2004 (10) TMI 70 - HC - Income Tax

Deduction u/s 80J Deduction on account of Central excise duty liability - 1. Whether Tribunal was right in holding that a new industrial undertaking for manufacture of knives and come into existence and was entitled to section 80J deduction? - On the findings given by the Tribunal we do not find any legal infirmity that the two units are separate and independent and have not been formed by reconstruction or splitting up of the existing unit and the respondent was rightly allowed deduction under section 80J - 2. Whether Tribunal was right in holding that the assessee was entitled to deduction on account of Central excise duty liability? - Since assessee follows the mercantile system of accounting and the liability of excise duty imposed is statutory in nature and merely because it has not been paid to the Department it would not disentitle the respondent from claiming its deduction - We answer both the questions referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue

Summary

Issues:
1. Entitlement to section 80J deduction for a new industrial undertaking.
2. Entitlement to deduction of Central excise duty liability.

Analysis:
1. The respondent-assessee claimed a deduction under section 80J of the Income-tax Act for the assessment years 1978-79 and 1979-80 for setting up a new industrial undertaking for the manufacture of knives. The Income-tax Officer initially disallowed the claim stating that no separate trading account was maintained for the knives unit, and the manufacturing processes of discs and knives were connected. However, the Tribunal found that the knives unit was distinct from the discs unit, as machinery worth Rs. 1,02,519 was installed specifically for knives. The Tribunal concluded that the units were separate and independent, not formed by reconstruction, and all conditions under section 80J(4) were satisfied. The High Court upheld the Tribunal's decision, stating that the respondent was entitled to the deduction for the assessment years in question.

2. Regarding the deduction claimed for Central excise duty liability, the respondent followed the mercantile system of accounting, and the liability was statutory. Even though the excise duty amount was not paid to the Department, the High Court held that this did not disqualify the respondent from claiming the deduction. Citing the principle from the case of Kedarnath Jute Mfg. Co, Ltd. v. CIT [1971] 82 ITR 363 (SC), the High Court found no issue with the Tribunal's decision on this matter. Consequently, the High Court answered both questions in favor of the assessee and against the Revenue, without any order as to costs.