1987 (7) TMI 166 - AT - Income Tax

Summary

Issues:
1. Interpretation of manufacturing activity for claiming deductions under sections 80HH and 80J.
2. Chargeability of interest under section 139(8) for the assessment year 1981-82.

Analysis:

Issue 1: Interpretation of manufacturing activity for deductions under sections 80HH and 80J
The primary issue in this case revolved around the interpretation of manufacturing activity for the purpose of claiming deductions under sections 80HH and 80J. The Revenue contended that the assessee's activities did not qualify as manufacturing, as a significant portion involved purchasing and processing of grey cloth. The Income Tax Officer (ITO) limited the exemption to 60% of the assessee's activity. However, the assessee argued that its operations, including using handlooms to convert yarn into cloth and subsequent bleaching, dyeing, and printing, constituted manufacturing. The assessee relied on various precedents, including a Jaipur Tribunal order and the Supreme Court's decision in Delhi Cloth & General Mills Ltd. The Appellate Tribunal, after careful consideration, referred to the Supreme Court's definition of "manufacturer" and the Board's Circular No. 347, concluding that the entire activity qualified as industrial and eligible for deductions under sections 80HH and 80J. The Tribunal upheld the CIT(A)'s decision in favor of the assessee, dismissing the Revenue's appeal.

Issue 2: Chargeability of interest under section 139(8) for the assessment year 1981-82
The second issue pertained to the chargeability of interest under section 139(8) for the assessment year 1981-82. The Departmental Representative argued that interest should be levied treating the registered firm as unregistered, regardless of whether it resulted in a refund post-appeal. The assessee cited a Special Bench decision in ITO vs. Lachmandass Raghunath Dass Parihar to support its position. The Tribunal noted that the Department did not dispute that, except for the ITO's deduction restriction under sections 80HH and 80J, the assessee was entitled to a refund. Therefore, the case aligned with the Special Bench decision, leading the Tribunal to uphold the CIT(A)'s order on this issue as well. Consequently, the Tribunal dismissed the departmental appeals, affirming the decisions in favor of the assessee.

In conclusion, the Appellate Tribunal's judgment in this case clarified the interpretation of manufacturing activity for claiming deductions under sections 80HH and 80J, emphasizing the broad definition of "manufacturer" and the industrial nature of the assessee's operations. Additionally, the Tribunal addressed the chargeability of interest under section 139(8) for the assessment year 1981-82, aligning with a Special Bench decision and upholding the CIT(A)'s rulings.