9911796707
TMI Blog1987 (6) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... ivity carried on by the assessee is only " decortication " which cannot be said to be " manufacturing activity " at all. " Decortication " is only a " processing activity " but not a " manufacturing activity ". Thus the assessee has failed to satisfy the conditions laid down in sub-section (2) of section 80HH. He also held that the assessee failed to fulfill the conditions laid down in sub-section (5) of section 80HH by not filing the audited accounts and auditor's report along with the original return for 1979-80. He also held that the assessee's main factory is situated at Anantapur which is taken on lease where also its activity was decortication of groundnuts. The factory set up at Kadiri is not independent by itself as the entire capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a separate factory and it is not formed by reconstruction. Rs. 2 lakhs worth of machinery was purchased which was fixed in the factory. Capital has flown from the Anantapur factory. Separate books of account are maintained for Kadiri factory. He submitted that for assessment year 1984-85 deduction claimed under section 54D should have been allowed in full and no addition is warranted as capital gain as the entire amount has been invested in the new industrial undertaking set up at Gooty. The learned departmental representative submitted that decortication of groundnuts into kernel will not constitute manufacturing activity and it is only a processing activity. The Kadiri factory is formed by reconstruction. The capital to that factory was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant case groundnut is decorticated and the kernel got has been sold. Both cases are almost identical. Hence the above decision of the A.P. High Court equally applies to the case of decortication of groundnuts into kernel which would constitute a manufacturing activity. Similarly in Ganesh Trading Co.'s case paddy was converted into rice which was held to be a manufacturing activity. Thus in our view the assessee carries on manufacturing activity. It is an industrial undertaking in a backward area and a small scale undertaking and it is entitled to relief under section 80HH. In the assessment year 1979-80 though the audit certificate was not filed along with the original return it was furnished along with the return filed in pursuan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Kadiri factory is not set up by splitting up or reconstruction of the business already in existence. In Textile Machinery Corpn. v. CIT [1977] 107 ITR 195 the Supreme Court held that for the reconstruction of an existing business there must be transfer of the assets of the existing business to the new industrial undertaking. For the purpose of section 15C the industrial unit set up must be new in the sense that new plants and machinery are erected for producing either the same commodities or some distinct commodities. If an undertaking is not formed by the reconstruction of the old business that undertaking will not be denied the benefit of section 15C merely because it goes to expand the general business of the assessee in some direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 54D. In our view the assessee is entitled to the relief claimed. Out of the profit of Rs. 2,25,530 the assessee has reinvested Rs. 1,88,530 in the new industrial undertaking set up at Gooty. This amount has to be allowed as deduction under section 54D. Only the difference between the amount of capital gain and the cost of new assets shall be charged under section 45. Such difference would come to Rs. 37,000 out of which the basic exemption of Rs. 5,000 has to be allowed and the relief under section 80TT has to be allowed. After allowing that the balance would be Rs. 23,040 which is offered for taxation. Thus in our view only Rs. 23,040 is liable to be taxed. This amount has been offered by the assessee in its return and that amo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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