2009 (3) TMI 70 - HC - Income Tax

Claim for deduction u/s 80HH was disallowed by AO holding that the assessee carried on manufacturing activity in Kalol Taluka which is excluded from the list of backward area by Not. 89/165 dated 19.12.1986- Tribunal had recorded a finding of fact that the assessee had commenced production prior to October,1986 and the evidence in support of the said finding was not disputed by Revenue in earlier A.Y following the same, Tribunal is right in allowing the claim of assessee for deduction

Summary

Issues:
1. Claim of deduction under section 80HH of the Income Tax Act disallowed by Assessing Officer.
2. Dispute regarding the Notification excluding Kalol Taluka from the list of 'backward area.'
3. Interpretation of Circular No. 484 dated 1.5.1987 regarding 'backward area' for section 80HH.
4. Tribunal's reliance on its own order for Assessment Year 1988-89 in granting relief to the assessee.

Analysis:

Issue 1: The Assessing Officer disallowed the assessee's claim for deduction under section 80HH of the Income Tax Act for the Assessment Year 1989-90, stating that the assessee carried out manufacturing activity in an area excluded from the 'backward area' list by Notification No. 89/165 dated 19.12.1986. The Tribunal, however, allowed the claim without providing independent reasons, relying on its order for the preceding Assessment Year.

Issue 2: The dispute centered around the correct Notification, which was identified as Notification No. S.O. 165, dated 19.12.1986. The exclusion of Kalol Taluka from the 'backward area' list affected the assessee's entitlement to relief under section 80HH of the Act. The Circular No. 484 dated 1.5.1987 clarified that areas specified in the Eighth Schedule would continue to enjoy benefits if manufacturing commenced before 10.09.1986.

Issue 3: The Circular provided that units in Kalol Taluka, despite exclusion, could still benefit from section 80HH if manufacturing began before 10.09.1986. The Tribunal's reliance on its previous order for Assessment Year 1988-89, where it was established that production started before the specified date, supported the assessee's claim for relief under section 80HH.

Issue 4: The Tribunal, in its judgment, followed its own decision for the earlier Assessment Year, where it was established that the assessee had commenced production before October 1986. The Tribunal's finding of fact, supported by evidence and not disputed by the Revenue, justified granting relief under section 80HH for the current Assessment Year.

In conclusion, the High Court upheld the Tribunal's decision, affirming the assessee's entitlement to deduction under section 80HH for the Assessment Year 1989-90. The judgment emphasized the importance of examining the commencement of manufacturing activities in determining eligibility for tax relief, as outlined in the relevant Notifications and Circulars issued by the Central Government.