By TIOL News Service

NEW DELHI, JUNE 06, 2013: THE issues before the Bench are - Whether the requisite conditions of sec. 80-I are to be satisfied only in first year or in all the assessment years in which the deduction u/s 80I is claimed; Whether the activity of printing carried out by the assessee constituted profits and gains derived by the assessee from an industrial undertaking within the meaning of section 80I; Whether the assessee could claim deduction u/s 80-I in respect of Units, even though it did not employ 10 or more workers on its rolls; Whether when an undertaking employs workers of sister concern and has total control over him regarding the work done, deduction u/s 80I can be denied to such undertaking; Whether the industrial undertaking which undertakes job work are entitled to claim deduction u/s 80-I; Whether the term ‘manufacture’ and ‘produce’ can be assigned similar meaning in context of section 80I deduction; Whether the benefit of Section 80-I should be denied to the assessee as the units have been formed by splitting up of the business of the assessee; Whether in order to test the independence of two undertakings, the criteria of analyzing their work style is the only decisive one and Whether  in case there is a material change in justifying the revenue to take a different view, the earlier view which has been settled and accepted of a several years can  be disturbed. And the verdict went in favour of the assessee.

Facts of the case

Assessee, a company, is engaged in printing and publishing newspapers and periodicals in English, Hindi, Marathi and Kannada. It had esablished a Unit in Sahibabad, District Ghaziabad, (U.P.) namely Unit No. 2 for carrying on the work of high speed printing. It was set up during the year ending 30.09.1985 and consisted of a printing press which was imported by the assessee. During the first year of the operation, there was a loss and no deduction u/s 80-I was allowed to the assessee and the return filed by the assessee was processed u/s 143(1). The assessee had filed a return for the subsequent AY, i.e., AY 1988-89, claiming a sum of Rs. 13,50,000/- as deduction u/s 80-I. During assessment, the AO had recomputed the deduction u/s 80I at Rs 12,80,044/- as against the initial deduction of Rs. 13,50,000/-. The assessee claimed a deduction of Rs. 18,45,800/- u/s 80-I for the AY 1989-90 with respect to Unit No. 2 as well as Unit No. 3 which was established in 1987 and housed in the building adjacent to the building where Unit No. 2 had been set up earlier. During assessment the deduction was allowed. In AY 1990- 91, assessee had claimed a deduction of Rs. 38,02,747/- u/s 80-I with respect to the profits from Unit 2 & 3. The claim of the assessee was examined by the AO who had passed the assessment order allowing the deduction u/s 80-I, but recomputed the same at Rs. 37,82,816/-. For the previous year ended 1991 relevant to the AY 1991- 92, assessee company had furnished a ROI of Rs. 44,44,203/- and claimed deduction of Rs. 44,58,681/- u/s 80-I, being 25% of the profits from Unit Nos. 2 & 3 disclosed by the assessee. Both the Units were established in Sahibabad in separate buildings situated adjacent to one another. The electricity connection, telephone connections as well as senior managerial staff were common for both the Units. The assessee contended that Unit Nos. 2 & 3 were independent printing houses and the income of these Units was accounted on the basis of printing done by them at specified rates. During assessment for AY 1991-92, AO had disallowed the claim of the assessee for deduction u/s 80-I with respect to Unit Nos. 2 & 3. The AO had observed that printing machines were highly sophisticated and computerized and could be operated and managed without employing more than two or three persons. The expenses incurred by the assessee with regard to Unit Nos. 2 & 3 were mainly payments made for purchase of ink and consumables. The workers employed in operating Unit Nos. 2 & 3 were employees of another company, which was a sister concern of the assessee company. The other company had not carried on any other business but was involved solely in engaging workers for the assessee. The AO had concluded that the assessee company did not qualify for a deduction u/s 80-I with respect to Unit Nos. 2 & 3 as these units had not employed any person in the manufacturing process as the persons engaged in the printing press were not employees of Unit Nos. 2 & 3 but of another company which was distinctly different from Unit Nos. 2 & 3. These units were not manufacturing any article or thing as printing on paper could not be construed to be manufacturing. These units had sophisticated computerized printing machines which did not require more than 2 or 3 persons to operate the press and hence, the condition u/s 80- I(2)(iv) which required that the industrial undertaking employ 10 or more persons was not satisfied. These units were only carrying on job work and were not selling any goods. The said Units were also not paying any sales tax for the job work charged. Publication of a magazine could be termed as manufacture, however, the magazines were being published by Unit No.1 of the assessee company and not exclusively by Unit Nos. 2 & 3. The assessee, as a company would be eligible to claim deduction u/s 80-I since it was engaged in publishing magazines. However, since the assessee company was established in 1973 and eight years had elapsed, deduction u/s 80-I was not available for the relevant AY.

On appeal before CIT(A), AR had contended that the claim for deduction u/s 80-I had been examined by the AO and had been allowed in the earlier years and thus, the same could not be denied to the assessee for the AY 1991-92. The assessee also contested the findings of the AO that Unit Nos. 2 & 3 did not employ more than 10 workers. While the CIT (A) had accepted the contention of the assessee that it employed more than 10 workers in Unit Nos. 2 & 3 and upheld the decision of the AO that deduction u/s 80-I was not allowable to the assessee as Unit Nos. 2 & 3 could not be construed as separate Units but were wholly dependent on Unit No. 1. The CIT(A) upheld the decision of the AO that Units Nos. 1, 2 & 3 were together engaged in publishing and printing and since the assessee company was more than 8 years old, deduction u/s 80-I would not be available to the assessee company. Whilst the CIT (A) had not accepted the contention of the assessee that Unit Nos. 2 and 3 were industrial undertakings independent of Unit No.1, the CIT(A) had accepted the contention that Unit Nos. 2 & 3 did produce 'articles' or 'things' as the printed material was different from the raw material used in producing them, namely, paper and ink. Thus, the condition that an industrial undertaking should manufacture or produce an article or thing was held to be satisfied.

On further appeal before Tribunal, It was contended by AR that Unit Nos.2 & 3 of the assessee company satisfied the condition of manufacturing an article or thing. The assessee also urged before the Tribunal that the question relating to the satisfaction of the conditions of section 80-I were to be examined in the initial year and once the claim of the assessee u/s 80-I had been examined and allowed, it would not be open for the AO to revisit the same during the subsequent years. The assessee also assailed the decision of the CIT (A) that Unit Nos. 1, 2 & 3 were inter-dependent Units and thus could not be considered as separate industrial undertakings. The entire company was liable to be treated as one undertaking and not separate Units. Tribunal had rejected the contention of the assessee that once the deduction u/s 80-I had been allowed to the assessee the same could not be examined in subsequent years. The Tribunal held that the principle of estoppel and res judicata were not applicable to the assessment proceedings under the Act and although Income Tax Authorities should be consistent in their approach and analysis but since the claim regarding eligibility of Unit No. 2 & 3 had not been examined earlier, the same could be examined in later years. The Tribunal held that the conditions of eligibility for claiming deductions u/s 80-I were required to be satisfied, not only for the first or initial year but were also required to be satisfied for subsequent years as well. Accordingly, the Tribunal rejected the contention of the assessee that claim for deduction u/s 80-I could not be denied to the assessee on the ground of consistency. The Tribunal had accepted the contention of the assessee that Unit Nos.2 & 3 were separate industrial undertakings and further held that although Unit Nos.2 & 3 were carrying on the printing activity for Unit No.1 these units could also exist independent of Unit No.1 and could carry on printing activity for other persons also. The Tribunal thus set aside the finding of the CIT (A) that Unit Nos. 2 & 3 could not be treated as separate industrial undertakings. The challenge on behalf of the revenue, to the conclusion of CIT (A) that the Unit Nos. 2 & 3 complied with the condition of Section 80-I in respect of carrying on manufacturing activity, was rejected by the Tribunal and the decision of the CIT (A) in this respect was upheld. In regard to the question of the number of workers employed by the Unit Nos. 2 or 3, the Tribunal accepted the contention of the assessee that employees of the sister concern, who were directly employed in operating Units Nos.2 & 3 and were working permanently for carrying on the activities of Unit nos.2 and 3, were required to be taken into consideration as persons employed in the industrial undertaking for the purposes of qualifying for deduction u/s 80-I. However, since, there was no finding by the AO in respect of the number of workers who were permanently employed in operating Unit Nos.2 and 3, the Tribunal remanded the matter to the AO. Pursuant to directions of Tribunal, the AO made the necessary enquiries as to the number of workers employed in Unit Nos.2 & 3 for the purpose of Section 80-I and concluded that more than 10 workers were engaged in Unit Nos.2 & 3 of the assessee. Accordingly, the AO passed an order by recomputing the taxable income and allowing the assessee, deduction u/s 80-I in respect of profits of Unit Nos. 2 & 3. The question whether the profits from Unit Nos.2 & 3 qualify for deduction u/s 80-I continued to be the subject matter of the proceedings for the subsequent three AYs also. While, the AO had rejected the claim of deduction made by the assessee, the Tribunal following its earlier decision in ITA No.6698/Del/94 relating to AY 1991-92 had held that the deduction u/s 80-I would be available to the assessee in respect to the profits of Unit nos. 2 and 3.

Before HC, the Revenue’s counsel had relied on the SC decision in the case of Union of India v. Delhi Cloth & General Mills (2002-TIOL-12-SC-CX-LB). In that case it was held that the word “manufacture” was understood to mean brining into existence a new substance and not merely to produce some change in the substance. It was contended by revenue that the paper processed by Unit Nos. 2 & 3 by carrying on printing upon it would not result in a substance which was known in the market as a substance different from paper. It was, thus, contended that Unit Nos.2 & 3 were not involved in manufacturing or producing any article or thing.  It was argued that the facts of the said case were distinguishable from the facts of the present case as balance sheets, profit & loss accounts, dividend, pamphlets and share certificates could be considered as final products but printed periodical without binding would not be a marketable product. It was also submitted, that since the publisher of books was held to be a manufacturer, the same would mean that the printer could not be considered to be a manufacturer.

Before HC, assessee’s counsel had contended that there was no dispute that the number of workers employed in Unit 2 & 3 exceed 10 and thus the condition as laid down in Section 80-I is met. Section 80-I(2)(iv) does not specify whether the workers to be employed in industrial undertaking must necessarily be on the rolls of the assessee. It was also contended that printing activity carried on in Unit Nos.2 & 3 does produce a distinct and different article. A printed periodical was completely different and distinct from the raw materials used namely paper and ink. In order to support his contention, it had cited the decision of the SC in the case of CIT v. Oracle Software India Ltd. (2010-TIOL-04-SC-IT) wherein the SC had held that the process of duplicating computer discs which involve recording software on a blank disc would amount to ‘manufacture’. A recorded CD where upon a software had been embedded would be an article completely distinct from a blank Disc. Using the same analogy, the counsel had contended that a printed paper on which periodical had been printed could not be equated with blank paper and was a new article or thing which was different from the raw material from which it was manufactured or produced. It had also disputed the contention on behalf of the revenue that since binding of printed material was not done by Unit Nos. 2 & 3 in all cases, the printed material would not be a product which was marketable. It was also contended that Unit Nos. 2 & 3 were independent industrial undertakings. Whereas Unit No. 1 was a publishing house, Unit Nos. 2 & 3 were printing houses. It was further submitted that the contention on behalf of the revenue that Unit Nos. 2 & 3 had been formed by splitting up of businesses was erroneous and had not been urged before either the CIT(A) or the Tribunal. It was not disputed that operations in Unit No.1 continued even after Unit Nos.2 & 3 were established. It was contended that in these circumstances, it could not be said that Unit Nos. 2 & 3 had been formed by splitting up of business of the assessee, so as to disqualify the assessee claiming benefit u/s 80-I. It was also contended that the AO once having accepted that Unit Nos. 2 & 3 were eligible for deduction u/s 80-I could not disallow the same in subsequent years

Held that,

++ a plain reading of the language of Section 80-I (2)(iv) indicates that the qualification of employing of 10 or more workers is not used in the context of persons employed by an assessee but in the context of the manufacturing process. This clearly means that the manufacturing process, which is carried on by an industrial undertaking, with the aid of power, must employ 10 or more workers to carry on the manufacturing process. The word ‘employs’ has not been used in the context of an employer and employee relationship between the assessee and the workers carrying on the manufacturing process, but in the sense of quantifying the number of persons to be deployed in the manufacturing process. The expression “workers” is not defined in the Act and there is no reason to limit the expression “workers” as occurring in section 80-I(2)(iv) to only mean such workers as are employed directly by the assessee and ignore the workers who are engaged in the manufacturing process carried on by the industrial undertaking albeit employed through another agency. In the case of Commissioner v. Nanda Mint and Pine Chemicals Ltd.: (2012) 345 ITR 60 (Del) this court has, while considering the question of qualification as to the number of workers to be employed for availing deduction u/s 80-IB, held that casual and contractual workers are to be included while calculating the number of employees who are engaged in an Industrial undertaking. While deciding the controversy, this court adopted the reasoning of the Bombay HC in the case of CIT v. Jyoti Plastic Works Pvt. Ltd (2011-TIOL-744-HC-MUM-IT);

++ in the case of Nanda Mint and Pine Chemicals (supra), this court has held that an undertaking employs a worker when it has control over him not only with regard to the work done by him but also over the manner in which work is performed. In the present case, it is an admitted position that more than 10 workers were permanently involved in carrying on the activities in Unit Nos. 2 & 3. We are, thus, unable to accept the contention on behalf of the revenue that Unit Nos. 2 & 3 did not fulfill the criteria as set out in Section 80-I(2)(iv) of the Act merely because the persons who were deployed in carrying out the activities of Unit Nos. 2 & 3 were engaged through the sister concern of the assessee;

++ in our view, the Tribunal was correct in not accepting the contention of the revenue that the workers in an industrial undertaking must be on the rolls of assessee for availing the benefit under Section 80-I of the Act;

++ we are unable to appreciate the contention that the industrial undertaking which undertakes job work would not be entitled to claim deduction under Section 80-I. The language of Section 80-I(2) of the Act does not indicate in any manner that an industrial undertaking which instead of purchasing raw material, acquires raw material from a third party in order to subject it to the activity carried on by the industrial undertaking and sends the resultant product back to the entity from which the raw material had been procured, would be disqualified from availing benefits under Section 80-I of the Act. There is nothing in the language of Section 80-I(2)(iii) to suggest that the assessee claiming the benefit of Section 80-I must structure his business in any particular form. Carrying on job work is only a method of structuring one’s business. An assessee owning an industrial undertaking may either choose to purchase raw material on its own and process the same or it may acquire raw material on job work basis and utilize the same for carrying on the industrial activity. In either event so long as the industrial undertaking owned by the assessee fulfills the conditions as specified u/s 80-I(2), the benefit of Section 80-I of the Act cannot be denied to the assessee. We are unable to read the condition that an industrial undertaking must not carry on the manufacturing process on job work basis in order to avail the benefit of section 80-I of the Act in the language of 80-I(2);

++ this Court has in the case of CIT v. Sadhu Forging Ltd. (2011-TIOL-361-HC-DEL-IT) considered the issue whether deduction under Section 80-IB of the Act would be available to an assessee who was carrying on job work. The conditions as specified in Section 80-I(2)(iii) are identical with the language of Section 80-IB(2)(iii) of the Act. In the case of Midas Polymer Compounds P. Ltd. (supra) a full bench of the Kerala High Court held that an assessee who was engaged in mixing rubber with chemicals, process oil etc. to make compound rubber for tyre manufacturing companies on job work basis was entitled to deduction under section 80-IB. The idea that carrying on job work necessarily excludes carrying on an activity of manufacture or production is in our view without any basis. The ratio of the decision in the case of Forging Ltd. is applicable to the facts of the present case and we accordingly hold that carrying on job work does not disentitle Unit Nos.2 & 3 from being considered as industrial undertaking for the purposes of section 80-I of the Act;

++ the expression used in Section 80-I (2)(iii) is “manufacture or produce any article or thing”. The word ‘produce’ has wider meaning than the word “manufacture”. The meaning of the word ‘produce’ is similar to the word “production” and it has been held by the Supreme Court in the case of CIT v. N.C. Budharaja & Co. (2002-TIOL-632-SC-IT) that while every manufacture can be characterized as production, every production need not amount to manufacture. It was observed by SC that the word ‘production’ has a wider connotation than the word ‘manufacture’. While every manufacture can be characterized as production, every production need not amount to manufacture. The word ‘production’ or ‘produce’ when used in juxtaposition with the word ‘manufacture’ takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods”.  The expression used in Section 80-I(2)(iii) is much wider and, thus, would take in its sweep any article that may be manufactured or produced. It is apparent that the expression “article or thing” is extremely wide. The question thus arises is whether the printed paper which is produced in Unit Nos.2 & 3 falls within the sweep of the expression 'article' or 'thing'. We are unable to think of any reason to exclude the printed paper produced by the assessee in Unit Nos.2 & 3 from the ambit of the expression ‘article’ or ‘thing’. The language of Section 80-I (2)(iii), thus clearly, indicates that Unit Nos.2 & 3 do “manufacture or produce an article or thing”;

++ the SC in the case of CIT v. SESA Goa Limited (2004-TIOL-95-SC-IT-LB) considered the question whether extraction and processing of iron ore amounted to manufacture or not in the context of availability of investment allowance u/s 32(A) in respect of machinery used in the mining activity. In that case, revenue contended that processing of iron ore did not produce any new product and thus the benefit of Section 32(A) was not available to the assessee. As per section 32(A)(2)(b)(iii), deduction on account of investment allowance is available to the assessee in respect of a plant owned by the assessee which is wholly used for the purpose of assessee’s business in an industrial undertaking for the purposes of the business of “construction or manufacture or production of any article or thing”. The SC noted that the meaning of the word production was defined only in the Oxford English Dictionary as “amongst other things that which is produced; a thing that results from any action, process or effort, a product; a product of human activity or effort” and this definition has been accepted by the SC in an earlier decision in the case of Chrestian Mica Industries Ltd. v. State of Bihar: [1961] 12 STC 150. The Court further held that the definition of the word ‘production’ was wide enough to include the production of mineral ores and ores would fall within the expression “a thing”. Having held that the word “production” was much wider than manufacture, the Supreme Court felt that it was not necessary to examine the question whether the mined ore was commercially a new product. In the present context also, although we have held that in the facts of this case producing printed paper does amount to manufacture as a new article or a thing known to market comes into existence. It is not necessary that an industrial undertaking must manufacture a commercially new product in order to fulfill the condition as specified in Section 80-I(2)(iii). Since, in any event production of any article or thing by an industrial undertaking would be sufficient to entitle the industrial undertaking to claim that the condition u/s 80-I(2)(iii) t was fulfilled. Indisputably, printed paper falls within the meaning of the expression “an article or thing” and whether the same is marketable as new product is not relevant. The SC has also held in the case of N. C. Budharaja & Co. that by products, intermediate products and residual products that emerge in the case of manufacture are also to be included in the word ‘production’ or ‘produce’. Thus, even if the printed material as produced by Unit Nos.2 & 3 is taken as an intermediate product which requires to be further bound for making it marketable, the word produce occurring in Section 80-I(2)(iii) would include it within its ambit. The decision of the SC in the case of N. C. Budharaja & Co. and Sesa Goa Limited have been followed by the SC in the later decision of India Cine Agencies v. CIT: (2009) 308 ITR 98. In this case the SC accepted that the meaning of the word “production” or “produce” was wide enough to include conversion of jumbo rolls of photographic films into small flats and rolls in the desired sizes and held that the benefits of section 80-I would be available in respect of an industrial undertaking engaged in such activity. We, accordingly, reject the contention of the revenue that Unit Nos.2 & 3 fail to fulfill the conditions as specified in Section 80-I(2)(iii);

++ we are unable to accept the contention as raised on behalf of the revenue that there is no material to indicate that the integrity of the business carried out by Unit No.1 or the integrity of Unit had been broken in any manner. Admittedly, Unit No.1 continues to function and carry on the business even after Unit Nos.2 & 3 were established. As stated earlier, it is not disputed that Unit Nos.2 & 3 were established in addition to the existing Unit and were not formed by transfer of any asset from Unit No.1. Unit Nos.2 & 3 contained highly sophisticated machines capable of carrying on printing at enormous speeds. This facility of high speed printing of the quality and the kind of which Unit Nos.2 & 3 are capable of were not available in Unit No.1. Unit No.1 was mainly engaged in publication and also carried on the job of composing, processing and printing of sheet fed presses. Merely, because the activity of printing was carried on by Unit No.1 also and the Unit No.1 was utilising the capabilities of Unit Nos.2 & 3 by getting job work done from them does not lead to the conclusion that Unit Nos.2 & 3 had been formed by splitting of the business of Unit No.1. The test whether industrial undertaking fulfills the condition as imposed u/s 80-I(2)(i) is not whether some part of the business of an assessee is carried on by the newly established undertaking but whether the newly established undertakings are formed by splitting up or reconstruction of the business of the existing Unit;

++ in the case of Textile Machinery Corporation Ltd., the SC held that if the new industrial undertaking could survive even after cessation of the principal business of the assessee the same cannot be but new separate industrial undertakings which would qualify for an appropriate exemption under Section 15C of the Income Tax Act, 1922. Whether the new industrial undertaking produces the same commodities or different ones or whether the products of the new industrial undertakings were consumed by the assessee in the old business was not considered by the Court as relevant. The essential test that was laid down was whether the new industrial Unit in the true sense represented industrial undertakings independent from the existing one inasmuch as they can independently stand and function as separate Units;

++ in the case of Indian Aluminium Co. Ltd., the SC was considering the case of an assessee who was engaged in producing aluminum ingots from ore at four different manufacturing centres. During the relevant previous year, the assessee established another manufacturing centre at a different location and further undertook expansion of the existing centres by setting up additional undertakings at two of the existing centres adjacent to the existing Units. The Supreme Court upheld the decision of the Tribunal in allowing the benefit of section 15C of the Income Tax Act, 1922 by applying their decision in the case of Textile Machinery Corporation Ltd. (supra). Thus, even in cases where an assessee augments its capacities by establishing new industrial undertakings to carry on the same business, the benefit of section 80-I of the Act would be available to the assessee in respect of the newly established undertakings. Keeping in view the ratio of the aforementioned, we are unable to find any material from the records to support the contention that Unit Nos.2 & 3 have been formed by splitting up of the business of the assessee and thus, the condition u/s 80-I(2)(i) has not been met. It is recorded in the assessment order that the assessee had explained that Unit No.1 (for which deduction u/s 80-I has not been claimed) is “primarily engaged in publishing of magazines/newspapers as well as in printing on sheet fed presses, composing and processing”. Admittedly, the activities being carried on by the assessee in Unit No.1 have not been discontinued and the Unit Nos.2 & 3 were established in addition to Unit No.1. It has been admitted before us that neither any machinery nor any equipment were transferred from Unit No. 1 to Unit Nos.2 & 3;

++ in order to qualify u/s 80-I(2)(i), the newly established industrial undertaking should not be formed by splitting, or reconstruction of a business already in existence. The key word in the condition imposed under section 80-I(2)(i) is “formed”. Thus, what is to be considered is whether formation of new industrial undertaking was a result of splitting up of business. We are unable to agree that a new undertaking would be disqualified under section 80-I(2)(i) simply for the reason that the activity carried on in a new undertaking was of a similar nature to one of the activities being carried on in the existing undertaking even though the new industrial undertaking is established in addition to the existing one without transfer of any assets to the newly formed undertaking. In our view, the test to be applied is whether the new undertaking has been formed as an undertaking independent of the existing undertaking and is capable of carrying on its activity independent of the existing Unit. In this regard, we agree with the view taken by the Tribunal that the test of whether Unit Nos.2 & 3 were independent undertakings or not is not to be adjudged on the basis whether the said Units were carrying on printing work for Unit No.1 but whether the Units were capable of independently carrying on the business for which they were formed. The assessee had contended that whereas Unit No.1 was publishing house Unit Nos.2 & 3 were printing houses and the work of printing carried out by through high speed printing machines was a business which could be carried out independent of Unit No.1. The assessee had also been given examples of entities who were engaged in carrying on the printing activity on a standalone basis and were not involved in publication. Indisputably, printing activity can be carried out by an entity for any person who may have a requirement for the same and it is not necessary that every person who engages in the business of printing should necessarily also be involved in publishing. In view of the same, we are not inclined to entertain the contention raised on behalf of the revenue that Unit Nos.2 & 3 fail to fulfill the condition u/s 80-I(2)(i);

++ it is well settled law that the principles of res judicata do not apply to income tax proceedings and assessment for each year is an independent proceeding. It is now equally well established that issues that have been settled and accepted over a period of time should not be revisited in subsequent assessment years in absence of any material change which would justify the change in view. The SC in the case of Radhasoami Satsang has held that unless there is a material change in justifying the revenue to take a different view the earlier view which has been settled and accepted of a several years should not be disturbed. In the present case, the claim of the assessee u/s 80-I was examined and allowed by the AO for three years preceding the AY 1991-1992. It is relevant to note that assessments in the earlier years i.e relating to AYs 1988-89, 1989-1990 and 1990-1991 has not been disturbed by the AO and there has been no change that could justify the AO adopting a different view in the AYs 1991-92 and thereafter. As stated hereinbefore, in certain cases where the issues involved have attained finality on account of the subject matter of dispute having been finally adjudicated, the question of reopening and revisiting the same issue again in subsequent years would not arise. This is based on the principle that there should be finality in all legal proceedings. The SC in the case of Parashuram Pottery Works Co. Ltd. v. ITO (2002-TIOL-573-SC-IT) had held that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.”

++ by virtue of section 80-I(5), deduction u/s 80-I is available to an assessee in respect of the assessment year (referred to as the initial assessment year) relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things, or to operate its cold storage plant or plants or the ship is first brought into use or the business of the hotel starts functioning or the company commences work by way of repairs to ocean-going vessels or other powered craft. Such deduction is also available for the seven assessment years immediately succeeding the initial assessment year. Surely in cases where an assessee is held to be eligible for deduction in the initial assessment year, the same cannot be denied in the subsequent assessment years on the ground of ineligibility since the set of facts which enable an assessee to claim to be eligible for deduction under section 80-I of the Act occur in the previous year relevant to the initial assessment year and have to be examined in the initial assessment year. In such cases, where the facts on the basis of which the deductions are claimed are subject matter of an earlier assessment year and do not arise in the current assessment year, it would not be possible for an Assessing Officer to take a different view in the current assessment year without altering or reopening the assessment proceedings in which the eligibility to claim the deduction has been established. In cases where deduction is granted u/s 80-I, the applicability of the Section is determined in the year in which the new industrial undertaking is established. The qualification as to whether any industrial undertaking fulfills the condition as specified under Section 80-I of the Act has to be determined in the year in which the new industrial undertaking is established. Although the deduction under Section 80-I of the Act is available for the assessment years succeeding the initial assessment year, the conditions for availing the benefit are inextricably linked with the previous year relevant to the assessment year in which the new undertaking was formed. In such circumstances, it would not be possible for an Assessing Officer to reject the claim of an assessee for deduction under Section 80-I of the Act on the ground that the industrial undertaking in respect of which deduction is claimed did not fulfill the conditions as specified in Section 80-I(2) of the Act, without undermining the basis on which the deduction was granted to the assessee in the initial assessment year. This in our view would not be permissible unless the past assessments are also disturbed;

++ the Assessing Officers over a period of three years being assessment years 1988-89, 1989-1990 and 1990-1991 have consistently accepted the claim of the assessee for deduction under 80-I and it would not be open for the Assessing Officer to deny the deduction under Section 80-I of the Act on the ground of non fulfillment of the conditions under 80-I(2) of the Act without disturbing the assessment for the assessment years relevant to the previous year in which the Unit Nos.2 & 3 were established.  This view has also been accepted by a Division Bench of Gujarat High Court in the case of Saurashtra Cement & Chemical Industries. In that case, the Gujarat High Court held that where relief of a tax holiday had been granted to an assessee in an initial assessment year in which the conditions for grant of tax holiday had to be examined, denial of relief in the subsequent years would not be permissible without disturbing the assessment in the initial assessment year. The Division Bench of the Bombay High Court in the case of Paul Brothers has also adopted the view expressed by the Gujarat High Court in the case of Saurashtra Cement & Chemical Industries. Following the aforesaid decisions, we hold that in facts of the present case Unit Nos. 2 & 3 cannot be stated to have been formed by splitting up or in reconstruction of existing business.

(See 2013-TIOL-463-HC-DEL-IT)