De-notification of Backward Area Precludes Section 80HH Deduction As Promissory Estoppel Cannot Override Statutory Amendments

By | October 31, 2026
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De-notification of Backward Area Precludes Section 80HH Deduction As Promissory Estoppel Cannot Override Statutory Amendments

Issue

Whether an industrial undertaking can claim deduction under Section 80HH on the grounds of promissory estoppel or hardship when the area of operation was retrospectively de-notified as a backward area under the Eighth Schedule of the Income-tax Act, 1961.

Facts

  • Claim for Deduction: The assessee-company set up an industrial undertaking at Cuddalore and claimed deductions under Section 80HH of the Income-tax Act for Assessment Years 1992-93 to 1994-95.
  • Inclusion History: Cuddalore was originally included in the list of specified backward areas under the Eighth Schedule in 1984.
  • De-notification Amendment: Pursuant to the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 and a subsequent statutory notification, Cuddalore was de-notified as a backward area with retrospective effect from 1983.
  • Assessee’s Stand: The assessee claimed benefit under Section 80HH invoking the doctrine of promissory estoppel and asserting financial prejudice and hardship caused by the retrospective withdrawal of backward area status.
  • Absence of Legal Challenge: The assessee did not formally challenge the validity of the notification dated 01.04.1983 that de-notified Cuddalore.

Decision

  • Promissory Estoppel Inapplicable: The doctrine of promissory estoppel cannot be invoked against the operation of statutory law or legislative amendments.
  • Pre-condition Unfulfilled: Section 80HH mandates that the industrial undertaking must be located in an area specified in the Eighth Schedule. Since Cuddalore was de-notified effective 1983, the statutory prerequisite was not satisfied during the relevant assessment years.
  • Hardship Not Material: Arguments regarding prejudice and financial hardship carry no legal weight when the underlying notification withdrawing backward area status remains unchallenged.
  • Outcome: The rejection of the deduction under Section 80HH was upheld in favor of the Revenue.

Key Takeaways

  • No Estoppel Against Statute: Promissory estoppel cannot override statutory provisions, legislative amendments, or valid notifications issued under an Act.
  • Strict Statutory Compliance: Deductions under Section 80HH are contingent upon satisfying all statutory conditions during the relevant assessment year, including active inclusion in the Eighth Schedule list of backward areas.
  • Requirement to Challenge Notifications: A taxpayer cannot claim relief against a statutory de-notification on grounds of equity or hardship without successfully challenging the legal validity of the de-notifying order or notification itself.
HIGH COURT OF MADRAS
Arkema Peroxides India (P.) Ltd.
v.
Deputy Commissioner of Income-tax
Dr. Anita Sumanth and S. Raveekumar, JJ.
TCA Nos. 171, 172 and 173 of 2014†
SEPTEMBER  9, 2026
R. Venkatanarayanan and Subbaraya Aiyar for the Appellant. T. Ravikumar, Sr. Standing Counsel for the Respondent.
JUDGMENT
Dr. Anita Sumanth J. – These appeals relate to assessment years (AY) 1992-93, 1993-94 and 1994-95. The substantial questions that have been admitted on 05.08.2014 are as follows:
1. Whether on the facts and in the circumstances of the case the Tribunal was right in law in holding that assessee is not entitled to deduction U/S.80HH of the Act in respect of the industrial undertaking set up in a backward area as specified in the Eighth Schedule of the Income Tax Act ?
2. Whether on the facts and in the circumstances of the case the Tribunal was right in law in holding that for claiming deduction u/s.80HH mere intention to begin manufacture or production and making investment would not suffice and there has to be actual manufacture or production at least before 10-09-1986 when the Taxation laws (Amendment and Miscellaneous Provisions)Bill, 1986 became an Act.?
3. Whether on the facts and in the circumstances of the case the Tribunal was right in law in holding that assessee is not entitled to deduction U/S.80HH of the Act since the industrial undertaking that was set up in a backward area as specified in Eighth Schedule ceased to be a backward area when it started its production in December 1988 ?
4. Whether on the facts and in the circumstances of the case and in law the deletion of Eighth Schedule would affect the claim of assessee for deduction U/S.80HH as it had taken irrevocable steps for establishing the industrial undertaking by making substantial investment and after getting necessary approvals and clearances from the Government of India ?.
5. Whether the Tribunal was right in law in not applying the Doctrine of Promissory Estoppel for granting the claim of deduction u/s.80HH of the Act ?
2. The facts are as follows. Section 80HH grants deduction in respect of profits and gains derived from newly established industrial undertakings located in backward areas. The Explanation to the provision states that a backward area is an area specified under the VIII Schedule to the Act. The VIII Schedule, as it stood in 1984, included South Arcot district encompassing Cuddalore.
3. The appellant had acquired land in Semmanikuppam Village, Cuddalore, South Arcot District, for setting up units for the manufacture of polymerisation initiators intending to avail the benefit of deduction under Section 80 HH of the Income tax 1961 that granted deduction of 100 % of the profits derived from deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas.
4. The letter of intent from the Government was dated 12.09.1984 and collaboration agreement was approved by the Government of India on 09.11.1984. The assessee company was incorporated on 14.03.1985 and business was commenced in December, 1988.
5. While so, and unfortunately for the assessee, the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 came into effect on 10.09.1986, and Notification in F.No.178/171/86-IT(A1) was issued on 19.12.1986, effective from 01.04.1983, specifying a revised list of backward areas that excluded Cuddalore.
6. On account of the change in circumstance and de-notification of Cuddalore as a backward area, the assessee suffered adverse orders of assessment denying the deduction claimed, consistently from AY 1989 onwards. Those orders have been affirmed concurrently, both at the first and second appellate stages.
7. It is only for AY 92-93, 93-94 and 1994-95 that the assessee has challenged the disallowance, and no appeals have been filed in respect of the orders for AYs. 1988-89 to 1991-92 or the later periods. The Appellant has challenged the rejection of the deduction claimed, also raising a question as to whether the doctrine of promissory estoppel would not govern the authorities in consideration of the claim.
8. Section 80HH requires, as a pre-condition, the inclusion of the area in which the industrial undertaking is set up, to be a backward area as per VIII Schedule to the Act. The admitted factual position in the present case is that Cuddalore has been de-notified as a backward area with effect from 1983, and with this, the claim has been rightly been rejected.
9. As far as the last question relating to the applicability of the doctrine of estoppel is concerned, it is a settled position that there could be no estoppel as against the operation of law. That apart, the assessee has not challenged Notification dated 01.04.1983 in F.No.178/171/86-IT(A1), that withdraws Cuddalore from the list of backward areas. The argument in relation to prejudice and hardship are not material in such circumstances.
10. All the substantial questions of law are decided against the assessee and the Tax Case (Appeals) are dismissed. No costs.