TaxTMI 
TaxTMI 
2019 (7) TMI 1212
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....section 80IC which enumerates that the deduction referred to in sub-section 1 shall be restricted to 100% of such profit and gains for five assessment years commences with the initial assessment year and thereafter 25% of the profit and gains. 2. The Ld. CIT(A) erred in law and fact by not appreciated the fact that section 801C of the I.T. Act, 1961 has been enacted in order to promote industrial growth and employment generation in a backward area either through commencement of manufacturing or production by a new industrial unit or substantial expansion by a pre-existing industrial unit. The law has been enacted in such a way that the preexisting undertaking or enterprises do not suffer from any handicap merely on account of the fact that they were existing prior to the introduction of section 80IC. The condition of substantial expansion has made a pre-requisite for allowing deduction u/s 80IC in the case of old undertaking or enterprise. It is however, clear that there is no overlapping of the two kinds of undertaking or enterprises made eligible for deduction u/s 801C. These are two distinct categories with distinct conditions of eligibility laid down for deduction u/s ....
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....n u/s 80IC of the Act during the year, despite the fact that this is the 8th year of claim of deduction u/s 80IC of the Act, is based on the fact not disputed by Revenue, that the assessee had undertaken substantial expansion of its plant & machinery during the year. However, the AO rejected the contention of the assessee for 100% deduction u/s 80IC of the Act and allowed deduction @ 25 % of the profits from the eligible business and disallowed the remaining 75%, amounting to Rs. 69,93,427/-. 3. The assessee filed appeal before the CIT(A), who vide order dated 19.02.2018 deleted the addition and allowed the assessee's appeal holding as under:- 7. Decision 7.1 "The undisputed facts are that Assessee is deriving income from manufacturing of LPG Gas Stove under the name & style M/s Supershine Domestic Appliances. The Assessee started business from 28.11.2006 and current year was the 8th year of the business. Assessee claimed deduction of Rs. 92,04,570/- @ 100 % of profit uls 801C of the I.T. Act. Assessee's concern is located in Distt. Solan, Himachal Pradesh. The initial assessment year in which the deduction claimed was AY 2007-08. The Assessee made subst....
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....on were discontinued for the Assessment years commencing from 01.04.2004. (Sub-section (4) of Section 80-18). 17. For the purpose of ready reference, and proper understanding of the issue, we deem it appropriate to reproduce the relevant clauses of Section 80-le, itself, which read as under:- "80IC. Special provision in respect of certain undertakings or enterprise in certain special category States :- (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub- section (2), there shall, in accordance with and subject to the provision of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3). (2) This section applies to any undertaking or enterprise,- (b) which has begun or begins to manufacture or produce any article or thin, specified in the Fourteenth Schedule or commences any operation specified in that Schedule, or which manufactures or produces any article or thin, specified in the Fourteenth Schedule or commences any operation specified in that Schedule....
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.... 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 of deduction under this section, or under the second proviso to subsection (4) of section 80-IB or under section 10C, as the case may be, exceeds ten assessment years. (7) The provisions contained in sub-section (5) and sub-section (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,- (v) "initial assessment year" means the assessment year relevant to the previous year in which the undertaking or the enterprise begins to manufacture or produce articles or things, or commences operation or completes substantial expansion; (vii) "North-Eastern States" means the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura; (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 machiner....
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.... of this Section. Now, "initial assessment year" has been held to mean the assessment year relevant to the previous year in which the "unit" begins to manufacture or produce article or thin or commences operation or completes substantial expansion. Significantly, the Act does not stipulate that only units established prior to 07.01.2003 shall be entitled to the benefits under Section 80-IC. The definition of "initial assessment year" is disjunctive and not conjunctive. The initial assessment year has to be subsequent to the year in which the "Unit" completes substantial expansion or commences manufacturing etc., as the case may be. 22. A bare look at Explanation (b) of Section 80-18 (11C) and Section 80-IB(14)(C) would reflect that, earlier [till Section 80-IC was inserted w.e.f. 01.04.2004J "substantial expansion was not included in the definition of initial assessment year. Earlier definition had used words "starts functioning", "company is approved", "commences production", "begins business", "starts operating", "begins to provide services". But Section 80-IC (8)(v) changed wordings [of "initial assessment year"] to "begins to manufacture", "commences operation....
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.... be any prohibition with regard thereto. For what is important, in our considered view, is not the number of expansions, but the period within which such expansions can be carried out within the window period [07.01.2003 to 01.04.2012] and it is here we find the words "begun" or "begins" and "undertakes substantial expansion" during the said period, as stipulated under clause (b) sub-section 2 of Section 80-IC, to be of significance. The only rider imposed is by virtue of sub-section (6) of Section 80-1A, which caps the deduction with respect to Assessment Years to which a unit is entitled to. 28. Of course, one thing is certain. Also, we are clear that under no circumstances, an assessee can claim deductions, be it under Section 80-IC, 80-IB or 10-C of the Act, for a period exceeding ten years, as is sought to be urged by some of the assessees. 29. What was the intent and the object sought to be achieved by the Legislature by inserting the new Section. To our mind, it was to promote and enhance activities envisaged under the Fourteenth Schedule, which could also be by carrying out substantial expansion of the "Unit". It is to give incentives to "Units" for settin....
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....do. Rule of "purposive construction" would be resorted to only when the statute to observe or when read literally it leads to manifest injustice or absurdity." 35. The Court was dealing with the provisions of laws relating to urban development, unlike the taxing statute, in relating to which the Apex Court, in another Report, has held that equity and taxation are often strangers and if construction results in equity rather than injustice, then such construction should be preferred to the literal construction. (Commissioner of income Tax v. J.H. Got/a, (1985) 4 SCC 343). 36. Further, Mr. Kuthiala invites our attention to another Report, which we find profitable to reproduce the following observations made by the Apex Court in State of W.B. v. Kesoram Indjustries Ltd. and others, (2004) 10 SCC 201: "138. It is well settled that it is for the legislature to draft a piece of legislation by making the choicest selection of words so as to give expression to its intention. The ordinary rule of interpretation is that the words used by the legislature shall be given such meaning as the legislature has chosen to in absence thereof the words would be given ....
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....t best an imperfect instrument for the expression of human thought and as pointed out by Lord Denning, it would be idle to expect every statutory provision to be "drafted with divine prescience and perfect clarity." We can do no better than repeat the famous words of Judge Learned Hand when he laid: "it is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable, source of interpreting the meaning of any writing: be it a statute, a contract of anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object ot accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning." 40. In our considered view, circulars are no more than external aids in interpretation of a statute. Insofar as interpreting the statute is concerned, we are not obliged to even look into the same, for language of the Section is simple, clear and unambiguous. 41. We may notice that the Act does not create distinction between the old units, l.e. the units which stand ....
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.... Pradesh. Thus, a unit established in the north Eastern States after 07.01.2003, regardless whether it carries out substantial expansion or not, is entitled to deduction @ 100% for ten assessment years, unlike the State of Himachal Pradesh, wherein a "Unit" established after 07.01.2003 will have to undertake substantial expansion before 01.04.2012, for further claiming deduction @ 100% for next five years, subject to over all cap of ten years. 45. Section 80-IC(3)(ii) [for Himachal Pradesh] stipulates that deduction shall be @ 100% for five years commencing with "initial assessment year" and thereafter @ 25%. "Initial assessment year", as per Section 80-IC (8)(v) means, year in which the unit begins/commences to manufacture/produce or completes "substantial expansion" [As per Section 80-IC(8)(ix)). 48. Applying the aforesaid interpretation, we find there can be different fact situations, some of which, we have tried to illustrate; (iO a "Unit" established prior to 7.1.2003, claiming deduction under Section 80-IB, post insertion of Section 80-IC carries out substantial expansion, would be entitled to deduction only under Section 80-IC, at the admissible percentage,....
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....f clause (ix) of sub-section (8) of Section 80-IC, cannot be disputed, for there is increase in the investment in the plant and machinery by at least 50% of the Book Value of the plant and machinery than the first day of the previous year in which such investment was made. Eligibility of benefits to the unit under Section 80-IC is not in dispute. 52. Both the Assessing Officer as well as the Appellate Authority(s)/Tribunal erred in not appreciating as to what was the intent and purpose of insertion of Section 80 IC. 53. In fact, we find that the conclusions arrived at by the Assessing Officer as well as the Appellate Authority/Tribunal are not base on correct appreciation and interpretation of the statutory provisions. While arriving at their respective conclusions, in interpreting Section 80- IC, they have relied upon Notifications under the Central Excise Laws as well as Ministry of Commerce and Industry (Department of Industrial Policy and Promotion), Government of India and Department of Income Tax. While doing so, the said authorities erred in not appreciating that Section 80 IC of the Act is a self contained and a complete code in itself, w....
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....ssed by the Assessment Officer as well as the Appellate Authority and the Tribunal, in the case of each one of the assessees, are quashed and set aside, holding as under: (a) Such of those undertakings or enterprises which were established, became operational and functional prior to 7.1.2003 and have undertaken substantial expansion between 7.1.2003 upto 1.4.2012, should be entitled to benefit of Section 80-IC of the Act, for the period for which they were not entitled to the benefit of deduction under Section 80-IB. (b) Such of those units which have commenced production after 7.1.2003 and carried out substantial expansion prior to 1.4.2012, would also be entitled to benefit of deduction at different rated of percentage stipulated under Section 80-IC. (c) Substantial expansion cannot be confined to one expansion. As long as requirement of Section 80-IC(8)(ix) is met, there can be number or multiple substantial expansions. (d) Correspondingly, there can be more than one initial Assessment Years. (e) Within the window period of 7.1.20013 upto 1.4.2012, an undertaking or an enterprise can be entitled to deduction @ 100% for a period of mor....
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....on is completed, then, for the purpose of this section the Assessment Year relevant to the Previous Year in which substantial expansion is completed becomes the initial Assessment Year. Once It becomes initial assessment year consequently under sub section (3) the assessee would be entitled to 100% deduction of profits and gains for a period of 5 year commencing from such initial assessment year. The term initial year has been defined a year in which substantial expansion is completed. However assessee cannot claim the deduction under Section 80lC for a total period exceeding 10 years. 7.3. Since, the case of the Appellant is covered by the above two decisions and the decision of any other High Court on this matter is not in the knowledge, the appeal of the Appellant is allowed in view of judicial discipline." 4. The present appeal before us is filed by the Revenue against the aforesaid impugned order dated 19.02.2108 of the Ld.CIT(A). At the time of hearing before us, Ld. DR submitted that the issue in dispute is covered in favour of the Revenue by order of Hon'ble Supreme Court in the case of CIT vs Classic Binding Industries in Civil Appeal No. 7208 of 2018. Ld. Coun....
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....t the Hon'ble Supreme Court in aforesaid order in the case of Pr. CIT vs M/s. Aarham Softronics (supra) has already considered the decision of the CIT vs Classic Binding Industries (supra) and has over-ruled the decision in the case of CIT vs Classic Binding Industries (supra) in the following word:- 22. "It would be pertinent to point out that in Para 20 of the judgment in Classic Binding Industries, this Court observed that if deduction @ 100% for the entire period of 10 years, it would be doing violence to the language of sub-section (6) of Section 80-IC. However, this observation came without noticing the definition of 'initial assessment year' contained in the same very provision. 23. Having examined the matter in the aforesaid perspective, judgment in the case of Mahabir Industries v. Principal Commissioner of Income Tax would, in fact, help the assessee. The fine distinction pointed out in Classic Binding Industries elopes thereby. To recapitulate, in Mahabir Industries, it was held that if an assessee get 100% exemption under Section 80-IB of the Act for five years and thereafter carries out the substantial expansion because of which said assessee becomes ....
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....% deduction again for the next five years. On the other hand, if substantial expansion is undertaken, say, in 8th year by an assessee such an assessee would be entitled to 100% deduction for the first five years, deduction @ 25% of the profits and gains for the next two years and @ 100% again from 8th year as this year becomes 'initial assessment year' once again. However, this 100% deduction would be for remaining three years, i.e. 8th, 9th and 10th assessment years." 4.2. In view of the foregoing, we find that the order of Hon'ble Supreme Court in the case of Pr. CIT vs M/s. Aarham Softronics (supra) being passed by a Larger Bench of the Hon'ble Supreme Court has stronger force as a precedent as compared to decision of Hon'ble Supreme Court in the case of CIT vs Classic Binding Industries (supra). Moreover, Hon'ble Supreme Court has, in order in the case Pr. CIT vs M/s. Aarham Softronics (supra) already considered order in the case of CIT vs Classic Binding Industries (supra) and has over-ruled the order in the case of CIT vs Classic Binding Industries (supra). Therefore, respectfully following the order of Hon'ble Supreme Court in the case of Pr. CIT vs M/s. Aarham S....