2014 (7) TMI 1260 - HC - Income Tax

High Court affirms Tribunal's Section 80-IB deduction decision citing consistency, legal precedents, and res judicata

The High Court upheld the Tribunal's decision to allow the deduction under Section 80-IB for the relevant years based on the principle of consistency and ... Allowability of deduction under Section 80-IB - whether the activity undertaken by the assessee qualifies to be a manufacturing activity? - Tribunal allowed the claim - Held that:- The Division Bench of this Court in 'CIT v. Arts & Crafts Exports' [2011 (12) TMI 338 - Bombay High Court] held that whether the decision of the Tribunal in the case of assessee for earlier year that the assessee was engaged in manufacturing activity and, therefore, entitled to deduction under Section 80-IB, had been accepted by the revenue and no argument was advanced to establish that the said decision of the Tribunal was erroneous, allowability of deduction under Section 80-IB of the Act during relevant previous year could not be assailed by the revenue. The facts of this case and present cases are similar. The ratio of this decision, in our view, is perfectly applicable to the present cases. - Decided in favour of assessee Issues:1. Whether the assessee is engaged in manufacturing activitiesRs.2. Applicability of the principle of res judicata in Income Tax proceedings.Analysis:1. The first issue raised by the revenue questioned whether the assessee was engaged in manufacturing activities. The Tribunal observed that for the assessment years 2004-2005 and 2005-2006, the same activity carried out by the assessee was considered as manufacturing activity, and deduction was granted under Section 80-IB of the Income Tax Act. However, the revenue denied the deduction for subsequent years. The Tribunal noted that the Assessing Officer had previously confirmed that the activity qualified as manufacturing. Applying the principle of consistency, the Tribunal allowed the deduction under Section 80-IB for the relevant years, as it had been allowed earlier.2. The second issue pertained to the applicability of the principle of res judicata in Income Tax proceedings. The Division Bench of the Bombay High Court in a previous case had held that if the revenue had accepted the Tribunal's decision in an earlier year that the assessee was engaged in manufacturing activity and entitled to deduction under Section 80-IB, then the allowability of deduction for subsequent years could not be challenged by the revenue unless it could prove the earlier decision was erroneous. The Court found the facts of the present case similar to the precedent and determined that no substantial question of law was involved in the appeals. Consequently, the appeals were dismissed based on the established legal principles and previous judgments.In conclusion, the High Court upheld the Tribunal's decision to allow the deduction under Section 80-IB for the relevant years based on the principle of consistency and the application of legal precedents regarding the acceptance of earlier decisions in Income Tax proceedings.