25 (I) WHETHER THE UNDERTAKING OR ENTERPRISE I S LOCATED IN AN AREA NOTIFIED BY THE BOARD FOR THE PURPOSES OF SEC TION 80-IC :---YES ---NO (II) IF YES PLEASE INDICATE,- 24 A. NAME OF THE EXPORT PROCESSING ZONE / INTEGRATED INFRASTRUCTURE DEVELOPMENT CENTRE / INDUSTRIAL GROWTH CENTRE/INDUSTRIAL PARK/ESTATE/SOFTWARE TECHNOLOGY PARK/INDUSTRIAL AREA/THEME PARK AND THE DISTRICT/STATE IN WHICH LOCATED :------------ -------- (B) KHASRA NO. OF THE UNDERTAKING OR ENTERPRISE :-------------------- (ALSO INDICATE THE BOARDS NOTIFICATION NO. ) (C) IF THE ELIGIBLE BUSINESS IS NEW, PLEASE GIVE THE DATE OF COMMENCEMENT OF PRODUCTION OR MANUFACTUR E OF ARTICLE OR THING. :--------------------- (D) IF THE EXISTING BUSINESS HAS UNDERTAKEN SUBST ANTIAL EXPANSION, PLEASE SPECIFY,- :----------- ----------- (I) THE DATE OF SUBSTANTIAL EXPANSION (II) THE TOTAL BOOK VALUE OF PLANT AND MACHINERY (BEFORE TAKING DEPRECIATION IN ANY YEAR)AS ON FIRST DAY OF THE PREVIOUS YEAR IN WHICH SU B- STANTIAL EXPANSION TOOK PLACE. :-------- -------------- (III) VALUE OF INCREASE IN THE PLANT AND MACHINE RY IN THE YEAR OF SUBSTANTIAL EXPANSION. :- --------------------- (E) DOES THE UNDERTAKING OR ENTERPRISE MANUFACTUR E OR PRODUCE ANY ARTICLE OR THING SPECIFIED IN THE THIRTEENTH SCHEDULE. :---YES ---NO (IF YES, PLEASE SPECIFY THE ARTICLE OR THING) :----------------------- (F) DOES THE UNDERTAKING OR ENTERPRISE MANUFACTURE OR PRODUCE ANY ARTICLE OR THING SPECIFIED IN THE FOURTEENTH SCHEDULE. :---YES ---NO (IF YES, PLEASE SPECIFY THE ARTICLE OR THING O R OPERATION) :------------------- 48. THE CAREFUL READING OF THE FORM IN A SERIAL ORD ER WOULD CLEARLY SHOW THAT THE ASSESSEE IS REQUIRED TO INFOR M THE LOCATION OF THE INDUSTRY AND COLUMN (C) SPECIFICALLY ASK THE AS SESSEE TO STATE WHETHER BUSINESS IS A NEW BUSINESS? COLUMN (D) CL EARLY ASK THE 25 ASSESSEE WHETHER EXISTING BUSINESS HAS UNDERTAKEN S UBSTANTIAL EXPANSION, THEREFORE, THERE ARE TWO CATEGORIES OF B USINESS AND SUBSTANTIAL EXPANSION IS POSSIBLE ONLY IN CASE OF E XISTING BUSINESS. IN OUR OPINION, THE LD. CIT(A) HAS CORRECTLY ADJUD ICATED THIS ISSUE. 49. IN VIEW OF THE ABOVE DETAILED DISCUSSION WE HOL D THAT THE ASSESSEE BEFORE US I.E. M/S HYCRON ELECTRONICS IN I TA NO. 798/CHD/2012 IS ENTITLED TO ONLY 25% OF DEDUCTION D URING THE PRESENT YEAR BECAUSE THE ASSESSEE HAS ALREADY AVAI LED THE PERIOD OF FULL DEDUCTION @ 100% IN THE EARLIER FIVE YEARS I.E . FROM ASSESSMENT YEARS 2004-05 TO 2008-09. IN THIS BACKGROUND, WE FI ND NOTHING WRONG WITH THE ORDER OF LD. CIT(A) AND WE UPHOLD TH E SAME. ACCORDINGLY, ASSESSEES APPEAL IS DISMISSED. THE FACTS OF THE PRESET CASE ARE SIMILAR TO THAT OF THE CASE OF HYCRON ELECTRONICS VS. ITO REFERRED TO ABOVE. RESPECTFULLY FOLLOWING T HE ORDER OF THE TRIBUNAL REFERRED TO ABOVE, WE REJECT GROUND NO.2 OF THE APP EAL. 7. GROUND NO.3 OF THE APPEAL READS AS UNDER:- 3. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT (APPEALS). SHIMLA HAS ERRED IN AFFIRM ING THE ORDER OF LD. ITO, BADDI IN RESTRICTING THE APPEL LANT'S CLAIM OF OTHER INCOME OF RS. 21,84,505/- BEING ELIGIBLE F OR DEDUCTION U/S 80 1C OF THE IT ACT. 1961. 8 THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS SHO WN AMOUNT OF RS. 21,84,505/- UNDER THE HEAD OTHER INCOME AND HAD CLAIMED DEDUCTION U/S 80IC OF THE ACT. THE DETAILS OF OTHER INCOME ARE AS UND ER:- PARTICULARS AMOUNT (RS.) INTEREST RECEIVED ON MARGIN MONEY 2,20,282/- DIVIDEND RECEIVED 10,50,047/- FOREIGN EXCHANGE FLUCTUATION 7,99,987/- MISCELLANEOUS RECEIPT 1,14,089/- SUNDRY CREDIT BALANCES WRITTEN BACK 99/- 26 TOTAL 21,84,505/- 9. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY DEDUCTION U/S 80IC OF THE ACT ON THE ABOVE AMOUNT S HOULD NOT BE DISALLOWED AS THIS INCOME HAS NOT BEEN DERIVED BY INDUSTRIAL UND ERTAKING AND HAS NO IST DEGREE NEXUS WITH THE MANUFACTURING ACTIVITIES. IN RESPONSE TO THE QUERY RAISED BY THE ASSESSING OFFICER, THE ASSESSEE FURNISHED IT S REPLY DATED 2 ND JANUARY, 2014 STATING THAT THE ENTIRE INCOME IS ELIGIBLE FOR DEDU CTION U/S 80IC OF THE ACT BEING DERIVED FROM MANUFACTURING ACTIVITIES. THE ASSESSIN G OFFICER REJECTED THE SAID CONTENTION OF THE ASSESSEE IN VIEW OF THE RATIO LAI D DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICAL V CIT (2003)262 ITR 278 (SC) AND LIBERTY INDIA LTD. VS. CIT (2009) 317 ITR 218( (SC). ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED A SUM OF RS. 21,84,505 /- AND ADDED BACK THE SAME TO THE TOTAL TAXABLE INCOME OF THE ASSESSEE. 10. ON APPEAL, THE CIT(A) UPHELD THE ORDER OF THE A SSESSING OFFICER, OBSERVING AS UNDER:- 6.1 DURING APPELLATE PROCEEDINGS, ASSESSEE SUBMIT TED THAT THE INTEREST HAS BEEN EARNED ON FDR FOR LETTER OF C REDIT AND BANK GUARANTEES WITH IS PART AND PARCEL OF INCOME O F INDUSTRIAL UNDERTAKING HAVING DIRECT NEXUS. ASSESSEE'S CONTENT ION THAT THESE FDRS ARE ESSENTIAL FOR BUSINESS, THUS, INTERE ST ON THESE FDRS SHOULD BE TREATED AS INCOME OF THE INDUSTRIAL UNDERTAKING, IS NOT ACCEPTABLE AS THESE FDRS ARE NO T ESSENTIAL FOR CARRYING OUT MANUFACTURING ACTIVITY. THE TERM B USINESS HAS DIFFERENT MEANING THAN MANUFACTURING. MOREOVER AS P ER SPECIFIC PROVISIONS U/S 56 OF INCOME TAX ACT, THE I NTEREST EARNED ON SECURITIES SHALL BE CHARGEABLE AS 'INCOME FROM OTHER SOURCE'. SIMILARLY THE DIVIDEND HAS TO BE SPECIFICA LLY CHARGED UNDER THE HEAD 'INCOME FROM OTHER SOURCES' U/S 56. 27 6.2 THE ASSESSEE HAS CLAIMED AN INCOME OF RS.7 ,99,987/- ON ACCOUNT OF PROFIT ON FLUCTUATION IN FOREIGN EXCHANG E PART OF PROFITS DERIVED FROM MANUFACTURING ACTIVITY FOR THE PURPOSE OF SECTION 80IC. ASSESSING OFFICER RELYING ON JUDGMENT OF M/S. LIBERTY INDIA AND OTHERS VS. CIT (317 ITR 218), CIT VS. STERLING FOOD (SC) 237 ITR 579, PANDIAN CHEMICALS L IMITED VS. CIT (MAD) 270 ITR 448 HELD THAT IN THE PRESENT SET OF FACTS THE PROFIT CANNOT BE ATTRIBUTED TO MANUFACTURING AC TIVITY OF AN INDUSTRIAL UNDERTAKING. HENCE THIS AMOUNT IS NOT EL IGIBLE FOR COMPUTATION OF PROFITS FOR CLAIMING DEDUCTION U/S 8 0IC. DURING APPELLATE PROCEEDINGS ASSESSEE HAS SIMPLY STATED TH AT THE EXCHANGE RATE FLUCTUATION FORMS PART OF PURCHASE TR ANSACTIONS AND WHEN THE PAYMENT OF IMPORT PURCHASE IS MADE IN CONVERTIBLE FOREIGN EXCHANGE, THE RUPEE EQUIVALENT OF IMPORT PURCHASE IS LIABLE TO VARY CONSEQUENT UPON THE FLUC TUATION IN THE RATE OF FOREIGN EXCHANGE BETWEEN THE DATES WHEN THE GOODS ARE IMPORTED AND THE DATE ON WHICH THE PAYMENT HAS BEEN MADE. THUS FOREIGN EXCHANGE FLUCUTIAONT ON RECEIPT/ PAYMENT IS MAINLY ON ACCOUNT OF DIFFERENCE IN RATE OF EXCHANGE AT THE TIME OF BOOKING THE TRANSACTION AND EXCHANGE RATE AT THE TIME OF ACTUAL PAYMENT, ACCORDING TO ASSESSEE, THUS EXCHANG E GAIN IS DIRECTLY RELATED WITH THE MANUFACTURING BUSINESS OF ASSESSEE AND THEREFORE, ELIGIBLE FOR DEDUCTION U/S 80IC. ASS ESSEE ALSO RELIED ON JUDGMENT OF CIT VS. RACHNA UDYOG (35 DTR 65). 6.3 THE MOOT QUESTION IN THIS CASE IS WHETHER THE INCOME ON FOREIGN EXCHANGE FLUCTUATION IS DERIVED FROM THE MA NUFACTURING ACTIVITY OR NOT. THE ASSESSEE IN PRESENT CASE HAS F AILED TO ESTABLISH THAT THE PROFIT ON ACCOUNT OF FLUCTUATION ON FOREIGN EXCHANGE IS DIRECTLY DERIVED FROM MANUFACTURING ACT IVITY OF INDUSTRIAL UNDERTAKING. RATHER THAN ESTABLISHING TH E NEXUS BETWEEN PROFITS ON FOREIGN EXCHANGE AND MANUFACTURI NG, ASSESSEE HAS BEEN ARGUING THAT THIS FLUCTUATION IS ON ACCOUNT OF PURCHASE TRANSACTION AND IMPORTS. HOWEVER, NO EV IDENCE AT ANY STAGE, ESTABLISHING THE ABOVE MENTIONED NEXUS, HAS BEEN GIVEN BY THE ASSESSEE. THE ASSESSEE FAILED TO DISCH ARGE PRIMARY ONUS OF ESTABLISHING THE NEXUS BETWEEN EARNING ON F OREIGN EXCHANGE FLUCTUATION WITH SUFFICIENT EVIDENCE. MORE OVER, THE 28 CASE LAWS REFERRED TO BY THE ASSESSEE ARE DISTINGUI SHABLE ON FACTS AS UNDER:- 1. GODAVORI DRUGS LTD. VS. JCIT (2004) 89 TTJ (HY D) 518, THE MAIN ISSUE WAS CLAIM OF DEDUCTION U/S 80 HHC NOT 80IA AS ASSESSEE WAS AN EXPORTER. BUT IN PRESE NT CASE ASSESSEE HAS CLAIMED FOREIGN EXCHANGE FLUCTUAT ION ON ACCOUNT OF PURCHASE. 2. ACIT VS. P.S. APPARELS PERTAINS TO AN ASSESSEE WHO IS ENGAGED IN THE EXPORT OF READYMADE GARMENTS AND WAS ABLE TO ESTABLISH NEXUS BETWEEN FOREIGN EX CHANGE RECEIPTS AND THE MANUFACTURING ACTIVITY. THUS IN ABSENCE OF DULY EVIDENCED NEXUS BETWEEN PRO FITS ON FOREIGN EXCHANGE FLUCTUATION, AND MANUFACTURING ACT IVITY OF INDUSTRIAL UNDERTAKING, AND INTEREST, DIVIDEND, MIS C. RECEIPTS ETC. TO BE SPECIFICALLY CHARGED UNDER THE HEAD 'OTH ER SOURCES' AS DISCUSSED ABOVE AND NOT HAVING FIRST DEGREE NEXU S WITH MANUFACTURING ACTIVITY, THE ACTION OF THE ASSESSING OFFICER IS UPHELD AND THIS GROUND OF ASSESSEE IS DISMISSED. 11. IT IS OBSERVED THAT A SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 374/CHD/ 2012 FOR THE ASSESSMENT YEAR 2010-11. IN THAT YEAR ALSO, THE ASSESSEE HAS SHOWN OTHER INCOME AMOUNTING TO RS. 19,75,825/- AS PER THE FOLLOWING DETAILS:- PARTICULARS AMOUNT (RS.) INTEREST RECEIVED ON MARGIN MONEY INTEREST RECEIVED ON OTHER FOREIGN EXCHANGE FLUCTUATION MISCELLANEOUS INCOME SUNDRY CREDIT BALANCES WRITTEN BACK 2,85,876 70,328 15,46,066 73,542 13 THE TRIBUNAL RELYING ON THE DECISIONS OF THE HON'BL E SUPREME COURT THE CASE OF PANDIAN CHEMICALS V CIT (2003) 262 ITR 278 (SC) AND LIBERTY INDIA LTD V CIT (SUPRA) HELD THAT EXPRESSION DERIVED FROM HAS BEE N USED IN SECTION 80IC ALSO, 29 THEREFORE, AS FAR AS INTEREST RECEIVED ON MARGIN MO NEY AND INTEREST RECEIVED ON OTHER AMOUNTING TO RS. 2,85,876/- AND RS. 70,328/- ARE NOT ENTITLED FOR DEDUCTION US/ 80IC OF THE ACT. THE TRIBUNAL FURTHER OBSERVED THAT AS FAR AS THE ISSUE REGARDING MISC. INCOME, AMOUNTING TO RS. 73,542/- A ND SUNDRY CREDIT BALANCES RETURNED BACK AMOUNTING TO RS. 13/- IS CONCERNED, T HE SAME WAS NOT PRESSED BEFORE THE TRIBUNAL. HOWEVER, THE TRIBUNAL REMANDED THE ISSUE RELATING TO FOREIGN EXCHANGE FLUCTUATION TO THE ASSESSING OFFIC ER WITH A DIRECTION THAT IF THE SAME RELATES TO THE BUSINESS TRANSACTION ON REVENUE ACCOUNT, THEN DEDUCTION MAY BE ALLOWED ON THIS AMOUNT, OTHERWISE, THE ISSUE MAY BE DECIDED IN ACCORDANCE WITH LAW. 12. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNA L REFERRED TO ABOVE, WE HOLD THAT INTEREST RECEIVED ON MARGIN MONEY AMOUNTI NG TO RS. 2,20,282/- IS NOT ENTITLED FOR DEDUCTION U/S 80IC AND ACCORDINGLY WE UPHOLD THE ORDER OF CIT(A) TO THIS EXTENT. WE MAY ALSO OBSERVE HERE THAT THE I SSUE RELATING TO MISC. RECEIPTS OF RS. 1,14,089/- AND SUNDRY CREDIT BALANCES RETURN ED BACK AMOUNTING TO RS. 99/- WAS NOT SERIOUSLY ARGUED AND PRESSED BEFORE US. ACC ORDINGLY, TO THE ABOVE EXTENT, WE UPHOLD THE ORDER OF CIT(A). AS REGARDS THE ISSUE OF FOREIGN EXCHANGE FLUCTUATION, AMOUNTING TO RS. 7,99,987/-, WE ARE FOLLOWING THE ORDER OF THE TRIBUNAL PASSED IN ITA NO.374/CHD/2014 RELATING TO ASSESSMENT YEAR 2010- 11 AND SET ASIDE THE ORDER OF CIT(A) AND REMAND THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AS PER THE DI RECTIONS AND GUIDELINES GIVEN BY THE TRIBUNAL IN ASSESSEES CASE IN ASSESSMENT YE AR 2010-11. AS REGARDS THE DIVIDEND OF RS. 10,50,047/-, WE AGREE WITH THE FIND INGS OF THE CIT(A) THAT DIVIDEND HAS TO BE SPECIFICALLY CHARGED UNDER THE HEAD INCOME FROM OTHER SOURCES U/S 56 OF THE ACT. FURTHERMORE, IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD VS. CIT (SUPRA), AND LIBERTY INDIA LTD. VS. CIT (SUPRA), THE DIVIDEND R ECEIVED BY THE ASSESSEE HAS NO 30 DIRECT NEXUS WITH THE PROFITS AND GAINS DERIVED FRO M THE MANUFACTURING ACTIVITY AND INDUSTRIAL UNDERTAKING. HENCE, THIS AMOUNT IS N OT ALLOWABLE FOR COMPUTATION OF PROFITS FOR CLAIMING DEDUCTION U/S 80IC OF THE A CT. 13. GROUND NO.4 OF THE APPEAL READS AS UNDER;- 4. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(APPEALS) SHIMLA HAS ERRED IN AFFIRMING THE ORDER OF LD. ITO, BADDI IN DISALLOWING OF RS. 5,55,241/- U/S 14-A R.W.R. 8D OF THE IT ACT 1961, WITHOUT PROVING NEXUS BETWEEN EXPENDITURE DISALLOWED AND EXEMPTED DIVIDEN D INCOME AMOUNTING TO RS. 10,50,047/-, WHICH IS UNJUSTIF IED, UNWARRANTED AND BAD IN LAW. 14. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE HAD SHOWN INVESTMENTS OF RS. 10,22,04,600/- AS ON 31.3.2011 IN PREFERENCE S EQUITY SHARES. THE ASSESSING OFFICER ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY NECESSARY DISALLOWANCE SHOULD NOT BE MADE U/S 14A OF THE ACT . THE ASSESSEE SUBMITTED A DETAILED REPLY VIDE ITS LETTER DATED 2.1.2014 WHICH IS REPRODUCED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AT PAGES 12 TO 14 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER DID NOT ACCEPT THE CON TENTION OF THE ASSESSEE AS STATED IN THE REPLY DATED 2.1.2014 AND WORKED OUT T HE DISALLOWANCE U/S 14A READ WITH RULE 8-D OF THE I.T. RULES, 1962 AND MADE THE DISALLOWANCE OF RS. 5,55,241/- 15. ON APPEAL, THE CIT(A) CONFIRMED THE ORDER OF TH E ASSESSING OFFICER HOLDING THAT THE PROVISIONS OF SECTION 14A(3) AND S ECTION 14A(2) ARE ATTRACTED IN THIS CASE. HE FURTHER OBSERVED THAT THESE PROVISION S SHALL APPLY TO A CASE WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN IN CURRED BY IT WITH RESPECT TO THE EXEMPT INCOME. 31 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS NOTICED THAT T HE ASSESSEE VIDE ITS LETTER DATED 2.1.2014 MADE THE FOLLOWING SUBMISSIONS:- IT IS SUBMITTED THAT THE ASSESSEE HAD SUFFICIENT O WN FUNDS DURING THE PREVIOUS YEAR OF MAKING THE INVESTMENTS. FURTHER, IT IS PERTINENT TO ANALYZE THE FINANCIAL STATEMENTS OF THE ASSESSEE OF THE YEAR UNDER REFERENCE. THE TOTAL IN VESTMENTS AS ON 31.3.2011 ARE RS 192.2 LACS AGAINST PARTNERS FUND OF RS. 121.74 LACS. THUS, THE INVESTMENTS ARE ADEQUATE LY BACKED BY THE PARTNERS FUND WHICH ARE INTEREST-FREE FUNDS AND HAVE NOT NEXUS BETWEEN THE BORROWED FUNDS AND THE INVEST MENTS. IT IS SUBMITTED THAT NO BORROWINGS WERE UNDERTAKEN TO MAKE THE INVESTMENTS AND CONSEQUENTLY NO INTEREST EXPENDITUR E OR OTHER EXPENDITURE WAS INCURRED TO EARN THE DIVIDEND INCOM E. WHICH IS EVIDENT FROM THE FINANCIAL STATEMENTS FOR THE Y EAR ENDED 31.3.2011. FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE CLAIM ED THAT IT HAD SUFFICIENT OWN FUNDS DURING THE PREVIOUS YEAR FOR MAKING THE INVES TMENTS. THE ASSESSEE ALSO CLARIFIED THAT TOTAL INVESTMENTS AS ON 31.3.2011 WE RE RS. 102.2 LAKHS AGAINST THE PARTNERS FUNDS OF RS. 121.74 LAKHS. THUS, THE INVES TMENTS WERE COVERED BY PARTNERS FUNDS WHICH WERE INTEREST FREE FUNDS AND H AVE NO NEXUS WITH THE BORROWED FUNDS AND THE INVESTMENTS. IT APPEARS THAT BOTH THE AUTHORITIES BELOW HAVE NOT CONSIDERED THE ABOVE CONTENTIONS OF THE AS SESSEE. IN THE CASE OF HERO CYCLES LTD. VS. ACIT IN ITA NO. 192/CHD/2013 RELAT ING TO ASSESSMENT YEAR 2008-09, THE TRIBUNAL VIDE ITS ORDER DATED 29.10.20 15 HELD THAT IF OWN FUNDS AND RESERVES OF THE ASSESSEE ARE MORE THAN SUFFICIENT TO COVER THE INVESTMENTS MADE DURING THE YEAR, IT CAN BE VERY CONVENIENTLY PRESUM ED THAT ALL THE INVESTMENTS HAVE BEEN MADE OUT OF OWN FUNDS. WHILE TAKING THE A BOVE VIEW, THE TRIBUNAL RELIED ON THE JUDGEMENT OF HON'BLE PUNJAB & HARYA NA HIGH COURT IN THE CASE 32 OF BRIGHT ENTERPRISES PVT. LTD. VS. CIT IN ITA NO. 624 OF 2013 DATED 24.7.2015 (O&M), WHEREIN THE HON'BLE HIGH COURT HAS OBSERVED AS UNDER:- 16. AS WE HAVE NOTED EARLIER, THE FUNDS / RESERVE S OF THE APPELLANT WERE SUFFICIENT TO COVER THE INTEREST FRE E ADVANCES MADE BY IT OF RS. 10.29 CRORES TO ITS SISTER COMPAN Y. WE ARE ENTIRELY IN AGREEMENT WITH THE JUDGEMENT OF THE BOM BAY HIGH COURT IN COMMISSIONER OF INCOME TAX VS. RELIANCE UT ILITIES & POWER LTD (2009) 313 ITR 340, PARA-10, THAT IF TH ERE ARE INTEREST FREE FUNDS AVAILABLE A PRESUMPTION WOULD A RISE THAT INVESTMENT WOULD BE OUT OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. 17. IN VIEW OF THE DECISIONS OF HON'BLE PUNJAB & H ARYANA HIGH COURT IN THE CASE OF BRIGHT ENTERPRISES PVT LTD. V CIT (SUPRA), WE ARE OF THE VIEW THAT NO DISALLOWANCE U/S 14A ON ACCOUNT OF INTEREST CAN BE MADE. WE MAY ALSO ADD HERE THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD V CIT IN ITA NO. 749/2014 DATED 2.9.2015 HELD AS UNDER;- 23. IN THIS CONTEXT OF THE FACTS ENUMERATED HEREI NBEFORE THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT T HE EXPRESSION DOES NOT FORM PART OF THE TOTAL INCOME IN SECTION 14A OF THE ENVISAGES THAT THERE SHOULD BE A N ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE T OTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE O F DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. SIMILARLY, THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V DEEPAK MITTAL (2013) 38 TAXMAN 83 (P&H) HELD THAT T HE DISALLOWANCE U/S 14A REQUIRES FINDINGS OF INCURRING OF EXPENDITURE WHERE IT IS FOUND THAT FOR EARNING EXEMPT INCOME, NO EXPENDITURE HAS BEEN INCURRED, DI SALLOWANCE U/S 14A CANNOT 33 STAND. WHEN THE ASSESSEE CLAIMS THAT HE HAD NOT MAD E ANY EXPENDITURE ON EARNING EXEMPT INCOME, THE ASSESSING OFFICER IN TER MS OF SUB SECTION (2) OF SECTION 14A IS REQUIRED TO COLLECT SUCH MATERIAL EV IDENCE TO DETERMINE, EXPENDITURE IF ANY, INCURRED BY THE ASSESSEE IN REL ATION TO EARNING OF EXEMPT INCOME. 18. IN VIEW OF THE ABOVE DISCUSSION, WE THINK IT AP PROPRIATE TO SET ASIDE THE FINDINGS OF THE CIT(A) ON THIS ISSUE AND REMAND THE MATTER TO THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER AFFORDING DUE AND REASONABLE OPPORTUNITY OF BEING H EARD TO THE ASSESSEE. 19. GROUND NO.5 OF THE APPEAL READS AS UNDER:- 5. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT (APPEALS), SHIMLA HAS ERRED IN AFFIRMI NG THE ORDER OF LD. ITO, BADDI IN LEVYING INTEREST U/S 234 -B OF THE LT ACT 1961. 20. IT IS CLAIMED THAT THIS GROUND OF APPEAL IS CON SEQUENTIAL IN NATURE AND WE HOLD ACCORDINGLY. THE ASSESSING OFFICER IS DIRECTED TO GIVE CONSEQUENTIAL RELIEF TO THE ASSESSEE AS PER LAW. 21. FOR STATISTICAL PURPOSES, THE APPEAL IS ALLOWED PARTLY. ORDER PRONOUNCED IN THE OPEN COURT ON 14.03.2016 SD/- SD/- (RANO JAIN) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 14.03.2016 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR