1982 (8) TMI 73 - AT - Income Tax

Summary

Issues:
Claim for weighted deduction under section 35B of the Income-tax Act, 1961.

Analysis:

The appeal before the Appellate Tribunal ITAT Allahabad involved the assessee's claim for weighted deduction of Rs. 64,040 under section 35B of the Income-tax Act, 1961. The assessee, a firm exporting various goods, claimed the deduction based on specific expenditures incurred during the relevant assessment year. However, the Income Tax Officer (ITO) disallowed the claim, stating that the assessee did not qualify as an 'Industrial Undertaking' as defined under Explanation 1 to section 35B. The ITO emphasized that the business activities of the assessee did not involve any mechanical provision or machinery for processing, thereby not meeting the criteria for being classified as an Industrial Undertaking.

Upon appeal before the Commissioner (Appeals), the decision of the ITO was upheld. The Commissioner stated that the assessee's activities did not align with the definition of a 'Small Scale Industrial Undertaking' as required for claiming the weighted deduction under section 35B. The Commissioner highlighted that the process of printing bed-spreads, scarves, and garments undertaken by the assessee did not constitute manufacturing in the true sense and lacked the mechanical nature associated with industrial operations.

Subsequently, the assessee appealed to the Tribunal, arguing that it qualified as an 'Industrial Undertaking' and should be entitled to the claimed deduction. The Tribunal, after considering the submissions of both parties, found merit in the assessee's arguments. Citing relevant sections 35B and 32A of the Act, the Tribunal emphasized the definition of 'Small Scale Industrial Undertaking' and the criteria for claiming weighted deduction. Referring to a decision of the Allahabad High Court in a similar case, the Tribunal concluded that the activities of the assessee, involving converting plain cloth into printed and dyed products, constituted an 'Industrial Undertaking.'

The Tribunal directed the matter back to the ITO for a fresh decision on the specific items of expenditure for which the weighted deduction was claimed. The Tribunal set aside the previous orders and instructed the ITO to reconsider the claim in light of the Tribunal's observations and the assessee's status as an 'Industrial Undertaking.' Consequently, the Tribunal allowed the appeal for statistical purposes, indicating a favorable outcome for the assessee regarding the weighted deduction claim under section 35B.