1987 (6) TMI 97 - AT - Income Tax

Summary

Issues:
- Claim for relief under section 80HH for assessment years 1979-80, 1981-82, and 1984-85
- Disallowance of relief under section 80HH by Income-tax Officer
- Disallowance under section 54D for assessment year 1984-85
- Appeal against disallowance under section 80HH and section 54D

Analysis:

1. Claim for Relief under Section 80HH:
The assessee, engaged in the business of groundnut decortication, claimed relief under section 80HH. The Income-tax Officer denied the relief stating that decortication is a processing activity, not manufacturing. Additionally, the officer found non-compliance with sub-section (5) of section 80HH regarding the audit report. The Commissioner of Income-tax (Appeals) upheld the disallowance. However, the counsel for the assessee argued that decortication constitutes manufacturing, citing relevant case laws. The tribunal concurred, stating decortication qualifies as manufacturing, citing precedents where similar activities were considered manufacturing processes. The tribunal also deemed the delay in filing the audit report as a curable defect, emphasizing that the requirement is directory, not mandatory.

2. Disallowance under Section 54D:
For the assessment year 1984-85, the Income-tax Officer disallowed relief under section 54D concerning the compensation received for the factory acquired by the Government. The officer made an addition to the income, which was reduced by the Commissioner of Income-tax (Appeals). The tribunal, however, held that the assessee was entitled to the relief under section 54D. It was noted that the amount reinvested in establishing a new industrial unit qualified for deduction under section 54D, with only the balance being taxable as capital gain. The tribunal directed that only the remaining amount offered for taxation by the assessee be taxed, as it complied with the provisions of section 54D.

3. Conclusion:
In conclusion, the tribunal allowed the appeals, overturning the disallowances made by the Income-tax Officer and upholding the assessee's claims for relief under section 80HH and section 54D. The tribunal emphasized that decortication of groundnuts constitutes manufacturing activity and that the assessee had met the conditions for the claimed reliefs. The judgment highlighted the importance of compliance with procedural requirements and the interpretation of statutory provisions in a manner favorable to the assessee.