2007 (11) TMI 287 - SC - Income Tax

New industrial undertakings in backward area - assessee who claims to be a processor of cashew kernels claim deduction u/s 80HH - assessee claims that he is the processor who has outsourced some of its activities to its sister concern - assessee has not given any particulars regarding the activity undertaken by it the activity outsourced by it to its sister concern whether those sister concerns are located in or outside the back ward areas etc assessee is not entitled to deduction

Summary

Issues:
- Interpretation of Section 80HH for claiming deduction in respect of profits derived from processing of cashew in factories owned by sister concerns/outsiders.

Analysis:
1. The case involved an appeal against the judgment of the Division Bench of the High Court of Kerala regarding the entitlement of the assessee to claim a deduction under Section 80HH for profits derived from processing cashew in factories owned by sister concerns/outsiders for the assessment year 1994-95.

2. Section 80HH allows a deduction for profits and gains derived from an industrial undertaking, subject to certain conditions. The objective is to encourage the establishment of new industrial undertakings in backward areas. The key issue was whether the assessee, claiming to be a processor of cashew kernels, was eligible for the deduction under this section.

3. The court emphasized the importance of demonstrating the nature of activities undertaken by the industrial undertaking to claim the deduction. In this case, the assessee failed to provide specific details regarding the activities outsourced to sister concerns, their locations, or whether they were job workers. The lack of information regarding the process undertaken and the involvement of sister concerns led to the conclusion that the assessee was not entitled to claim the benefit of Section 80HH for the assessment year in question.

4. The court noted that the High Court and the Tribunal did not consider crucial aspects of the case, such as the detailed process undertaken by the assessee and its sister concerns. While referencing a previous judgment, the court highlighted the distinction between that case and the present one, emphasizing the absence of necessary details in the current scenario to support the claim for deduction under Section 80HH.

5. Consequently, the court set aside the judgments of the High Court and the Tribunal, allowing the appeal and denying the assessee's claim for the deduction under Section 80HH. The decision was based on the lack of essential information regarding the processing activities and the involvement of sister concerns, reinforcing the requirement for clear demonstration to avail of such deductions.