1984 (11) TMI 151 - AT - Income Tax

Summary

Issues:
- Whether the deductions allowed by the ITO under section 80HH were proper.
- Whether the activities of the assessee qualify as manufacturing activities for the purpose of claiming deductions under section 80HH.
- Whether the Commissioner's order under section 263 setting aside the assessments was legal.
- Whether the sale of firewood by the assessee qualifies as a manufacturing activity.

Analysis:

The judgment by the Appellate Tribunal ITAT Nagpur pertains to appeals against the order of the Commissioner under section 263 of the Income-tax Act, 1961, setting aside assessments for the years 1979-80 to 1982-83 and directing the ITO to examine the activities of the assessee to allow exemption under section 80HH only for qualifying manufacturing activities. The assessee, a private trust, engaged in purchasing forests, felling trees, converting them into logs, and sawing them into timber for various uses. The Commissioner contended that not all activities qualified as manufacturing, leading to the setting aside of assessments for re-examination.

The Commissioner required the assessee to justify the categorization of all activities as manufacturing. The assessee cited relevant case law and argued that the conversion of timber into various products constituted manufacturing activities. However, the Commissioner disagreed, stating that not all activities represented manufacturing, directing the ITO to allow deductions only for qualifying manufacturing activities. The assessee appealed, arguing that the Commissioner's order lacked specificity and delegated the assessment responsibility to the ITO, citing legal precedents to support their position.

The revenue department defended the Commissioner's order, asserting that under section 263, the Commissioner had the authority to set aside assessments for re-evaluation. They contended that the activities of the assessee amounted to processing, not manufacturing, as the final product remained wood. They argued against granting section 80HH deduction to the assessee based on this distinction.

The Tribunal analyzed the facts and determined that the activities of the assessee, including sawing timber into planks, constituted manufacturing, relying on Calcutta High Court decisions. They held that the creation of new commercial commodities from raw materials qualified as manufacturing, entitling the assessee to section 80HH deductions. The Tribunal also considered firewood as an integral part of the manufacturing process, eligible for deduction. Consequently, the Tribunal allowed the appeals, upholding the claim for deductions under section 80HH and canceling the Commissioner's orders under section 263.