2007 (2) TMI 116 - HC - Income Tax

Deduction - AO contended that assessee would not entitle for deduction u/s 80IA on the ground that items manufactured by the assessee is come under eleventh schedule at Sl. No. 27 and 28 - Held that contention was not correct and set aside

Summary

Issues:
1. Eligibility of the Assessee for deduction under Section 80-IA.
2. Interpretation of the proviso to clause (iii) of Section 80-IA.
3. Application of the principle of consistency in Income Tax proceedings.
4. Applicability of Section 80-I of the Act to the case.

Analysis:

1. Eligibility of the Assessee for deduction under Section 80-IA:
The Assessee, engaged in manufacturing rubberized cork sheets, claimed a deduction under Section 80-IA for the assessment year 2001-02. The Assessing Officer initially declined the claim, citing that the manufactured items fell under the Eleventh Schedule related to packaging and fittings. However, the Tribunal reversed this decision, stating that the Assessee was entitled to the deduction for ten years from the start of production, which was before the benefit was available to small scale units. The Tribunal emphasized that the rule of consistency must be followed unless there are material circumstances for a departure from previous decisions.

2. Interpretation of the proviso to clause (iii) of Section 80-IA:
The Tribunal found no justification in the Assessing Officer's action of disallowing the deduction under Section 80-IA. It noted that the Assessee was a small scale industrial undertaking and entitled to the deduction for ten years from the start of production, even though the manufactured product was listed in the Eleventh Schedule. The Tribunal highlighted that the Assessee met the conditions for claiming the deduction under Section 80-IA.

3. Application of the principle of consistency in Income Tax proceedings:
While the principle of res judicata does not directly apply to Income Tax provisions, the Tribunal stressed the importance of consistency in decisions unless there are valid reasons for a change. It emphasized that the Assessee continued to manufacture the same product, and there were no new circumstances to warrant a departure from allowing the deduction as done in previous assessments.

4. Applicability of Section 80-I of the Act to the case:
The Tribunal clarified that the Assessee's case fell under Section 80-I of the Act, which allows a deduction for profits from industrial undertakings meeting specific conditions. Since the Assessee was a small scale industrial undertaking and commenced production before a certain date, it was entitled to the deduction for the assessment year 2001-02 under Section 80-I.

In conclusion, the High Court dismissed the appeal by the Revenue, as no substantial question of law arose from the case. The judgment upheld the Assessee's eligibility for deduction under Section 80-IA based on the specific circumstances and legal provisions analyzed during the proceedings.