2002 (5) TMI 515 - AT - Income Tax

Summary

Issues:
1. Deduction under sections 80HH and 80-I.
2. Treatment of unexplained cash credits for deduction.
3. Deduction eligibility for production processes by outside agencies.

Issue 1: Deduction under sections 80HH and 80-I:
The appellant contested the CIT(A)'s decision to allow deduction under section 80HH after reducing the deduction under section 80-I. The appellant argued that both deductions are independent, citing judgments from M.P. High Court and Rajasthan High Court. The tribunal agreed with the appellant, stating that deduction under section 80-I should be allowed on gross total income before deducting relief under section 80HH, following precedents.

Issue 2: Treatment of unexplained cash credits for deduction:
The appellant claimed that the addition of unexplained cash credits should be considered as part of the income eligible for deduction under sections 80HH and 80-I. They argued that as the only source of income was from manufacturing cloth, the cash credit addition should be treated as profits of the undertaking. The tribunal agreed, directing the Assessing Officer to consider the cash credit addition for deduction under the relevant sections.

Issue 3: Deduction eligibility for production processes by outside agencies:
The appellant contended that deduction under sections 80HH and 80-I should be allowed even if part of the production process was carried out by outside agencies. They highlighted that various High Court decisions supported this argument. The tribunal agreed with the appellant, emphasizing that the word "engage" in the sections did not require the assessee to be directly involved in production. Citing CBDT Circular and relevant case laws, the tribunal held that the appellant was entitled to deduction under sections 80HH and 80-I for production processes by third parties.

In conclusion, the tribunal allowed the appeal, directing the Assessing Officer to allow deductions under sections 80HH and 80-I as per the appellant's contentions and relevant legal interpretations.