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Issues: Interpretation of Section 80HH deduction in relation to unabsorbed investment allowance deduction under Section 32A for a partnership firm for the assessment year 1983-84.
In this case, the main issue revolves around the interpretation of the deduction under Section 80HH of the Income-tax Act in relation to the deduction of unabsorbed investment allowance of the preceding year under Section 32A. The partnership firm in question claimed a deduction under Section 80HH for profits and gains from a newly established undertaking in a backward area for the assessment year 1983-84. The Income-tax Officer initially deducted the unabsorbed amount of investment allowance of the preceding year from the gross income while calculating the deduction claimed by the firm. The firm contested this adjustment, arguing that the deduction under Section 80HH should be allowed on the gross total income without deducting the unabsorbed amount of investment allowance. The Commissioner of Income-tax (Appeals) disagreed with the firm's contention, citing the provisions of Section 80AB inserted by the Finance Act of 1980, which requires the deduction for unabsorbed investment allowance to be allowed before any deduction under Section 80HH. However, the Tribunal, in line with its previous decisions, held that the deduction under Section 80HH should be allowed on commercial profits before the deduction of unabsorbed investment allowance of the preceding year. The court analyzed the provisions of Section 80HH, which allows a deduction from profits and gains derived from an industrial undertaking, subject to the provisions of the section. Section 80AB was also examined, which states that the income computed before making any deduction under Chapter VI-A shall be deemed as the income derived or received by the assessee. The court emphasized that for computing the gross total income for deductions under Section 80HH, it must be done in accordance with the provisions of the Act, excluding any provision under Chapter VI-A. Additionally, the court highlighted the relevance of Section 32A in computing the income from an industrial undertaking, which deals with the deduction of investment allowance and carry forward of unabsorbed investment allowance for subsequent years. The court concluded that the income from the industrial undertaking must be computed in accordance with the provisions of Part D of Chapter IV before applying the provisions of Section 80HH. The court relied on previous decisions in similar matters, such as CIT v. Vishnu Oil and Dal Mills and CIT v. Sun Stone Engineering Industries P. Ltd., to support its interpretation. Ultimately, the court ruled in favor of the Revenue, stating that the deduction under Section 80HH can only be allowed on profits and gains computed in accordance with the Income-tax Act, including the provisions of Section 32A regarding the deduction of unabsorbed investment allowance. The judgment answered the question referred by the Tribunal in the negative, favoring the Revenue and rejecting the firm's claim for deduction under Section 80HH without considering the unabsorbed investment allowance deduction.
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