Decided on June 11,1982



K.S. Viswanathan, Accountant Member - (1.) THIS is a departmental appeal against the findings of the Commissioner (Appeals) that the assessee is entitled to deduction under Section 80HH of the Income-tax Act, 1961 ('the Act').
(2.) The assessee is a private limited company. Their business is said to be repairs of barges. The assessee-company claimed that they were entitled to deduction under Section 80HH of 20 per cent of their profits. Their ground was that they had started an industrial undertaking in a backward area. The industrial undertaking, according to them, was the repairing of the barges., The ITO appears to have accepted that the assessee has complied with the requirements of that Section, except the conditions mentioned in Clause (i) of Sub-section (2) of that section. According to him, the assessee's activity of manufacture or production was started before 31-12-1970 and, therefore, they were not entitled to the deduction. He also relied on the facts that the assessee had claimed deduction under Section 80J, in respect of the same activity for the assessment year 1971-72, which shows that the manufacturing activity had started before 30-12-1970. He rejected the claim of the assessee. Before the Commissioner (Appeals), it was submitted that although the assessee engaged in an industrial activity prior to 31-12-1970, no manufacturing operation was carried on. It was also submitted that for the year ended 31-3-1971, the only receipt was the repairing charges of Rs. 18,895. This did not involve any manufacturing activity. The Commissioner (Appeals) accepted that the assessee had not carried on any manufacturing activity before 31-12-1970. He pointed out that there was no finding by the Tribunal which heard the matter, for the assessment year 1971-72, in respect of the deduction under Section 80J, that the assessee had engaged in manufacturing activity before 31-12-1970. He held that the assessee was entitled to the deduction.
(3.) THE department is in appeal before us. Shri Wakharkar, for the department, submitted that there is an evidence to show that the assessee-company had started manufacturing activity in the course of the accounting year 1970-71. THE very fact that deduction under Section 80J was allowed show this. He also referred to the bill for the barge repairs, amounting to Rs. 18,895 and submitted that the dates of the bill are before 31-12-1970. He, therefore, submitted that the finding of the Commissioner (Appeals) is erroneous. Alternatively, he submitted that assuming that what the assessee carried on, did not amount to manufacture. He submitted that what is to be seen is the area of operation and not the nature of operation. For this purpose, he relied on the decision in CIT v. N.C. Budharaja & Co. [1980] 121 ITR 212 (Ori.). Shri Patil for the assessee supported the finding of the Commissioner (Appeals). He submitted that the fact shows there was no manufacturing activity before 31-12-1970. He pointed out that in order to be eligible for deduction under Section 80J, it is not necessary that manufacturing activity should be for the whole year. In any case, he submitted that the Tribunal which went into the question of Section 80J has not given any findings being adverse to the assessee on this point. With regard to the bill of Rs. 18,895 he submitted that no manufacturing activity reflected therein. Alternatively, he submitted that at best, the assessee's claim for deduction under Section 80J for 1971-72 will have to be given up. To a query from the Bench, he explained the activities of the assessee that they were manufacturing certain spare parts which are required for repairing works. But he agreed that the repairing works and the manufacturing are one integral activity.;

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