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Issues:
1. Whether deduction under section 80J can be allowed if there is a loss in the new industrial undertaking. 2. Whether the direction issued by the Commissioner of Income-tax to re-compute the capital employed was within the scope of the show-cause notice. 3. Interpretation of section 80J of the Income-tax Act, 1961 regarding the eligibility for deduction based on profits and gains derived from an industrial undertaking. Analysis: Issue 1: The appeal was against the Commissioner of Income-tax's order under section 263, challenging the deduction of Rs. 79,675 allowed under section 80J to a Private Limited Company engaged in manufacturing detergent powder. The Commissioner found that since the new manufacturing division reflected a loss of Rs. 2,72,633, the deduction under section 80J could not be allowed. The counsel for the assessee argued that the deduction should be allowed as there was an overall profit, citing a Tribunal decision. The Departmental Representative supported the Commissioner's order, emphasizing that the deduction should be based on profits derived from the industrial undertaking. The Tribunal noted that section 80J allows deduction based on profits and gains from the industrial undertaking, and not the overall business profits. The Tribunal upheld the Commissioner's order, directing the deduction to be carried forward for subsequent years in accordance with section 80J(3). Issue 2: The Tribunal examined whether the direction by the Commissioner to re-compute the capital employed, including borrowed funds, for the deduction under section 80J was within the scope of the show-cause notice. The Tribunal found that the show-cause notice was limited to the claim under section 80J and did not include re-computation of capital. Therefore, the Tribunal struck down the Commissioner's direction to re-compute capital employed, stating it was beyond the scope of the notice. The Tribunal emphasized that the notice did not mention re-working of the claimed amount, and the working allowed by the Income Tax Officer was not disputed. Issue 3: The Tribunal analyzed the provisions of section 80J(1) and (3) to determine the eligibility for deduction under section 80J based on profits and gains derived from an industrial undertaking. It clarified that the deduction is calculated on the profits of the new industrial undertaking alone, and the capital employed pertains to that specific undertaking. The Tribunal distinguished section 80J from section 15C, highlighting the provision for carry forward of deficiency under section 80J. Referring to a Supreme Court decision in a similar context, the Tribunal concluded that each industrial unit must be considered independently for deduction under section 80J, even if other units of the assessee are profitable. The Tribunal upheld the Commissioner's decision to disallow the deduction under section 80J due to the loss in the new industrial unit but allowed the amount to be carried forward for future years as per section 80J(3). In conclusion, the Tribunal partly allowed the appeal, confirming the disallowance of the deduction under section 80J for the current year but allowing the amount to be carried forward for subsequent years as per the provisions of the Income-tax Act.
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