TMI Blog2016 (8) TMI 1496X X X X Extracts X X X X X X X X Extracts X X X X ..... erest expenditure. As AO has not established the nexus about investment of interest bearing funds in exempt income generating apparatus, no disallowance u/s 14A rwr 8D can be made on account of interest expenses. Reverse the finding of the ld CIT (A) in confirming the disallowance on account of interest expenses u/s 14 r.w.r. 8D of the Income tax Rules. Regarding the issue of other expenses we confirm the finding of the ld CIT (A) in confirming disallowance - out of total disallowance on account of interest expenses stands deleted andon account of other expenditure is confirmed. In the result ground of the appeal is partly allowed.. - ITA No. 277/Chd/2016 - - - Dated:- 10-8-2016 - Shri Sanjay Garg, Judicial Member And Shri Prashant Maharishi, Accountant Member Assessee by : Sh. Rajesh Sharma Revenue by : Sh. SK Mittal, 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 dated 09.02.2016 for the Assessment year 2012-13, as per following grounds of appeal:- 1. Under the facts and circumstances of the case and in law, the order dated 09.02.2016 passed by the Ld. CIT (Appeals), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nics Vs. ITO in ITA No. 798/Chd/2012. 4. We have carefully considered the rival contentions raised before us. In view of the agreement of the parties that the issue involved in this appeal is covered against the assessee vide para Nos. 22 to 49 of the above decision, we peruse the same where in it is held that :- 22. We have considered the rival submissions including written submissions in the light of material on record, as well as judgments cited by the parties. Before we consider the relevant provisions which are required to be interpreted, it will be useful to deal with the various principles of interpretation as enunciated by various Courts. 23. It is settled that if the language of a particular Statute is clear then only literal meaning has to be given to such language as long the same does not result in absurdity or 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible. The supposed intention of the Legislature cannot then be appealed to to whittle down 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 latidudinarian 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 individual cases of hardship and injustice do not and cannot have any bearing for rejecting the natural construction by attributing normal meaning to the words used since hard cases do not make bad laws . However, if some ambiguity is there in the language of a particular statute because of various reasons, the same is required to be construed so as to find out the real intention of the Legislature and then every possible material should be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 this purpose, even the speech of the Finance Minister, while introducing 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 nature of contemporanea exposition furnishing legitimate aid in the construction of a provision. 24. The Ld. counsel of the assessee had referred to the decision of Hon'ble Karnataka High Court in the case of Dinakar 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. Counsel for the assessee. In that case the question was whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim upto ₹ 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 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 on refund amount due to an assessee under the Act, while admitting an application to condone the delay in making a claim for belated refund under section 237 of the Act, as contained in Instruction No. 12 of 2003 dated October 30,2003 and 13 of 2006 dated January 22,2006, of the Board, is inconsistent with sub-section (2) of section 244A of the Act? (ii) Whether in the facts and circumstances, the respondent was justified in denying interest on belated refund claimed for the assessment year 1995-96, by the order impugned. 26. The Hon'ble Court discussed the matter and ultimately held that assessee was entitled to interest u/s 244A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in this regard, in the State of Sikkim; or (ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, 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 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 Eastern States; (b) which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule, or which manufactures or produces any article or thing, spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 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, specify in accordance with the scheme framed and notified by the Central Government; (ii) Industrial Estate means such estates, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government. (iii) Industrial Growth Centre means such centres, which the Board, may, by notification in the Official Gazette, specify in accordance with the schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable on substantial expansion by old undertakings as well as new undertakings during the window period. However, there is no force in this interpretation. Sub section (2) begins with the expression 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 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 existing. If it is read the way the Ld. counsel of the assessee would like us to read then the provision would become unworkable because if there is an undertaking which is established during the window period then the same cannot possibly undertakes substantial expansion also simultaneously. The expression and would refer to the cumulative condition that is both parts of the conditions need to be complied. The expression and can be joined only with the express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction shall be available to such undertakings or enterprises which manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth Schedule and which commence operation 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 rules prescribed in this regard. Similar deduction shall be available to thrust sector industries, as specified in the Fourteenth Schedule. 49.3 The amount of deduction in 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 section also provides that no deduction shall be allowed to any un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 (not used in the progressive tenses) to be real; to be present in a place or situation: Does life exist on other planets? The problem only exists in your head, Jane. Few of these monkeys still exist in the wild. On his 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 generally and in common sense refers to something which is already there. With reference 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 Promotion which is published in the Gazette of India removed all the doubts. This notification is relevant because this was issued with reference to same package announced by the Union Cabinet of India for the development of the hilly states. Section 5, reads as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) would not have been different 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 Sikkim and North-Eastern states and State of Himachal Pradesh and Uttranchal. If the extended benefit of substantial expansion was to be separately allowed in case of State of Himachal Pradesh and State of Uttaranchal, then meaning of substantial 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 doubts are totally removed and it become absolutely clear that rate of deduction has to be 100% for first 5 years and 25% thereafter. 34. There is a force in the contention of Ld. CIT/DR that if the interpretat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etation 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 its meaning. Such an unlimited period of deduction would not be in consonance of law. At the cost of repetition, we would like to emphasize that no principle of interpretation can be adopted which leads to a situation where a particular part of the section becomes totally redundant. In fact though it was contended that in the present case (i.e. in case of Hycron Electronics) deduction has been claimed only of 10 years but on the date of hearing some other appeals were also listed wherein the deduction 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that before the introduction of section 80IC which is before us for consideration, the deduction to the backward states was available in terms of section 80IB(4). The third proviso makes it clear that after 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 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, 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 deduction 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 Pithisaria s - Sixth Edit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Revenue is not correct because that provision was rendered under Indirect Tax Act. We find no force in 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 in a particular decision and it does not matter under which particular Act such principles has been decided. No doubt the incentive provisions are required to be interpreted liberally but in case of M/s Novapan India Ltd v Collector of Central Excise 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. Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 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 the general rule and since the same is opposed to the natural tenor of the statute, the entitlement for exemption, therefore, ought not to be read with any latitude to the tax-payer or even with a wider connotation. 41. Therefore, it becomes clear that liberal interpretation of an incentive provision is possible if there is any doubt. 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 new units or in case of old units if substantial expansion was carried out in such old units and deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld 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 case of the assessee. 45. The Ld. Counsel has also relied on the decision of Abhishek Bhargav AAR No. 1097 of 2011 (supra). The facts in that case are that a partnership firm namely M/s. Himachal Power Products was formed on 23.05.2009. The firm commenced commercial production in March, 2010. Shri Abhishek Bhargav while 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 provisions of section 80IC(2)(a)(ii) if it starts commercial production before 01.04.2012. The Authority held that the assessee was entitled to the benefit of substantial expansio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 which sub stantial expansion took place. :---------------------- (iii) Value of increase in the plant and machinery in the year of substantial expansion. :---------------------- (e) Does the undertaking or enterprise manufacture 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 or operation) :----------- -------------- 48. The careful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court in case of CIT Vs. Walfort Shares and Stock Brokers 326 ITR 1. 9. We have carefully considered the rival contentions. In the present case the assessee applied provisions of Rule 8D and has not considered any interest disallowance holding that no interest expenditure is related to exempt income earned by the assessee. Hon Punjab and Haryana High court in CIT V Abhisek industries Limited 380 ITR 652 has held as under :- 10. Section 14A of the Act requires the Assessing Officer to record satisfaction that interest bearing funds have been used to earn tax free income. The satisfaction to be recorded must be based upon credible and relevant evidence. The onus, therefore, to prove that interest bearing funds were used, lies squarely on the shoulders of the revenue. Thus, if the Assessing Officer is able to refer to relevant material while recording satisfaction that borrowed funds were used to earn interest free income as opposed to the assessee's own funds, the Assessing Officer may legitimately disallow such a claim. The Assessing Officer, however, cannot, by recording general observations, particularly where the assessee has denied using interest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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