- (1.) WE have heard Shri R.K. Upadhyay and Shri Dhananjay Awasthi, learned counsel for the income tax department. Shri V.B. Upadhyay, Sr. Advocate assisted by Shri S.K. Garg, Shri R.S. Agrawal and Shri Ashish Bansal appear for the respondents.
(2.) IN all these income tax appeals filed on behalf of the revenue for the assessment years 1990-91; 1991-92; 1992-93; 1993-94 and 1995-96, the substantial question of law raised on which the appeals have been admitted is as follows:- "(1) Whether on the facts and in the circumstances of the case the Hon'ble ITAT was justified in holding that Zarda Yukta Pan Masala is not a tobacco preparation under Item 2 of Schedule XI of the I.T. Act." The assessee is engaged in manufacturing Pan Masala and other pan flavouring products including Zarda Yukta Pan Masala. The Zarda Yukta Pan Masala has a significant portion of Zarda pungent flavour of tobacco, which according to the department is consumed by persons, who are addicted to tobacco. A normal person does not consume Zarda Yukta Pan Masasla unless he buys it for the purposes of using it as tobacco preparation, which is also injurious to health and which is specifically printed on the pouches. The assessee claimed deduction under Section 80I of the Income Tax Act, which falls in Chapter VI A "Deductions in respect of profits and gains from industrial undertaking after a certain date etc." The assessee was required to explain as to what was the use of tobacco in pan masala, in as much as tobacco preparation as item no.2 in Schedule XI of the Act with reference under Section 80I (2) (iii). In case of an assessee manufacturing or producing any article not being any article or thing specified in the list of Schedule XI etc. is entitled to for deduction under Section 80I of the Act. The assessee was required to explain as to why the deductions under Section 32AB and 80I may not be disallowed on the profits attributable to Zarda Yukta Pan Masala because it was tobacco preparation. Item No.2 of the Schedule XI of the Act includes 'tobacco and tobacco preparation, such as cigars and cheroots, cigarettes, biries, chewing tobacco and snuff'. The A.O. vide order under Section 143 (3) held that Zarda Yukta Pan Masala cannot be treated as non-tobacco preparation because common man, addicted of tobacco prefers to the use of Zarda Yukta Pan Masala. The A.O. disallowed the claim of the assessee for deduction under Section 80I, as according to him the product is covered under Item 2 of Schedule XI of the IT Act, which debars the assessee to avail the benefits granted by the Statute.
(3.) THE assessee filed an appeal before the CIT (A), Kanpur, which by its order dated 25.2.2000 allowed the appeal and directed the A.O. to allow the claim under Section 80I at Zarda Yukta Pan Masala. The CIT (A) dismissed the appeal for the assessment year 1990-91 vide order dated 17.3.1993 on identical issues. The department filed an appeal against the order before the ITAT, Allahabad, which by its order dated 30.3.2001 dismissed the appeal with following observations:- "We have considered the rival submission. In view of the fact that the Tribunal following its order in case of M/s Kothari Products Ltd., Kanpur, a sister concern having the same proportion of zarda yukta pan masala there cannot be a different conclusion in respect of the appellant-assessee also. Therefore we direct the AO not to treat the zarda yukta pan masala as a tobacco preparation within the meaning of entry 2 of Schedule XI of the I.T. Act and also direct that the claim of deduction u/s 80-I be allowed to the appellant assessee." In the judgment dated 30.3.2001 the Tribunal relied upon its own order in Kothari Products Ltd. in the assessment year 1987-88 to 1991-92, where it had held that Zarda Yukta Pan Masala is not a tobacco preparation. Against this order of the Tribunal the department had filed reference application in the High Court. The High Court by its order dated 18.7.1995 held that no question of law arise out of the order passed by the Tribunal. The department filed a Special Leave Petition (CC 3095-96) against the order in which the delay was condoned and special leave petitions were dismissed on 12.7.1996. The order passed by the High Court dated 18.7.1995 is quoted as below:- "Income Tax Application No.39 of 1993 The Commissioner of Income Tax (Central), Kanpur v. M/s Kothari Products Ltd., Kanpur. By the Court Shri Rakesh Ranjan Agarwal for the Revenue. None appears for the opposite party. This is an application under Section 256 (2) of the Income Tax Act. Having heard learned counsel Shri Rakesh Ranjan Agarwal and perusing the application, we are of the opinion that no question of law arises out of the order passed by the Tribunal. The application is, therefore, rejected. Dt.18.7.1995 Sd/B.M. Lal Sd/S.N. Saxena" ;