2007 (11) TMI 676 - HC - Income Tax

Disallowed deduction u/s 80AI - Activities carried out in dairy division constitute manufacturing activities ? - HELD THAT - The revenue ought to have been aware that in case deduction was allowed in a particular year same could not have been denied during subsequent assessment years. The revenue ought to have, therefore, challenged the order passed by the assessing officer in the assessment year 1992-93. The revenue having not done so we are of the considered opinion that no fault can be found with the order passed by the Tribunal which is impugned in the present appeal. Since we are dismissing the appeal by placing reliance upon the Judgment in CIT vs. Paul Brothers 1992 (10) TMI 5 - BOMBAY HIGH COURT we do not deem it necessary to go into the issue as to whether the activities carried out by the assessee in dairy division constitute manufacturing activities or not. We do not deem it necessary to refer to several authorities relied upon by Mr. Parchure in support of the submission that the activities carried out by the assessee are not manufacturing activities. Interest on cash credit - HELD THAT - We find that the Tribunal was justified in relying upon its own order by which addition made by the assessing officer was held to be unwarranted. We are, therefore, of the considered opinion that there is no illegality or perversity in the order passed by the Tribunal warranting interference in appeal under Section 260A of the Act. We also find that no substantial question of law is involved in the present appeal. Hence the appeal is dismissed.

Summary

Issues:
1. Exception to the order of the Income Tax Appellate Tribunal regarding deduction under Section 80AI and interest on cash credit.
2. Justification of allowing deduction under Section 80IA by the Tribunal.
3. Disallowance of interest on cash credit and its genuineness.
4. Activities in dairy division as manufacturing activities.
5. Challenge to the order granting deduction under Section 80IA for the initial assessment year.
6. Ruling on the deduction claimed for interest on cash credit.
7. Legality of the Tribunal's order and substantial question of law.

Analysis:
1. The High Court heard the appeal by the revenue against the Income Tax Appellate Tribunal's order dated 29th December 2003. The Tribunal allowed deduction under Section 80AI and directed the deduction of interest paid on cash credit. The Tribunal relied on its previous decision in the assessee's case for assessment year 1997-98 and the decision of the Court in CIT vs. Paul Brothers (216 ITR 548).

2. Regarding the deduction under Section 80IA, the Tribunal upheld the CIT's order deleting the addition made by the assessing officer in the assessment year 1997-98. The Tribunal found that the basis for disallowance of interest on cash credit no longer existed, leading to the allowance of interest paid by the assessee on the cash credit.

3. The revenue contended that the activities in the dairy division were not manufacturing activities, challenging the allowance of deduction under Section 80IA. The revenue also disputed the genuineness of the cash credit for which interest was paid. However, the Tribunal and respondent's counsel supported the Tribunal's decision based on previous orders and legal principles.

4. The Court found no fault in the Tribunal's decision to rely on the judgment in CIT vs. Paul Brothers, stating that once a deduction is allowed in an initial assessment year, it cannot be denied in subsequent years. The Court dismissed the appeal, emphasizing that the revenue should have challenged the initial assessment year's order if they disagreed with the deduction.

5. The Court did not delve into the manufacturing activities issue in the dairy division, as the appeal was dismissed based on the previous judgment. Similarly, the Court upheld the Tribunal's decision on the interest on cash credit, finding no illegality or perversity warranting interference under Section 260A of the Act. The Court concluded that no substantial question of law was involved, leading to the dismissal of the appeal.