2012 (9) TMI 268 - SC - Income Tax

Non maintenance of a separate trading and profit and loss account for the goods manufactured - claim of deduction u/s 80IA - manufacturing of yarn - Held that - No defect in AO s attempt to work on his own the manufacturing account giving a bifurcation in terms of quantity of raw wool produced can be pointed out as the assessee ought to have maintained a separate account in respect of raw material which it had sold during the assessment year as if the assessee had maintained a separate account, then, in that event, a clear picture would have emerged which would have indicated the income accrued from the manufacturing activity and the income accrued on the sale of raw material - as no reason has been imparted as to why separate accounts were not maintained for the raw material sold and for the income derived from manufacture of yarn appeal of assessee dismissed.

Summary

Issues:
Denial of deduction claimed under Section 80IA of the Income Tax Act, 1961 for Assessment Year 1998-1999.

Analysis:
The case involved the denial of a deduction claimed under Section 80IA of the Income Tax Act, 1961 by the assessee for the Assessment Year 1998-1999. The assessee, a company engaged in manufacturing yarn, claimed a deduction at the rate of thirty per cent under Section 80IA amounting to Rs.15,54,800/- on a gross total income of Rs.51,82,666/- derived from manufacturing activity. The Assessing Officer found that the assessee had not maintained separate trading and profit and loss accounts for the goods manufactured, which led to discrepancies in the assessment. The Department contended that the assessee had not maintained accounts for the yarn actually produced, and the Assessing Officer prepared a manufacturing account on his own, leading to a dispute between the parties. The CIT(A) followed the decision of the earlier year and allowed the appeal, but the Income Tax Appellate Tribunal reversed this decision, which was upheld by the High Court, resulting in the filing of a civil appeal by the assessee.

The Supreme Court, in its judgment, noted that the findings of the ITAT and the High Court were findings of fact and not related to the interpretation of Section 80IA of the Act. The Court emphasized the importance of maintaining separate accounts for raw materials sold and income derived from manufacturing activities to ascertain the accurate income accrued from each source. It was highlighted that the failure to maintain separate accounts hindered a clear understanding of the income generated from manufacturing and the sale of raw materials. The Court expressed uncertainty regarding the reasons for not maintaining separate accounts for raw materials sold and income from yarn production. Consequently, the Court dismissed the civil appeals filed by the assessee, citing the lack of maintained separate accounts as a crucial factor in the decision.

In conclusion, the judgment underscored the significance of maintaining distinct accounts for different business activities to ensure clarity and accuracy in income assessment, particularly in cases involving deductions claimed under specific provisions of the Income Tax Act. The Court's decision to dismiss the appeals highlighted the importance of proper record-keeping and accounting practices to support claims and avoid disputes during tax assessments.