Whether principle of consistency fails when certain benefits, not legally available to assessee, were allowed in the past - YES: ITAT

THE issues before the Bench are - Whether even if the investment in plant and machinery exceeds Rs one crore, the assessee can claim to be treated as SSI merely because it was treated so in the past; Whether merely because the assessee was erroneously allowed certain benefits in the past, such allowance vests any right in the assessee to claim the same in the next AY; Whether the principle of consistency fails when certain benefits, not legally available to the assessee, were allowed in the past and Whether the doctrine of res judicata is not applicable in the case of administration of tax laws. And the answers go against the assessee.

Facts of the case

The assessee company, a small scale undertaking, had claimed deduction u/s 80IB. The assessment was completed u/s 143(3), allowing the deduction. Subsequently, the CIT observed

that the value of plant & machinery of the assessee company was more than Rs one crore, and the same was not a small scale undertaking u/s 11B of Industries (Development and Regulation) Act, 1951. The CIT observed that us/80IB(14)(g) of the Act the conditions for being small scale undertaking should be satisfied on the last day of the previous year. Thus, invoking powers us/ 263, the CIT directed the AO to reassess the income and allowance of deduction applying ratio laid down us/ 80IB(14)(g) of the Act. Assessee stated that the said conditions were required to be fulfilled only for the first year of claim of deduction. Reliance in this regards was placed on Tribunal's decision in the case of Tata Communication Internet Services Ltd. Also, the assessee contended that the said issue was debatable and thus the original assessment by AO could not be considered as erroneous and prejudicial to the Revenue relying on the Supreme Court decision in case of Malabar Industrial Co. In appeal the assessee argued that the status of small scale undertaking was available till the time the unit was registered as a small scale unit. Further as per the consistency principle the assessee pleaded that since the deduction had been allowed for past A.Y. from 2001-02 to A.Y. 2005-06 where the value of plant & machinery was above Rs one crore, the deduction u/s 80IB could not be denied in the A.Y. under consideration.

On appeal, the Tribunal held that,

++ we find that as per provisions of section 11B of the Industries (Development and Regulation) Act, 1951, an undertaking to be regarded as small scale industrial undertaking therein must not have investment in plant and machinery exceeding Rs. 1 crore. Thus, in our considered view, the assessee’s undertaking cannot be regarded as small scale industrial undertaking for the year under consideration u/s 11B of the Industries (Development and Regulation) Act, 1951. Moreover, we find that there is no requirement as per the above provisions of section 80IB(14)(g) to have a certificate or otherwise for being regarded as small scale industrial undertaking u/s 80IB of the Act;

++ we find that the conditions regarding assessee’s industrial undertaking being a small scale industrial undertaking is of fact relevant to each year and the same can change on making of further investment in plant and machinery in subsequent year by the assessee or by sale of plant and machinery used in the undertaking by the assessee in the subsequent year. Therefore, merely because of allowance of deduction in an earlier year in which the assessee satisfied the conditions of being a small scale industrial undertaking, it cannot be held that the assessee must be allowed deduction in subsequent eligible years irrespective of the fact whether the assessee remains a small scale industrial undertaking in the subsequent years or not when the condition for allowability of deduction is that the assessee should be a small scale industrial undertaking;

++ therefore, in our considered view, the above decisions of the Bombay High Court are not applicable for deciding the issue under consideration………….. the assessee can be allowed deduction on the satisfaction of conditions envisaged in the law and not merely because it was erroneously allowed any deduction in the earlier years. It is a settled position that res judicata is not applicable in administration of tax laws. No vested right can be held to be created in favour of the assessee merely because of allowance of deduction in earlier years which was not legally entitled to, was allowed.