Court Upholds ITAT Decision on Deduction Disallowance, Emphasizes Principle of Continuity

The High Court upheld the ITAT's decision in an appeal against the revenue for assessment years 1992-93 to 1994-95, where deduction u/s 80IA was allowed to the assessee. The Court emphasized the principle that once a deduction is permitted in a year, it cannot be disallowed in subsequent years. Criticizing the revenue for not challenging the deduction granted initially, the Court dismissed the appeal, finding no substantial question of law. The Court did not address the manufacturing activities issue, deeming it unnecessary in this case.

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Issues involved: Appeal u/s 260-A of the Income Tax Act, 1961 against ITAT order dismissing revenue's appeal for assessment years 1992-93 to 1994-95 due to low tax effect and allowing deduction u/s 80IA to the assessee.

Issue 1: Appeal against ITAT order
The appeal was filed by the revenue against the ITAT order dismissing the appeal for assessment years 1992-93 to 1994-95. The ITAT had disposed of the appeals against the CIT (A) Nagpur order, where appeals for 1992-93 and 1994-95 were dismissed due to tax effect not exceeding Rs. 1 lac, contrary to CBDT directions. The ITAT relied on previous decisions and dismissed the appeal for AY 1994-95 as well, as deduction u/s 80IA was allowed in the initial year and should not be denied in subsequent years.

Issue 2: Claim of deduction u/s 80IA
The revenue contended that the assessee's activities in the dairy division did not qualify as manufacturing activities, questioning the allowance of deduction u/s 80IA by CIT and ITAT. The revenue did not challenge the deduction granted for the initial assessment year 1992-93 due to low tax effect. On the other hand, the respondent argued that the ITAT's decision was justified, citing the principle that once a deduction is permitted in a year, it cannot be disallowed in subsequent years.

The High Court found no merit in the revenue's appeal, upholding the ITAT's decision based on the precedent set in CIT vs. Paul Brothers. The Court emphasized that if a deduction is allowed in a particular year, it cannot be denied in later years. The Court criticized the revenue for not challenging the deduction granted in the initial year, stating that they should have been aware of the legal principle. As a result, the appeal was dismissed, and no substantial question of law was found. The Court did not delve into the debate on whether the activities in the dairy division constituted manufacturing activities, as it was unnecessary given the circumstances.

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