Hycron Electronics vs. ITO (ITAT Chandigarh)

Section 80IC was inserted by the Finance Act 2003 w.e.f. 01.04.2004 and provides that any undertaking or enterprise which has begun or beings to manufacture or produce any article or thing not being any article or thing, not being any article or thing specified in the 13th Schedule and UNDERTAKES SUBSTANTIAL EXPANSION DURING THE PERIOD BEGINNING 7th day of January 2003 and ending before the 1st day of April 2012 in the State of Himachal Pradesh shall be entitled to 100% of such profits and gains for five assessment years connecting WITH THE INITIAL ASSESSMENT YEAR and thereafter 25% (or 30% where the assessee is a company) of the profits and gains. The assessee’s unit started commercial production from 17.1.2004. The assessee claimed deduction u/s 80IC on the products of this unit @ 100% from assessment years 2004-05 to 2008-09. Subsequently, during financial year 2008-09, the assessee undertook substantial expansion by way of addition to plant and machinery by more than the prescribed limit. On the basis of the substantial expansion, the assessee again started claiming deduction u/s 80IC from assessment year 2009-10 @ 100%. The AO held that since the assessee has already claimed 100% deduction for first five years upto assessment year 2008-09 from the date of setting up of the unit, the assessee was entitled only to 25% deduction from the eligible business profits from assessment years 2009-10 to 2013-14. This was upheld by the CIT(A). On appeal by the assessee to the Tribunal HELD dismissing the appeal:

(i) Liberal interpretation of an incentive provision is possible if there is any doubt. If the 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 was available only for a period of 10 years. Therefore, there is no quest ion of giving any interpretation much less liberal interpretation to section 80IC when the reading of whole section makes the provision very clear. As observed in case of M/s Novapan India Ltd v Collector of Central Excise and Customs Appeal (Civil) 3356 of 1984 the burden was on the assessee to show under which clause he was entitled to the deduction but assessee is simply asserting before us that there is no restriction for deduct ion in case of substantial expansion of new units. In our opinion, that is not enough because absence of restriction does not mean that particular deduction was allowable.

(ii) If interpretation given by the assessee is to be accepted, the provision would become discriminatory for two classes of undertakings i .e. new units and old units. Because the old units would be entitled to 100% deduct ion on expansion for first five years and 25% thereafter whereas the new units would become entitled to deduction for 100% for first five years and again @ 100% on substantial expansion. Such discriminatory intention cannot be imputed to the Legislature.