2017 (4) TMI 616 - HC - Income Tax

Benefit of Section 80HH - Held that - It was the duty and onus on the shoulder of the assessee to show that he was also engaged in manufacturing activities and the gross total income declared by it also include income from manufacturing activity and on the basis of foregoing discussion we have held that the assessee is entitled for deduction u/s 80HH and 80I of the Act on the part of income earned from manufacturing activities. However, for want of adequate material on the record of the Tribunal, it is not possible for us to calculate quantum of deduction and thus we find it appropriate to send the issue for limited purposes i.e. for calculation of deduction u/s 80HH on the income earned from manufacturing activities during the relevant periods under consideration for all five assessment years. This Court is of the opinion that the pointed and specific nature of the directions of the ITAT was sufficient to allay any doubt of the Revenue as to the nature of the remit which the Assessing Officer is expected to address himself to. In the circumstances, no substantial question of law arises

Issues:
1. Interpretation of Section 80HH of the Income Tax Act, 1961.
2. Assessment of manufacturing and construction activities for claiming tax benefits.
3. Consideration of gross total income including profits from industrial undertakings.
4. Requirement of maintaining separate accounts for manufacturing and construction activities.
5. Calculation of deduction under Section 80HH for manufacturing activities.

Analysis:
1. The High Court addressed the issue of interpreting Section 80HH of the Income Tax Act, 1961, in response to the Revenue's appeal against the ITAT's decision. The ITAT had remitted the matter to the Assessing Officer to evaluate the relevant facts for the periods under consideration and determine the proportion of manufacturing and construction activities undertaken by the assessee in relation to track laying and construction, for claiming benefits under Section 80HH.

2. The Court considered the arguments presented by the Counsel for the Revenue, who contended that the ITAT's decision was unwarranted. The ITAT's observations emphasized that the manufacturing activity was integral to the entire project, despite its scale in comparison to the total turnover. The Court agreed with the ITAT's view that the assessee was engaged in manufacturing activities, making it eligible for deduction under Section 80HH based on the gross total income derived from industrial undertakings.

3. The Court highlighted the importance of the assessee demonstrating engagement in manufacturing activities and including income from such activities in the gross total income. It was noted that maintaining separate accounts for construction and manufacturing activities was crucial for substantiating claims of deduction under Section 80HH. The Court acknowledged the lack of detailed records but upheld the ITAT's decision regarding the eligibility for deduction based on manufacturing activities.

4. The Court emphasized that the onus was on the assessee to prove engagement in manufacturing activities and the inclusion of income from such activities in the gross total income. Despite insufficient material on record for calculating the deduction accurately, the Court endorsed the ITAT's decision to send the issue back to the Assessing Officer for calculating the deduction under Section 80HH specifically for income earned from manufacturing activities during the relevant assessment years.

5. Ultimately, the Court found the ITAT's directions clear and specific, dismissing the Revenue's appeal as no substantial question of law arose. The appeals were consequently rejected, along with any pending applications, based on the detailed analysis and interpretation of Section 80HH and the assessment of manufacturing and construction activities for tax benefits.

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