Court rules in favor of assessee on relief claim under section 80J of Income-tax Act

The court ruled in favor of the assessee in two cases concerning the grant of relief under section 80J of the Income-tax Act. It held that separate accounts are not mandatory for claiming relief under section 80J as long as profits from the new unit can be ascertained. The court emphasized that in abnormal circumstances like mill closures, employment days should be considered based on normal periods. The judgment highlighted that the lack of separate accounts should not be a basis for rejecting the claim under section 80J.

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Issues involved:
The judgment involves two cases relating to the same assessee, one concerning the assessment year 1980-81 and the other the assessment year 1981-82. The questions referred to the court under section 256(1) of the Income-tax Act, 1961, pertain to the grant of relief under section 80J despite the absence of separate accounts and the applicability of section 80J(4)(iv) regarding employment test during abnormal circumstances.

Case 1 - R. C. No. 118 of 1987:
The assessee, a private limited company engaged in manufacturing cotton yarn and money-lending, claimed deduction under section 80J for the assessment year 1980-81 based on investments in a new building. The Income-tax Officer disallowed the relief due to the absence of a separate identifiable unit. The Tribunal allowed the claim, noting composite accounts were maintained, and held that the relief cannot be denied solely for lack of separate accounts. The court ruled in favor of the assessee, emphasizing that separate accounts are not legally required for claiming relief under section 80J.

Case 2 - R. C. No. 35 of 1988:
The first question in this case concerned the grant of relief under section 80J without separate accounts and unclear determination of profits for the new unit. The second question addressed the applicability of section 80J(4)(iv) regarding the employment test during abnormal circumstances. The court held that in abnormal situations like mill closures, employment days should be considered based on normal periods, not just the closure period, ruling in favor of the assessee against the Revenue.

The judgment cited various High Court decisions, including Calcutta, Bombay, Patna, Allahabad, and Delhi, supporting the view that separate accounts are not mandatory for claiming relief under section 80J if profits can be ascertained. It contrasted with a Kerala High Court decision where relief was denied due to the inability to determine profits from a new unit without separate accounts. The court emphasized that as long as profits from the new unit can be determined, the lack of separate accounts should not be a basis for rejecting the claim under section 80J.

Therefore, the court answered both questions in favor of the assessee, highlighting that the absence of separate accounts does not preclude claiming relief under section 80J if profits can be ascertained.

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