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2016 (8) TMI 734 - ITAT CHANDIGARH

2016 (8) TMI 734 - ITAT CHANDIGARH - TMI - Deduction u/s 80IC - Held that:- Section 80IC was inserted to give effect to the new package announced by the Union Cabinet. The Circular further clarifies that this section provides for deduction for a period of 10 years from the profits of new undertaking or enterprise or existing undertaking or enterprise on their substantial expansion (see highlighted portion of the circular). The contention of the Ld. Counsel of the assessee was that word ‘existing .....

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Sh. Manjit Singh, DR ORDER Per Prashant Maharishi, A. M. 1. This is an appeal filed by the assessee against the order of the ld CIT (A), Shimla, HP dated 12.02.2006 for the Assessment year 2011-12. 2. The assessee has raised the following grounds of appeal:- 1. That the order of the Learned Commissioner of Income Tax (Appeals), Shimla is defective both in law and facts of the case. 2. That the Learned Commissioner of Income Tax (Appeals). Chandigarh is unjustified upholding the order of the Ld. .....

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substantial expansion is available only to the pre-existing units i.e. the units that existed and were operational as on 07-01-2003 and not to the appellant which came in existence after 07-01-2003 which is discriminatory and unjustified as the section does not specify so that the benefit of substantial expansion is available only to pre- existing units operational as on 07-01-03. This observation is unjustified and against the spirit of the Law. 4. That the Learned Commissioner of Income Tax ( .....

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one by the appellant in AY 2011-12 and there can be more than one initial assessment years as held by the Hon'ble Delhi Tribunal in the case of M/s Tirupati LPG Industries Ltd. Vs. DCIT (151 ITD 1). 5. That the Learned Commissioner of Income Tax (Appeals), Chandigarh is unjustified in upholding the interpretation of section 80IC by the Ld. Assessing Officer as it does not advance the basic object of the Act and is against the basic legislative intent to promote industry in backward areas. Su .....

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nd disposed of by this common order. 4. Brief facts of the case is that assessee is engaged in the business of manufacturing of printed embossed book binding cover material of cotton sheet form and fibre of dual coloured combination. The assessee has claimed deduction u/s 80IC of the Act for both the years @100% of profit derived from industrial undertaking claiming that it has undertaken substantial expansion during the Assessment year 2010-11 and therefore in Assessment year 20011-12 it was cl .....

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798/Chd/2012 has dismissed the claim of the assessee for 100% deduction. Therefore assessee is in appeal before us. 5. Before us both the parties agreed that now the issue is squarely covered against the assessee in view of the above decision of the coordinate bench. 6. We have carefully considered the rival contentions and also perused the decision of the coordinate bench in case of Hycron Electronics Vs. ITO, wherein the coordinate bench in para 22 to 49 has held as under:- "22. We have c .....

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ity or unintended consequences. 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'ble Apex Court in the case of Orissa State Warehousing Corporation Vs. CIT 237 ITR 607 wherein it has been observed at page 604 & 605 of the report as under:- "Let us, however, at this juncture, consider some of the oft cited decisions pertaining to the interpre .....

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be taken to have meant and intended what it has plainly expressed, and whatever it has in clear 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 statute. It must, since, its language is plain and unambiguous, be enforced and your Lordships House sitting judicially is not concerned with the question whether the policy it embodies is wise or unwise, or whether it l .....

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nly look fairly at the language used." The observations of Rowlatt J. as above stand accepted and approved by the House of Lords in a later decision, in the case of Canadian Eagle Oil also in a manner similar in IRC v. Ros and Coulter (Bladnoch Distillery Co. Ltd. v. The King [1946] Hon'ble Apex Court 119; [1945] 2 All ER 499. Lord 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 .....

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n the statutory language which is otherwise unambiguous. If the intendment is not in the words used. It is nowhere else. The need for interpretation arises when the words used in the statute are, on their own terms, ambivalent and do not manifest the intention of the Legislature... Artificial and unduly latitudinarian rules of construction, which with their general tendency to give the taxpayer the breaks , are out of place where the legislation has a fiscal mission." Be it noted that indiv .....

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Legislature. In this regard, the observation of the Hon'ble Supreme 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 possible, that absurdity and mischief may be avoided. Where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the legislature, the court may modify .....

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roduction can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. This is an accord with the recent trend in juristic thought not only in western countries but also in India, that the interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible. The marginal note to a section cannot be referred to .....

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nt should be taken into account for ascertaining the true meaning of a particular provision. The same view was taken by Hon'ble Karnataka High Court in the case of CIT v N.K. Vaidya 224 ITR 186 (supra) and observations contained in the head note reads as under:- "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 .....

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Ullal Vs. CIT (supra) and decision of Hon'ble Supreme court in the case of 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 particular provision. As far as the decision in the case of Commissioner of Central Excise Vs. M/s Rattan Melting & Wire (supra) is concerned, this does not support the proposition made by the Ld. Couns .....

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Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court. So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are not binding upon the court. It is for the Court to d .....

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ovision as interpreted by the Court then the opinion of the Court would prevail. This decision nowhere lays down that circulars cannot be considered for interpretation of a particular provision. 25. In the case of Dinakar Ullal vs CIT 323 ITR 452(Karnataka), the assessee was a Civil contractor and had filed belated return declaring income of ₹ 50,240/- and was claiming refund of ₹ 2,14,505/- on account of tax deducted at source. The last date of filing the return was 31.3.1997 but th .....

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n for delay in filing the return but denied interest on refund amount in view of the condition set out in Circular No. 670 dated 26th Oct 1993. Therefore, question before the Court was whether these instructions were contrary to the provision of section 244A of the Act which provided for payment of interest on refunds. This becomes absolutely clear from the question framed by Hon'ble Court which is contained at placitum 6 and reads as under:- "(i) Whether the condition to deny interest .....

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-96, by the order impugned." 26. The Hon'ble Court discussed the matter and ultimately held that assessee was entitled to interest u/s 244A and Circular No. 670 was contrary to the provisions of section 244A. The court also observed that circular could be issued to clarify the provisions for removing the difficulties. Therefore, it is clear that question whether a circular can be considered in interpretation of a particular provision was never before the Court and therefore, in our opin .....

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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 interpretation 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 80IC reads as under:- "Section 80IC "80-IC (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from a .....

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article or thing, not being any article or thing specified in the Thirteenth Schedule and undertakes substantial expansion during the period beginning. (i) on the 23rd day of December, 2002 and ending before the 1st day of April, [2007], in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with the scheme .....

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the State of Himachal Pradesh or the State of Uttaranchal; or (iii) on the 24th day of December, 1997 and ending before the 1st day of April, 2007, in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with the scheme framed and notified by the Central Government in this regard, in any of the North Easter .....

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im; or (ii) on the 7th day of January, 2003 and ending before the 1st day of April 2012, in the State of Himachal Pradesh or the State of Uttaranchal; or (iii) on the 24th day of December, 1997 and ending before the 1st day of April, 2007, in any of the North-Eastern States. (3) The deduction referred to in sub-section (1) shall be - (i) in the case of any undertaking or enterprise referred to in sub-clauses (i) and (iii) of clause (a) or sub-clauses (i) and (iii) of clause (b), of sub-section ( .....

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(4) This section applies to any undertaking or enterprise which fulfils all the following conditions, namely:- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of an undertaking which is formed as a result of there-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specif .....

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wed under any other section contained in Chapter 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 of 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 .....

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which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government. (iii) "Industrial Growth Centre" means such centres, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government; (iv) "Industrial Park" means such parks, which the Board, may, by notification in the Official Gazette, specify in accordance with .....

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and notified by the Central Government (vii) "North-Eastern States" means the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura; (viii) " Software Technology Park" means any park set up in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce and Industry; (ix) "Substantial expansion" means increase in the investment in the plant and machinery by at least fifty per cent .....

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abling provision which provides for the types of undertakings 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 thing specified in Schedule xiii and also undertakes substantial expansion. These deductions were available in different states during different window periods which have been referred to in clause (i), (ii) & (iii) of th .....

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prise which has begun or begins" this itself shows that provision made even the existing undertakings entitled for the deduction because the expression begun would refer to the undertaking which were already existing and began the manufacture before the window period mentioned in the sub section. The last line of the sub section reads "and undertakes substantial expansion during the period beginning........". This would naturally refer to the undertaking which were already existin .....

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fers to something which has already started in the past whereas begins connotes something which would commence in the present. Therefore, the expression and can be correlated only with existing unit because as we have already seen a new unit which has been set up and begins production cannot 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 u .....

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in the hilly stated comprising states of Himachal Pradesh, Uttaranchal, Sikkim and North-Eastern states to boost the economies of these hilly states. Circular No.7 was issued by the CBDT on 5.9.2003 in this respect and the Circular reads as under:- "Circular No. 7/2003 dated 05.09.2003 49. New provisions allowing a ten years tax holiday in respect of certain undertakings in the States of Himachal Pradesh, Sikkim, Uttaranchal and North-Eastern States. 49.1 The Union Cabinet has announced a p .....

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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 year), as on the first day of the previous year in which the substantial expansion is undertaken. 49.2 The section provides that the deduction shall be available to such undertakings or enterprises which manufacture or produce any article or thing, not being any article or .....

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case of undertakings 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 in case of undertakings or enterprises in the States of Uttaranchal, Himachal Pradesh shall be one hundred per cent of the profits of the undertaking for five assessment years, and thereafter twenty-five per cent (thirty per cent for companies ) for the next five assessment years. 49.4 The sect .....

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dertaking 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 section 80-IC. Further, a new Fourteenth Schedule has also been inserted, which specifies the list of articles and things, being 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- .....

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binet. The Circular further clarifies that this section provides for deduction for a period of 10 years from the profits of new undertaking or enterprise or existing undertaking or enterprise on their substantial expansion (see highlighted portion of the circular). The contention of the Ld. Counsel of the assessee was that word existing qualifies only the undertaking or enterprises and does not mention any particular date for carrying out substantial expansion. We find no merit in this contentio .....

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ation: Does life exist on other planets? The problem only exists in your head, Jane. Few of these monkeys still exist in the wild. On his retirement the post will cease to exist. The charity exists to support victims of crime. 2- (on sth) to live, especially in a difficult situation or with very little money: We existed on a diet of rice. They can t exist on the money he s earning The above definition clearly shows that exist would refer to something which is in force presently. Exist would gene .....

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kage announced by the Union Cabinet of India for the development of the hilly states. Section 5, reads as under;- "Definitions: (a) ..... (b) ..... (c) Existing Industrial Unit means an industrial unit existing as on 7th January 2003. (d) .......... (e) ............. (f) ..." Thus the definition given above makes it clear that existing Industrial Unit would mean an unit which existed on 7.1.2003. 33. Even if the above controversy is ignored regarding existing unit, the intention of the .....

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se (i) of sub section (3) provides for 100% deduction for a period 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 the window period in case of State of Himachal Pradesh and State of Uttaranchal. Similarly, sub clause (i) & (iii) of clause .....

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states, Legislature was very clear that in case of new undertaking or in case of substantial expanded undertaking deduction is to be allowed @ 100% for whole of the ten years whereas in case of State of Himachal Pradesh and Uttaranchal the deduction was to be allowed @ 100% only for first five years and thereafter it was only 25%. If the Legislature wanted to extend the benefit in the case of substantial expansion separately then the rate of deduction in the clause (i) & (ii) of sub section .....

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it of substantial expansion was to be separately 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 redundant. As noted earlier, the provision cannot be interpreted in such a way that part of the section becomes redundant or otiose. Therefore, whatever doubts may be there in sub section (2) when it is read with sub section (3), those doubt .....

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y in existence or it is not formed by transfer to new business of machinery or plant previously used for any purpose. Further the explanation to this Sub Section makes it clear that Explanation 1 & 2 of Sub Section (3) of Section 80IA are applicable in this respect. Explanation 2 of Sub Section (3) of Section 80 IA reads as under: "Explanation 2- Where in the case of an [undertaking], any machinery or plant or any part thereof previously used for any purpose is transferred to a new busi .....

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ion 80IC. Now for carrying out substantial expansion the investment in Plant & Machinery 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 Section 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 case the total period of deduction could exce .....

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n @ 100% and later on every five years a substantial expansion is carried out then according to the interpretation canvassed on behalf of the assessee, such unit would again become entitled to 100% deduction for another five years and further block of five years every time substantial expansion is carried out. If this interpretation is adopted then deduction would become almost perceptual as long as the assessee has carried out substantial expansion but in that case sub section (6) would loose i .....

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ction was claimed for more than 10 years adopting the same contention which has been made before us. In case of M/s Mahavir Industries (ITA No. 127/Chd/2011 and ITA No. 791/Chd/2012) though those cases were adjourned because some other issues were also there but in those two cases assessee had commenced the operation on 8.5.1997 and claimed deduction u/s 80IB from assessment years 1998-99 to 2005- 06. Later on, substantial expansion was carried out in assessment year 2005-06 and on the basis of .....

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the Revenue also becomes clear if the provision of section 80IC is compared to the provision of section 80IB(4). Relevant provision of Section 80IB (4) reads as under:- "(4) The amount of deduction in the case of an industrial undertaking in an industrially backward State specified in the Eighth Schedule shall be hundred per cent of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty-five .....

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of April, 1993 and ending on the 31st day of March, [2004]: Provided further that in the case of such industries in the North-Eastern Region, as may be notified by the Central Government, 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-section shall be allowed for the assessment year beginning on the 1 .....

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deduction would be @ 100% for the first five years and thereafter @ 25%. Further, the first proviso makes it clear that deduction will not exceed 10 consecutive assessment years. The second proviso further makes it clear that in the case of states of 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 states, the deduction of 100% was allowable for 10 years whereas in the case of states of Himachal Pradesh, .....

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t;No deduction possible for more than 10 assessment years.- Section 80-IC(6) also opens with a non obstante clause " Notwithstanding anything contained in",and provides that no deduction shall be allowed to any undertaking or enterprise under section 80-IC, - where the total period of deduction 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. La .....

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e read as a mutually exclusive expression which refers to a particular situation by excluding the other situation. Therefore, initial assessment year would clearly commence either on commencement of operation or at completion of substantial expansion of existing unit. In any case the word initial cannot be used twice by referring to series of events. This can be understood with a very simple example. Let us say a person A passes out his examination of LLB and get employed as Legal Officer in an .....

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ears in case of units situated in the State of Himachal Pradesh (since all the cases before us are situated in the State of Himachal Pradesh) and thereafter 25% deduction for another five years on the new units or the existing units where substantial expansion was carried out. 40. It has also been contended that incentive provision should be construed liberally. Further, it was contended with reference to the decision of M/s Novapan India Ltd vs Collector of Central Excise and Customs (supra) by .....

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e and Customs (supra), it was observed as under:- " The learned counsel for the appellant then contended that since there is an ambiguity about the meaning and purport of item-6 of the table appended to the Exemption Notification, the benefit of such ambiguity should go to the assessee manufacturer and the entry must be construed as taking in the MFPBs as well. It is not possible to agree with this submission. In Mangalore Chemicals& Fertilizers Ltd.. v. Deputy Commissioner of Commercia .....

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increase the burden on the other un-exempted class of tax payers and should be construed against the subject in case of ambiguity. It is an equally well known principle that a person who claims an exemption has to establish his case. Indeed, in the very case of Parle Exports (P) Ltd. relied upon by Shri Narasimhamurthy, it was observed. "While interpreting an exemption clause, liberal interpretation should be imparted to the language thereof, provided no violence is done to the language em .....

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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 statute should be construed in favour of the assessee - assuming that the said principle is good and sound- does not apply to the construction of an exception or an exempting provision; they have to be construed strictly. A .....

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act remains and the law is well-settled on this score that in the matter of interpretation of the taxing statutes the law courts would not be justified in introducing some other expressions which the legislature thought fit to omit. In the present context, there is no doubt as to the meaning of the words used in the section by reason of the language used, neither there is any difficulty in ascertaining the statutory intent. Incidentally, it cannot but be said that an exemption is an exception to .....

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ase of old units if substantial expansion was carried out in such old units and deduction was available only for a period of 10 years. Therefore, there is no question of giving any interpretation much less liberal interpretation to section 80IC when the reading of whole section makes the provision very clear. As observed in case of M/s Novapan India Ltd v Collector of Central Excise and Customs (supra) the burden was on the assessee to show under which clause he was entitled to the deduction but .....

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ld be entitled to 100% deduction on expansion for first five years and 25% thereafter whereas the new units would become entitled to deduction for 100% for first five years and again @ 100% on substantial expansion. Such discriminatory intention cannot be imputed to the Legislature. 43. Before us, reliance was also placed on the decision of Delhi Bench of the Tribunal in the case of Triputi LPG Industries Limited Vs. DCIT(supra). In this decision, the Bench has simply observed that main dispute .....

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tion was claimed @ 100% for five years and then deduction was claimed @ 30% on the profits in the next year. The assessee undertook substantial expansion in financial years 2004-05 & 2005-06 and claimed http://www.itatonline.org 45 deduction at the rate of 100% on the basis of such substantial expansion in assessment year 2006-07. However, the deduction was wrongly claimed u/s 80IB instead of section 80IC. The CIT(A) allowed the deduction by observing that deduction could not be denied simpl .....

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er Products was formed on 23.05.2009. The firm commenced commercial production in March, 2010. Shri Abhishek Bhargav while planning to join the firm as partner by acquiring 20% share of profit and enhancing additional manufacturing facility by undertaking substantial expansion sought advance ruling on the issue whether the introduction of new partner would be treated as reconstruction of the existing business or the firm will be entitled to the benefit of substantial expansion as per the provisi .....

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cannot be denied merely on the ground of expansion of manufacturing capacity so long it is not a case of restructuring of business already in existence. However, the 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 beyond A.Y. 2014-15 is left open and not decided by the AAR. Therefore this decision is totally distinguishable and does not help the case of the assessee. 46. The last decision relied on was in the case .....

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ed to the decision of Delhi Bench in the case of Triputi LPG Industries Limited Vs. DCIT (supra) without considering the provision of section 80IC in detail for reaching the conclusion that it is one of the possible view. Since we have already discussed the decision of Triputi LPG Industries Limited Vs. DCIT (supra) and found that all the provisions of the section were not discussed in that section and that is per inquerim, therefore, in our opinion, this order does not help the case of the asse .....

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in which located :- (b) Khasra No. of the undertaking or enterprise :- (Also indicate the Board s Notification No. ) (c) If the eligible business is new, please give the date of commencement of production or manufacture of article or thing. :- (d) If the existing business has undertaken substantial 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 wh .....

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