AJIT K.SENGUPTA, J. - (1.) IN this reference under S. 256(2) of the IT Act, 1961, for the asst. yr. 1978-79 the following question of law has been referred to this Court : "Whether, on the facts and circumstances of the case and in view of the provisions of S. 80HH and s. 80J(1A), the Tribunal was justified in holding that the order of the CIT under S. 263 of the IT Act was without jurisdiction ?"
(2.) THE facts relating to this reference are that for the asst. yr. 1978-79 it came to the notice of the CIT that the order of assessment year under reference on 11th March, 1981 by the ITO was erroneous inasmuch as he had allowed deduction under S. 80HH to the extent of Rs. 16,634 when the gross total income for the year was a negative figure and no deduction could have been made in terms of the provisions of S. 80A(2). The CIT further noticed that there was another error in allowing deduction under S. 80J to the extent of Rs. 890 in view of the gross loss. It was also found by him that apart from that in computing the deduction under S. 80J, the ITO has overlooked the provisions of S. 80J(1A). According to the CIT those errors resulted in allowing deduction and relief in excess of what was due under the provisions of law and as such, the order was clearly erroneous and prejudicial to the interests of Revenue. A show-cause notice under S. 263 was issued. Rejecting the claim of the assessee that the assessment had correctly been made by the ITO, the CIT set aside the assessment order on the aforesaid point in the following manner : "I am afraid I do not find any merit in the arguments made on behalf of the assessee. The gross total income of the assessee for considering the extent of admissible deduction under S. 80HH would be after including income from all sources earned by the assessee during the year is computed according to the provisions of the Act. The allowance of S. 35B, unabsorbed development rebate and investment allowance of earlier years has also been considered in determining the gross total income. This certainly gives a negative figure and, therefore, clearly deduction under S. 80HH could not have been availed of. The assessee's books of accounts will not make any difference to the actual position of the gross total income. This being true also for the claim of deduction under s. 80J. It is clear that the allowance is erroneous under this section also. I also find no merit in the petitioner's claim that the provisions of S. 80J(1A) had not been overlooked. It is clear that the borrowed capital to the head office has been only utilised for the purpose of running the factory and, therefore, the capital has to be computed after excluding this borrowed money and the value of the prescribed assets has to be determined as it stood at the beginning of the year. These provisions had clearly been overlooked."
(3.) THE Tribunal vide its order dt. 13th Sept., 1984 concluded the matter as hereunder : "6. A perusal of the assessment order framed by the ITO for the asst. yr. 1978-79 clearly goes to show that the gross total income of the assessee before making deduction under Chapter VIA of the IT Act, 1961 exceeded the deduction allowed by the ITO under S. 80HH. Even after allowing deduction under S. 80HH, total income was positive figures, i.e., Rs. 890 before allowing relief under S. 80J. The CIT erred in wrongly assuming that the allowance of S. 35B, unabsorbed development rebate and investment allowance of earlier years has also been considered in determining the gross total income. This observation which led the CIT to hold that the gross total income was a negative figure has no basis. So the ground pressed by the CIT for setting aside the assessment in respect ofthe deduction under S. 80HH and which has also been pressed into service for setting aside the relief under S. 80J is clearly untenable. The assessment order framed by the ITO as well as the computation of capital employed by the assessee in the industrial undertaking clearly goes to show that only the assets relating to the industrial undertaking (factory unit) have taken into consideration and loss and current liabilities in respect of the industrial undertaking have been deducted from the total assets. The capital employed thus worked out to Rs. 3,41,520. The same figure has been arrived at by the ITO also by adding up opening balance in the factory account, development rebate and investment allowance (Rs. 3,08,520 + Rs. 30,000 + Rs. 2,000 = Rs. 3,40,520). On this amount, the ITO calculated relief under S. 80J at Rs. 20,430 at 6%. The CIT was not right in holding that borrowed capital in the head office should also be excluded from the assets for the simple reason that the same does not relate to the industrial undertaking and the assets relating to the head office have not been taken into account while computing the relief under S. 80J. For the reasons given above, we are clearly of the view that the ITO was perfectly justified in making a deduction of Rs. 14,634 under S. 80HH and in computing the relief under S. 80J at Rs. 20,430. The assessment order, therefore, is neither erroneous nor prejudicial to the interest of the Revenue on these two points. In this view of the matter it must further be held that the CIT wrongly assumed jurisdiction under S. 263 and erroneously held that the assessment order is erroneous and prejudicial to the interests of the Revenue." ;