1999 (6) TMI 11 - HC - Income Tax

Summary

Issues involved:
The judgment addresses the following Issues:
1. Whether crushing barytes into powder qualifies as a manufacturing activity for deduction under sections 80HH and 80-I of the IT Act, 1961.
2. Whether the non-maintenance of separate P&L A/c and balance sheets for three units affects the computation of profits under sections 80HH and 80-I.
3. Whether the difficulty of apportioning profits of an industrial undertaking in a backward area affects eligibility for deductions under sections 80HH and 80-I.

Issue 1: Manufacturing Activity for Deduction
The Tribunal initially held that converting barytes into powder constitutes a manufacturing activity eligible for deductions under sections 80HH and 80-I. The barytes powder produced was deemed marketable and used in various industries. The Tribunal's decision was based on the transformation of barytes into a distinct product with commercial value.

Issue 2: Non-Maintenance of Separate Accounts
The Income Tax Officer (ITO) disallowed deductions under sections 80HH and 80-I due to the absence of separate P&L A/c and balance sheets for each of the three units owned by the assessee. However, the Tribunal disagreed, stating that even without separate accounts, the assessee could still qualify for the deductions if other conditions were met as per the provisions of the sections.

Issue 3: Difficulty in Apportioning Profits
The Revenue contended that the inability to divide profits among the three units should disqualify the assessee from claiming benefits under sections 80HH and 80-I. The Court rejected this argument, emphasizing that the sections do not mandate profit division as long as the industrial undertaking meets the specified criteria. The AO has the authority to compute profits on a reasonable basis if exceptional difficulties arise.

In conclusion, the Court ruled in favor of the assessee, affirming that the conversion of barytes into powder qualifies as manufacturing, non-maintenance of separate accounts does not preclude deductions, and difficulties in profit apportionment do not disqualify the assessee from claiming benefits under sections 80HH and 80-I.