ITO, WARD-35(2), NEW DELHI vs. VIJAY GUPTA, DELHI

PER ANADEE NATH MISSHRA, AM

This appeal has been filed by Revenue against the order of Learned

Commissioner of Income Tax (Appeals)-12, [“Ld. CIT(A)”, for short], New Delhi,

dated 19.02.2018 for Assessment Year 2014-15, on the following grounds:

“1. The Ld. CIT(A) erred in law and on fact in deleting the addition of Rs.69,03,427/- for A.Y.2014-15 by holding that the assessee is eligible to claim further deduction @ 100% u/s 80IC of the Act by making substantial expansion even after the assessee has already availed 100% deduction u/s 80IC of the Act for the initial five years after the commencement of manufacturing or production of the industrial undertaking. The Ld. CIT(A) has not appreciated the provisions of sub-clause (ii) of sub-section 3 of section 80IC which enumerates that the deduction referred to in sub-section 1 shall be restricted to

Page 1 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. 100% of such profit and gains for five assessment years commences with the initial assessment year and thereafter 25% of the profit and gains.

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. mean that deduction would become perpetual as long as assessee has carried out substantial expansion but such interpretation would render provisions of sub section 6 of Section 80IC otiose/meaningless/redundant and therefore such interpretation cannot be permitted.

The appellant reserves his right to add, amend or alter the grounds of app on or before the date of appeal is finally heard for disposal”

claims deduction u/s 80IC of Income Tax Act, 1961 [in short “Act”]. The

assessee started this business from 28.11.2016 and current year is the 8th year

of the business. The assessee claimed 100% deduction, amounting to

Rs.92,04,570/- during the year u/s 80IC of the Act. According to the AO,

100% deduction is admissible for first five years, and thereafter for the

subsequent 5 years, deduction u/s 80IC is allowable to the assessee @ 25%

only. The assessee’s claim for 100 % deduction 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 Page 3 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. eligible business and disallowed the remaining 75%, amounting to

Rs.69,93,427/-.

19.02.2018 deleted the addition and allowed the assessee’s appeal holding as

under:-

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 substantial expansion of its plant & machinery on

31.03.2012 and as claimed, the substantial expansion was recognized

w.e.f. 31.03.2012 as per certificate issued by the Department of

Industries, SWCA, Distt. Solan, Himachal Pradesh. The only dispute in this

case is whether there could be more than one initial assessment year in

case of substantial expansion after claiming initial assessment year by

starting the production envisaged under the provisions of 801C of the Act.

My attention has been drawn towards the decision of Hon'ble High Court

of Himachal Pradesh, Shimla in the case of Mis Stovekraft India vs. CIT &

Page 4 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. Others decided on November 28, 2017. The relevant part of the decision is

quoted below:

statutory provisions.

of certain income.

effect from 01.04.1991. By virtue of said Section, the gross total

income (profits and gains) of an assessee derived from any business

of an industrial undertaking, so specified therein, was entitled to

certain deduction for a period commencing from 01.04.1993.

with the insertion of another Section, i.e. 8018, dealing with "certain

industrial undertaking other than infrastructure development

undertaking". What is relevant is that by virtue of sub-section (4) of

this newly inserted Section, in the case of an industrial undertaking

established in an industrially backward State, specified in the

Eighth Schedule, was entitled to deduction to the extent of 100% of

the profits and gains derived from such industrial undertaking for

five assessment years beginning from the initial assessment year,

and thereafter @ 25% subject to the total period of deduction not

exceeding then consecutive assessment years. Page 5 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. 16. Thereafter, the Legislators, in their wisdom, enacted a special

provision, in respect of "units" established in certain special category

States. Thus, Section 80-le cam to be inserted by virtue of Finance

Act, 2003, applicable with effect from 01.04.2004. At this point, it be

only noticed that correspondingly certain provision of Section 80-18

were also amended/repealed. Deductions under the said Section

were discontinued for the Assessment years commencing from

01.04.2004. (Sub-section (4) of Section 80-18).

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 Page 6 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. 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 and undertakes

substantial expansion during the period beginning.

(i) on the 23rd day of December, 2002 and ending before the 1 st

day of April, [2007], in the State of Sikkim: 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 I 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) or clause

(b), or sub-section (2), one hundred 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 referred to in sub-

clause (ii) or clause (a) or sub-clause (ii) of clause (b), of sub-section

(2), one hundred per cent of such profits and gains for five

assessment years commencing with the initial assessment year and

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ITA No.- 4080/Del/2018. Sh. Vijay Gupta. thereafter, twenty-five per cent (or thirty per cent where the

assessee is a company) of the profits and gains.

(4) This section applies to any undertaking or 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 the re-establishment,

reconstruction or revival by the assessee of the business or any such

undertaking as is referred to in section 33B, in the circumstances

and within the period specified in that section;

(ii) it is not formed by the transfer to a new business of machinery or

plant previously used for any purpose.

Explanation: The provision of Explanations 1 and 2 to sub-section (3)

of section 80-IA shall apply for the purposes of clause (ii) of this sub-

section as they apply for the purposes of clause (ii) of that sub-

section.

(5) Notwithstanding anything contained in any other provision of this

Act, in computing the total income of the assessee, no deduction

shall be allowed under any other section contained in Chapter VIA

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ITA No.- 4080/Del/2018. Sh. Vijay Gupta. 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 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 machinery (before taking depreciation in any year), as on

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ITA No.- 4080/Del/2018. Sh. Vijay Gupta. the first day of the previous year in which the substantial expansion

is undertaken;"

an "undertaking or an "enterprise" (already referred to as Unit) is not

defined under the Section/Act and we need not dwell thereupon, for

it is not an issue before us. However, what is of importance is the

stipulation under sub-clause (ii) of clause (b) of sub-section 2 of

Section 80-IC, insofar as State of Himachal Pradesh is concerned. If

between 07.01.2003 and 01.04.2012, a "Unit" has "begun" or

"begins" to manufacture or produce any article or thin, specified in

the Fourteenth Schedule or commences any operation "and

undertakes substantial expansion" during the said period, then by

virtue of sub-section (3), it shall be entitled to deduction at the rate of

100% of profits and gains for five assessment years, commencing

from "initial assessment year" and thereafter at the rate of 25% of

the profits and gains. The only restriction being that such

substantial expansion is not formed by splitting up, or

reconstruction, of the business already in existence. At this stage,

we may note under sub- section (6) of Section 80-IC, there is a cap

with regard to the total period for which a Unit is entitled to such

deduction.

Page 10 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. 19. Sub-section (1) of Section 80-IC entitles a unit for deduction; sub-

section (2) lays down eligibility criteria; sub-section (3) specifies the

extent of entitlement, Sub-section (3), in turn, is controlled by sub-

section (8), in case of substantial expansion of a unit.

our mind, there cannot be any two views or interpretations about the

same. If an undertaking or an enterprise ("Unit"), which has "begun"

or "begins" to manufacture/produce/commence operation of any

article or thing specified in the Fourteenth Schedule and carries

out/undertakes substantial expansion during the prescribed period,

then it is entitled to the benefits of deduction for such percentage, as

is provided under sub-section (3) of Section 80-IC.

authorities below have held it not to be so? clauses (v) of sub-section

(8) of Section 80-IC, defines what is an "initial assessment year". It

is only for the purpose 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

Page 11 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. 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.

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", or "completes substantial expansion". Thus, legislature

consciously extended the benefit of "initial assessment year" to a

unit that completed substantial expansion.

sub-section (2) of Section 80-IC, which postulates two things - (a) an

undertaking or an enterprise has "begun", it is in the past tense or

(b)"begins", which is in presenti. Significantly, what is important is

the word "and" prefixed to the words "undertakes substantial

expansion" during the period 07.01.2003 to 01.04.2012.

relevant. It is the trigger point for entitling the units, subject to the

Page 12 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. fulfillment of its eligibility for deduction @ 100%, for had it not been

so, there was no purpose or object of having inserted the said words

in the Section. If the intent was only to give 100% deduction for the

first five years and thereafter at the rate of 25% for next five years,

the Legislatures would not have inserted the said words. They

would have plainly said, 'for the first initial five years a unit would

be entitled to deduction at the rate of 100% and for the remaining

five year at the rate of 25%'.

to whether, it is open for a "Unit" to claim deduction for a period of

ten years @ 100% or not. To our mind, it is legally permissible. The

statute provides for the same.

only for period of five years. It does not provide that deduction(s)

have to be in one stretch or in continuity, ending or succeeding with

each Financial Year/Initial Financial Year. It does not stat that ten

assessment years have to be in continuity. All that it provides for is

that no deduction shall be allowed to a "unit", either under Section

80-IC or 80-IB or 10-C, for a period exceeding then assessment

years. This Section does not curtail the percentage of exemption, to

which a "Unit" may be entitled for a period of ten assessment years.

Page 13 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. 27. Also, in our considered view, "substantial expansion" can be one

more than one occasion. Meaning of expression "substantial

expansion" is defined in clause [8(ix)J of Section 80-IC and with each

such endeavour, if the assessee fulfills the criteria then there cannot

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.

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.

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

Page 14 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. of the "Unit". It is to give incentives to "Units" for setting up or

expanding in special category States.

from the concept of exemption/concession. [Padinjarekkara Agencies

Ltd. vs. State of Kerala, (2008) 3 SCC 597 (Two Judges)] 31. It is

also a settled principle of law that doubt, if any, in the construction

of provision of a taxing statute must be resolved in favour of the

assessee. [The Indian Aluminium Co. Ltd. vs. The C.I. T., West

Bengal, Calcutta, (1972) 2 SCC 150 (Five Judges): Star Industries

vs. Commissioner of Customs (Imports), Raigad, (2016) 2 SCC 362

(Two Judges); and Eveready Industries India Limited vs. State of

karanataka, (2016) 12 SCC 551 (Two Judges)].

exception has to be respected regard being had to its nature and

purpose. [State of Haryana and others vs. Bharti Teletech Limited,

(2014) 3 SCC 556 (Three Judges)].

basis of the language used therein, Mr. Kuthiala, learned Senior

Counsel, invites our attention to the decision rendered by the Apex

Court in Orissa State Warehousing Corporation v. Commissioner of

income Tax, (1999) 4 SCC 197. There cannot be any dispute with

regard to such proposition, but however, with profit, we may

Page 15 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. reproduce the observations made by the Apex Court on the issue, as

under:-

"40. In fine thus, a fiscal statute shall have to be interpreted on the

basis of the language used therein and not de hors the same. No

words ought to be added and only the language used ought to be

considered so as to ascertain the proper meaning and intent of the

legislation. The Court is to ascribe natural and ordinary meaning to

the words used by the legislature and the Court ought not, under

any circumstances, to substitute its own impression and ideas in

place of the legislative intent as is available from a plain reading of

the statutory provisions."

laid down by the Apex Court in DLF Qutab Enclave Complex

Educational Charitable Trust v. State of Haryana and others, (2003)

5 SCC 622. We notice the Court to have observed as under:-

"50. Basic rule of interpretation of statute is that the court shall not

go beyond the statute unless it is absolutely necessary so to 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."

urban development, unlike the taxing statute, in relating to which Page 16 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. 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).

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 such meaning as they are susceptible of in ordinary parlance,

maybe, by hiving recourse to dictionaries. However, still, the

interpretation is the exclusive privilege of the legislation avoiding

absurdity, unreasonableness, incongruity and conflict. As is with the

words used so is with the language employed in drafting a piece of

legislation ..... "

Page 17 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. 37. In Bajaj Tempo Ltd., Bombay v. Commissioner of income Tax,

Bombay City-III, Bombay, (1992) 3 SCC 78, the Apex Court observed

that:

" A provision in a taxing statute granting incentives for promoting

growth and development should be construed liberally. Since a

provision intended for promoting economic growth has to be

interpreted liberally, the restriction on it, too, has to be construed so

as to advance the objective of the section and not to frustrate it. It is

necessary to resort to a construction which is reasonable and

purposive to made the provision meaningful."

Rajasthan-II, Jaipur (2017) 1 SCC 554, the Apex Court observed:

"It is a settled rule of interpretation that if two statutes dealing with

the same subject use different language then it is not permissible to

apply the language of one statute to other while interpreting such

statutes. Similarly, once the assessee is able to fulfil the conditions

specified in the section for claiming exemption under the Act then

provisions dealing with grant of exemption should be construed

liberally because the exemptions are for the benefit of assessee."

SCC 467, the Apex Court observed:

Page 18 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. "Further, if the taxpayer is within the plain terms of the exemption it

cannot be denied its benefit by calling in aid any supposed intention

of the exempting authority. If such intention can be gathered from

the construction of the words of the notification or by necessary

implication therefrom, the matter is different but that is not the case

here."

mechanical task. It is more than a mere reading of mathematical

formulae because few words possess the precision of mathematical

symbols. It is an attempt to discover the intent of the legislature from

the language used by it and it must always be remembered that

language is at 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

Page 19 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. accomplish, whose sympathetic and imaginative discovery is the

surest guide to their meaning."

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.

the old units, l.e. the units which stand established prior to

07.01.2003 (the cutoff date), and the new units established

thereafter.

considered view, only results into discrimination. The object, intent

and purpose of enactment of the Section in question is only to

provide incentive for economic development, industrialization and

enhanced employment opportunities. The continued benefit of

deduction at higher rates is available only to such of those units,

which fulfill such object by carrying out "substantial expansion".

Revenue seeks reliance upon the provisions of sub-clauses (i) & (iii)

of clause (b) of sub- section (2) of Section 8O-IC, which provide for

benefit of deduction @ 100% for ten assessment years. We do not

comprehend as to how would that make any difference. This Page 20 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. provision deals with the establishments established within the State

of Sikkim or North Eastern States of India.

80-IC (8)(ix), the statutory definition of "initial assessment year"

(Section 80-1C(8)(v)] comes into play. And consequently, Section 80-

IC(3)(ii) entitles the unit to 100% deduction for five years commencing

with completion of "substantial expansion", subject to maximum of

ten years as per Section 80-IC(6).

entitled to 100% deduction for first five years under Section 80-IB(4).

If this unit completes substantial expansion during the window

period (7.1.2003) to 31.3.2012), it would be eligible for 100%

deduction again for another five years under Section 80-1C(3)(ii),

subject to ceiling of ten years as stipulated under Section 80-1C(6).

special category States, but however, the Legislators in their wisdom

drew distinction and classified the State of Sikkim and other North

Eastern States in one and State like Himachal Pradesh in another

category. Taking into consideration the peculiar attending

circumstances of the State of Sikkim and other north Eastern states,

these States would constitute a class in itself, which classification is

base on intelligible differentia and cannot be compared with other

Page 21 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. States, like the State of Himachal 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.

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)).

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, for the remaining period, which in any

case when combined, cannot exceed then years, (ii) just as in the

case of the present assessee, a unit established after 7.1.2003.

Page 22 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. carries out substantial expansion only in the 8th year of its

establishment, for the first five years would have already claimed

deduction @ 100%; for the 6th and 7th years @ 25% and then for the

period post substantial expansion, in our considered view, the initial

year of assessment being in the 8th year, would be entitled for

deduction @ 100% subject to the cap of ten assessment years, (iii)

the assessee establishes a unit after January 2003, say in the year

2005-06 and claims deduction under Section 80-IC for the first time

in the assessment year 2006-2007 @ 100% of its profits. Thereafter,

substantially expands the Unit in the year 2009-10, relevant to

Assessment Year 2010-11 can claim deduction @ 100% for next five

years subject to the cap of ten assessment years, (iv) an existing

unit not claiming any deduction under Section 80-IA, 80-IB or 80-IC

substantially expands in the year 2003 and claims deduction under

Section 80-IC first time in Assessment Year 2004-2005 and then

substantially expands in the year 2007-2008, can claim deduction @

100% w.e.f. Assessment Year 2008-2009 for next five years, (v) the

assessee sets up its unit in the year 2000-2001, claiming deduction

under Section 80-IB still the Assessment Year 2003-2004 and

thereafter under Section 80-IC as per law. Carrying out Substantial

expansion in the Assessment Year 2004-2005, now claims

deduction @ 100% w.e.f. Assessment Year 2004- 05 again

substantially expands in the Assessment Year 2008-2009, (vi) the

Page 23 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. assessee sets up a unit in the year 2005-2006 and does not

undergo substantial expansion at all can claim deduction under

Section 80-IC.

to be sustainable in law.

after 7.1.2003. In fact, it was established in the Financial Year

2005-2006, and since then, in terms of Section 80-IC, claimed and

was allowed deduction @ 100% for five years and thereafter at the

rate of 25%.

expansions, which it termed to be "substantial expansion". The fact

that such expansion is in fact "substantial expansion", in terms of

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.

Authority(s)/Tribunal erred in not appreciating as to what was the

intent and purpose of insertion of Section 80 IC.

Page 24 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. 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, which, for the purpose of its

interpretation, did not require assistance of any Notification(s), much

less that of other Department.

artificial distinction between the "Units" set up before 7.1.2003 and

after 7.1.2003 while holding that such of the "Units", which were set

up after 7.1.2003. were not entitled to deduction @ 100% even if

they undertook substantial expansion between the period 7.1.2003

and 1.04.2012. The distinction created by the said Authorities is not

borne out from the provisions of Section 80 IC. In other words, there

is no prohibition that a Unit set up after 7.1.2003, having claimed

deduction for first five years, cannot again claim deduction at such

percentage within the prescribed period after undertaking

substantial expansion. This we say so with a sense of conviction. Page 25 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. Plain reading of the Statute demonstrates that there is no such bar

in the statute as stands held by the authorities below. We father

find that in fact both the authorities have misconstrued the definition

of "Initial Assessment Year". The Assessment Officer as well as the

Appellate Authority have held that there cannot be two "Initial

Assessment Years" between 07.01.2003 and 01.02.2012, which

conclusion, in our considered view, is totally perverse. We reiterate

that Sub clause (v) of Sub section (8) of Section 80 IC itself

contemplates more than one "Initial Assessment Years". The said

Clause envisages that for a "Unit", which begins to manufacture or

produce any article or things or commences operation, the Initial

Assessment Year means Assessment Year relevant to the previous

year, in which, it begins to manufacture and produce article or thing

or commences operation and for a "Unit" , which completes

substantial expansion, Initial Assessment Year means Assessment

Year relevant to the previous year, in which it completes substantial

expansion. This very important aspect of the matter has been

completely overlooked by the Assessment Officer as well as the

Appellate Authority. Therefore, the conclusion arrived at by all the

authorities below, that new industrial Units cannot carry out

substantial expansion to claim benefits envisages under Section 80

IC is perverse and not sustainable in law.

Page 26 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. 55. Thus, in view of the above discussion, these appeals are allowed

and orders passed 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.

Page 27 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. (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 more than five years.

(f) All this, of course, is subject to a cap of ten year, [Section 80-

1C(6)].

(g) units claiming deduction under Section 80-IC shall not be entitled

to deduction under any other Section, contained in Chapter VI-A or

Section 10A or 108 of the Act [Section 80-18(5)].

7.2 The reliance is also placed on the decision of Hon'ble ITAT, Delhi Bench

'H' in the case of Tirupati LPG Industries Ltd. vs. DCIT in ITA No.

991/Del/2013 (AY 2009-10) CircIe-2, Dehradun. The relevant part of this

decision is quoted below:

"The only dispute that arises for our consideration is the

Interpretation of the term 'initial assessment year 'and whether the

same comes with any restriction. The revenue seeks to take the color

from the object of introducing section 801C. The Assessing Officer

referred to policy of the government for giving incentives to the State

of Uttaranchal and Himachal Pradesh. It is well settled that external

aids should not be taken for the purpose of interpreting the statute,

when the language of the section is clear and unambiguous. A plain

Page 28 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. reading of the Section 80-1C(8)(v) which defines the term 'Initial

Assessment Year' read with Section 80-IC(8)(ix) which defines the

term 'substantial expansion' makes it clear that there is no

restriction or bar on more than one substantial expansions, being

undertaken by an assessee. In our view, a unit can undertake any

number of substantial expansions, in absence of any specific

restriction in the section. There is no suggestion in the language of

the section that incentive u/s.80IC is not available if the assessee

substantially expands for a second or third time. Substantial

expansion requires additional investment and results in higher

production, employment etc. Industrialists have to be encouraged to

undertake substantial expansion. The section recognizes this fact

and provide for an incentive, if assessee undertakes 'substantial

expansion"

"The substantial expansion as per 80-1C (8) (ix) means Increase in

the investment in the plant and machinery at least 50% of the book

value of plant and machinery (before taking depreciation In any

year), as on 1st day of previous year in which the substantial

expansion Is undertaken. If such substantial expansion 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 Page 29 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. 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.”

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. Counsel for

the assessee, on the other hand contended that the manufacturing unit of the

assessee is located in Himachal Pradesh which falls under the jurisdiction of

Hon’ble High Court of Himachal Pradesh. He has further submitted that the

issue in dispute is also covered in favour of the assessee vide order dated

28.11.2017 of the Hon’ble High Court of Himachal Pradesh in the case of

following six orders:-

Page 30 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. 1. ITA No.20/2015 M/s. Stovekraft India ……Appellant versus Commissioner of Income Tax …..Respondent 2. ITA No.21/2015 M/s. Stovekraft India ……Appellant versus Commissioner of Income Tax …..Respondent 3. ITA No.22/2015 Cutting Edge Technologies ……Appellant versus Commissioner of Income Tax …..Respondent 4. ITA No.23/2015 M/s. Cutting Edge Technologies ……Appellant versus Commissioner of Income Tax …..Respondent 5. ITA No.24/2015 M/s. Hycron Electronics ……Appellant versus Commissioner of Income Tax …..Respondent 6. ITA No.31/2015 M/s. Super LPS Appliances ……Appellant versus Commissioner of Income Tax …..Respondent

4.1. Ld. Counsel for the assessee submitted that the issue in dispute is

further covered in favour of the assessee by order of Hon’ble Supreme Court in

the case of Pr. CIT vs M/s. Aarham Softronics vide order dated 20.02.2019 in

Civil Appeal No.1784 of 2019. In the rejoinder, the Ld. DR contended that law

laid down by Hon’ble Supreme Court in the case of Pr. CIT vs M/s. Aarham

Softronics (supra) does not lay down correct law, and placed reliance on the

order of Hon’ble Supreme Court in the case of CIT vs Classic Binding

Industries (supra).

4.1.1. We have heard both sides. We have perused material on record

carefully. We find that the order of Hon’ble Supreme Court in the case of Pr.

Page 31 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. CIT vs M/s. Aarham Softronics (supra) dated 20.02.2109 has been passed

after the order passed by Hon’ble Supreme Court in the case of CIT vs Classic

Binding Industries (supra). We further find that the order of Hon’ble Supreme

Court in the case of Pr. CIT vs M/s. Aarham Softronics (supra) is passed by a

Larger Bench of three Hon’ble judges of the Hon’ble Supreme Court whereas

the order of Hon’ble Supreme Court in the case of CIT vs Classic Binding

Industries (supra) was passed by two Hon’ble judges of Hon’ble Supreme

Court. We further find that 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:-

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. to deduction @ 100% even after five years. This ruling was predicated on the ground that there can be two initial assessment years, one for the purpose of Section 80-IB and other for the purposes of Section 80-IC of the Act. Once we find that there can be two initial assessment years, even as per the definition thereof in Section 80-IC itself, the legal position comes at par with the one which was discussed in Mahabir Industries.

24.The aforesaid discussion leads us to the following conclusions:

(a) Judgment dated 20th August, 2018 in Classic Binding Industries case omitted to take note of the definition ‘initial assessment year’ contained in Section 80-IC itself and instead based its conclusion on the definition contained in Section 80-IB, which does not apply in these cases. The definitions of ‘initial assessment year’ in the two sections, viz. Sections 80-IB and 80-IC are materially different. The definition of ‘initial assessment year’ under Section 80-IC has made all the difference. Therefore, we are of the opinion that the aforesaid judgment does not lay down the correct law.

(b) An undertaking or an enterprise which had set up a new unit between 7th January, 2003 and 1st April, 2012 in State of Himachal Pradesh of the nature mentioned in clause (ii) of sub- section (2) of Section 80-IC, would be entitled to deduction at the rate of 100% of the profits and gains for five assessment years commencing with the ‘initial assessment year’. For the next five years, the admissible deduction would be 25% (or 30% where the assessee is a company) of the profits and gains.

(c) However, in case substantial expansion is carried out as defined in clause (ix) of sub-section (8) of Section 80-IC by such an undertaking or enterprise, within the aforesaid period of 10 years, the said previous year in which the substantial expansion is undertaken would become ‘initial assessment year’, and from that Page 33 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. assessment year the assessee shall been entitled to 100% deductions of the profits and gains.

(d) Such deduction, however, would be for a total period of 10 years, as provided in sub-section (6). For example, if the expansion is carried out immediately, on the completion of first five years, the assessee would be entitled to 100% 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 Softronics (supra), we dismiss the

grounds of appeal; and decide the issues in dispute in the present appeal

before us in favour of the assessee. We reject the contention of the Ld.DR that

order of Hon’ble Supreme Court does not lay down correct law in the case of Pr. Page 34 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. CIT vs M/s. Aarham Softronics (supra). For this purpose, we take guidance

from Article 141 of Constitution of India, under which the law declared by the

Hon’ble Supreme Court shall be binding on all Courts within the territory of

India. Further, we rely on judicial precedents in the cases of Union of India vs

Kantilal Hemantram Pandya AIR 1995 Hon'ble Supreme Court 1349 [in which

it was held that law laid down by the Hon’ble Supreme Court is binding on all

courts and tribunals]; state of Orissa vs Dhaniram Lohar AIR 2004 Hon'ble

Supreme Court 1794 [in which it was held that judicial discipline to abide by

the Hon’ble Supreme Court cannot be forsaken, under any pretext by any

authority or court]; Director of Settlements, A.P. v/s M.R.Apparao AIR 2002

Hon'ble Supreme Court 1598 [in which it was held that the decision of the

Hon’ble Supreme Court cannot be assailed on the ground that certain aspects

were not considered or the relevant provisions were not brought to the notice of

the Court]; Palitana Sugar Mills (P.) Ltd. vs State of Gujarat (2004) 12 SCC 645

[in which it was held that the judgements of the Supreme Court are binding on

all authorities under Article 142 of the Constitution and it is not open to any

authority to ignore a binding judgement of the Supreme Court on the ground

that the full facts had not been placed before it] and State of Punjab vs Devans

Modern Breweries Ltd. (2004) 11 SCC 26 [in which it was held that binding

precedents, which are authoritative in nature and are meant to be applied,

should not be ignored on application of the doctrine of sub silentio or per

incurian without assigning specific reasons therefor]. Accordingly, the order of

CIT(A) is upheld and the present appeal filed by the Revenue is dismissed.

Page 35 of 36

ITA No.- 4080/Del/2018. Sh. Vijay Gupta. 5. In the result, the appeal of the Revenue is dismissed.

Order pronounced in the open court on 18th day of July, 2019.

Sd/- Sd/- (KULDIP SINGH) (ANADEE NATH MISSHRA) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 18.07.2019 * Pooja & Amit* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI Date of dictation

Date on which the typed draft is placed before the dictating Member

Date on which the typed draft is placed before the Other Member

Date on which the approved draft comes to the Sr. PS/PS

Date on which the fair order is placed before the Dictating Member for pronouncement

Date on which the fair order comes back to the Sr. PS/PS Date on which the final order is uploaded on the website of ITAT

Date on which the file goes to the Bench Clerk

Date on which the file goes to the Head Clerk

The date on which the file goes to the Assistant Registrar for signature on the order

Date of dispatch of the Order

Page 36 of 36