1984 (7) TMI 123 - AT - Income Tax

Assessment Year, Backward Area, Industrial Undertaking, Profits And Gains, Weighted Deduction

Summary

Issues:
1. Computation of relief under section 80HH of the Income-tax Act, 1961.
2. Allowance of relief under section 80J of the Act.
3. Disallowance of interest under section 40A(8) of the Act.

Issue 1: Computation of relief under section 80HH:
The appeal concerns the calculation of relief under section 80HH for an assessee engaged in manufacturing silk fabrics. The dispute revolves around whether the profit of the manufacturing unit should be computed for the purpose of relief under section 80HH after deducting the relief under section 35B or before deducting it. The assessee contended that the relief under section 80HH should be calculated on the profit of the manufacturing unit before deducting the extra weighted deduction of one-third of the actual expenses. The Commissioner (Appeals) allowed the relief on the profit of the manufacturing unit after deducting the extra weighted relief under section 35B. The Tribunal held in favor of the assessee, stating that relief under section 80HH should be allowed on the profits of the manufacturing unit before deducting the extra weighted deduction under section 35B. The Tribunal relied on commercial sense and the principle that only actual expenses should be deducted to determine profits.

Issue 2: Allowance of relief under section 80J:
The next ground in the appeal raised the issue of whether the relief under section 80J of the Act should have been allowed on the gross assets of the unit without deducting any liability. The Tribunal noted that the recent retrospective amendment to section 80J is under consideration by the Supreme Court. Consequently, the Tribunal vacated the orders of the Commissioner (Appeals) and the ITO on this point and remanded the matter to the ITO for a fresh decision in accordance with the law as finally settled by the Supreme Court.

Issue 3: Disallowance of interest under section 40A(8):
The final ground in the appeal contested the disallowance of interest under section 40A(8) of the Act, arguing that it should have been calculated on the net disallowable expenditure of interest. However, the Tribunal found that this matter did not arise from the order of the Commissioner (Appeals) and deemed the ground incompetent, ultimately rejecting it.

In conclusion, the Tribunal partly allowed the appeal, ruling in favor of the assessee regarding the computation of relief under section 80HH while remanding the issue of relief under section 80J for reconsideration in light of the pending Supreme Court decision. The Tribunal rejected the ground related to the disallowance of interest under section 40A(8) as incompetent.