2004 (7) TMI 278 - AT - Income Tax

Interpretation of statutes - deduction u/s 80-IA - eligibility of profits derived from trading activities of an industrial undertaking - whether or not the conditions of industrial undertaking are satisfied in the instant case - HELD THAT - We find that the case of the assessee gets covered within the Explanation to s. 33B and it qualifies as an industrial undertaking. At this stage it will not be out of context to mention that it is not the case of the Revenue that the assessee is not an industrial undertaking and hence, ineligible for deduction under s. 80-IA. Rather, by treating it as such, the deduction was granted, though on a lower scale. When s. 80-IA(1) is perused, it becomes explicitly clear that deduction is eligible in respect of profits and gains which are derived from any business of an industrial undertaking. As the conditions of the industrial undertaking are satisfied and the transactions of sale and purchase of rice are part and parcel of the 'business of industrial undertaking', we, therefore, hold that the profits in respect of such trading operations would also qualify for deduction. Keeping into consideration this fact that the assessee was allowed deduction in the same fashion even after the passing of the instant assessment order, we are at a loss to appreciate any logic in persuing the matter in appeal. Albeit the principle of res judicata is not strictly applicable to the proceedings under the Act, yet, the doctrine of consistency does not permit the Departmental authorities to change its stand when there is no change in the facts or laws in one year vis-a-vis the other, warranting departure. Our view gets support from a recent decision rendered in the case of Director of IT vs. Lovely Bal Shikshan Parishad 2003 (10) TMI 25 - DELHI HIGH COURT . In view of the aforenoted factual and legal position, it becomes apparent that the learned CIT(A) was justified in directing the AO to allow deduction in respect of profit from the trading operations in Karnal unit. We uphold the impugned order on this score. In the result, the appeal of the Revenue stands dismissed.

Summary

Issues Involved:
The appeal involves the interpretation of deduction under s. 80-IA of the Income Tax Act, specifically regarding the eligibility of profits derived from trading activities of an industrial undertaking for the deduction.

Summary:

Issue 1: Interpretation of Deduction under s. 80-IA
The Revenue appealed against the CIT(A)'s order allowing deduction under s. 80-IA for profits from trading activities of the assessee, contending that the deduction should be restricted to manufacturing activities only. The AO reduced the deduction under s. 80-IA during assessment, leading to the appeal. The first appellate authority overturned the AO's decision, prompting the Revenue's appeal.

Issue 2: Eligibility of Trading Profits for Deduction
The Departmental Representative argued that deduction for trading profits should not be allowed under s. 80-IA, citing a relevant case law. The assessee's counsel defended the deduction, highlighting the reversal of the cited case law by the Supreme Court and the consistent allowance of similar deductions in subsequent years by the AO.

Judgment:
Upon review, the Tribunal analyzed the provisions of s. 80-IA, emphasizing that the deduction is applicable to profits derived from "any business of" an industrial undertaking, not limited to manufacturing alone. The Tribunal assessed whether the conditions of an industrial undertaking were met in the case, referring to a circular defining an industrial company. It was found that the assessee, primarily engaged in manufacturing rice, qualified as an industrial undertaking despite engaging in trading activities. The Tribunal noted the consistent allowance of similar deductions in subsequent years, emphasizing the principle of consistency in tax matters. Citing relevant case law, the Tribunal upheld the CIT(A)'s decision to allow deduction for trading profits under s. 80-IA, dismissing the Revenue's appeal.