2017 (8) TMI 646 - HC - Income Tax

Deduction under Sections 80IA/80IB - entitled in law to deduction for 10 consecutive assessment years - AO observed that it does not carry out processing/manufacturing activities but only does trading in milk. - Held that - We have perused the decision of Paul Brothers (1992 (10) TMI 5 - BOMBAY High Court). We note that there is no finding in the order above to the effect that the in the initial year the claim under Section 80IA/IB of the Act was granted by virtue of an order passed under Section 143(3) of the Act. Nothing has been brought on record to indicate that there has been some change in manufacturing process from that existing when the claim was allowed in the initial year i.e. Assessment Year 1996- 1997 and subject Assessments. The intent/object of the deduction under Section 80IA/IB of the Act is to encourage setting up of industries to manufacture goods which are not specified in the Eleventh Schedule to the Act. In absence of the Revenue being able to establish that for the subject Assessment Years the facts with regard to the performance were different from facts with regard to the performance in which the claim for deduction in initial year was allowed the grant of deduction in the subsequent subject Assessment Year cannot be withheld. The other issue raised by Mr. Bhattad that merely because a claim was allowed in an earlier year would not prohibit the revenue from disallowing the claim in subsequent assessment years is no longer res-integra as this Court in Paul Brothers (supra) as it is categorically held that in absence of deduction granted in the initial Assessment Years being withdrawn the relief for subsequent Assessment Years could not be withheld. The basis for the same is found in sub-clause (3) under Section 80IA/IB of the Act which gives deduction for 10 consecutive years to the profit and gains of an Industrial undertaking from initial year of assessment when the deduction was allowed subject to the condition laid down therein. Therefore once deduction is granted in the initial Assessment Year the same would continue for the period of 10 consecutive year unless the relief for initial year is also withdrawn at the time of withholding the relief under Section 80IA/IB of the Act. - Decided in favour of the appellant-Assessee

Summary

Issues involved:
- Interpretation of Section 80IA/80IB of the Income Tax Act, 1961
- Claim for deduction under Section 80IA/80IB for multiple assessment years
- Manufacturing activities vs. trading activities for claiming deductions
- Jurisdiction of Assessing Officer in granting or denying deductions
- Application of legal precedents in determining eligibility for deductions

Analysis:

Issue 1: Interpretation of Section 80IA/80IB of the Income Tax Act, 1961
The case involved a challenge to the order of the Income Tax Appellate Tribunal (Tribunal) regarding the deduction under Sections 80IA/80IB of the Income Tax Act for multiple assessment years. The central question was whether the appellant was entitled to deductions for 10 consecutive assessment years as provided in Section 80IB(3). The Tribunal had disallowed the deductions on the grounds that the appellant did not carry out manufacturing activities but only engaged in trading in milk.

Issue 2: Claim for deduction under Section 80IA/80IB for multiple assessment years
The appellant had claimed deductions under Section 80IA/80IB for several assessment years, starting from 1996-1997. The Assessing Officer disallowed the deductions for subsequent years, stating that the appellant did not engage in manufacturing activities but only traded in milk. The appellant argued that once a deduction is granted in the initial assessment year, it should continue for 10 consecutive years unless withdrawn.

Issue 3: Manufacturing activities vs. trading activities for claiming deductions
The dispute revolved around whether the appellant's activities qualified as manufacturing or production under Section 80IB(3)(ii) of the Act. The Assessing Officer contended that the appellant only engaged in trading, while the appellant asserted that their production of different varieties of branded milk constituted manufacturing or production under the Act.

Issue 4: Jurisdiction of Assessing Officer in granting or denying deductions
The appellant argued that the Assessing Officer had no jurisdiction to deny the benefit of deductions under Section 80IA/80IB for subsequent assessment years if the deductions were not withdrawn in the initial year when granted. The appellant relied on legal precedents to support their claim that once a deduction is allowed in the initial assessment year, it should continue for the specified period unless withdrawn.

Issue 5: Application of legal precedents in determining eligibility for deductions
The appellant cited previous court decisions, such as CIT Vs. Paul Brothers and CIT vs Dinshaw Frozen Food Ltd., to support their argument that the deductions should not be denied for subsequent years if granted in the initial year. The court analyzed these precedents and concluded that the appellant was entitled to the deductions for the consecutive assessment years unless withdrawn in the initial year.

In conclusion, the High Court of Bombay ruled in favor of the appellant, allowing the appeal and answering the substantial questions of law in favor of the appellant-assessee and against the Revenue. The judgment emphasized the importance of consistent application of legal provisions and precedents in determining the eligibility for deductions under the Income Tax Act.