1996 (10) TMI 21 - HC - Income Tax

Issues Involved:
1. Entitlement to investment allowance under Section 32A.
2. Entitlement to deduction under Section 80J.
3. Entitlement to deduction under Section 80HH.
4. Entitlement to weighted deduction under Section 35B.
5. Depreciation rate adjustment.
6. Disallowance of traveling and vehicle running expenses.
7. Deduction of expenditure incurred at Rammam Hydel Project.
8. Disallowance of staff welfare expenses.
9. Procedural compliance with Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963.

Issue-wise Detailed Analysis:

1. Entitlement to Investment Allowance under Section 32A:
The first appellate authority concluded that the assessee is entitled to investment allowance as an industrial undertaking engaged in construction work. However, the contention that the assessee is a manufacturing concern as envisaged under Section 32A did not find favorable consideration. The Tribunal upheld this view, recognizing the assessee as an industrial undertaking entitled to investment allowance.

2. Entitlement to Deduction under Section 80J:
The first appellate authority denied the deduction under Section 80J, reasoning that the assessee, although engaged in construction work, was not manufacturing or producing any article. The Tribunal majority view agreed, concluding that the assessee did not manufacture articles or things independent of the main contract to claim the benefit under Section 80J.

3. Entitlement to Deduction under Section 80HH:
Similar to Section 80J, the first appellate authority denied the deduction under Section 80HH, holding that the assessee was not engaged in the manufacture of articles or things. The Tribunal majority view also upheld this denial, concluding that the assessee did not manufacture articles or things independent of the main contract to claim the benefit under Section 80HH.

4. Entitlement to Weighted Deduction under Section 35B:
The first appellate authority allowed the weighted deduction under Section 35B for expenditures on traveling in Bhutan and maintaining two branch offices in Bhutan. The Tribunal upheld this view, allowing the weighted deduction under the provisions of Section 35B(1)(b)(iv) and (vii) for the assessment years 1980-81 to 1982-83.

5. Depreciation Rate Adjustment:
The first appellate authority admitted an additional ground and raised the rate of depreciation from 10% to 15% for steel shuttering equipment. The Tribunal upheld this adjustment, allowing the assessee 15% depreciation instead of 10%.

6. Disallowance of Traveling and Vehicle Running Expenses:
The first appellate authority deleted the disallowance of traveling and vehicle running expenses. The Tribunal upheld this deletion.

7. Deduction of Expenditure Incurred at Rammam Hydel Project:
The first appellate authority allowed a deduction of Rs. 14,687 for expenditure incurred at the Rammam Hydel Project. The Tribunal upheld this deduction.

8. Disallowance of Staff Welfare Expenses:
The first appellate authority deleted the disallowance of Rs. 12,460 under the head "staff welfare expenses." The Tribunal upheld this deletion.

9. Procedural Compliance with Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963:
The High Court identified a significant procedural issue, noting that the Tribunal had relied on additional material not admitted as evidence and without recording reasons, violating Rule 29. The Tribunal's acceptance of additional evidence without compliance with statutory provisions was deemed grossly unfair and illegal. Consequently, the High Court quashed the Tribunal's proceedings and directed a rehearing of the appeals.

Conclusion:
The High Court quashed the Tribunal's proceedings due to procedural non-compliance and directed the Tribunal to rehear and decide all appeals afresh, emphasizing adherence to statutory provisions and proper maintenance of records. The references were disposed of accordingly, and a copy of the judgment was forwarded to the Income-tax Appellate Tribunal, Cochin Bench.

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