1982 (6) TMI 185 - AT - Income Tax

Summary

Issues:
1. Entitlement to deduction u/s 80HH for the assessee company.
2. Levying of interest u/s 139(8) without hearing the assessee.

Analysis:

Entitlement to deduction u/s 80HH:
The case involved a departmental appeal challenging the Commr. (Appeals) findings that the assessee was entitled to a deduction u/s 80HH. The assessee, a private limited company engaged in barge repairs, claimed a deduction of 20% of their profits under this section. The issue revolved around whether the assessee had commenced manufacturing or production activity before 31st Dec., 1970, a condition for claiming the deduction. The ITO contended that the manufacturing activity had started before the specified date, citing the assessee's claim for deduction u/s 80J for the same activity in a previous assessment year. However, the Commr. (Appeals) accepted that no manufacturing activity had taken place before the crucial date, thus allowing the deduction. The ITAT Pune, upon review, found that the manufacturing activity had indeed commenced before the specified date based on the nature of the integrated activity involving repairs and manufacturing. Consequently, the ITAT reversed the Commr. (Appeals) decision, denying the deduction to the assessee.

Levying of interest u/s 139(8):
The second issue pertained to the levy of interest u/s 139(8) without providing the assessee with a hearing. The ITO had imposed interest due to a delay in filing the return by the assessee. The Commr. (Appeals) canceled the interest levy, citing the lack of a hearing before its imposition. The ITAT Pune referred to a Karnataka High Court decision emphasizing the necessity of a hearing before levying interest. However, the ITAT clarified that the levy of interest u/s 139 is automatic in cases of delayed filing, with the assessee having the option to request a waiver or reduction of interest under rule 117A. The ITAT upheld the ITO's order but allowed the assessee to demonstrate circumstances warranting the application of rule 117A for interest reduction. Ultimately, the departmental appeal was allowed, affirming the ITO's authority to levy interest while providing the assessee with the opportunity to seek interest reduction under the specified rules.