Decided on January 15,1993



J.K. Verma, Accountant Member - (1.) THE only dispute in this appeal filed by the Revenue is that the ld. DC (Appeals) has erred in allowing deduction under Section 80-I of the IT Act to the assessee notwithstanding his own finding that the requisite conditions were not fulfilled by the assessee. We may point out that the ld. DC (Appeals) after discussing all the facts and circumstances of the case held that there was no evidence that appellant had been employing 10 or more workers on a regular basis, interpreted in any way. He further held that normally it had ranged between 5 to 10 depending on the workload of the appellant. He, however, allowed relief to the assessee on the ground that the assessee had been allowed the deduction under Section 80-I in the first year of operation and since Single Member of this Bench had held in the case of ITO v. Mahavir Rubber Works [1983] Tax World 401, a copy of which has been filed before us that if the allowance under Section 80-I had been allowed in the first year to an assessee even under Section 143(1), it could not be denied in the subsequent years. We may mention here that the learned counsel for the assessee had raised some arguments regarding the correctness of the findings on facts by the ld. DC (Appeals) yet since the assessee has chosen not to come in cross objection or cross appeals, we are not inclined to entertain them. Hence the only question which remains to be decided is that if in an initial year the industrial undertaking which manufactures or produces articles or things it employed 10 or more workers in a manufacturing process carried on with the aid of power, which is a condition required as per Section 80-I(2)(iv) of the IT Act, but in the next year it ceases to employ 10 or more workers would it still be entitled to the deductions mentioned in Section 80-I(1) of the IT Act.
(2.) After carefully considering the arguments advanced from both the sides and the case law cited before us, namely CIT v. Sawyer's Asia Ltd. [1980] 122 ITR 259 (Bom.), CIT v. Harit Synthetic Fabrics (P.) Ltd. [1986] 162 ITR 640 (Bom.), CIT v. Omnerods (I) (P.) Ltd. [1989] 176 ITR 470 (Bom.), CIT v. K.G. Yediyurappa & Co. [1985] 152 ITR 152 (Kar.), M.M. Patel & Sons (P.) Ltd. v. ITO [1982] 1 ITD 82 (Nag.), we are unable to agree with the submissions of the learned counsel for the assessee because even as per the case law relied upon by him, in order to get the benefit provided in Section 80-I substantial compliance has to be made with the provisions of that section. Since the income of each assessment year has to be computed separately, it is the duty of the ITO to see whether the gross total income of the assessee in that particular year includes or does not include any profits and gains derived from an industrial undertaking to which this section, namely, Section 80-1 applies. As per Section 80-I(2) this section applies to any industrial undertaking which fulfills all the conditions given in 4 clauses of that sub-section. Clause (iv) of Sub-section (2) requires that where industrial undertaking produces or manufactures articles or things, the undertaking should employ ten or more workers in a manufacturing process carried on with the aid of power. Thus, in every year whether it is the first year or the second year or third year or any subsequent year till the deductions under Section 80-1 are permissible, the ITO has to satisfy himself that the gross total income of the concerned assessee includes any profits and gains derived from an industrial undertaking to which Section 80-1 applies and if he finds that any of the four requirements given in Sub-section (2) of Section 80-I are not fulfilled, Section 80-I would not apply to that industrial undertaking and the deductions under Section 80-I would not. be allowed. In this context we may mention that Clause (iii) of Sub-section (2) of Section 80-I provides that Section 80-1 applies to an industrial undertaking if it manufactures or produces any article or thing not being any article or thing specified in the list in the Eleventh Schedule. If the arguments of the learned counsel for the assessee were to be accepted, it would mean that ah industrial undertaking may start manufacture or production of any article or thing which is not specified in the list in the Eleventh Schedule when it starts its manufacturing or production in the first year and may get the deduction under Section 80-I in respect of profits and gains derived from that industrial undertaking. Thereafter, in the second year and subsequent years it may start manufacture and production of those articles or things which are specified in the list in the Eleventh Schedule, yet according to the ld. counsel for the assessee, the Assessing Officer shall not be empowered to reject his claim under Section 80-1 because he had allowed it in the first year. In our view it is clear that this could neither be intention of the Legislature nor can it be covered from the language and the scheme of the IT Act. We, therefore, hold that since in this particular case the lower authorities have held it as a fact, which fact has not been challenged before us by the assessee, that the assessee had substantially employed ten or less persons during the assessment year under consideration, merely because it had been allowed deduction under Section 80-I in the first year, it cannot entitle the assessee to get that benefit if it fails to comply with the requirements given in Clause (iv) of Sub-section (2) of Section 80-1 of the IT Act in a subsequent year for which the assessment is being made. Accordingly, we allow the appeal filed by the Revenue and uphold the order of the Assessing Officer on this point.;

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