9911796707
TMI Blog1988 (9) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment records the Commissioner of Income-tax found that a deduction of Rs. 79,675 had been allowed to the assessee under section 80J of the Act. The C.I.T. further found that the profit and loss account of the new manufacturing division reflected a loss of Rs. 2,72,633. According to him the deduction under section 80J could be allowed only if there was a profit in the new industrial undertaking. Being of the opinion that the order passed by the ITO was erroneous and prejudicial to the interests of Revenue, he issued a show-cause notice to the assessee. There were no written submissions made in response thereto but the proceedings were attended by the assessee's counsel. The C.I.T. after hearing the assessee opined that the deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was required. In respect of the claim pertaining to section 80J it was submitted that the language of the section itself was very clear since it referred to the "profits and gains derived from an Industrial Undertaking" and not profits of the entire business. In respect of the decision of the Tribunal relied upon by the assessee, the learned DR submitted that the decisions of the Supreme Court referred to in that order, namely, Rajapalayam Mills Ltd. v. CIT [1978] 115 ITR 777 and CIT v. Patiala Flour Mills Co. (P.) Ltd. [1978] 115 ITR 640 were distinguishable and did not apply to the facts of the present case. He accordingly made an impassioned plea for the confirmation of the order of the C.I.T. 6. We have examined the rival submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was a loss in the new unit the deduction could not be allowed. There is no mention in the show-cause notice of any working or re-working of the amount which the assessee had claimed and which in fact the ITO had allowed while completing the assessment. In the light of these facts we strike down the following observations in the order of the C.I.T. insofar as they constitute directions to the I.T.O. to re-compute the assessee's claim : "The computation of capital has to take into account funds borrowed by and debts contracted by the assessee and investments in the new undertaking, although not shown in the balance sheet of the new unit." This shall not be implemented by the I.T.O. while giving effect to the order of the C.I.T. under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng when there is a loss in that undertaking. Although the other units have earned profits. Before we proceed further it would be necessary to set out the relevant provisions of the section itself and which would assist in deciding the matter at hand. Section 80J(1) states as under : "80J(1) -- Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains." [Emphasis supplied by us] Section 80J(3) states as under : "80J(3) -- Where the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits in the new industrial undertaking in one year. It would be allowed to carry forward the same to the subsequent year and so on and so forth. This aspect of the matter has been made absolutely clear in section 80J(3). 11. At this stage we may refer to a recent decision of the Supreme Court in the case of CIT v. Canara Workshops (P.) Ltd. [1986] 161 ITR 320. The issue being considered was the one pertaining to section 80E of the I.T. Act, 1961. It was held that the profits and gains earned by one priority industry could not be reduced by the loss suffered by any other industry or industries owned by the assessee. It was held that each industry must be considered on its own working when adjudging its title to the deduction u/s. 80E. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teel manufacture." 12. That above decision went in favour of the assessee but applying its ratio the same would go against the present appellant before us. In other words the claim under section 80J in its case would have to be examined in respect of the new unit independent and distinct from the other units. In this view of the matter the action taken by the Commissioner of Income-tax in withdrawing the deduction under section 80J shall stand approved. In coming to this conclusion we respectfully follow the decision of the Supreme Court supra. We would however direct that the amount in question, namely, Rs. 79,675 be carried forward and allowed to the assessee in accordance with the provisions of section 80J(3) in the subsequent year or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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