2025 (10) TMI 805 - AT - Income Tax

Assessee granted continued Section 80IA deduction for later years under rule of consistency after approval withdrawal quashed

ITAT (DELHI - AT) allowed the assessee's deduction under section 80IA for subsequent years, holding that once permitted in the first year the deduction ... Denial of deduction u/s 80IA - Deduction was allowed in First year but denied subsequently - claim disallowed later years for the sole reason that there were difference in the area notified in the approval and the area constructed and finally the Government of India has withdrawn the notification granting the approval for construction of industrial park to the assessee HELD THAT:- Once the deduction u/s 80IA is allowed in the first year it has to be allowed in the subsequent year also by following the rule of consistency as has been held in the case of Radha Swami Satsang [1991 (11) TMI 2 - SUPREME COURT] As further seen that based on the withdrawal of the approval by the Central government, the AO has reopened the assessment proceedings for AY 2008-09 and 2009-10 which were challenged before the Hon’ble Jurisdictional High Court [2018 (8) TMI 61 - DELHI HIGH COURT] has quashed such withdrawal. Revenue has not placed any fresh order issued by the government after the order of hon’ble jurisdictional High court and thus the approval granted earlier remined in force. In view of these facts and further considering the order of Hon’ble Jurisdictional High Court quashing the order of withdrawal of approval, in our opinion, the assessee is entitled for the deduction u/s 80-IA which is hereby allowed. All the grounds of appeal taken by assessee are allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether deduction under section 80IA(4)(iii) for construction, development and maintenance of an industrial park can be disallowed on the basis of a subsequent administrative withdrawal of the approval/notification by the Central Government where the assessee had earlier been notified and deduction was allowed in an earlier assessment year. 2. Whether the rule of consistency/preclusive effect of an earlier allowance of deduction in the initial year precludes reassessment or disallowance in subsequent years absent fresh material showing non-fulfilment of conditions. 3. Consequences of a judicial quashing of the Government's withdrawal of approval/notification on assessments and whether the basis for prior disallowance falls away. 4. Whether penalty under section 271(1)(c) can be sustained where the addition/disallowance that formed the basis for the penalty is negated by subsequent acceptance of the deduction (including by judicial order), such that there is no concealed income or inaccurate particulars. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of disallowance of section 80IA deduction based solely on administrative withdrawal of approval/notification Legal framework: Deduction under section 80IA(4)(iii) is available to undertakings notified by the Central Government; such notification/approval is a material condition for claiming the deduction. Administrative withdrawal of approval is effected by the granting authority and may be relied upon by revenue to disallow benefits claimed on that basis. Precedent treatment: The Tribunal applied a leading Supreme Court authority on the rule of consistency (referred to generically) and a ratio from a High Court decision concerning interpretation of scheme conditions and reasonable delay in commissioning of projects (Bombay High Court reasoning described in the judgment) as persuasive on the proper construction of Scheme provisions permitting some temporal flexibility. Interpretation and reasoning: The Court examined that the only substantive basis for disallowance in the assessment order was the Central Government's withdrawal of approval. The withdrawal itself was subsequently challenged and quashed by the jurisdictional High Court which found the withdrawal to be unreasoned, to have ignored record and explanations regarding constructed area, super area leased and non-suppression of facts, and to be inconsistent with scheme provisions (notably paragraph 9 of the Scheme) and analogous High Court reasoning. The Tribunal held that where the administrative act of withdrawal is set aside by the High Court, the foundational basis for the assessment disallowance (i.e., lack of valid notification/approval) no longer existed. Ratio vs. Obiter: Ratio - where disallowance is founded solely on an administrative withdrawal of approval, judicial quashing of that withdrawal removes the basis for disallowance and supports restoration of the deduction. Obiter - observations on the scope of administrative powers to withdraw approvals beyond the specific record of the case. Conclusion: Disallowance of the section 80IA deduction based only on the withdrawn notification cannot stand when the withdrawal has been quashed on merits; the deduction is to be allowed if no other adverse finding exists on eligibility. Issue 2 - Effect of prior allowance in the initial year and application of the rule of consistency Legal framework: Judicial principle that when an assessee's entitlement to an exemption/deduction is examined and allowed in an earlier (initial) year after due verification, the same entitlement ordinarily continues in subsequent years unless fresh material or changed circumstances justify reconsideration. Precedent treatment: The Tribunal relied on the established Supreme Court principle (described generically) that the rule of consistency requires continuation of the allowance in subsequent years in absence of fresh material affecting eligibility. Interpretation and reasoning: The Tribunal noted that the deduction was first claimed and allowed after verification in earlier assessment years (the initial year and a subsequent year). No fresh material, beyond the administrative withdrawal (later quashed), was placed on record to justify denying the deduction in later years. The Tribunal therefore applied the rule of consistency and concluded that once the eligibility was tested and allowed initially, subsequent disallowance was not permissible without new evidence. Ratio vs. Obiter: Ratio - consistency principle binds subsequent assessments and supports continuing allowance of deduction absent new adverse material. Obiter - remarks on the limits of consistency where genuine fresh material emerges (not applicable in present facts). Conclusion: The assessee's previously allowed deduction should have been continued for subsequent years; the rule of consistency precluded disallowance in the absence of fresh adverse material. Issue 3 - Effect of High Court order quashing withdrawal and duty of authorities thereafter Legal framework: A judicial order quashing an administrative withdrawal reinstates the position antecedent to withdrawal unless a fresh reasoned order, following grant of opportunity and addressing the record, is issued by the competent authority as directed by the Court. Precedent treatment: The High Court remitted the matter to the administrative authority to consider all materials, grant hearing and pass a reasoned order restricted to specific factual questions (constructed area, suppression, scheme requirements). Tribunal treated that directive as leaving the earlier approval effectively intact pending any fresh reasoned order - none of which was produced by revenue. Interpretation and reasoning: Because revenue did not produce any subsequent reasoned order of the competent authority following the High Court's remit, the notification/approval remained in force. The Tribunal held that the absence of any fresh administrative determination meant that the only ground for the AO's disallowance (the withdrawn notification) no longer subsisted. Ratio vs. Obiter: Ratio - where a judicial quashing restores the approval and no fresh administrative order is issued, assessments predicated solely on the withdrawn approval must be re-evaluated in favor of the assessee. Obiter - procedural expectations from administrative reconsideration following judicial remittal. Conclusion: The quashing of withdrawal restored the basis for the section 80IA deduction; in absence of any fresh administrative action adverse to the assessee, the Tribunal allowed the deduction for the relevant years. Issue 4 - Sustenance of penalty under section 271(1)(c) where disallowance is negated Legal framework: Penalty under section 271(1)(c) attaches where the assessee has furnished inaccurate particulars or concealed income; such penalty presupposes that the addition/disallowance representing concealed/inaccurate particulars stands on merits. Precedent treatment: The Tribunal applied the logical corollary that when the underlying addition is deleted (here by allowing the deduction on merits and in consequence of judicial quashing of the withdrawal), there remains no basis for concluding concealment or inaccurate particulars. Interpretation and reasoning: The assessment addition forming the basis of penalty was predicated on the disallowance of the section 80IA claim. As that disallowance was reversed (and the approval restored), there was no remaining concealed income or inaccurate particulars relating to that issue; the CIT(A)'s deletion of the penalty was therefore upheld. Ratio vs. Obiter: Ratio - penalty cannot be sustained where the foundational addition has been reversed and no other independent finding of concealment or inaccuracy exists. Obiter - considerations where independent evidence of deceit or suppression exists irrespective of net additions (not present here). Conclusion: Deletion of the penalty under section 271(1)(c) was correct because the deduction was held to be allowable, leaving no concealed income or inaccurate particulars on that account. Final Disposition (as applied to the legal issues) The Tribunal allowed the assessee's appeal on entitlement to section 80IA deduction for the year under challenge and upheld the deletion of penalty; revenue appeals for subsequent assessment years were dismissed where the CIT(A) had allowed the deduction following the High Court's quashing of the withdrawal and no fresh adverse administrative order was produced. Cross-reference: Issues 1-3 are interlinked - the judicial quashing (Issue 3) removed the administrative basis (Issue 1) and, combined with the rule of consistency (Issue 2), required allowing the deduction; Issue 4 flows from these results.