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Issues Involved: Deduction under section 80-I, classification of products as confectionery, small scale industrial undertaking status, erroneous and prejudicial assessment.
Issue-wise Detailed Analysis: 1. Deduction under Section 80-I: The CIT found that the assessee's claim for deduction under section 80-I was granted without proper scrutiny. Specifically, the CIT noted that the business of confectionery is covered under the Eleventh Schedule, which debars the assessee from the benefit under section 80-I. The CIT held that cakes and savouries should be construed as confectionery items, thus making the assessee ineligible for the deduction. However, the Tribunal found that cakes and savouries do not fall under the definition of confectionery as they are primarily baked goods and not made chiefly of sugar. Therefore, the assessee is entitled to the benefit under section 80-I. 2. Classification of Products as Confectionery: The CIT classified cakes and savouries as confectionery items, which would disqualify the assessee from certain tax benefits. The Tribunal examined various dictionary definitions and legal precedents to determine the meaning of 'confectionery.' It concluded that confectionery comprises items primarily made of sugar and not typically baked. Since cakes and savouries are baked goods and not primarily made of sugar, they do not fall under the category of confectionery. Thus, the assessee's products are not covered by the Eleventh Schedule. 3. Small Scale Industrial Undertaking Status: The CIT also questioned whether the assessee qualifies as a small scale industrial undertaking, as the value of the plant and machinery exceeded the limit of Rs. 35 lakhs, excluding tools, jigs, dies, and moulds. The Tribunal noted that this point had been adjudicated in the case of Indian Communication Network Ltd., where it was held that the aggregate value of plant and machinery should be determined as done by the Directorate of Industries. However, since the Tribunal concluded that the assessee's products do not fall under the Eleventh Schedule, the question of small scale industrial undertaking status became academic and was not further commented upon. 4. Erroneous and Prejudicial Assessment: The CIT found the assessment order to be erroneous and prejudicial to the interest of the revenue because the Assessing Officer did not properly examine whether the assessee's products were covered by the Eleventh Schedule and whether the assessee qualified as a small scale industrial undertaking. The Tribunal, however, concluded that the products manufactured by the assessee do not fall under the Eleventh Schedule and that the assessee is entitled to the benefits under sections 32AB and 80-I. Therefore, the assessment was not erroneous or prejudicial to the interest of the revenue. Conclusion: The Tribunal directed the Assessing Officer to give consequential relief regarding the interest charged under sections 139(8) and 215. The appeal of the assessee was allowed, and the deductions under sections 80-I and 32AB were upheld.
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