2006 (5) TMI 128 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility for deduction under section 80-I of the Income-tax Act.
2. Interpretation of the Eleventh Schedule of the Income-tax Act.
3. Application of the principle of consistency in tax assessments.

Detailed Analysis:

1. Eligibility for Deduction under Section 80-I of the Income-tax Act:
The primary issue revolves around whether the assessee, engaged in the production and manufacture of photo color films, is eligible for deduction under section 80-I of the Income-tax Act. The Assessing Officer denied the deduction on the grounds that the product manufactured by the assessee fell under the Eleventh Schedule, which lists items ineligible for such deductions. The CIT(A) allowed the deduction, referencing a previous decision for the assessment year 1990-91 where a similar claim was allowed.

2. Interpretation of the Eleventh Schedule of the Income-tax Act:
The Eleventh Schedule lists non-priority items for which deductions under sections like 80-I are not applicable. The relevant entries were:
- Entry 9: Cinematograph films and projectors (amended to "projectors" effective from 1-4-1989).
- Entry 10: Photographic apparatus and goods.

The CIT(A) in the 1990-91 assessment year had concluded that color roll films were not included in the Eleventh Schedule, and this interpretation was not challenged by the department in subsequent years. The Assessing Officer, however, argued that photographic goods, including color roll films, were covered under Entry 10.

3. Application of the Principle of Consistency:
The principle of consistency was a significant point of contention. The CIT(A) and the Accountant Member upheld the assessee's claim based on the principle of consistency, citing the Delhi High Court's judgment in CIT v. A.R.J. Security Printers, which emphasized that without new facts or changes, previous decisions should not be overturned. The Judicial Member, however, disagreed, stating that the issue had not attained finality and needed to be reconsidered based on the specific provisions of the Act.

Separate Judgments Delivered:

Judgment by Accountant Member:
The Accountant Member upheld the CIT(A)'s decision, emphasizing the principle of consistency. It was noted that the CIT(A)'s findings for the assessment year 1990-91 were not overturned and were followed in subsequent years. The Delhi High Court's ruling in A.R.J. Security Printers was cited to support the argument that without new material or changes in facts, the earlier findings should be upheld.

Judgment by Judicial Member:
The Judicial Member disagreed, arguing that the principle of consistency should not override the specific provisions of the Act. It was contended that the interpretation of Entry 10 in the Eleventh Schedule needed to be reconsidered. The Judicial Member emphasized that the Tribunal should not rely solely on past decisions but must examine the provisions of the Act and the facts afresh.

Third Member's Decision:
The Third Member, Vice President R.V. Easwar, was called upon to resolve the difference of opinion. The Third Member reframed the question to focus on whether the rule of consistency could be invoked to uphold the assessee's claim for deduction under section 80-I. The Third Member agreed with the Accountant Member, emphasizing that the department had accepted the CIT(A)'s interpretation for the assessment year 1990-91 and had followed it in subsequent years. The rule of consistency was thus applicable, and the assessee's claim for deduction under section 80-I was upheld.

Final Order:
The matter was referred back to the Division Bench, which, following the Third Member's decision, upheld the CIT(A)'s order allowing the assessee's claim for deduction under section 80-I. The appeal filed by the revenue was dismissed, affirming the principle of consistency in tax assessments.