2009 (4) TMI 968 - HC - Income Tax

CIT lacks power to withdraw claims under sections 80HH & 80-I in subsequent years; fresh consideration mandated.

Commissioner of Income Tax Versus Indian Railway Construction Co. Ltd.

The court held that the Commissioner of Income Tax (CIT) lacked the power to direct the withdrawal of claims under sections 80HH and 80-I in subsequent ... - Issues Involved:1. Power of CIT to direct withdrawal of claims under ss. 80HH and 80-I in subsequent years.2. Continuity of deductions under ss. 80HH and 80-I once granted in the initial year.3. Eligibility of deduction under ss. 80HH and 80-I for manufacturing intermediary products used in construction.Issue-wise Detailed Analysis:1. Power of CIT to Direct Withdrawal of Claims Under ss. 80HH and 80-I:The Tribunal held that the CIT had no power to direct the withdrawal of claims under ss. 80HH and 80-I in the order passed under s. 263 of the Act, as it would amount to reviewing the order passed by the AO for the assessment year 1982-83, which had been barred by limitation. The Tribunal's position was based on the principle that once a decision is taken in the initial year, it cannot be revisited in subsequent years without disturbing the initial year's assessment.2. Continuity of Deductions Under ss. 80HH and 80-I Once Granted in the Initial Year:The Tribunal and the assessee argued that once the benefit of deduction under ss. 80HH and 80-I is allowed in the first year, it should continue for the subsequent years until the expiry of the statutory stipulated period of benefits, namely, ten years. This argument was supported by the judgments in Saurashtra Cement and Chemical Industries Ltd. vs. CIT and CIT vs. Paul Brothers. However, the Revenue contended that each assessment year is a separate unit, and subsequent assessments must adhere to the law as interpreted by the Supreme Court, even if it means departing from the initial year's decision. The court agreed with the Revenue, noting that if the Supreme Court clarifies the law in a manner contrary to the initial year's basis, the assessing authority must follow the Supreme Court's interpretation in subsequent years.3. Eligibility of Deduction Under ss. 80HH and 80-I for Manufacturing Intermediary Products Used in Construction:The core issue was whether the activity of laying down the railway track amounts to manufacturing of goods/articles. The Revenue argued that such activity is construction, not manufacturing or production, relying on the Supreme Court judgment in N.C. Budharaja, which held that construction activities like dams, bridges, and roads do not constitute manufacturing or production of articles. The assessee countered that it was engaged in manufacturing numerous items used in the railway tracks, thus fulfilling the eligibility condition for deductions under ss. 80HH and 80-I. The court noted that the Tribunal had not examined this angle and remitted the matter for fresh consideration, emphasizing that the end product (railway track) is the test, not the intermediary products.Conclusion:The court set aside the Tribunal's orders and remitted the matters for fresh consideration, directing the Tribunal to examine the eligibility of deductions under ss. 80HH and 80-I in light of the Supreme Court's judgment in N.C. Budharaja. The appeals were allowed, and no costs were awarded.