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2007 (6) TMI 253 - AT - Income TaxDeductions u/s 80HH and 80-I - Industrial undertaking - no change in the nature of activities from earlier years - income from repair of transformers of U.P. State Electricity Board ( UPSEB ) - HELD THAT - It is an admitted fact that the assessee-company is claiming deductions under ss. 80HH and 80-I of the Act since asst. yr. 1992-93. The Department has allowed deductions under ss. 80HH and 80-I for the asst. yrs. 1992-93 1993-94 1994-95 1995-96 1996-97 and 1997-98. Even the AO has allowed deductions under ss. 80HH and 80-I to the assessee for the AY 1998-99. The deductions in question are available to an assessee for 8 years and the year under consideration is the last year and the year under consideration is the last year. The learned CIT(A) has not brought any material on record to show that there was any change in the activities of the assessee as compared to earlier years. Thus it is clear that since asst. yrs. 1992-93 to 1997-98 the assessee has been consistently getting deductions under ss. 80HH and 80-I of the Act. In our considered view the learned CIT (A) was not justified in withdrawing the deductions in question. Hon ble Delhi High Court in the case of Lovely Bal Shiksha Parishad 2003 (10) TMI 25 - DELHI HIGH COURT held that there was no change in the nature of activities and the assessee had been granted exemption u/s 10(22) of the IT Act not only in respect of earlier years but subsequent year as well the assessee was entitled to the exemption in the asst. yr. 1991-92. In this case also the Hon ble Delhi High Court has applied the ratio laid down by the Hon ble Supreme Court in the case of Radhasoami Satsang vs. CIT 1991 (11) TMI 2 - SUPREME COURT . Following the above referred cases. We therefore reverse the order of the learned CIT(A) and restore that of the AO. Accordingly we allow the appeal filed by the assessee. In the result the appeal is allowed.
Issues Involved:
1. Jurisdiction of CIT(A) to overlook the consideration of ground No. 4 of the appeal. 2. Legality of withdrawal of deductions under sections 80HH and 80-I. 3. Determination of whether the assessee is a manufacturer under the definition of the term. 4. Eligibility of the assessee for benefits under sections 80HH and 80-I. 5. Overall validity of the appellate order. Issue-wise Detailed Analysis: 1. Jurisdiction of CIT(A): The assessee contended that the CIT(A) had no jurisdiction to overlook the consideration of ground No. 4 and to assess the appellant on a different issue not part of the appeal. The Tribunal did not specifically address this jurisdictional argument but focused on the broader issue of entitlement to deductions under sections 80HH and 80-I. 2. Legality of Withdrawal of Deductions under Sections 80HH and 80-I: The assessee argued that the withdrawal of deductions under sections 80HH and 80-I was illegal because the facts of the cited cases were different. The CIT(A) had withdrawn the deductions on the basis that the assessee was engaged in repair work, not manufacturing or production. The Tribunal found that the CIT(A) relied on the Supreme Court decision in CIT vs. Shanker Construction Co./N.C. Budharaja & Co., which defined "manufacture" and "production." However, the Tribunal concluded that the CIT(A) was not justified in withdrawing the deductions, given the consistent allowance of these deductions in previous years without any change in the nature of the assessee's activities. 3. Determination of Whether the Assessee is a Manufacturer: The assessee claimed to be a manufacturer because it undertook processes that converted damaged transformers into fully functional ones, involving manufacturing and assembling various components. The CIT(A) disagreed, stating that the repaired transformers were not commercially different articles. The Tribunal, however, accepted the assessee's argument that the entire process constituted manufacturing, as it resulted in a new and different article. The Tribunal noted that the assessee was recognized as a manufacturer by the Director of Industries, Central Excise Department, and Sales-tax Department. 4. Eligibility for Benefits under Sections 80HH and 80-I: The Tribunal emphasized that the assessee had been allowed deductions under sections 80HH and 80-I from assessment years 1992-93 to 1997-98. The Tribunal cited the Supreme Court's decision in Radhasoami Satsang vs. CIT, which held that a consistent position over several years should not be changed without any material change in facts. The Tribunal also referred to similar decisions by the Delhi High Court in CIT vs. Lagan Kala Upvan and Director of IT vs. Lovely Bal Shiksha Parishad, which reinforced the principle of consistency in tax treatment. Consequently, the Tribunal concluded that the CIT(A) was not justified in withdrawing the deductions for the assessment year 1998-99. 5. Overall Validity of the Appellate Order: The Tribunal found the appellate order of the CIT(A) to be unjustified and reversed it, restoring the order of the AO, which had allowed the deductions under sections 80HH and 80-I. The Tribunal allowed the appeal filed by the assessee, emphasizing the importance of consistency in tax assessments and the lack of any material change in the assessee's activities to warrant a different treatment for the assessment year in question. Conclusion: The Tribunal allowed the appeal, holding that the assessee was entitled to deductions under sections 80HH and 80-I, reversing the CIT(A)'s order, and restoring the AO's decision. The Tribunal's decision was based on the principles of consistency in tax treatment and the recognition of the assessee's activities as manufacturing.
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