2000 (1) TMI 143 - AT - Income Tax

Summary

Issues:
1. Allowance of deduction under section 80HHC for certain commodities.
2. Validity of reopening the assessment.
3. Determination of whether processed commodities retain their original character as primary agricultural products for deduction under section 80HHC.

Issue 1: Allowance of deduction under section 80HHC for certain commodities:
The Revenue appealed against the order allowing deduction under section 80HHC for commodities like ginger, turmeric, Kapurkachli, Kolinjan, and Methi seeds. The Revenue argued that the processes applied by the assessee did not change the primary agricultural commodities into different ones. The Assessing Officer contended that the processes of cleaning, washing, drying, and fumigating were general and did not alter the nature of the commodities. The CIT(A) disagreed, stating that the processed commodities were distinct from primary agricultural products, allowing the deduction under section 80HHC. The Revenue challenged this decision before the Tribunal.

Issue 2: Validity of reopening the assessment:
The Revenue also contested the validity of reopening the assessment under section 147, which was approved by the competent authority. The first appellate authority upheld the validity of the reopening, stating that it was based on subsequent departmental decisions rather than the audit report. The Revenue raised objections to the reopening, citing a decision of the Kerala High Court. However, the first appellate authority deemed the reopening lawful.

Issue 3: Determination of whether processed commodities retain their original character:
The core issue revolved around whether the processed commodities, such as dried ginger and turmeric, retained their original character as primary agricultural products for the purpose of deduction under section 80HHC. The Revenue argued that the processing methods did not change the nature of the commodities, citing a Supreme Court decision. In contrast, the assessee contended that the processed commodities were distinct from primary agricultural products due to significant processing steps. The CIT(A) supported the assessee's position, emphasizing the substantial changes in the commodities post-processing. The Tribunal ultimately held that the processed commodities no longer qualified as primary agricultural products, affirming the CIT(A)'s decision and dismissing the Revenue's appeal.

In conclusion, the Tribunal upheld the allowance of deduction under section 80HHC for the processed commodities, rejected the Revenue's challenge to the reopening of the assessment, and determined that the processed commodities no longer retained their original character as primary agricultural products.