2024 (6) TMI 1285 - AT - Income Tax

Claim of deduction u/s 32AD - additional investment allowance - investment made in financial year 2015-16 - matter referred to third member - opinion difference between the Hon'ble Members of Hyderabad B Bench - claim denied 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 DR submitted that the assessee has not earned any revenue from its operations and that the notification was issued after the FY, therefore, section 32AD is not applicable to the assessee and strict interpretation should be applied as per the judgment case of Dilipkumar Company 2018 (7) TMI 1826 - SUPREME COURT - 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? 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 AND noted that the section 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 - assessee has claimed deduction u/s 32AD which was not in force for the relevant financial year. JM held 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 - 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. HELD THAT - On combined reading of the Memorandum explaining the provisions in the Finance Bill 2015 as well as the CBDT Circular No.19 of 2015 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, is Yes and is applicable for financial year 2015-16 i.e. assessment year 2016-17. So far as the remaining two questions referred 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, the assessee is entitled for the allowance u/s 32AD. As find force in the argument of 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 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. 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. Hon'ble Supreme Court in the case of Mother Superior Adoration Convent 2021 (3) TMI 93 - SUPREME COURT 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. 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. Order of Third Member - 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. Thus agree with the order proposed by the learned JM that the assessee is entitled to deduction u/s 32AD.

Summary

Issues Involved:
1. Applicability of Section 32AD of the Income Tax Act, 1961 for the investment made in the financial year 2015-16.
2. Impact of Notification No. 61/2016 dated 20/07/2016 on the operation of Section 32AD.
3. Interpretation of the notification's effective date and its implications on the period of eligibility for deduction under Section 32AD.

Detailed Analysis:

1. Applicability of Section 32AD for FY 2015-16:
The assessee claimed a deduction under Section 32AD for investments made in FY 2015-16. Section 32AD was inserted by the Finance Act, 2015, effective from 01/04/2016, providing an additional investment allowance of 15% for new assets acquired and installed in notified backward areas between 01/04/2015 and 31/03/2020. The Memorandum explaining the provisions of the Finance Bill, 2015, and the CBDT Circular No.19 of 2015 clarified that the amendment would apply from AY 2016-17 onwards.

2. Impact of Notification No. 61/2016:
The AO and CIT(A) disallowed the deduction, arguing that the notification specifying backward areas was issued on 20/07/2016, effective from the date of publication, and thus, the assessee could not claim the deduction for investments made before this date. The assessee contended that the section does not stipulate that the deduction is only available post-notification and that once notified, the benefit should accrue for the entire specified period.

3. Interpretation of the Notification's Effective Date:
The majority opinion held that the notification should not restrict the benefit of Section 32AD only to the period after its publication. The provisions of Section 32AD, being beneficial in nature, should be interpreted liberally. The notification should be read as part of the statute, effective from the introduction date of Section 32AD, i.e., 01/04/2015. The dissenting opinion argued for a strict interpretation, emphasizing that the notification explicitly stated it would come into force from the date of publication, thus limiting the deduction to post-20/07/2016 investments.

Key Judgments and Interpretations:

- Majority View: The third Member and JM opined that Section 32AD's provisions were clear and intended to be effective from 01/04/2015, covering investments made from this date. The notification merely specified the backward areas and should not delay or restrict the section's applicability. The beneficial nature of the provision, aligned with the objectives of the Andhra Pradesh Reorganization Act, 2014, supported a liberal interpretation favoring the assessee.

- Dissenting View: The AM emphasized a strict interpretation, relying on the Supreme Court's judgment in the case of Dilip Kumar & Co., which mandates strict interpretation of exemption notifications. The AM argued that the notification's effective date should limit the deduction to investments made post-20/07/2016.

Conclusion:
The final decision, aligned with the majority view, allowed the assessee's appeal, granting the deduction under Section 32AD for investments made in FY 2015-16. The notification was interpreted to be effective from the date of Section 32AD's introduction, ensuring the provision's benefits were available from 01/04/2015 onwards. This interpretation upheld the legislative intent and the provision's beneficial nature, promoting industrialization in backward areas as intended by the Andhra Pradesh Reorganization Act, 2014.