M/s Shree Dhanwantri Herbals, Solan V. ITO, Baddi

ITA 501/CHANDI/2015

• Counselvise Citation: 50121514 RSA 2015
• Duration Of Justice: 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 08-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUNIL VERMA
• Assessee Lawyers: RAKESH GUPTA
• Keywords: Depreciation; Opportunity of being heard; Advance ruling; Condonation of delay
• Section: 244A; 80IB; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. RANO JAIN, ACCOUNTANT MEMBER ITA NOS. 501 & 502/CHD/2015 ASSESSMENT YEARS: 2010-11 & 2011-12 M/S SHREE DHANWANTRI HERBALS, VS. THE ITO, VILL KISHPURA BADDI. DISTT. SOLAN PAN NO. AAZFS3118E (APPELLANT) (RESPONDENT) APPELLANT BY : SH. RAKESH GUPTA RESPONDENT BY : SH. SUNIL VERMA DATE OF HEARING : 02.09.2015 DATE OF PRONOUNCEMENT : 08.09.2015 ORDER PER H.L.KARWA, VP THESE TWO APPEALS BY THE ASSESSEE RELATING TO ASS ESSMENT YEARS 2010-11 & 2011-12 WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRSTLY, WE WILL TAKE UP APPEAL IN ITA NO. 501/CHD/2015 RELATING TO ASSESSMENT YEAR 2010-11. THIS APPEAL IS DIRECTED AG AINST THE ORDER OF CIT(A), SHIMLA DATED 9.2.2015. IN THIS APPEAL, ASSESSEE H AS RAISED FOLLOWING GROUNDS:- 2 1. THE LD. CIT(A) IS WRONG IN CONFIRMING THE ARBITRARY ADDITION OF RS. 45,80,728/- BY DISALLOWING DEDUCTIO N U/S 80IC @ 3% OF THE TURNOVER ON ACCOUNT OF NON-INCURRE NCE OF EXPENDITURE TOWARDS ROYALTY /FEE FOR TECHNICAL KNOW HOW SERVICES. 2. THE LD. CIT(A) IS WRONG IN CONFIRMING THE ARBITRARY ADDITION OF RS. 30,53,918/- BY DISALLOWING DEDUCTIO N U/S 80IC @ 2% OF THE TURNOVER ON ACCOUNT OF NON-INCURRE NCE OF EXPENDITURE TOWARDS COMPENSATION FOR USE OF GOODWIL L OR CUSTOMER BASE. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT AS SESSEE FIRM DERIVES INCOME FROM THE MANUFACTURING AND SALE OF HERBAL MEDICINE S. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE FIRM HAD DECLARED GROSS SALES AT RS. 18,34,74,346/-. THE ASSESSING OFFICER NOTICED THAT ASSESSEE WAS CAR RYING OUT ITS BUSINESS ACTIVITY AT TWO PLACES ONE AT AMRITSAR AND THE OTHER AT KISH ANPURA (BADDI.), H.P. ACCORDING TO ASSESSING OFFICER, THE PROFITS DERIVED FROM KISHANPURA UNIT HAS BEEN CLAIMED AS DEDUCTION U/S 80IC OF INCOME-TAX ACT, 19 61 (IN SHORT 'THE ACT') WHEREAS NO SUCH DEDUCTION IS AVAILABLE TO THE AMRI TSAR UNIT OF THE ASSESSEE. THE ASSESSING OFFICER FURTHER NOTED THAT THERE WAS HUGE DIFFERENCE OF GP AND NP RATIO IN AMRITSAR AND KISHANPURA UNIT I.E. GP AND NP RATI O OF AMRITSAR UNIT WAS 43.62% AND 1.63% AS COMPARED TO KISHANPURA UNIT HAV ING RATIO OF 52.21% AND 11.99%. CONSIDERING THE ABOVE FACTS, THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 80IC READ WITH SECTION 80IA(1 0) AND CONSIDERING THAT KISHANPURA UNIT BEING A NEW UNIT SHOULD HAVE INCUR RED EXPENDITURE ON TECHNICAL KNOW-HOW AND GOODWILL. THE ASSESSING OFFICER FURTHE R OPINED THAT THE ASSESSEE HAS TRANSFERRED TO THE ELIGIBLE BUSINESS TECHNOLOGY AND GOODWILL WITHOUT ANY CONSIDERATION. THE ASSESSING OFFICER HAS FURTHER OB SERVED THAT PARTNERS HAVE AGREED TO PROVIDE TECHNICAL KNOW-HOW AND SERVICES T O THE ASSESSEES ELIGIBLE UNIT FREE OF COST. THUS, THE ASSESSING OFFICER REDUCED T HE PROFIT ELIGIBLE U/S 80IC BY INVOKING THE PROVISIONS OF SECTION 80IC(7) READ WIT H SECTION 80IA(1). ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED DEDUC TION CLAIMED U/S 80IC TO THE 3 EXTENT OF RS. 45,80,728/- @ 10% OF THE TURNOVER ON ACCOUNT OF NON INCURRENCE OF EXPENDITURE TOWARDS ROYALTY / FEE FOR TECHNICAL KNO WHOW SERVICES AND FURTHER DISALLOWANCE OF 2% TURNOVER ON ACCOUNT OF CLAIM OF GOODWILL I.E RS. 30,53,918/-. CONSEQUENTLY, THE ASSESSING OFFICER MADE THE ADDITI ON OF RS. 76,34,546/-. 4. ON APPEAL , THE CIT(A) UPHELD THE ORDER OF ASSES SING OFFICER AND HENCE THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH TH E PARTIES WE FIND THAT BOTH THE ABOVE ISSUES ARE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF ITAT, CHANDIGARH BENCH I N THE CASE OF M/S SHREE DHANWANTRI HERBAL, SOLAN VS ITO IN ITA NO. 117/CHD /2010 RELATING TO ASSESSMENT YEAR 2006-07. WHILE DECIDING SIMILAR IS SUES THE TRIBUNAL VIDE ITS ORDER DATED 11.8.2010 OBSERVED AS UNDER:- 2. AT THE TIME OF HEARING, IT WAS A COMMON POINT B ETWEEN THE PARTIES THAT THE ISSUES INVOLVED ARE COVERED BY THE EARLIER DECISIONS OF THE TRIBUNAL IN THE CASE OF M/S LAMBDA MICROWAVES ITA NO.725/CHANDI/2009 DATED 29.01.2010 AND M/S POL Y LAB PRODUCTS VIDE ITA NO. 710/CHD/2009 DATED 29.01.2010 RESPECTIVELY. IN THIS MANNER, THE CAPTIONED APPEAL IS BEING DISPOSED OF AS FOLLOWS. 3. ON BOTH THE GROUNDS, THE DISPUTE ARISES FROM CLA IM OF DEDUCTION MADE BY THE ASSESSEE U/S 80IC OF THE INCO ME TAX ACT, 1961 ( IN SHORT 'THE ACT') IN THE RETURN OF INCOME. THE ASSESSEE IS A PARTNERSHIP FIRM WHICH STARTED ITS BUSINESS FR OM 25.07.2005 AND DECLARED INCOME FROM MANUFACTURE OF AYURVEDIC PHARMACEUTICALS ETC. IN THE FIRST GROUND, DISPUTE RELATES TO THE STAND OF THE THE ASSESSING OFFICER THAT NON-CLAIMIN G OF ANY EXPENDITURE FOR USE OF TECHNICAL KNOW-HOW, CUSTOMER BASE, GOODWILL OF THE SISTER CONCERN, HAS RESULTED IN EXC ESS PROFITS AND THEREFORE HE APPLIED THE PROVISIONS OF SECTION 80IA (10) READ WITH SECTION 80IC(7), AND ADDITION HAS BEEN MADE. 4. ON THIS POINT, BOTH THE PARTIES AGREED THAT THE ISSUE INVOLVED IS IDENTICAL TO GROUND NO.1 IN THE CASE OF M/S LAMBDA MICROWAVES (SUPRA) WHEREIN THE FOLLOWING DISCUSSION HAS BEEN MADE : 4 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULLY. THE SHORT POINT INVOLVED IN THIS APPEA L RELATES TO THE PROFITS DECLARED BY THE ASSESSEE FRO M INDUSTRIAL UNDERTAKING WHICH IS OTHERWISE ELIGIBLE FOR 80IC BENEFITS. SECTION 80IC PROVIDES FOR DEDUCTION OF PROFITS AND GAINS DERIVED BY CERTAIN UNDERTAKINGS OR ENTERPRISES. THE CORE CONTROVERSY BEFORE US RELATES TO INVOKING OF SECTION 80IA(10) O F THE ACT FOR THE PURPOSES OF COMPUTING PROFITS DERIVED BY THE ASSESSEES INDUSTRIAL UNDERTAKING WHICH IS ELIGIBLE FOR 80IC BENEFITS. IT IS, THEREF ORE, APPROPRIATE TO REPRODUCE HEREINAFTER THE PROVISIONS OF SECTION 80IA(10) WHICH READ AS UNDER :- 80-IA. (10) WHERE IT APPEARS TO THE ASSESSING OFFICER THAT , OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHE R PERSON, OR FOR ANY OTHER REASON, THE COURSE OF BUSINESS BETWEEN TH EM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS, THE ASSESSING OFFI CER SHALL, IN COMPUTING THE PROFITS AND GAINS OF SUCH ELIGIBLE BU SINESS FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, TAKE THE AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DE RIVED THEREFROM 11. SUB-SECTION (7) OF 80IC PROVIDES, INTER-ALIA, THAT THE PROVISIONS OF SECTION 80IA(10) WOULD ALSO APPLY TO AN UNDERTAKING OR ENTERPRISE ELIGIBLE FOR 80IC BENEFITS. THUS, THE SAID PROVISION IS RELEVAN T FOR THE PURPOSES OF EXAMINING THE AFORESAID CONTROVERSY. THE ESSENTIALS OF THE AFORESAID SECTI ON CAN BE UNDERSTOOD AS FOLLOWS. THE ASSESSING OFFICER IS EMPOWERED TO SCRUTINIZE TRANSACTIONS BETWEEN AN ASSESSEE ELIGIBLE FOR 80IC BENEFITS AND ANY OTHER PERSON WITH A VIEW TO ASCERTAINING WHETHER THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS OR NOT. IF THE ASSESSING OFFICER IS SATIS FIED THAT THE BUSINESS SO TRANSACTED BETWEEN THEM PRODUCES MORE THAN ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS, THE ASSESSING OFFICER IS EMPOWERED TO TAKE THE AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM. EVIDENTLY, THE ENTIRE MECHANICS OF THE SECTION REVOLVE AROUND THE COURSE OF BUSINESS BEING SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES MORE THAN THE ORDINARY PROFITS TO THE ASSESSEE. THE PRESENCE OF A 5 BUSINESS TRANSACTED BETWEEN THE TWO ENTITIES IS A SINE QUA NON FOR ENABLING THE ASSESSING OFFICER TO APPLY THE SAID SECTION AND DETERMINE THE PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED BY THE ASSESSEE FROM THE ELIGIBLE BUSINESS. OSTENSIB LY, THE PRESENCE OF THE WORDS --------- WHERE IT APPEARS TO THE ASSESSING OFFICER ------, IMPLY THA T BURDEN IS ON THE ASSESSING OFFICER TO DEMONSTRATE THAT THE COURSE OF BUSINESS BETWEEN THE TWO ENTITIE S IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE I N SUCH ELIGIBLE BUSINESS. 12. IN THE AFORESAID LIGHT, WE HAVE EXAMINED THE CASE SET UP BY THE ASSESSING OFFICER. IN THIS CASE , THE ASSESSING OFFICER HAS HELD THAT THE ASSESSEE HA S NOT INCURRED EXPENDITURE BY WAY OF ROYALTY/FEE OF TECHNICAL SERVICE FOR USE OF TRADE MARK/TRADE NAME, WHICH HAS ENABLED THE ASSESSEE TO EARN MORE THAN THE ORDINARY PROFITS WHICH CAN BE EXPECTED TO ARISE IN SUCH BUSINESS. ACCORDING TO THE ASSESSING OFFICER, SUCH TECHNICAL KNOW-HOW AND USE OF TRADE MARK/TRADE NAME HAVE BEEN OBTAINED BY THE ASSESSEE FROM ITS SISTER CONCERNS, FOR WHICH NO EXPENDITURE IS INCURRED BY THE ASSESSEE. THE MOOT POINT TO BE CONSIDERED IS AS TO WHETHER IS THERE ANY ARRANGEMENT BETWEEN THE ASSESSEE AND THE SISTER CONCERNS FOR OBTAINING OF TECHNICAL KNOW-HOW AND FOR THE USE OF TRADE MARK/TRADE NAME. THE ASCERTAINMENT OF THE AFORESAID ARRANGEMENT IS ESSENTIAL SO AS TO GAUGE WHETHER ANY BUSINESS HAS BEEN TRANSACTED BETWEEN THE ASSESSEE AND SISTER CONCERNS WITHIN THE MEANING OF SECTION 80IA(10) AND WHICH PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE I N SUCH BUSINESS. 13. HAVING EXAMINED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL ON RECORD, WE FIND NO EVIDENCE TO SUPPORT THAT THERE IS ANY ARRANGEMENT OR A BUSINESS TRANSACTED BETWEEN THE ASSESSEE AND THE SISTER CONCERNS WITH RESPECT TO OBTAINING OF TECHNICAL KNOW-HOW OR USE OF TRADE MARK/TRADE NAME OWNED BY THE SISTER CONCERN. THE ASSERTION OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS OBTAINED TH E USE OF TECHNICAL KNOW-HOW AND USE OF TRADE MARK/TRADE N AME FROM ITS SISTER CONCERNS WITHOUT ANY CONSIDERATION, IS A BALD ASSERTION. OSTENSIBLY, THERE IS NO PROOF OF 6 OBTAINING ANY TECHNICAL KNOW-HOW OR THE USE OF TRADE MARK/TRADE NAME FROM THE SISTER CONCERNS. EVEN IN THE FACE OF DENIAL BY THE ASSESSEE AND ABSENCE OF ANY DOCUMENTARY EVIDENCE, THE ASSESSING OFFICER HAS PROCEEDED TO MERELY DISBELIEVE THE ASSESSEE ON PRESUMPTIONS WITHOUT EVEN EXAMINING THE SISTER CONCERNS ON THIS ASPECT. IN FACT, THE ASSESSEE POINTED OUT TO THE ASSESSING OFFICER THAT IT HAD EMPLOYED ENGINEERS FOR THE MANUFACTURE OF FINISHED PRODUCTS AND THE PROCESS UNDERTAKEN DOES NOT REQUIRE ANY SPECIAL TECHNOLOGY OR TECHNICAL KNOW-HOW. THE ASSESSEE ALSO EXPLAINED THAT NO EXPENDITURE HAS BEEN INCURRED ON DEVELOPMENT AND ACQUISITION OF TECHNICAL KNOW-HOW. THE ASSESSEE CONTENDED THAT IT HAS NOT USED THE TRADE MARK/TRADE NAME LAMBDA, AS MADE OUT BY THE ASSESSING OFFICER. THE ASSESSEE ALSO CONTENDED BEFORE THE ASSESSING OFFICER THAT IT HAS NOT USED ANY BUSINESS CONNECTION OF THE SISTER CONCERNS AND SALE AND PURCHASE HAVE BEEN INDEPENDENTLY CARRIED OUT. IN OUR CONSIDERED OPINION, THERE IS NOTHING ON RECORD TO CONTROVERT THE SUBMISSIONS MADE BY THE ASSESSEE, WHICH HAVE BEEN DULY NOTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. IN RESPONSE TO THE REPLIE S OF THE ASSESSEE MADE DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT TH E TECHNICAL KNOW-HOW WAS TRANSFERRED TO THE ASSESSEE THROUGH THE DIRECTORS OF THE SISTER CONCERNS, WHO WERE ALSO THE PARTNERS OF THE ASSESSEE FIRM. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE SISTER CONCERNS HAVE DEMANDED NOTHING FOR THE SAME. THIS, ACCORDING TO THE ASSESSING OFFICER, IT HAS RESULTED IN MORE PROFITS TO THE ASSESSEE AND, THEREFORE, HE HAS INVOKED SECTION 80IA(10) OF THE ACT. IN FACT, THE APPROACH OF THE ASSESSING OFFICE R IS CONTRADICTORY AND HAS TO FAIL ON ITS OWN WEIGHT. FIRSTLY, IT IS ONLY ON CONJECTURES, THE ASSESSING OFFICER INFERS THAT THE TECHNICAL KNOW-HOW HAS BEEN TRANSFERRED BY THE SISTER CONCERNS TO THE ASSESSEE OR THAT THE TRADE MARK OF THE SISTER CONCERN HAS BEEN USED BY THE ASSESSEE. IN FACT, THERE IS NO EVIDENC E OF ANY TRADE MARK/TRADE NAME LAMBDA BEING OWNED BY ANY OF THE SISTER CONCERNS OF THE ASSESSEE . AT THE SAME TIME, THE ASSESSING OFFICER ALSO INFERS THAT THE SISTER CONCERNS HAVE NOT DEMANDED ANY COMPENSATION FROM THE ASSESSEE FOR USE OF THE SAME. ALL THE ABOVE INFERENCES OF THE ASSESSING OFFICER A RE BASED ON CONJECTURES AND SURMISES WITHOUT ANY CORROBORATIVE EVIDENCE. CONSIDERING THE CIRCUMSTANCES AND THE MATERIAL ON RECORD, IT HAS TO 7 BE HELD THAT THE ASSESSING OFFICER HAS FAILED TO ESTABLISH THAT ANY COURSE OF BUSINESS BETWEEN THE ASSESSEE AND THE SISTER CONCERNS HAS BEEN SO ARRANGED, WHICH PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS IN THE ELIGIBLE BUSINESS. IN FACT, IN THE ABSENCE OF ANY TRANSACTION OF BUSINESS BETWEEN THE ASSESSEE AND SISTER CONCERNS, THE APPLICATION OF SECTION 80IA(10) HAS TO FAIL. THERE IS NO EVIDENCE FOUND BY THE ASSESSING OFFICER OF BUSINESS HAVING BEEN TRANSACTED BETWEEN THE ASSESSEE AND SISTER CONCERNS, SO AS TO JUSTIFY THE INVOKING OF SECTION 80IA(10) OF THE ACT. THE INFERENCE OF THE ASSESSING OFFICER REGARDING THE EXISTENCE OF AN AGREEMENT OR ARRANGEMENT BETWEEN THE ASSESSEE AND SISTER CONCERNS IN TERMS OF WHICH THE ASSESSEE USED TECHNICAL KNOW-HOW AND THE TRADE NAME OF THE SISTER CONCERN AND IN TURN DID NOT INCU R ANY COSTS, IN OUR OPINION, IS MERELY BASED ON CONJECTURES AND NOT ON ANY EVIDENCE OR MATERIAL ON RECORD. CLEARLY, SECTION 80IA(10) READ WITH SECTIO N 80IC(7) DOES NOT EMPOWER THE ASSESSING OFFICER TO PROCEED ON MERE PRESUMPTION BUT IT REQUIRES EXISTENCE OF A BUSINESS TRANSACTED BETWEEN THE ASSESSEE AND THE SISTER CONCERNS. THE EXISTENCE OF AN ARRANGEMENT FOR TRANSACTING BUSINESS, WHICH PRODUCES MORE THAN THE ORDINARY PROFITS TO THE ASSESSEE, IS TO BE FACTUALLY ESTABLISHED AND SUCH ARRANGEMENT OR TRANSACTION OF BUSINESS CANNOT BE PRESUMED. THEREFORE, IN THE AFORESAID LIGHT, WE FI ND THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 80IA(10) READ WITH SECTION 80IC(7) OF THE ACT TO DISREGARD THE PROFITS DECLARED BY THE ASSESSEE FROM ITS ELIGIBLE INDUSTRIAL UNDERTAKING FOR THE PURPOSES OF COMPUTING DEDUCTION U/S 80IC OF THE ACT. ACCORDINGLY, THE ORDER OF THE COMMISSIONER OF INCOME-TAX (A) IS SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE IMPUGNED ADDITION. 5. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT FOUND ANY EVIDENCE TO SUPPORT HIS PROPOSITION THAT THERE IS ANY ARRANGEMENT OR ANY BUSINESS TRANSACTED BETWE EN THE ASSESSEE AND THE SISTER CONCERN WITH RESPECT TO OBT AINING OF TECHNICAL KNOW-HOW, CUSTOMER BASE OR GOODWILL OW NED BY THE SISTER CONCERN AND THEREFORE, THE ASSERTION OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS OBTAINED TH E USE OF AFORESAID ITEMS WITHOUT INCURRING OF ANY EXPENDI TURE, IS ONLY A BALD ASSERTION BASED ON SURMISES AND CONJECTURES. IT IS QUITE CLEAR THAT THERE IS NO PR OOF OF 8 ASSESSEE HAVING OBTAINED ANY TECHNICAL KNOW-HOW, CUSTOMER BASE OR GOODWILL FROM THE SISTER CONCERN. IN THESE CIRCUMSTANCES, THE DECISION OF THE TRIBUNAL I N THE CASE OF LAMBDA MICROWAVES TECHNOLOGIES (SUPRA) CLEA RLY SUPPORTS THE CASE OF THE ASSESSEE AND ACCORDINGLY, ASSESSEE SUCCEEDS ON GROUND NO. 1 IN AS MUCH AS THE INVOKING OF SECTION 80IA(10) READ WITH SECTION 80IC (7) BY THE ASSESSING OFFICER IS HEREBY SET ASIDE. 6. IN VIEW OF THE ABOVE DECISION, THE ACTION OF T HE LOWER AUTHORITIES IN ESTIMATING THE NET PROFIT OF 1 0% OF THE TURN-OVER IS ALSO SET ASIDE. THE SAID ACTION WA S SUSTAINED BY THE CIT(APPEALS) CONSEQUENT TO HER DEC ISION OF UPHOLDING THE INVOKING OF SECTION 80IA(10) READ WITH SECTION 80IC(7) OF THE ACT, WHICH HAS SINCE BEEN SE T ASIDE BY US IN THE EARLIER GROUND. THEREFORE, ON GROUND NO. 2 ALSO, ASSESSEE SUCCEEDS. 6. THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS OF THE CASE OF SHREE DHANWANTRI HERBAL, SOLAN VS. ITO (SUPRA). RESPECTFU LLY, FOLLOWING THE ORDER OF THE TRIBUNAL REFERRED TO ABOVE, WE ALLOW BOTH THE G ROUNDS OF APPEAL AND DELETE THE IMPUGNED ADDITIONS. 7. IN THE RESULT, THE APPEAL IS ALLOWED. ITA NO. 502/CHD/2015 8. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AG AINST THE ORDER OF CIT(A,) SHIMLA DATED 9.2.2015 RELATING TO ASSESSMENT YEAR 2 011-12. 9. GROUND NO.1 OF THE APPEAL READS AS UNDER:- 1. THE ID. CIT(A) IS WRONG IN DISALLOWING THE BEN EFIT OF SUBSTANTIAL EXPANSION U/S 80IC(2) AND CONFIRMING TH E DEDUCTION U/S 80IC ONLY TO THE EXTENT OF 25% AS AG AINST 100% BY HOLDING THAT BENEFIT OF SUBSTANTIAL EXPANSION IS ALLOWABLE ONLY TO THE UNDERTAKING WHICH WERE EXISTING PRIOR T O 07/01/2003 I. LD. CIT(A) IGNORED THE FINDINGS OF HON'BLE ADVAN CE RULING AUTHORITY IN THE CASE OF 'SH. ABHISHEK BHAR GAVA' BY STATING THAT FACTS OF THE CASE ARE NOT IDENTICAL WITH THE ASSESSEE'S CASE WHEREAS IN THE RULING IT WAS HE LD THAT AN INDUSTRIAL UNIT WHICH HAS COMMENCED PRODUCT ION 9 IN THE F.Y. 2009-10 WILL BE ENTITLED TO THE BENEFIT OF SUBSTANTIAL EXPANSION IF IT STARTS COMMERCIAL PRODU CTION IN THE SUBSTANTIALLY EXPANDED UNIT BEFORE 01.04.201 2. II. LD. CIT(A} IGNORED THE FINDINGS OF HON'BLE DELH I BENCH IN THE CASE OF TIRUPATI LPG INDUSTRIES LTD. V S DCIT IN WHICH IT WAS HELD THAT EXISTING UNIT AVAILI NG 80IC CAN ALSO UNDERTAKE SUBSTANTIAL EXPANSION AND T HE YEAR OF SUBSTANTIAL EXPANSION WILL BE THE INITIAL Y EAR. 10. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT A SSESSEE FIRM STARTED ITS BUSINESS ACTIVITY / OPERATION ON 25.7.2005 AND INI TIAL ASSESSMENT YEAR FOR CLAIM OF DEDUCTION U/S 80IC OF THE ACT WAS 2006-07. THE A SSESSEE CLAIMED THAT IT HAS MADE SUBSTANTIAL EXPANSION DURING THE FINANCIAL YEA R 2010-11 AND CLAIMED 100% DEDUCTION U/S 80IC FROM ASSESSMENT YEAR 2011-12 RE- FIXING IT AS INITIAL ASSESSMENT YEAR. ACCORDING TO ASSESSING OFFICER, T HE ASSESSEE HAS ALREADY CLAIMED THIS DEDUCTION TO THE EXTENT OF 100% OF THE ELIGIBLE PROFIT FOR 5 YEARS PERIOD FROM ASSESSMENT YEAR 2006-07 TO 2010-11. THU S, THE ASSESSING OFFICER NOTICED THAT ASSESSEE FIRM AGAIN CLAIMED DEDUCTION U/S 80IC @ 100% AGAINST ELIGIBLE PROFIT FOR THIS ASSESSMENT YEAR WHICH IS S IXTH YEAR OF PRODUCTION OF THE FIRM. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF 100% DEDUCTION U/S 80IC AND RESTRICTED IT TO 25% OF PROFITS OF THE BUSINESS THE REBY DISALLOWING A SUM OF RS. 1,55,55,717/-. 11. ON APPEAL, THE CIT(A) UPHELD THE ORDER OF ASSES SING OFFICER AND HENCE THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 12. AT THE VERY OUTSET SHRI RAKESH GUPTA, LD. COUNS EL FOR THE ASSESSEE POINTED OUT THAT THE ISSUE INVOLVED IN THE ABOVE GROUND IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE DECISION OF ITAT, CHANDIGARH BENCHE S IN THE CASE OF HYCRON ELECTRONICS, BADDI, SOLAN V ITO & OTHERS IN ITA NO. 798/CHD/2012 RELATING TO ASSESSMENT YEAR 2009-10 & OTHERS. THE TRIBUNAL VIDE ITS ORDER DATED 27.5.2015 (PARA 22 TO 49) HAS HELD AS UNDER:- 10 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 PRO VISIONS WHICH ARE REQUIRED TO BE INTERPRETED, IT WILL BE USEFUL TO DE AL WITH THE VARIOUS PRINCIPLES OF INTERPRETATION AS ENUNCIATED BY VARIO US COURTS. 23. IT IS SETTLED THAT IF THE LANGUAGE OF A PARTICULAR STATUTE IS CLE AR THEN ONLY LITERAL MEANING HAS TO BE GIVEN TO SUCH L ANGUAGE AS LONG THE SAME DOES NOT RESULT IN ABSURDITY OR UNINTENDED CON SEQUENCES. THEREFORE, IF THE LANGUAGE OF A PARTICULAR STATUTE IS CLEAR THEN THE SAME CANNOT BE CHANGED BY APPLYING DIFFERENT PRINCIPLES OF INTERPRETATIONS. THIS IS CLEAR FROM THE OBSERVATIONS MADE BY HON'BL E APEX COURT IN THE CASE OF ORISSA STATE WAREHOUSING CORPORATION VS. CI T 237 ITR 607 WHEREIN IT HAS BEEN OBSERVED AT PAGE 604 & 605 OF T HE REPORT AS UNDER:- LET US, HOWEVER, AT THIS JUNCTURE, CONSIDER SOME O F THE OFT CITED DECISIONS PERTAINING TO THE INTERPRETATION OF THE FISCAL STAT UTES BEING THE FOCAL POINT OF CONSIDERATION IN THESE APPEALS. LORD HALSBURY AS EARLY AS 1901, IN COOKE V. CHARLES A. VOGELER COMPANY [1901] AC 102 (HL) ST ATED THE LAW IN THE MANNER FOLLOWING: A COURT OF LAW, HAS NOTHING TO DO WITH THE REASONA BLENESS OR UNREASONABLENESS OF A PROVISION OF A STATUTE EXCEPT 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 CL EAR TERMS ENACTED MUST BE ENFORCED THOUGH IT SHOULD NOT LEAD TO ABSURD 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 ALSO T O BE NOTICED AT THIS JUNCTURE. THE LEARNED JUDGE OBSERVED (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 TO A TAX. N OTHING IS TO BE 11 READ IN, NOTHING IS TO BE IMPLIED. ONE CAN ONLY LOO K 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 AN D COULTER (BLADNOCH DISTILLERY CO. LTD. V. THE KING [1946] HON'BLE APEX COURT 119; [1945] 2 ALL ER 499. LORD THANKERTON 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 HARSHNESS. THE DECISION OF THIS COURT IN KESHAVJI RAVJI AND C O. V. CIT[1990] 183 ITR 1 ALSO LENDS CONCURRENCE TO THE VIEWS EXPRE SSED 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 LEGISLA TIVE INTENT BECOMES IMPERMISSIBLE. THE SUPPOSED INTENTION OF TH E LEGISLATURE CANNOT THEN BE APPEALED TO TO WHITTLE DOWN THE STAT UTORY LANGUAGE WHICH IS OTHERWISE UNAMBIGUOUS. IF THE INT ENDMENT IS NOT IN THE WORDS USED. IT IS NOWHERE ELSE. THE NEED FOR INTERPRETATION ARISES WHEN THE WORDS USED IN THE ST ATUTE 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 TAXPAYER T HE BREAKS, ARE OUT OF PLACE WHERE THE LEGISLATION HAS A FISCAL MIS SION. BE IT NOTED THAT INDIVIDUAL CASES OF HARDSHIP AND I NJUSTICE DO NOT AND CANNOT HAVE ANY BEARING FOR REJECTING THE NATUR AL CONSTRUCTION BY ATTRIBUTING NORMAL MEANING TO THE W ORDS 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 THE LEGISLA TURE AND THEN EVERY POSSIBLE MATERIAL SHOULD BE CONSIDERED TO FIND OUT THE REAL INTENTION OF THE LEGISLATURE. IN THIS REGARD, THE OBSERVATION OF THE HON'BLE SUPREME 12 COURT IN THE CELEBRATED JUDGEMENT OF K.P. VERGESE 131 ITR 598 (SUPRA) ARE RELEVANT. WE EXTRACT THE HEAD NOTE WHICH READS AS UNDER:- A STATUTORY PROVISION MUST BE SO CONSTRUED, IF POS SIBLE, THAT ABSURDITY AND MISCHIEF MAY BE AVOIDED. WHERE T HE PLAIN LITERAL INTERPRETATION OF A STATUTORY PROVISION PRO DUCES A MANIFESTLY ABSURD AND UNJUST RESULT WHICH COULD NEV ER HAVE BEEN INTENDED BY THE LEGISLATURE, THE COURT MAY MODIFY T HE LANGUAGE USED BY THE LEGISLATURE OR EVEN DO SOME VIOLENCE TO IT, SO AS TO ACHIEVE THE OBVIOUS INTENTION OF THE LEGISLATURE AN D 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 DEBATED A RE INADMISSIBLE FOR THE PURPOSE OF INTERPRETING THE STATUTORY PROVI SION BUT THE SPEECH MADE BY THE MOVER OF THE BILL EXPLAINING THE REASON FOR ITS INTRODUCTION CAN CERTAINLY BE REFERRED TO FOR THE P URPOSE OF ASCERTAINING THE MISCHIEF SOUGHT TO BE REMEDIED BY THE LEGISLATION AND THE OBJECT AND PURPOSE FOR WHICH THE LEGISLATIO N IS ENACTED. THIS IS AN ACCORD WITH THE RECENT TREND IN JURISTIC THOUGHT NOT ONLY IN WESTERN COUNTRIES BUT ALSO IN INDIA, THAT T HE INTERPRETATION OF A STATUTE BEING AN EXERCISE IN TH E ASCERTAINMENT OF MEANING, EVERYTHING WHICH IS LOGIC ALLY RELEVANT SHOULD BE ADMISSIBLE. THE MARGINAL NOTE TO A SECTION CANNOT BE REFERRED TO FOR THE PURPOSE OF CONSTRUING THE SECTION BUT IT CAN CE RTAINLY BE RELIED UPON AS INDICATING THE DRIFT OF THE SECTION OR TO S HOW WHAT THE SECTION IS DEALING WITH. IT CANNOT CONTROL THE INTE RPRETATION OF THE WORDS OF A SECTION, PARTICULARLY WHEN THE LANGUAGE OF THE SECTION IS CLEAR AND UNAMBIGUOUS BUT, BEING PART OF THE STA TUTE, IT PRIMA FACIE FURNISHES SOME CLUE AS TO THE MEANING AND PUR POSE OF 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 VIEW W AS TAKEN BY HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V N.K. VAID YA 224 ITR 186 (SUPRA) AND OBSERVATIONS CONTAINED IN THE HEAD NOTE READS A SUNDER:- 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 STATUTE, TO FIND OUT THE PURPOSE FOR WHICH A PARTICULAR PROVISION IS ENACTED; FOR TH IS PURPOSE, EVEN THE SPEECH OF THE FINANCE MINISTER, WHILE INTRODUCI NG THE PARTICULAR FISCAL LEGISLATION COULD BE LOOKED INTO. THE CIRCULARS ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES ARE NOT ONLY BINDING ON THE INCOME-TAX DEPARTMENT BUT ARE ALSO IN THE NA TURE OF 13 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 DINAKAR ULLAL VS. CIT (SUPRA) AND DECISION OF HON'BLE SUPREME COURT IN THE CASE O F COMMISSIONER OF CENTRAL EXCISE VS. M/S RATTAN MELTING & WIRE (SUPRA ) FOR THE PROPOSITION THAT SINCE CIRCULARS ARE NOT BINDING ON THE COURTS, THEREFORE, THE SAME SHOULD NOT BE CONSIDERED FOR INTERPRETATION OF A PA RTICULAR PROVISION. AS FAR AS THE DECISION IN THE CASE OF COMMISSIONER OF CENTRAL EXCISE VS. M/S RATTAN MELTING & WIRE (SUPRA) IS CONCERNED, THIS DO ES NOT SUPPORT THE PROPOSITION MADE BY THE LD. COUNSEL FOR THE ASSESSE E. IN THAT CASE THE QUESTION WAS WHETHER A CIRCULAR ISSUED BY THE DEPAR TMENT WHICH IS GENERALLY BINDING ON THE AUTHORITIES WOULD TAKE PRE CEDENCE OVER THE INTERPRETATION MADE BY THE SUPREME COURT OR HIGH CO URT IN RESPECT OF PARTICULAR PROVISION. THE PARA 6 OF THIS JUDGMENT 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 UNDE R 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 APPROPRI ATE 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 A S THE CLARIFICATIONS/CIRCULARS ISSUED BY THE CENTRAL GOVERNMENT AND OF THE STATE GOVERNMENT ARE CONCERNED THEY REPRESENT MERELY THEIR UNDERSTANDING OF THE STATUTORY PROVISIONS. THEY ARE NOT BINDING U PON 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 PROVISI ONS 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 ULTIMATELY ME ANING OF A PROVISION AS INTERPRETED BY THE COURT WOULD PREVAIL IN COMPARISO N TO THE INTERPRETATION GIVEN IN THE CIRCULAR. THEREFORE, IF CIRCULAR IS CONTRARY TO A PROVISION AS INTERPRETED BY THE COURT THEN THE OPINION OF THE C OURT WOULD PREVAIL. THIS DECISION NOWHERE LAYS DOWN THAT CIRCULARS CANN OT BE CONSIDERED FOR INTERPRETATION 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 BELAT ED RETURN DECLARING INCOME OF RS. 50,240/- AND WAS CLAIMING REFUND OF R S. 2,14,505/- ON ACCOUNT OF TAX DEDUCTED AT SOURCE. THE 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 APPLICAT ION 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 REJECTIO N WAS QUASHED BY A 14 SINGLE JUDGE AND REMITTED THE MATTER BACK FOR FRESH CONSIDERATION. ON REMAND, THE COMMISSIONER WHO WAS VESTED WITH THE JU RISDICTION UNDER INSTRUCTION NO.13 OF 2006 IN RESPECT OF CLAIM UPTO RS. 10 LAKHS ACCEPTED THE CAUSE SHOWN FOR DELAY IN FILING THE RETURN BUT DENIED INTEREST ON REFUND AMOUNT IN VIEW OF THE CONDITION SET OUT IN C IRCULAR NO. 670 DATED 26 TH OCT 1993. THEREFORE, QUESTION BEFORE THE COURT WA S WHETHER THESE INSTRUCTIONS WERE CONTRARY TO THE PROVISION OF SE CTION 244A OF THE ACT WHICH PROVIDED FOR PAYMENT OF INTEREST ON REFUNDS. THIS BECOMES ABSOLUTELY CLEAR FROM THE QUESTION FRAMED BY HON'BL E COURT WHICH IS CONTAINED AT PLACITUM 6 AND READS AS UNDER:- (I) WHETHER THE CONDITION TO DENY INTEREST ON REFU ND AMOUNT DUE TO AN ASSESSEE UNDER THE ACT, WHILE ADMI TTING AN APPLICATION TO CONDONE THE DELAY IN MAKING A CLA IM FOR BELATED REFUND UNDER SECTION 237 OF THE ACT, AS CON TAINED 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 O F THE ACT? (II) WHETHER IN THE FACTS AND CIRCUMSTANCES, THE RESPONDENT WAS JUSTIFIED IN DENYING INTEREST ON BEL ATED REFUND CLAIMED FOR THE ASSESSMENT YEAR 1995-96, BY THE ORDER IMPUGNED. 26. THE HON'BLE COURT DISCUSSED THE MATTER AND ULTI MATELY HELD THAT ASSESSEE WAS ENTITLED TO INTEREST U/S 244A AND CIRC ULAR NO. 670 WAS CONTRARY TO THE PROVISIONS OF SECTION 244A. THE COU RT ALSO OBSERVED THAT CIRCULAR COULD BE ISSUED TO CLARIFY THE PROVISIONS FOR REMOVING THE DIFFICULTIES. THEREFORE, IT IS CLEAR THAT QUESTION WHETHER A CIRCULAR CAN BE CONSIDERED IN INTERPRETATION OF A PARTICULAR PROVIS ION WAS NEVER BEFORE THE COURT AND THEREFORE, IN OUR OPINION, THIS JUDGE MENT DOES NOT SUPPORT THE PROPOSITION THAT CIRCULAR CANNOT BE CONSIDERED FOR THE PURPOSE OF INTERPRETING THE PARTICULAR PROVISION. 27. IT WILL BE USEFUL TO STATE ANOTHER VERY WELL S ETTLED PRINCIPLE OF INTERPRETATION I.E. WHENEVER THE PARTICULAR PROVISI ON IS REQUIRED TO BE INTERPRETED, IT SHOULD BE INTERPRETED AFTER READING 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. I T IS ALSO WELL SETTLED THAT NO PROVISION CAN BE INTERPRETED 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 LIGHT OF THE ABOVE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT. SECTION 80I C 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 UNDERTAKING OR AN E NTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (2), THERE SHAL L, IN ACCORDANCE WITH AND 15 SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOW ED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION FROM SUCH PROFI TS AND GAINS, AS SPECIFIED 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 THING SP ECIFIED IN THE THIRTEENTH SCHEDULE, OR WHICH MANUFACTURES OR PRODU CES ANY ARTICLE OR THING, NOT BEING ANY ARTICLE OR THING SP ECIFIED IN THE THIRTEENTH SCHEDULE AND UNDERTAKES SUBSTANTIAL EXPA NSION 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 ZONE OR INTEGRATED INFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GRO WTH CENTRE OR INDUSTRIAL ESTATE OR INDUSTRIAL PARK OR SOFTWARE TE CHNOLOGY PARK OR INDUSTRIAL AREA OR THEME PARK, AS NOTIFIED BY THE B OARD IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY T HE CENTRAL GOVERNMENT IN THIS REGARD, 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 ANY EXPORT PROCESSING ZONE OR IN TEGRATED INFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GRO WTH CENTRE OR INDUSTRIAL ESTATE OR INDUSTRIAL PARK OR SOFTWARE TE CHNOLOGY PARK OR INDUSTRIAL AREA OR THEME PARK, AS NOTIFIED BY THE B OARD IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY T HE CENTRAL GOVERNMENT IN THIS REGARD, 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 EXPORT PROCESSING ZONE O R INTEGRATED INFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GRO WTH CENTRE OR INDUSTRIAL ESTATE OR INDUSTRIAL PARK OR SOFTWARE TE CHNOLOGY PARK OR INDUSTRIAL AREA OR THEME PARK, AS NOTIFIED BY THE B OARD IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY T HE CENTRAL GOVERNMENT IN THIS REGARD, IN ANY OF THE NORTH-EAST ERN STATES; (B) WHICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PRO DUCE ANY ARTICLE OR THING, SPECIFIED IN THE FOURTEENTH SCHEDULE OR COMM ENCES ANY OPERATION SPECIFIED IN THAT SCHEDULE, OR WHICH MANUFACTURES O R PRODUCES ANY ARTICLE OR THING, SPECIFIED IN THE FOURTEENTH SCHEDULE OR C OMMENCES ANY OPERATIONS SPECIFIED IN THAT SCHEDULE AND UNDERTAKE S SUBSTANTIAL EXPANSION DURING THE PERIOD BEGINNING- 16 (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 ST ATES. (3) THE DEDUCTION REFERRED TO IN SUB-SECTION (1) SH ALL BE (I) IN THE CASE OF ANY UNDERTAKING OR ENTERPRISE REFERR ED TO IN SUB-CLAUSES (I) AND (III) OF CLAUSE (A) OR SUB-CLAU SES (I) AND (III) OF CLAUSE (B), OF SUB-SECTION (2), ONE HUNDRE D PER CENT OF SUCH PROFITS AND GAINS FOR TEN ASSESSMENT YEARS COMMENCING WITH THE INITIAL ASSESSMENT YEAR; (II) IN THE CASE OF ANY UNDERTAKING OR ENTERPRISE REFERR ED 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 PRO FIT 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 CO MPANY) 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 RECONSTRUC TION, OF A BUSINESS ALREADY IN EXISTENCE: PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RES PECT OF AN UNDERTAKING WHICH IS FORMED AS A RESULT OF THERE - ESTABLISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASS ESSEE OF THE BUSINESS OF ANY SUCH UNDERTAKING AS IS REFERRED TO IN SECTION 33B, IN THE CIRCUMSTANCES AND WITHIN THE PE RIOD 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. 17 EXPLANATION.- THE PROVISIONS OF EXPLANATIONS 1 AND 2 TO SUB-SECTION (3) OF SECTION 80-IA SHALL APPLY FOR THE PURPOSES OF CLAUS E (II) OF THIS SUB-SECTION AS THEY APPLY FOR THE PURPOSES OF CLAUSE (II) OF TH AT SUB-SECTION. (5) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, NO D EDUCTION SHALL BE ALLOWED UNDER ANY OTHER SECTION CONTAINED IN CHAPTE R VIA OR IN SECTION 10A OR SECTION 10B, IN RELATION 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 UNDER THIS SECTION, WHERE THE TOTAL PERIOD OF DEDUCTION INCLUSIVE OF THE PERIOD O F DEDUCTION UNDER THIS SECTION, OR UNDER THE SECOND PROVISO TO SUB-SECTION (4) OF SECTION 80-IB OR UNDER SECTION 10C, AS THE CASE MAY BE, EXCEEDS 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, APPLY TO THE ELIGIBLE UNDERTAKING OR ENTERPRISE UNDER THIS SECTION. (8) FOR THE PURPOSES OF THIS SECTION,- (I) INDUSTRIAL AREA MEANS SUCH AREAS, WHICH THE BOARD , MAY, BE NOTIFICATION IN THE OFFICIAL GAZETTE, SPECI FY IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY T HE CENTRAL GOVERNMENT; (II) INDUSTRIAL ESTATE MEANS SUCH ESTATES, WHICH THE B OARD, MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE, SPECI FY IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY T HE CENTRAL GOVERNMENT. (III) INDUSTRIAL GROWTH CENTRE MEANS SUCH CENTRES, WHIC H THE BOARD, MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE , SPECIFY IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED B Y THE CENTRAL GOVERNMENT; (IV) INDUSTRIAL 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 T HE CENTRAL GOVERNMENT; (V) INITIAL ASSESSMENT YEAR MEANS THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAK ING OR THE ENTERPRISE BEGINS TO MANUFACTURES OR PRODUCE AR TICLES OR THINGS, OR COMMENCES OPERATION OR COMPLETES SUBSTANTIAL EXPANSION; 18 (VI) INTEGRATED INFRASTRUCTURE DEVELOPMENT CENTRE MEAN S SUCH CENTRES, WHICH THE BOARD, MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE, SPECIFY IN ACCORDANCE WITH THE SC HEME FRAMED AND NOTIFIED BY THE CENTRAL GOVERNMENT (VII) NORTH-EASTERN STATES MEANS THE STATES OF ARUNACH AL PRADESH, ASSAM, MANIPUR, MEGHALAYA, MIZORAM, NAGALAND AND TRIPURA; (VIII) SOFTWARE TECHNOLOGY PARK MEANS ANY PARK SET UP I N 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 INVES TMENT IN THE PLANT AND MACHINERY BY AT LEAST FIFTY PER CE NT OF THE BOOK VALUE OF PLANT AND MACHINERY (BEFORE TAKING DEPRECIATION IN ANY YEAR), AS ON THE FIRST DAY OF T HE PREVIOUS YEAR IN WHICH THE SUBSTANTIAL EXPANSION IS UNDERTAKEN; (X) THEME PARK MEANS SUCH PARKS, WHICH THE BOARD , MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE, SPECIFY IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY T HE CENTRAL GOVERNMENT. 29. SUB SECTION (1) OF THE ABOVE PROVISION IS A GEN ERAL PROVISION AND DOES NOT REQUIRE ANY INTERPRETATION. SUB SECTION [2 ] IS THE ENABLING PROVISION WHICH PROVIDES FOR THE TYPES OF UNDERTAKI NGS AND CIRCUMSTANCES WHERE DEDUCTION UNDER SECTION 80IC WOULD BE ALLOWED . IT ALLOWS DEDUCTION TO VARIOUS UNDERTAKINGS WHICH HAVE EITHER BEGUN OR BEGINS MANUFACTURING OF ANY ARTICLE OR THINGS NOT BEING ANY ARTICLE OR T HING SPECIFIED IN SCHEDULE XIII AND ALSO UNDERTAKES SUBSTANTIAL EXPANSION. THE SE DEDUCTIONS WERE AVAILABLE IN DIFFERENT STATES DURING DIFFERENT WIND OW PERIODS WHICH HAVE BEEN REFERRED TO IN CLAUSE (I), (II) & (III) OF THI S SUB SECTION. THE CONTENTION ON BEHALF OF THE ASSESSEE IS THAT SINCE DEDUCTION I S AVAILABLE TO THE UNDERTAKING WHICH UNDERTAKES SUBSTANTIAL EXPANSION AND SINCE THERE IS NO RESTRICTION IN THIS SUB SECTION ITSELF, THEREFORE, THE DEDUCTION WAS AVAILABLE ON SUBSTANTIAL EXPANSION BY OLD UNDERTAKI NGS AS WELL AS NEW UNDERTAKINGS DURING THE WINDOW PERIOD. HOWEVER, THE RE IS NO FORCE IN THIS INTERPRETATION. SUB SECTION (2) BEGINS WITH THE EX PRESSION THIS SECTION APPLIES TO ANY UNDERTAKING OR ENTERPRISE WHICH HAS BEGUN OR BEGINS THIS ITSELF SHOWS THAT PROVISION MADE EVEN THE EXISTING UNDERTAKINGS 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 SUBSTANTIAL E XPANSION DURING THE 19 PERIOD BEGINNING... THIS WOULD NATURALLY REFER TO THE UNDERTAKING WHICH WERE ALREADY EXISTING. IF IT IS READ THE WAY THE LD. COUNSEL OF THE ASSESSEE WOULD LIKE US TO READ THEN THE PROVISION W OULD BECOME UNWORKABLE BECAUSE IF THERE IS AN UNDERTAKING WHICH IS ESTABLISHED DURING THE WINDOW PERIOD THEN THE SAME CANNOT POSSIBLY UND ERTAKES SUBSTANTIAL EXPANSION ALSO SIMULTANEOUSLY. THE EXPRESSION AND WOULD REFER TO 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 SOMETHI NG WHICH HAS ALREADY STARTED IN THE PAST WHEREAS BEGINS CONNOTES SOMET HING WHICH WOULD COMMENCE IN THE PRESENT. THEREFORE, THE EXPRESSION AND CAN BE CORRELATED ONLY WITH EXISTING UNIT BECAUSE AS WE HA VE ALREADY SEEN A NEW UNIT WHICH HAS BEEN SET UP AND BEGINS PRODUCTION CA NNOT SIMULTANEOUSLY UNDERGO SUBSTANTIAL EXPANSION ALSO SO AS TO BECOME ELIGIBLE FOR DEDUCTION UNDER THIS SECTION. 30. AT THIS STAGE, IT CAN BE SAID THAT SECTION HAS SOME CONFUSION AND SOME EFFORT IS REQUIRED TO UNDERSTAND THE CORRECT I NTENTION OF THE LEGISLATURE BY KEEPING VARIOUS PRINCIPLES OF INTERP RETATION. THEREFORE, VARIOUS PRINCIPLES OF INTERPRETATION NEEDS TO BE LO OKED INTO. THIS PROVISION WAS BROUGHT INTO THE STATUTE INDISPUTABLY IN THE LI GHT OF THE INCENTIVE PACKAGE ANNOUNCED BY THE UNION CABINET. THROUGH TH IS INCENTIVE PACKAGE NOT ONLY INCOME TAX CONCESSION BUT EXCISE C ONCESSIONS AND SOME SUBSIDIES LIKE TRANSPORT SUBSIDY AND CAPITAL SUBSID Y WERE ALSO PROVIDED TO VARIOUS INDUSTRIES IN THE HILLY STATED COMPRISING S TATES OF HIMACHAL PRADESH, UTTARANCHAL, SIKKIM AND NORTH-EASTERN STAT ES 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 HIMACHAL PRAD ESH, SIKKIM, UTTARANCHAL AND NORTH-EASTERN STATES. 49.1 THE UNION CABINET HAS ANNOUNCED A PACKAGE OF F ISCAL AND NON-FISCAL CONCESSIONS FOR THE SPECIAL CATEGORY STA TES OF HIMACHAL PRADESH, UTTARANCHAL, SIKKIM AND NORTH-EAS TERN STATES, IN ORDER TO GIVE BOOST TO THE ECONOMY IN TH ESE STATES. WITH A VIEW TO GIVE EFFECT TO THESE NEW PACKAGES A NEW SECTION 80-IC HAS BEEN INSERTED TO ALLOW A DEDUCTIO N FOR TEN YEARS FROM THE PROFITS OF NEW UNDERTAKING OR ENTERP RISE OR EXISTING UNDERTAKINGS OR ENTERPRISES ON THEIR SUBST ANTIAL EXPANSION, IN THE STATES OF HIMACHAL PRADESH, UTTARA NCHAL, SIKKIM AND NORTH-EASTERN STATES . FOR THIS PURPOSE, SUBSTANTIAL EXPANSION IS DEFINED AS INCREASE IN THE INVESTMENT IN THE PLANT AND MACHINERY BY AT LEAST 50% OF THE BOOK VALUE OF THE PLANT AND MACHINERY (BEFORE TAKING DEPRECIATION IN ANY YE AR), AS ON THE FIRST DAY OF THE PREVIOUS YEAR IN WHICH THE SUB STANTIAL EXPANSION IS UNDERTAKEN. 20 49.2 THE SECTION PROVIDES THAT THE DEDUCTION SHALL BE AVAILABLE TO SUCH UNDERTAKINGS OR ENTERPRISES WHICH MANUFACTU RE OR PRODUCE ANY ARTICLE OR THING, NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE THIRTEENTH SCHEDULE AND WHICH COMM ENCE OPERATION IN ANY EXPORT PROCESSING ZONE, OR INTEGRA TED INFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GRO WTH CENTRE OR INDUSTRIAL ESTATE, OR INDUSTRIAL PARK, OR SOFTWA RE TECHNOLOGY PARK OR INDUSTRIAL AREA OR THEME PARK, AS NOTIFIED BY THE BOARD IN ACCORDANCE WITH RULES PRESCRIBED IN THIS REGARD. SIMILAR DEDUCTION SHALL BE AVAILABLE TO THRUST SECTOR INDUS TRIES, 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 STATES SHALL BE ONE HUNDRED PER CENT OF THE PROFITS OF THE UNDERTAKING FOR TEN ASSESSMENT YEARS. THE AMOUNT OF DEDUCTION I N CASE OF UNDERTAKINGS OR ENTERPRISES IN THE STATES OF UTTARA NCHAL, HIMACHAL PRADESH SHALL BE ONE HUNDRED PER CENT OF T HE PROFITS OF THE UNDERTAKING FOR FIVE ASSESSMENT YEARS, AND THER EAFTER TWENTY-FIVE PER CENT (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 INCLUSIVE OF TH E PERIOD OF DEDUCTION UNDER THIS SECTION OR UNDER SECTION 80-IB OR UNDER SECTION 10C, AS THE CASE MAY BE, EXCEEDS TEN ASSESS MENT YEARS. FURTHER, IN COMPUTING THE TOTAL INCOME OF THE ASSES SEE, NO DEDUCTION SHALL BE ALLOWED UNDER ANY OTHER SECTION CONTAINED IN CHAPTER VIA OR IN SECTION 10A OR 10B, IN RELATION T O THE PROFITS 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 UNDER SECTI ON 80-IC. FURTHER, A NEW FOURTEENTH SCHEDULE HAS ALSO BEEN IN SERTED, WHICH SPECIFIES THE LIST OF ARTICLES AND THINGS, BE ING THRUST SECTOR INDUSTRIES, WHICH ARE ELIGIBLE FOR THE PURPOSES OF AVAILING DEDUCTION UNDER THIS SECTION. CONSEQUENT TO THESES AMENDMENTS, THE PROVISIONS OF SECTION 10C AND SUB-S ECTION(4) OF SECTION 80-IB HAVE BEEN MADE INOPERATIVE IN RESPECT OF THE UNDERTAKINGS OR ENTERPRISES IN THE STATE OF HIMACHA L PRADESH OR IN NORTH-EASTERN REGION INCLUDING SIKKIM, WITH EFFE CT FROM THE 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 THE ASSESSM ENT 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 UNION CA BINET. THE CIRCULAR FURTHER CLARIFIES THAT THIS SECTION PROVIDES FOR DE DUCTION FOR A PERIOD OF 10 YEARS FROM THE PROFITS OF NEW UNDERTAKING OR ENTERP RISE OR EXISTING 21 UNDERTAKING OR ENTERPRISE ON THEIR SUBSTANTIAL EXPA NSION (SEE HIGHLIGHTED PORTION OF THE CIRCULAR). THE CONTENTION OF THE LD. COUNSEL OF THE ASSESSEE WAS THAT WORD EXISTING QUALIFIES ONLY THE UNDERTA KING OR ENTERPRISES AND DOES NOT MENTION ANY PARTICULAR DATE FOR CARRYING O UT SUBSTANTIAL EXPANSION. WE FIND NO MERIT IN THIS CONTENTION. TH E WORD EXISTING IS DEFINED IN THE DICTIONARIES ARE AS UNDER:- 32. BLACK LAW DICTIONARY 6 TH EDITION:- EXIST : TO LIVE, 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 MONKEY S STILL EXIST IN THE WILD. ON HIS RETIREMENT THE POST WILL CEASE TO EXIS T. THE CHARITY EXISTS TO SUPPORT VICTIMS OF CRIME. 2- (ON STH) TO LIVE, ESPECIALLY IN A DIFFICULT SITUATION OR WITH VERY LITTLE MONEY: WE E XISTED 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 WOULD GENERALL Y AND IN COMMON SENSE REFERS TO SOMETHING WHICH IS ALREADY THERE. WITH RE FERENCE TO THIS PROVISION, THIS WOULD REFER TO AN UNDERTAKING WHICH WAS ALREADY PRESENT ON THE DATE WHEN THIS PROVISION WAS INTRODUCED. IN ANY CASE THE NOTIFICATION ISSUED BY THE GOVT. OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY, DEPARTMENT OF INDUSTRIAL POLICY AND PROMO TION WHICH IS PUBLISHED IN THE GAZETTE OF INDIA REMOVED ALL THE D OUBTS. THIS NOTIFICATION IS RELEVANT BECAUSE THIS WAS ISSUED WITH REFERENCE TO SAME PACKAGE ANNOUNCED BY THE UNION CABINET OF INDIA FOR THE DEV ELOPMENT OF THE HILLY STATES. 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) 22 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 ABSOLUTELY CLEAR WHEN SUB SECTION (2) IS READ ALONGWITH SUB-SECTION (3) OF SECTION 80 IC. AS NOTED EARLIER, SUB SECTION (2) IS ENABLING PROVISION WHICH PROVIDES FO R DEDUCTION IN CERTAIN KIND OF UNDERTAKINGS, I.E. NEW UNIT SET UP OR THE E XISTING UNITS WHICH CARRIES OUT SUBSTANTIAL EXPANSION DURING THE PARTIC ULAR 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 T O NOTE THAT CLAUSE (I) OF SUB SECTION (3) PROVIDES FOR 100% DEDUCTION FOR A P ERIOD OF 10 ASSESSMENT 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 CASE OF STATE OF SIKKIM, NORTH- EASTERN STATES WHEREAS SUB CLAUSE (II) REFERS TO TH E WINDOW PERIOD IN CASE OF STATE OF HIMACHAL PRADESH AND STATE OF UTTARANCH AL. SIMILARLY, SUB CLAUSE (I) & (III) OF CLAUSE (B) REFERS TO WINDOW P ERIOD 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 (II) OF SUB SECTION (3) PROVIDES FOR 100 % DEDUCTION ON SUCH PROFITS FOR FIVE ASSESSMENT YEARS COMMENCING WITH I NITIAL ASSESSMENT YEAR AND THEREAFTER 25% (OR 30% WHERE THE ASSESSEE IS A COMPANY) OF THE PROFITS AND GAINS. THEREFORE, IT IS ABSOLUTELY CLE AR THAT IN CASE OF STATE OF SIKKIM AND NORTH-EASTERN STATES, LEGISLATURE WAS VE RY CLEAR THAT IN CASE OF NEW UNDERTAKING OR IN CASE OF SUBSTANTIAL EXPAND ED UNDERTAKING DEDUCTION IS TO BE ALLOWED @ 100% FOR WHOLE OF THE TEN YEARS WHEREAS IN CASE OF STATE OF HIMACHAL PRADESH AND UTTARANCHAL T HE DEDUCTION WAS TO BE ALLOWED @ 100% ONLY FOR FIRST FIVE YEARS AND THE REAFTER IT WAS ONLY 25%. IF THE LEGISLATURE WANTED TO EXTEND THE BENEF IT IN THE CASE OF SUBSTANTIAL EXPANSION SEPARATELY THEN THE RATE OF D EDUCTION IN THE CLAUSE (I) & (II) OF SUB SECTION (3) WOULD NOT HAVE BEEN D IFFERENT I.E. 100% FOR WHOLE OF THE 10 YEARS IN CASE OF STATE OF SIKKIM & NORTH-EASTERN STATES UNDER SUB CLAUSE (I) AND FOR THE STATE OF HIMACHAL PRADESH & UTTARANCHAL UNDER SUB CLAUSE (II) 100% FOR FIRST FIVE YEARS AND THEREAFTER 25% FOR NEXT FIVE YEARS. THE CONCEPT OF SUBSTANTIAL EXPANSION REMAINS SAME UNDER SUB SECTION (2) FOR BOTH TYPES OF STATES I.E STATE OF S IKKIM AND NORTH-EASTERN STATES AND STATE OF HIMACHAL PRADESH AND UTTRANCHAL . IF THE EXTENDED BENEFIT OF SUBSTANTIAL EXPANSION WAS TO BE SEPARATE LY ALLOWED IN CASE OF STATE OF HIMACHAL PRADESH AND STATE OF UTTARANCHAL, THEN MEANING OF SUBSTANTIAL EXPANSION AS GIVEN UNDER SUB SECTION (2 ) WHICH IS SAME FOR THE STATE OF SIKKIM AND NORTH-EASTERN STATES BECOME RED UNDANT. AS NOTED EARLIER, THE PROVISION CANNOT BE INTERPRETED IN SUC H 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 WITH SUB S ECTION (3), THOSE DOUBTS ARE TOTALLY REMOVED AND IT BECOME ABSOLUTELY CLEAR THAT RATE OF DEDUCTION HAS TO BE 100% FOR FIRST 5 YEARS AND 25% THEREAFTER . 23 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 BEC OME REDUNDANT. SUB SECTION (4) CLEARLY PROVIDES THAT THE DEDUCTION IS AVAILABLE TO ANY UNDERTAKING OR ENTERPRISE WHICH IS NOT FORMED BY SP LITTING OR RECONSTRUCTION OF THE BUSINESS ALREADY IN EXISTENCE OR IT IS NOT FORMED BY TRANSFER TO NEW BUSINESS OF MACHINERY OR PLANT PREV IOUSLY USED FOR ANY PURPOSE. FURTHER THE EXPLANATION TO THIS SUB SECTIO N MAKES IT CLEAR THAT EXPLANATION 1 & 2 OF SUB SECTION (3) OF SECTION 80I A ARE APPLICABLE IN THIS RESPECT. EXPLANATION 2 OF SUB SECTION (3) OF SECTIO N 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 O F THE MACHINERY OR PLANT OR PART SO TRANSFERRED DOES NOT EXCEED TWENTY PER CENT OF THE TOTAL VALUE OF TH E MACHINERY OR PLANT USED IN THE BUSINESS, THEN, FOR THE PURPOSES OF CLAUSE (II) OF THIS SUB-SECTION, TH E 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 UNIT WO ULD NOT BE ELIGIBLE FOR DEDUCTION UNDER THIS SECTION THAT IS SECTION 80IC. NOW FOR CARRYING OUT SUBSTANTIAL EXPANSION THE INVESTMENT IN PLANT & MAC HINERY IS REQUIRED TO BE MADE BY ATLEAST 50%. SO IF 50% FRESH MACHINERY IS ADDED TO THE NEW UNIT THEN IT WILL VIOLATE SUB SECTION (4) OF SECTIO N 80IC, THEREFORE, INTERPRETATION CANVASSED ON BEHALF OF THE ASSESSEE IS NOT POSSIBLE BECAUSE SECTION 80IC(4) WOULD BECOME REDUNDANT AND SUCH AN INTERPRETATION IS NOT POSSIBLE. 35. FURTHER, SUB SECTION (6) PROVIDES THAT IN NO CA SE THE TOTAL PERIOD OF DEDUCTION COULD EXCEED THE PERIOD OF 10 YEARS INCLU DING DEDUCTION AVAILED UNDER SUB SECTION (4) OF SECTION 80IB AND SECTION 1 0A AND 10B. IT WAS CONTENDED BEFORE US THAT SINCE THERE IS NO RESTRI CTION IN CARRYING OUT OF SUBSTANTIAL EXPANSION IN THE NEW UNITS AND AS SUCH SUBSTANTIAL EXPANSION CAN BE CARRIED OUT ANY NUMBER OF TIMES. IF THIS IN TERPRETATION IS ACCEPTED THEN SUB SECTION (6) WOULD BE RENDERED OTIOSE OR ME ANINGLESS BECAUSE IF A UNIT WAS SET UP ON THE COMMENCEMENT OF THIS SECTION AND THE SAME CLAIMS DEDUCTION @ 100% AND LATER ON EVERY FIVE YEA RS A SUBSTANTIAL EXPANSION IS CARRIED OUT THEN ACCORDING TO THE INTE RPRETATION CANVASSED ON BEHALF OF THE ASSESSEE, SUCH UNIT WOULD AGAIN BE COME ENTITLED TO 100% DEDUCTION FOR ANOTHER FIVE YEARS AND FURTHER BLOCK OF FIVE YEARS EVERY TIME SUBSTANTIAL EXPANSION IS CARRIED OUT. IF THIS INT ERPRETATION IS ADOPTED THEN DEDUCTION WOULD BECOME ALMOST PERCEPTUAL AS LO NG AS THE ASSESSEE HAS CARRIED OUT SUBSTANTIAL EXPANSION BUT IN THAT C ASE SUB SECTION (6) WOULD LOOSE ITS MEANING. SUCH AN UNLIMITED PERIOD O F DEDUCTION WOULD NOT BE IN CONSONANCE OF LAW. AT THE COST OF REPETITION , WE WOULD LIKE TO EMPHASIZE THAT NO PRINCIPLE OF INTERPRETATION CAN B E ADOPTED WHICH LEADS TO A SITUATION WHERE A PARTICULAR PART OF THE SECTI ON BECOMES TOTALLY REDUNDANT. IN FACT THOUGH IT WAS CONTENDED THAT IN THE PRESENT CASE (I.E. 24 IN CASE OF HYCRON ELECTRONICS) DEDUCTION HAS BEEN C LAIMED ONLY OF 10 YEARS BUT ON THE DATE OF HEARING SOME OTHER APPEALS WERE ALSO LISTED WHEREIN THE DEDUCTION WAS CLAIMED FOR MORE THAN 10 YEARS AD OPTING THE SAME CONTENTION WHICH HAS BEEN MADE BEFORE US. IN CASE O F M/S MAHAVIR INDUSTRIES (ITA NO. 127/CHD/2011 AND ITA NO. 791/CH D/2012) THOUGH THOSE CASES WERE ADJOURNED BECAUSE SOME OTHER ISSUE S WERE ALSO THERE BUT IN THOSE TWO CASES ASSESSEE HAD COMMENCED THE O PERATION ON 8.5.1997 AND CLAIMED DEDUCTION U/S 80IB FROM ASSES SMENT YEARS 1998-99 TO 2005-06. LATER ON, SUBSTANTIAL EXPANSION WAS CAR RIED OUT IN ASSESSMENT YEAR 2005-06 AND ON THE BASIS OF THE CONTENTION THA T ASSESSEE IS ALLOWED TO CARRY OUT ANY NUMBER OF EXPANSIONS, DEDUCTION W AS CLAIMED FOR THE 12 TH YEAR FOR ASSESSMENT YEAR 2009-10 (WE MAY CLARIFY T HAT 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 E XPANSIONS ARE ALLOWED IS NOT POSSIBLE IN VIEW OF THE 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 80IB (4) REA DS AS UNDER:- (4) THE AMOUNT OF DEDUCTION IN THE CASE OF AN INDU STRIAL UNDERTAKING IN AN INDUSTRIALLY BACKWARD STATE SPECIFIED IN THE EIGHTH SCHEDULE SHALL BE HUNDRED PER CENT OF THE PROFITS AND GAINS DERIVED F ROM SUCH INDUSTRIAL UNDERTAKING FOR FIVE ASSESSMENT YEARS BEGINNING WIT H 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 DER IVED FROM SUCH INDUSTRIAL UNDERTAKING: 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 SOCIETY) SUBJECT TO FULFILLMENT OF THE CONDITION THAT IT BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR TO OPERATE ITS COLD STORAGE PLANT 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 GOVERNMEN T, THE AMOUNT OF DEDUCTION SHALL BE HUNDRED PER CENT OF PROFITS AND GAINS FOR A PERIOD OF TEN ASSESSMENT YEARS, AND THE TOTAL PERIOD OF DEDUCTION SHALL IN SUCH A CASE NOT EXCEED TEN ASSESSMENT 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 ENTERPRISE RE FERRED TO IN SUB-SECTION (2) OF SECTION 80-IC. 25 37. THE CAREFUL PERUSAL OF THE ABOVE PROVISION WOUL D SHOW THAT BEFORE THE INTRODUCTION OF SECTION 80IC WHICH IS BEFORE US FOR CONSIDERATION, THE DEDUCTION TO THE BACKWARD STATES WAS AVAILABLE IN T ERMS OF SECTION 80IB(4). THE THIRD PROVISO MAKES IT CLEAR THAT AFT ER 31.3.2004, THIS DEDUCTION WILL BE AVAILABLE ONLY U/S 80IC. THE SUB SECTION FURTHER MAKES IT CLEAR THAT DEDUCTION WOULD BE @ 100% FOR THE FIR ST FIVE YEARS AND THEREAFTER @ 25%. FURTHER, THE FIRST PROVISO MAKES IT CLEAR THAT DEDUCTION WILL NOT EXCEED 10 CONSECUTIVE ASSESSMENT YEARS. T HE SECOND PROVISO FURTHER MAKES IT CLEAR THAT IN THE CASE OF STATES O F NORTH-EASTERN REGIONS, THE DEDUCTION WOULD BE @ 100% FOR ALL THE 10 YEARS. THUS, EVEN IN THE EARLIER PROVISION ONLY IN CASE OF NORTH-EASTER STAT ES, THE DEDUCTION OF 100% WAS ALLOWABLE FOR 10 YEARS WHEREAS IN THE CASE OF STATES OF HIMACHAL PRADESH, THE DEDUCTION WAS ALLOWABLE @ 100 % FOR FIRST 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 DEDUC TION COULD BE FOR PERIOD EXCEEDING 10 YEARS AND IN THIS REGARD WE MAY NOTE THAT EVEN THE LD. AUTHORS IN THEIR COMMENTARY OF INCOME TAX LAWS BY CHATURVEDI & PITHISARIAS - SIXTH EDITION HAS EXPRESSED THE SA ME OPINION. THE RELEVANT EXTRACT AT PAGES 6351 OF THE COMMENTARY READS AS UN DER;- NO DEDUCTION POSSIBLE FOR MORE THAN 10 ASSESSMENT YEARS.- SECTION 80-IC(6) ALSO OPENS WITH A NON OBSTANTE CLA USE NOTWITHSTANDING ANYTHING CONTAINED IN,AND PROVIDES THAT NO DEDUCTION SHALL BE ALLOWED TO ANY UNDERTAKING OR EN TERPRISE UNDER SECTION 80-IC, - WHERE THE TOTAL PERIOD OF DEDUCTIO N INCLUSIVE OF THE PERIOD OF 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 B OTH SITUATIONS SEPARATELY I.E. FOR NEW UNIT AND SUBSTANTIAL EXPANDED UNIT. W E FIND NO FORCE IN THIS CONTENTION. THE INITIAL ASSESSMENT YEAR HAS BEEN D EFINED AND THE EXPRESSION OR HAS BEEN USED IN RESPECT OF NEW UNI TS BY STATING COMMENCES OPERATION OR COMPLETE SUBSTANTIAL EXPA NSION. HERE THE EXPRESSION OR IS TO BE READ AS A MUTUALLY EXCLUSI VE EXPRESSION WHICH REFERS TO A PARTICULAR SITUATION BY EXCLUDING THE O THER SITUATION. THEREFORE, INITIAL ASSESSMENT YEAR WOULD CLEARLY CO MMENCE EITHER ON COMMENCEMENT OF OPERATION OR AT COMPLETION OF SUBST ANTIAL EXPANSION OF EXISTING UNIT. IN ANY CASE THE WORD INITIAL CAN NOT BE USED TWICE BY REFERRING TO SERIES OF EVENTS. THIS CAN BE UNDERSTO OD WITH A VERY SIMPLE EXAMPLE. LET US SAY A PERSON A PASSES OUT HIS EXA MINATION OF LLB AND GET EMPLOYED AS LEGAL OFFICER IN AN ORGANIZATION. L ATER ON, HE QUITS THE 26 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. INITIALLY CAN BE USED ONLY ONCE AS A MATTER OF USAGE OF ENGLISH LANGUAGE. THEREFORE, R EADING OF THE ABOVE PROVISION CLEARLY SHOWS THAT INTENTION OF THE LEGIS LATURE WAS VERY CLEAR TO ALLOW 100% FOR FIRST FIVE YEARS IN CASE OF UNITS SI TUATED IN THE STATE OF HIMACHAL PRADESH (SINCE ALL THE CASES BEFORE US ARE SITUATED IN THE STATE OF HIMACHAL PRADESH) AND THEREAFTER 25% DEDUCTION F OR ANOTHER FIVE YEARS ON THE NEW UNITS OR THE EXISTING UNITS WHERE SUBSTA NTIAL 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 C ENTRAL EXCISE AND CUSTOMS (SUPRA) BY THE REVENUE IS NOT CORRECT BECAU SE THAT PROVISION WAS RENDERED UNDER INDIRECT TAX ACT. WE FIND NO FORCE I N THESE SUBMISSIONS. EVERY DECISION OF THE HON'BLE SUPREME COURT OR FOR THAT MATTER OF ANY HIGH COURT HAS TO BE SEEN FOR THE RATIO LAID DOWN I N A PARTICULAR DECISION AND IT DOES NOT MATTER UNDER WHICH PARTICULAR ACT S UCH PRINCIPLES HAS BEEN DECIDED. NO DOUBT THE INCENTIVE PROVISIONS AR E REQUIRED TO BE INTERPRETED LIBERALLY BUT IN CASE OF M/S NOVAPAN IN DIA LTD V COLLECTOR 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 PURPORT OF ITEM-6 OF THE TABLE APPENDED TO THE EXEMPTION NOTIFICATION, T HE BENEFIT OF SUCH AMBIGUITY SHOULD GO TO THE ASSESSEE MANUFACTUR ER AND THE ENTRY MUST BE CONSTRUED AS TAKING IN THE MFPBS AS W ELL. IT IS NOT POSSIBLE TO AGREE WITH THIS SUBMISSION. IN MANGALORE CHEMICALS& FERTILIZERS LTD.. V. DEPUTY COMMISSIONER OF COMMERCIAL TAXES & ORS., [1992) SUPPL. 1 S.C.C, 21, A BENCH OF THIS COURT COMPRISING M.N. VENKATACHALIAH, J. (AS T HE LEARNED CHIEF JUSTICE THEN WAS) AND S.C AGRAWAL, J. STATED THE RE LEVANT PRINCIPLE IN THE FOLLOWING WORDS: SHRI NARASIMHAMURTY AGAIN RELIED ON CERTAIN OBSERV ATIONS IN CCE V. PARLE EXPORTS (P)LTD. [1989] 1 SCC 345, IN SUPPORT OF STRICT CONSTRUCTION OF A PROVISION CONCERNING EXEMPTIONS. THERE IS SUPPORT OF JUDICIAL OPINION TO THE VIEW THAT EXEMPTIONS FRO M TAXATION HAVE A TENDENCY TO INCREASE THE BURDEN ON THE OTHER UN-EXE MPTED CLASS OF TAX PAYERS AND SHOULD BE CONSTRUED AGAINST THE SUBJ ECT 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 THE VERY CASE OF PARLE EXPORTS (P) LTD. RELIED UPON BY SHRI NARASIMHAMURTHY, IT WAS OBSERVED. WHILE INTERPRETING AN EXEMPTION CLAUSE, LIBERAL IN TERPRETATION SHOULD BE IMPARTED TO THE LANGUAGE THEREOF, PROVIDE D NO VIOLENCE IS 27 DONE TO THE LANGUAGE EMPLOYED. IT MUST, HOWEVER, BE BORNE IN MIND THAT ABSURD RESULTS OF CONSTRUCTION SHOULD BE AVOID ED. THE CHOICE BETWEEN A STRICT AND A LIBERAL CONSTRUCT ION ARISES ONLY IN CASE OF DOUBT IN REGARD TO THE INTENTION OF THE LEG ISLATURE MANIFEST ON THE STATUTORY LANGUAGE. INDEED, THE NEED TO RESO RT TO ANY INTERPRETATIVE PROCESS ARISES ONLY WHERE THE MEANIN G IS NOT MANIFEST ON THE PLAIN WORDS OF THE STATUTE. IT THE WORDS ARE PLAIN AND CLEAR AND DIRECTLY CONVEY 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 THAT IN CASE OF AMBIGUITY, A TAXING STATU TE 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 T O BE CONSTRUED STRICTLY. A PERSON INVOKING AN EXCEPTION OR AN EXEM PTION PROVISION TO RELIEVE HIM OF THE TAX LIABILITY MUST ESTABLISH CLEARLY THAT HE IS COVERED BY THE SAID PROVISION. 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 GOES IN FAVOUR OF THE ASSESSEE, BUT THE FACT REMAINS AND THE LAW IS WELL-SETTLED ON THIS SC ORE THAT IN THE MATTER OF INTERPRETATION OF THE TAXING STATUTES THE LAW COURTS WOULD NOT BE JUSTIFIED IN INTRODUCING SOME OTHER EXPRESSI ONS WHICH THE LEGISLATURE THOUGHT FIT TO OMIT. IN THE PRESENT CON TEXT, THERE IS NO DOUBT AS TO THE MEANING OF THE WORDS USED IN THE SE CTION BY REASON OF THE LANGUAGE USED, NEITHER THERE IS ANY DIFFICUL TY IN ASCERTAINING THE STATUTORY INTENT. INCIDENTALLY, IT CANNOT BUT B E SAID THAT AN EXEMPTION IS AN EXCEPTION TO THE GENERAL RULE AND S INCE THE SAME IS OPPOSED TO THE NATURAL TENOR OF THE STATUTE, THE EN TITLEMENT 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 CAREFULLY IT LEAVES NO DOUBT THAT DEDUCTION WAS MEANT ONLY FOR N EW UNITS OR IN CASE OF OLD UNITS IF SUBSTANTIAL EXPANSION WAS CARRIED OUT IN SUCH OLD UNITS AND DEDUCTION WAS AVAILABLE ONLY FOR A PERIOD OF 10 YEA RS. THEREFORE, THERE IS NO QUESTION OF GIVING ANY INTERPRETATION MUCH LESS LIBERAL INTERPRETATION TO SECTION 80IC WHEN THE READING OF WHOLE SECTION M AKES THE PROVISION VERY CLEAR. AS OBSERVED IN CASE OF M/S NOVAPAN IND IA LTD V COLLECTOR OF CENTRAL EXCISE AND CUSTOMS (SUPRA) THE BURDEN WAS O N THE ASSESSEE TO SHOW UNDER WHICH CLAUSE HE WAS ENTITLED TO THE DEDU CTION BUT ASSESSEE IS SIMPLY ASSERTING BEFORE US THAT THERE IS NO RESTRIC TION FOR DEDUCTION IN 28 CASE OF SUBSTANTIAL EXPANSION OF NEW UNITS. IN OUR OPINION, THAT IS NOT ENOUGH BECAUSE ABSENCE OF RESTRICTION DOES NOT 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 WOULD BE ENTITLED TO 100% DEDUCTION ON EXPANSION FOR FIRST FIVE YEARS AND 25% THEREAFTER WHEREAS THE NEW UNITS WOULD BECOME ENTITLED TO DEDUCTION FO R 100% FOR FIRST FIVE YEARS AND AGAIN @ 100% ON SUBSTANTIAL EXPANSION. SU CH DISCRIMINATORY INTENTION 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 INDUSTRI ES LIMITED VS. DCIT(SUPRA). IN THIS DECISION, THE BENCH HAS SIMPLY 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, THEREFORE, THIS DECISION, IN O UR OPINION, IS PER INQUERIM AND CANNOT BE FOLLOWED. 44. THE LD. COUNSEL HAS ALSO RELIED ON THE DECISION IN THE CASE OF S.R. PARYAVARAN ENGINEERS PVT LTD (SUPRA) OF THE CHANDIG ARH BENCH. THE FACTS IN THAT CASE ARE THAT ASSESSEE HAS CLAIMED DEDUCTIO N U/S 80IB IN ASSESSMENT YEAR 1999-2000 @ 100% . THE DEDUCTION W AS CLAIMED @ 100% FOR FIVE YEARS AND THEN DEDUCTION WAS CLAIMED @ 30% ON THE PROFITS IN THE NEXT YEAR. THE ASSESSEE UNDERTOOK SUBSTANTIAL EXPA NSION IN FINANCIAL YEARS 2004-05 & 2005-06 AND CLAIMED DEDUCTION AT TH E RATE OF 100% ON THE BASIS OF SUCH SUBSTANTIAL EXPANSION IN ASSESSME NT YEAR 2006-07. HOWEVER, THE DEDUCTION WAS WRONGLY CLAIMED U/S 80IB INSTEAD OF SECTION 80IC. THE CIT(A) ALLOWED THE DEDUCTION BY OBSERVIN G THAT DEDUCTION COULD NOT BE DENIED SIMPLY BECAUSE ASSESSEE HAS QUOTED A WRONG SECTION. ON THE APPEAL FILED BY REVENUE, THE DEDUCTION WAS HELD TO BE ALLOWABLE BECAUSE SUBSTANTIAL EXPANSION WAS CARRIED OUT IN A UNIT WHICH WAS ALREADY IN EXISTENCE AS ON 7.1.2003. THEREFORE, IN OUR OPINION, THIS DECISION DOES NOT PROVIDE ANY ASSISTANCE TO THE CAS E 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 CAS E ARE THAT A PARTNERSHIP FIRM NAMELY M/S. HIMACHAL POWER PRODUCT S WAS FORMED ON 23.05.2009. THE FIRM COMMENCED COMMERCIAL PRODUCTIO N IN MARCH, 2010. SHRI ABHISHEK BHARGAV WHILE PLANNING TO JOIN THE FI RM AS PARTNER BY ACQUIRING 20% SHARE OF PROFIT AND ENHANCING ADDITIO NAL MANUFACTURING FACILITY BY UNDERTAKING SUBSTANTIAL EXPANSION SOUGH T ADVANCE RULING ON THE ISSUE WHETHER THE INTRODUCTION OF NEW PARTNER W OULD BE TREATED AS RECONSTRUCTION OF THE EXISTING BUSINESS OR THE FIRM WILL BE ENTITLED TO THE BENEFIT OF SUBSTANTIAL EXPANSION AS PER THE PROVISI ONS OF SECTION 80IC(2)(A)(II) IF IT STARTS COMMERCIAL PRODUCTION B EFORE 01.04.2012. THE AUTHORITY HELD THAT THE ASSESSEE WAS ENTITLED TO TH E 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 SUBST ANTIALLY EXPANDED UNIT BEFORE 01.04.2012. IN THIS CASE THE ASSESSE SHALL B E ENTITLED TO DEDUCTION 29 OF 100% OF ITS PROFITS UPTO A.Y. 2014-15 SINCE THE INITIAL ASSESSMENT YEAR WAS A.Y. 2010-11 AND CLAIM OF DEDUCTION CANNOT BE D ENIED MERELY ON THE GROUND OF EXPANSION OF MANUFACTURING CAPACITY SO LO NG IT IS NOT A CASE OF RESTRUCTURING OF BUSINESS ALREADY IN EXISTENCE. HOW EVER, THE QUESTION 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 BEYON D 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 DEDUCTION 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 MAINLY DEALT WITH THE PROVISION OF SECTION 263 AND IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN TH E CASE OF MALABAR INDUSTRIES CO LTD V CIT 243 ITR 83 (SC) HELD THAT SINCE VIEW TAKEN BY THE ASSESSING OFFICER IS ALSO POSSIBLE VIEW, THEREFORE, ASSESSMENT ORDER WAS NOT ERRONEOUS. IN FACT THE BENCH REFERRED TO THE DE CISION OF DELHI BENCH IN THE CASE OF TRIPUTI LPG INDUSTRIES LIMITED VS. DCI T (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 INDUSTRIES L IMITED VS. DCIT (SUPRA) AND FOUND THAT ALL THE PROVISIONS OF THE SECTION WE RE 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 UNDER:- 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,- 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 30 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 INFORM THE LOCATIO N OF THE INDUSTRY AND COLUMN (C) SPECIFICALLY ASK THE ASSESSEE TO STATE W HETHER BUSINESS IS A NEW BUSINESS? COLUMN (D) CLEARLY ASK THE ASSESSEE WHETHER EXISTING BUSINESS HAS UNDERTAKEN SUBSTANTIAL EXPANSION, THER EFORE, THERE ARE TWO CATEGORIES OF BUSINESS AND SUBSTANTIAL EXPANSION IS POSSIBLE ONLY IN CASE OF EXISTING BUSINESS. IN OUR OPINION, THE LD. CIT( A) HAS CORRECTLY ADJUDICATED 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 ITA NO. 79 8/CHD/2012 IS ENTITLED TO ONLY 25% OF DEDUCTION DURING THE PRESENT YEAR BE CAUSE THE ASSESSEE HAS ALREADY AVAILED 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 FIND NOTHING WRONG WITH THE ORDER OF LD. CIT(A) AND WE UPHOLD THE SAME. ACCORDINGLY, ASSESSEES APPEAL IS DISMISSED. 31 13. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNA L PASSED IN THE CASE OF HYCRON ELECTRONICS, BADDI, SOLAN V ITO & OTHERS (SU PRA), WE DISMISS GROUND NO.1 OF THE APPEAL. 14. GROUND NOS. 2 & 3 OF THE APPEAL READS AS UNDER: - 2. THE ID. CJT(A) IS WRONG IN CONFIRMING THE ARBI TRARY ADDITION OF RS. 44,09,796/- BY DISALLOWING DEDUCTIO N U/S 80IC @ 3 % OF THE TURNOVER ON ACCOUNT OF NON-INCURRENCE OF EXPENDITURE TOWARDS ROYALTY / FEE FOR TECHNICAL KNO WHOW SERVICES. 3. THE ID. CIT(A} IS WRONG IN CONFIRMING THE ARBI TRARY ADDITION OF RS. 29,39,864/- BY DISALLOWING DEDUCTIO N U/S 80IC @ 2% OF THE TURNOVER ON ACCOUNT OF NON-INCURRENC E OF EXPENDITURE TOWARDS COMPENSATION FOR USE OF GOODWIL L OR CUSTOMER BASE. 15. IT IS OBSERVED THAT WE HAVE ALREADY DECIDED SI MILAR ISSUES I.E GROUND NOS. 1 & 2 IN ITA NO. 501/CHD/2015. FOR THE DETAILED RE ASONS GIVEN THEREIN, WE ALLOW GROUND NOS. 2 & 3 OF THE APPEAL. THE FINDINGS GIVE N THEREIN SHALL APPLY WITH EQUAL FORCE TO THESE GROUNDS OF APPEAL. RESULTANTL Y, GROUND NOS 2 & 3 OF THE APPEAL ARE ALLOWED. 16. GROUND NO.4 OF THE APPEAL READS AS UNDER:- 4. THE ID. CIT(A) IS WRONG IN CONFIRMING THE TAXA BLE INCOME OF RS. 2,16,956/- INSTEAD OF RS. 1,82,45,529/- BY STATING IN ITS ORDER THAT THIS GROUND IS CONSEQ UENTIAL IN NATURE IGNORING THE FACT THAT THE A.O. HAD WRONGLY COMPUTE D TAXABLE INCOME OF ASSESSEE EVEN AFTER CONSIDERING THE ADDIT IONS MADE BY A.O. 17. SHRI RAKESH GUPTA, LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT ASSESSING OFFICER HAD WRONGLY COMPUTED TAXABLE INCOME OF THE ASSESSEE WHILE FRAMING ASSESSMENT. WE DEEM IT APPROPRIATE TO DIRECT THE A SSESSING OFFICER TO RECOMPUTE 32 THE INCOME OF THE ASSESSEE AFTER AFFORDING A DUE AN D REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 18. IN THE ABOVE TERMS, THE APPEAL IS ALLOWED PARTL Y. ORDER PRONOUNCED IN THE OPEN COURT ON 08/09/2015 SD/- SD/- (RANO JAIN) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED :08 TH SEPTEMBER, 2015 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR