Income Tax Appellate Tribunal - Hyderabad
Maheswari Mining & Energy Private ... vs Asst. Commissioner Of Income Tax, ... on 1 April, 2024
ITA 1220 of 2019 Maheswari Mining and Energy Private Ltd Hyderabad
आयकर अपील य अ धकरण, है दराबाद पीठ
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad 'B' Bench, Hyderabad
Before Shri R.K. Panda, Vice-President (3rd Member)
आ.अपी.सं /ITA No.1220/Hyd/2019
(िनधारण वष /Assessment Year: 2016-17)
Maheswari Mining & Vs. Dy. Commissioner of
Energy Pvt. Ltd Hyderabad Income Tax, Circle 16(1)
PAN:AAGCM0805N Hyderabad
(Appellant) (Respondent)
िनधा रती ारा /Assessee by:
Advocate Y Ratnakar
राज व ारा /Revenue by:: Shri K Madhusudan, CIT(DR)
सु न वाई की तारीख /Date of hearing:
30/01/2024
घोषणा की तारीख /Pronouncement: 01/04/2024
ORDER
Per R.K. Panda, Vice-President On account of difference between the Hon'ble Members of Hyderabad B Bench, the following points have been referred to me u/s 255(4) of the Income Tax Act for consideration and disposal in accordance with law:
1. Whether the provisions u/s 32AD(1) of the I.T. Act, 1961 ("the Act") are applicable for the investment made in financial year 2015-16 ?.
2. Whether the notification No.61/2016/F.No.142/13/2015, TPL issued by the Central Board of Direct Taxes on 20.07.2016 keeps the operation of the provisions u/s 32AD of the I.T. Act in abeyance till 20/07/2016 ?.Page 1 of 23
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3. Whether the notification stating that it shall come into force as on the date of its publication in the official gazette overrides the provisions of section 32AD(1) of the Act ?.
2. Facts of the case, in brief, are that the assessee is a company engaged in the business of generation and supply of power through solar energy. It had set up two power plants during the year and filed its return of income on 10.10.2016 admitting loss at Rs.69,20,33,492/-. The return was processed u/s 143(1). Subsequently, the case was selected for scrutiny under CASS. Accordingly statutory notices u/s 143(2) & 142(1) of the Act were issued and served on the assessee in response to which the assessee company furnished the requisite information/details.
3. During the course of assessement proceedings, the Assessing Officer noted that the assessee company claimed investment allowance u/s 32AD of Rs.13,02,71,498/-. The Assessing Officer asked the assessee to explain the allowability of the claim since as per the provisions of section 32AD of the Act, the enterprise is to be set up in any backward area notified by the Central Government in this behalf and the Central Govt. issued notification of the backward areas only on 20.07.2016. It is mentioned that the notification will come into effect from the date of publication in the official gazette and the official gazette is dated 20th July, 2016. Rejecting the explanation given by the assessee and observing that the areas notified as backward areas from the date of notification i.e. on 20th July, 2016 only can be treated as backward area, the Assessing Officer held that the assessee cannot claim deduction prior to the date of notification.
Page 2 of 23ITA 1220 of 2019 Maheswari Mining and Energy Private Ltd Hyderabad Accordingly, the Assessing Officer rejected the claim of deduction u/s 32AD at Rs.13,02,71,498/-.
4. In appeal, the learned CIT (A) upheld the action of the Assessing Officer. While doing so, he held that as per the provisions of section 32AD, the enterprise should be set up in any backward area notified by the Central Govt. The notification to this effect was issued on 20th July,2016 and it is clearly mentioned that the applicability of it comes into effect from the date of publication in the official gazette. Therefore, the areas notified in the gazette are treated as backward areas "only from the date of the publication i.e. w.e.f. 20th July, 2016". However, the assessee has claimed the investment allowance u/s 32AD for the financial year 2015-16 relevant to A.Y 2016-17 wherein the notification has not come into force at all. He further held that even though this provision has come into effect from 1.4.2016, the Govt. of India, Ministry of Finance, CBDT has released the gazette notification on 20th July, 2016, specifying the backward areas of districts under different states. Therefore, the applicability of the said provisions to backward areas will be effective from 20th July, 2016. He accordingly upheld the disallowance made by the Assessing Officer.
5. Aggrieved with such order of the learned CIT (A) the assessee preferred appeal before the Tribunal.
6. The learned AM while upholding the order of the learned CIT (A) was of the opinion that in the gazette notification published on 20th July, 2016, it is clearly mentioned that the notification shall come into force on the date of publication in the official gazette i.e. 20.07.2016. He further noted that the section Page 3 of 23 ITA 1220 of 2019 Maheswari Mining and Energy Private Ltd Hyderabad was inserted by the Finance Act 2015 w.e.f. 1.4.2016. The impugned financial year is 2015-16 and the impugned financial year is prior to the insertion of the section. He held that the assessee has claimed deduction u/s 32AD which was not in force for the relevant financial year. Relying on the decision of the Hon'ble Supreme Court in the case of ITC Bhadrachalam Paper Board (JT 1996 (8) 67), and the decision of the Hon'ble Supreme Court in the case of Dileep Kumar & Co. reported in 95 Taxmann.com 327, the learned AM held that there is no ambiguity in the Act, the Act is very clear that exemption notification should be interpreted strictly and that the burden of proving applicability would be on the assessee to show that its case comes within the parameters of the exemption clause or exemption notification. According to him when there is ambiguity in exemption notification, which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the Revenue.
7. The learned JM, on the other hand, while differing with the view taken by the learned AM, held that section 32AD(1) of the Act was inserted by the Finance Act, 2015 to be effective from 1.4.2016. According to him, the reading of the provisions makes it plainly clear that for claiming the additional investment allowance in respect of the new plant or machinery u/s 32AD(1) of the Act, the assessee has to:
a) set up an undertaking for manufacture in the notified backward areas in Telangana State,
b) on or after 01/04/2015, and
c) Acquire the new asset for such purpose in the period between 01/04/2015 and 01/04/2020.Page 4 of 23
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8. According to the learned JM, if such conditions are satisfied, the assessee shall be allowed deduction of a sum equal to 15% of the actual cost of such new asset for the A.Y relevant to the previous year in which such new asset is installed. He further noted that the CBDT vide its circular reported in 379 ITR at page No.51, vide para-No.14.4 makes it amply clear that the amendment shall take effect from 1.4.2016 and will accordingly apply in relation to A.Y 2016-17 and subsequent years. Further, the section clearly indicates that such a deduction is allowable for the previous years between 2015-16 and 2019-20 corresponding to the A.Ys 2016-17 to 2020-21. Thus, applicability of section 32AD(1) of the Act to the A.Ys 2016-17 is beyond any controversy.
9. So far as the nature of the notification dated 20/07/2016 issued by the CBDT is concerned, the learned JM held that the notification is neither taxing nor exempting the tax either in full or in part to any class of assessees but it only specifies the detail requisites for implementation of the section. Therefore, issuance of notification, in question, by the CBDT is only pursuant to the delegated legislation, but not a conditional legislation.
10. So far as the entitlement of the assessee to claim the benefit of deduction under section 32AD of the Act from the date mentioned in the notification or from the A.Y 2016-17 is concerned, the learned JM held that the undertaking was set up subsequent to 1.4.2015 and the new assets were acquired and installed during the period between 1.4.2015 and 31.03.2016. This fact is evidenced from the letter dated 24.05.2016 issued by the Chief General Manager (Comml. & RAC) TSSPDCL, Corporate Office, Hyderabad to the Chief Engineer (Planning, Comml. & Page 5 of 23 ITA 1220 of 2019 Maheswari Mining and Energy Private Ltd Hyderabad Cordn), TS TRANSCO, Hyderabad. He held that the mandate of legislation is that section 32AD(1) of the Act shall come into force with effect from 1.4.2015. The Legislature does not empower the Executive to notify the provision coming into force at any later point of time. When the letter of law is clear and otherwise, assuming that section 32AD(1) of the Act will be effective only from the date of notification would lead to unintended consequences. He observed that if we go by the interpretation of the Revenue, it will lead to a situation, where the assessee sets up the undertaking and acquires and installs the new asset on or after 01/04/2015, but before 20/07/2016 would not be entitled to claim the deduction provided by the section. If it were the legislative intention to deny the additional investment allowance to such class of assessees till the date of notification, nothing prevented the legislature from specifying so in the section stating that ".... And acquires and installs any new asset for the purpose of the said undertaking or enterprise during the period beginning on the date of notification and ending before the first day of April, 2020 in the said backward area.........". The learned JM thereafter distinguishing the decisions relied on by the learned AM and relying on various other decisions held that since the assessee has set up the undertaking in the notified backward area in the State of Telangana after 1.4.2015, such part of the assets acquired and installed subsequent to 1.4.2015 and before 31.03.2020 qualify for deduction in terms of section 32AD(1) of the Act.
11. The learned Counsel for the assessee referring to the provisions of section 32AD of the Act submitted that the above provision was inserted by the Finance Act, 2015 w.e.f. A.Y 2016- 17 to provide for an additional investment allowance of 15% of the Page 6 of 23 ITA 1220 of 2019 Maheswari Mining and Energy Private Ltd Hyderabad cost of new asset acquired and installed by the assessee. It is applicable for 5 A.Ys i.e. from A.Y 2016-17 to 2020-21. Referring to the above provision, he submitted that the two requirements spelt out by the said section are:
a) Setting up an undertaking or enterprise for manufacture or production of an article or thing after 1 st day of April, 2015 in any notified backward area in the state of Telangana.
b) The new assets are acquired and installed for the purpose of the said undertaking or enterprise during the period beginning from the 1st of April, 2015 and ending on 31st March, 2020.
12) Referring to the Memorandum explaining the provisions of the Finance Bill, 2015 reported in 371 ITR St 307 and the CBDT circular reported in 379 ITR( St.) 50 (Para 14.2) he drew the attention of the Bench to the same and submitted that the only requirement is that it should be a notified backward area and neither the section nor the circular stipulates that the deduction of 15% shall be allowed only for the period after the notification of backward area.
13) Coming to the case of the assessee, the learned Counsel for the assessee submitted that the assessee company set up two solar power plants one at Peerampalli village and the other at Kothagudi village, Vikarabad Mandal, R.R. Distt, during the A.Y 2016-17 the value of which comes to Rs.86,84,76,653/-
and accordingly claimed deduction u/s 32AD at Rs.13,02,72,498/-. The notification was issued u/s 32AD dated Page 7 of 23 ITA 1220 of 2019 Maheswari Mining and Energy Private Ltd Hyderabad 20.07.2016 notifying Ranga Reddy District as backward area. The assessee filed return of income on 10.10.2016 by which date the notification was already issued.
14) So far as the plea of the Revenue that the assessee is not entitled to allowance u/s 32AD because there was no notification as on 31.3.2016 and it came into effect on 20.07.2016 is concerned, he submitted that the same is not tenable for the following reasons:
a) Neither the section nor the notification states that the deduction u/s 32AD is allowable only for the period starting from the date of notification.
b) The purpose of section 32AD is to give the benefit for the period of 5 years. Once notified, the benefit accrues for full 5 years.
c) Section 94 of the A.P. Reorganization Act provides for fiscal measures including tax incentives to the successor states (Telangana & A.P) for development of backward areas and to promote industrialization and Economic growth in both states.
The Special Economic measures in Part-X of the A.P. Reorganization Act cannot be diluted by interpreting the notification as reducing the period of applicability of tax incentives provided by the statute.
d) A notification is intended to sub serve the object of the statute and not override it.
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e) If the interpretation placed by the Revenue were to be correct, it would mean that R.R Distt was a forward area up to 19.7.2016 and became a backward area from 20.07.2016 and such an interpretation on the face of it is illogical.
15) Referring to the decision of the Hon'ble Supreme Court in the case of Collector of Central Excise, Bombay-1 and another vs. Parle Exports (P) Ltd reported in 183 ITR 624 (S.C), he submitted that the Hon'ble Supreme Court in the said decision has held as under:
"The fairest and most rational method to interpret the will of the law maker is by exploring his intentions at the time when the law was made by the signs of the most natural and probable. And these signs are either the words, the context, the subject matter, the effects and consequences or the spirit and reason of the law".
16) Applying this test for ascertaining the purpose of notification, he submitted that reference should be made to section 94 of the A.P. Reorganization Act, 2014 which provides for fiscal measure including tax incentives to successor states. These are the special economic measures to be taken in the form of tax incentives to successor states a promise under which the reorganization was effected.
16.1) Referring to the CBDT circular No.19 of 2015 dated 27.11.2015 reported in 379 ITR (statutes-19), he submitted that the circular while specifying the conditions does not state that the deduction u/s 32AD is available only from the period after the date of issue of notification. Referring to the Memorandum explaining the provisions reported in 371 ITR (Statute 307) he submitted that it is nowhere stated that the additional investment Page 9 of 23 ITA 1220 of 2019 Maheswari Mining and Energy Private Ltd Hyderabad allowance will be available only after the period from the date of notification as a backward area.
17) He submitted that the special economic measures including tax incentives to the successor states is a part of the commitment of the Central Govt. under the A.P. Reorganization Act, 2014. He submitted that these incentives are available for a period of 5 years and the incentives so offered by the Central Government cannot be read down by reading the notification in a manner inconsistent with the statutory provisions. He submitted that the will of the law maker should be understood by their intentions when section 32AD was put on the statute book.
18) Referring to the decision of the Hon'ble Gujarat High Court in the case of Kishorebhai Harjibhai Patel v. Income Tax Officer reported in 417 ITR 547, he submitted that the Hon'ble High Court in the said decision at para 575 has observed as under:
"It is now a well-established principle of law that whereas eligibility criteria laid down in an exemption notification are required to be construed strictly, once it is found that the applicant satisfied the same, the exemption notification should be construed liberally".
19) He submitted that while applying the principles to the facts of the present case, the eligibility criteria laid down in the section is satisfied. Once the assessee satisfies the eligibility criteria, the exemption notification should be construed liberally. He submitted that the obvious answer is once a notification is issued u/s 32AD specifying the area to be a backward area it relates back to 1.4.2015 onwards. There are no further restricting words to support that the allowance shall be available for the Page 10 of 23 ITA 1220 of 2019 Maheswari Mining and Energy Private Ltd Hyderabad period after the date of notification of the backward area. Section 32AD of the I.T. Act being a beneficial provision and when the assessee falls in the beneficial provision, the provision or the notification needs to be liberally interpreted.
20) The learned Counsel for the assessee submitted that every notification needs to be published in the official gazette for the information of the public at large. All notifications will come into force from the date of their publication. Once published what is the effect of such a notification and what are the consequences, how it should be understood etc. falls within the realm of judicial interpretation. He submitted that a notification which is beneficial may also work backwards to reduce the burden on the subject.
21) So far as the argument of the Revenue that section 32AD should be applicable from the date of notification is concerned, he submitted that the notification cannot cut down or curtail the scope of deduction granted by the section.
22) Referring to the decision of the Hon'ble Supreme Court in the case of CIT vs. Sirpur Paper Mills reported in 237 ITR 41, the learned Counsel for the assessee drew the attention of the Bench to the relevant observation of the Hon'ble Supreme Court at page 45 which reads as under:
"This section states that the deduction shall be wholly allowed. It permits the Board to specify conditions but conditions cannot have the effect of curtailing the scope of the deduction granted by the section. The amplitude of the deduction permitted by the section cannot be cut down under the guise of imposing a "condition". In fact, this is not a condition but an impermissible attempt in rewrite the section".Page 11 of 23
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23) He submitted that the contention of the Revenue falls within the above passage of the judgment of the Hon'ble Supreme Court. He submitted that the Revenue cannot impost or read conditions into the notification which will have the effect of re- writing the statutory provisions and reducing the 5-year period.
24) Referring to the decision of the Hon'ble Supreme Court in the case of Govt. of Kerala & Another vs. Mother Superior Adoration Convent, vide Civil Appeal No.202 of 2012 order dated 1.3.2021, he submitted that the Hon'ble Supreme Court in the said decision has held that wherever there is exemption provision and if there is ambiguity, such ambiguity must be interpreted in favour of that which is exempted.
25) Referring to the following decisions, the learned Counsel for the assessee submitted that the law as it stands on the first day of the A.Y is applicable unless and until any amendment made in the Act or the notification issued therein is specifically made applicable from an anterior date:
a) CIT vs. Rama Shanker reported in (2005) 277 ITR 69 (All.) dated 2nd November, 2004
b) CIT vs. Isthmian Steamship Lines reported in (1951) 20 ITR 572 (S.C) dated 12th November, 1951.
c) Karimtharuvi Tea Estate Ltd vs. State of Kerala reported in (1996) 60 ITR 262 (S.C)
26) Without prejudice to the above submissions, the learned Counsel for the assessee submitted that even if for the sake of argument, it is to be understood that the notification has the effect of restricting the deduction u/s 32AD for the period Page 12 of 23 ITA 1220 of 2019 Maheswari Mining and Energy Private Ltd Hyderabad subsequent to the date of notification or relates back to 1.4.2015 from which date section 32AD is introduced are made applicable, then there is an ambiguity and the matter is not free from doubt. Referring to various decisions, he submitted that in such a situation where there is an ambiguity or the matter could be answered both ways or two views are possible then in that case the view which should be favourable to the assessee should be adopted. He accordingly submitted that the assessee is entitled for allowance u/s 32AD of the I.T. Act, 1961.
27) The learned DR, on the other hand, heavily relied on the order of the Assessing Officer and learned CIT (A). He submitted that for availing additional investment allowance u/s 32AD of the Income Tax Act, the following conditions have to be met cumulatively, i.e.
(i) The undertaking has to be set up after 1.4.2015 and
(ii) The undertaking should be located in a notified backward area of the States of Andhra Pradesh or Telangana.
27.1) He submitted that in the present case, only the first condition is met and the second condition is not met by the assessee. He submitted that section 32AD is a case of conditional legislation where the Parliament has imposed a condition that the backward areas are to be notified by the Central Government. Unless this condition is met, an assessee would not be eligible to claim exemption with regard to additional investment allowance u/s 35AD of the I.T. Act. Referring to various decisions filed in the case law compilation, the learned DR submitted that exemption notification should be interpreted strictly and Page 13 of 23 ITA 1220 of 2019 Maheswari Mining and Energy Private Ltd Hyderabad conditional legislation will be operative only when the notification is issued. He accordingly submitted that since order of the learned AM is in conformity with the law, the same should be applied and the appeal filed by the assessee be dismissed. He also relied on the following decisions:
i) Sri B.K. Srinivasan & Another Etc. Etc. vs. State of Karnataka & Ors. reported in 1987 AIR 1059/1987 SCR(1)1054.
ii) M/s. Universal Pipes (P) Ltd vs. The State of Assam & 3 Ors. In Writ Appeal No.393 of 2010.
iii) Sri Vijayalakshmi Rice Mills vs. State of Andhra Pradesh, reported in 1976 AIR 1471.1976 SCR (3) 775.
iv) H.P State Electricity Regulatory Commission vs. H.P. State Electricity Board in Civil Appeal No.6128 of 2009.
v) Agri Trade India Services Pvt. Ltd vs. Union of India & Ors. reported in 132(2006) DLT 500/ELT 161 Del.
vi) Garikapati Veerayya vs. N. Subbaiah Choudhury, reported in 1957 AIR 540.
vii) Keshavan Madhava Menon vs. The State of Bombay reported in 1951 AIR 128.
28) I have heard the rival arguments made by both the sides and perused the record. I have also considered the various decisions cited before me by both sides. I find the AO in the instant case disallowed the claim of additional investment allowance made u/s 32AD of the I.T. Act amounting to Rs.13,02,71,498/- on the ground that the Central Government has issued the notification of the backward area on 20.07.2016 and it is mentioned that the notification will come into effect from the date of publication in the official gazette. Therefore, the areas notified can be treated as backward areas from the date of notification only which is 20.07.2016 and therefore, the assessee cannot claim the deduction prior to the date of notification. I find Page 14 of 23 ITA 1220 of 2019 Maheswari Mining and Energy Private Ltd Hyderabad the learned CIT (A) upheld the action of the Assessing Officer. It is the submission of the learned Counsel for the assessee that provisions of section 32AD, which were inserted by the Finance Act 2015 w.e.f. A.Y 2016-17 are applicable for a period of 5 Assessment Years from i.e. A.Y 2016-17 to 2020-21. It is also his submission that the only requirement is that it should be a notified backward area and neither the section nor the circular stipulates that the deduction of 15% shall be allowed only for the period after the notification of the backward area. It is also his submission that the purpose of section 32AD is to give the benefit for a period of 5 years and once notified, the benefit accrues for full 5 years. It is his submission that a notification is intended to subserve the object of the statute and not override it. It is also his alternate argument that even if for the sake of argument, it is to be understood that the notification has the effect of restricting the deduction u/s 32AD for the period subsequent to the date of notification or relates back to 1.4.2015 for which section 32AD are introduced are applicable, then there is an ambiguity and in such a situation when both the view are possible, the view which is favourable to the assessee should be adopted and the Revenue is also not disputing the same.
29) I find sufficient force in the above argument of the learned Counsel for the assessee. There is no dispute to the fact that the undertaking was set up subsequent to 1.4.2015 and the new asset was acquired and installed during the period between 1.4.2015 and 31.02.2016. This fact is evidenced from the letter dated 24.5.2016 issued by the Chief General Manager (Commercial & RAC) TSSPDCL, Corporate Office, Hyderabad to the Chief Engineer (Planning, Commercial & Coordn.) TS TRANSCO Hyderabad and the Revenue is also not disputing the same.Page 15 of 23
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30) I find the Memorandum explaining the provisions in the Finance Bill 2015 reported in 371 ITR (St.) 307 reads as under:
"Section 94 of the Andhra Pradesh Reorganization Act, 2014 inter alia provides that the Central Government shall take appropriate fiscal measures including offer of tax incentives to the State of Andhra Pradesh and the State of Telangana, to promote industrialization and economic growth in both the States.
Manufacturing sector plays significant role in the economic growth of any region. Therefore, in order to encourage the setting up of industrial undertaking in the backward areas of the State of Andhra Pradesh and the State of Telangana, it is proposed to provide following income-tax incentives:-
(A) Additional Investment Allowance It is proposed to insert a new section 32AD in the Act to provide for an additional investment allowance of an amount equal to 15% of the cost of new asset acquired and installed by an assessee, if-
(a) he sets up an undertaking or enterprise for manufacture or production of any article or thing on or after 1st April, 2015 in any notified backward areas in the State of Andhra Pradesh and the State of Telangana and
(b) the new assets are acquired and installed for the purposes of the said undertaking or enterprise during the period beginning from 1st April 2015 to 31st March, 2020.
This deduction shall be available over and above the existing deduction available u/s 32AC of the Act. Accordingly, if an undertaking is set up in the notified backward areas in the States of Andhra Pradesh or Telangana by a company, it shall be eligible to claim deduction under the existing provisions of section 32AC of the Act as well as under the proposed section 32AD if it fulfils the conditions (such as investment above a specified threshold) specified in the said section 32AC and conditions specified under the proposed section 32AD.
The phrase "new asset" has been defined as plant or machinery but does not include-
(i) any plant or machinery which before its installation by the assessee was used either within or outside India by any other person ;
(ii) any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house ;
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(iii) any office appliances including computers or computer software;
(iv) any vehicle
(v) any ship or aircraft ; or
(vi) any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any previous year.
14.2.4 With a view to ensure that the manufacturing units which are set up by availing this proposed incentive actually contribute to economic growth of these backward areas by carrying out the activity of manufacturing for a substantial period of time, it is proposed to provide suitable safeguards for restricting the transfer of the plant or machinery for a period of 5 years. However, this restriction shall not apply to the amalgamating or demerged company or the predecessor in a case of amalgamation or demerger or business reorganization but shall continue to apply to the amalgamated Company or resulting company or successor, as the case may be."
(B) Additional Depreciation at the rate of 35%.......... ....................
These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years."
31) I find the CBDT Circular No.19 of 2015, dated 27.11.2015 reported in 379 ITR (St.)50 reads as under:
"14.2 Additional investment allowance 14.2.1 Section 32AD has been inserted in the Income-tax Act to provide for an additional investment allowance of an amount equal to 15 per cent of the cost of new asset acquired and installed by an assessee, if-
(a) he sets up an undertaking or enterprise for manufacture or production of any article or thing on or after 1st April, 2015 in any notified backward area in the State of Andhra Pradesh or the State of Bihar or the State of Telangana or the State of West Bengal; and
(b) the new assets are acquired and installed for the purposes of the said undertaking or enterprise during the period beginning from the 1st April, 2015 and ending on 31st March, 2020.Page 17 of 23
ITA 1220 of 2019 Maheswari Mining and Energy Private Ltd Hyderabad 14.2.2 This deduction shall be available over and above the existing deduction available u/s 32AC of the Income Tax Act. Accordingly, if a company sets up an undertaking in the notified backward area in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the State of West Bengal, it shall be eligible to claim deduction under the existing provisions of section 32AC of the Income Tax Act as well as under this newly inserted section 32AD of the Income Tax Act if it fulfills the conditions (such as investment above a specified threshold) provided in section 32AC as well as conditions specified in section 32AD.
14.2.3. The phrase "new asset" has been defined as plant or machinery but does not include-
(i) any plant or machinery which before its installation by the assessee was used either within or outside India by any other person ;
(ii) any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house ;
(iii) any office appliances including computers or computer software;
(iv) any vehicle
(v) any ship or aircraft ; or
(vi) any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable -under the head "Profits and gains of business or profession" of any previous year.
14.2.4 With a view to ensure that the manufacturing units which are set up by availing this proposed incentive actually contribute to economic growth of these backward areas by carrying out the activity of manufacturing for a substantial period of time, it is proposed to provide suitable safeguards for restricting the transfer of the plant or machinery for a period of 5 years. However, this restriction shall not apply to the amalgamating or demerged company or the predecessor in a case of amalgamation or demerger or business reorganization but shall continue to apply to the amalgamated Company or resulting company or successor, as the case may be.
14.3 Additional depreciation at the rate of 35 per cent. ......... ...........................
Page 18 of 23ITA 1220 of 2019 Maheswari Mining and Energy Private Ltd Hyderabad 14.4 Applicability:- These amendments takes effect from 1 st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years."
32) A combined reading of the Memorandum explaining the provisions in the Finance Bill 2015 as well as the CBDT Circular No.19 of 2015 reproduced above clearly mentions that the provisions of section 32AD are applicable from A.Y 2016-17 for a period of 5 years. Therefore, the first question i.e. as to whether the provisions u/s 32AD of the Act, 1961 are applicable for the investment made in financial year 2015-16 is concerned, the answer, in my opinion, is Yes and is applicable for financial year 2015-16 i.e. assessment year 2016-17.
33) So far as the remaining two questions referred to me are concerned, I find the assessee in the instant case has set up the undertaking or enterprise for manufacture or production of an article or thing after 1.4.2015 and the new asset has been acquired and installed for the said purpose, during the period beginning from 1.4.2015 from which the date the section 32AD is introduced. Therefore, I am of the considered opinion that the assessee is entitled for the allowance u/s 32AD. I find force in the argument of the learned Counsel for the assessee that neither the section nor the notification states that the deduction u/s 32AD is allowable only for the period starting from the date of notification. In my opinion, the purpose of section 32AD is to give the benefit for a period of 5 years and once the notification is issued, the benefit accrues for full 5 years. If the contention of the Revenue that the assessee is entitled to claim the benefit of section 32AD only w.e.f. the date of notification i.e. 20.07.2016 is accepted, then the condition of getting the benefit for a period 5 years from Page 19 of 23 ITA 1220 of 2019 Maheswari Mining and Energy Private Ltd Hyderabad 1.4.2016 is not fulfilled and this cannot be the mandate of the legislation. Since the assessee in the instant case satisfies the eligibility criteria, the exemption notification, in my opinion, should be construed liberally. In my opinion, once the notification is issued u/s 32AD specifying the area to be a backward area. it relates back to 1.4.2015 onwards. There are no further restricting words to support that the allowance shall be available for the period after the date of notification of the backward area.
34) I find the Hon'ble Gujarat High Court in the case of Kishorbhai Harjibhai Patel vs. Income Tax Officer reported in (2019) 417 ITR 547 (Guj.) at para 29 has held as under:
35) I find the Hon'ble Supreme Court in the case of Mother Superior Adoration Convent (Supra) has held that wherever there is exemption provision and if there is ambiguity, such ambiguity must be interpreted in favour of that which is exempt. The relevant observation of the Hon'ble Supreme Court read as under:
22. A recent 5-Judge Bench judgment was cited by Shri Gupta in Commr. of Customs v. Dilip Kumar & Co. (2018) 9 SCC 1. The 5- Judge Bench was set up as a 3-Judge Bench in Sun Export Corporation v.
Collector of Customs 1997 (6) SCC 564 was doubted, as the said judgment ruled that an ambiguity in a tax exemption provision must be Page 20 of 23 ITA 1220 of 2019 Maheswari Mining and Energy Private Ltd Hyderabad interpreted so as to favour the assessee claiming the benefit of such exemption. This Court after dealing with a number of judgments relating to exemption provisions in tax statutes, ultimately concluded as follows:
"66. To sum up, we answer the reference holding as under:
66.1. Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification.
66.2. When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the Revenue.
66.3. The ratio in Sun Export case [Sun Export Corpn. v. Collector of Customs, (1997) 6 SCC 564] is not correct and all the decisions which took similar view as in Sun Export case stand overruled."
23. It may be noticed that the 5-Judge Bench judgment did not refer to the line of authority which made a distinction between exemption provisions generally and exemption provisions which have a beneficial purpose. We cannot agree with Shri Gupta's contention that sub- silentio the line of judgments qua beneficial exemptions has been done away with by this 5-Judge Bench. It is well settled that a decision is only an authority for what it decides and not what may logically follow from it (see Quinn v. Leathem [1901] AC 495 as followed in State of Orissa v. Sudhansu Sekhar Misra (1968) 2 SCR 154 at 162,163).
24. This being the case, it is obvious that the beneficial purpose of the exemption contained in Section 3(1)(b) must be given full effect to, the line of authority being applicable to the facts of these cases being the line of authority which deals with beneficial exemptions as opposed to exemptions generally in tax statutes. This being the case, a literal formalistic interpretation of the statute at hand is to be eschewed. We must first ask ourselves what is the object sought to be achieved by the provision, and construe the statute in accord with such object. And on the assumption that any ambiguity arises in such construction, such ambiguity must be in favour of that which is exempted. Consequently, for the reasons given by us, we agree with the conclusions reached by the impugned judgments of the Division Bench and the Full Bench.
25. The matter can also be seen from a slightly different angle. Where a High Court construes a local statute, ordinarily deference must be given to the High Court judgments in interpreting such a statute, particularly when they have stood the test of time (see State of Gujarat v. Zinabhai Ranchhodji Darji (1972) 1 SCC 233 at paragraph 10, Bishamber Dass Kohli v. Satya Bhalla (1993) 1 SCC 566 at paragraph 11, Duroflex Coir Industries Ltd. v. CST 1993 Supp (1) SCC 568 at paragraph 2, State of Karnataka v. G. Seenappa 1993 Supp (1) SCC 648 at paragraph 3 and Page 21 of 23 ITA 1220 of 2019 Maheswari Mining and Energy Private Ltd Hyderabad Bonam Satyavathi v. Addala Raghavulu 1994 Supp (2) SCC 556 at paragraph 4). This is all the more applicable in the case of tax statutes where persons arrange their affairs on the basis of the legal position as it exists."
36) Since section 32AD is a beneficial provision and since the assessee falls in the beneficial provision, therefore, the provision as well as the notification needs to be interpreted liberally i.e. in favour of the assessee and the assessee is entitled to deduction u/s 32AD. In view of the above discussion, I hold that:
a) The notification issued by CBDT on 20.07.2016 does not keep the operation of the provisions u/s 32AD of the Act in abeyance till 20.07.2016
b) The notification stating that it shall come into force as on the date of its publication in the official gazette cannot override the provisions of section 32AD(1) of the Act.
37. For the reasons given above, I agree with the order proposed by the learned JM that the assessee is entitled to deduction u/s 32AD.
38. The questions referred to me are answered accordingly.
39) The matter may now be placed before the regular Bench for decision in accordance with law.
Page 22 of 23ITA 1220 of 2019 Maheswari Mining and Energy Private Ltd Hyderabad Order pronounced in the Open Court on 1 st April, 2024.
Sd/-
(R.K. PANDA) VICE-PRESIDENT Hyderabad, dated 1st April, 2024 Vinodan/sps Copy to:
S.No Addresses
1 M/s. Maheshwari Mining & Energy Pvt. C/o Venugopal & Chenoy, C.A,
Tilak Road, Hyderabad
2 ACIT, Circle 16(1) Hyderabad
3 Pr. CIT - 4, Hyderabad
4 DR, ITAT Hyderabad Benches
5 Guard File
By Order
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