Reassessment ordered where AO ignored s.80HH and s.80J conditions; s.263 revision upheld in Revenue's favour

HC held that the AO failed to examine the assessee's eligibility for deductions under ss. 80HH and 80J by applying the statutory conditions, and had merely proceeded to assess tax liability. It upheld the CIT's exercise of revisional jurisdiction under s. 263, observing that the assessment order was erroneous and prejudicial to the interests of Revenue. The HC found that the CIT had only remanded the matter for proper reassessment in accordance with the prescribed conditions, without deciding the merits of the claim. The Tribunal's contrary view was held unsustainable. The reference was answered in favour of Revenue and against the assessee.

---

---

Issues Involved:
The judgment involves a reference u/s 256(1) of the Income-tax Act, 1961, regarding the invocation of jurisdiction u/s 263 in respect of the claim of the assessee u/s 80HH and 80J.

Claim under Section 32A:
The Commissioner found that the allowance under section 32A was wrongly allowed due to the use of second-hand machinery on which investment allowance was not permissible.

Claim under Section 80HH:
The Commissioner determined that the claim under section 80HH was wrongly allowed as the conditions stipulated were not met, including the restriction on the total value of transferred machinery. Additionally, the allowance granted was deemed in violation of the section as it was based on the capital employed in the entire business, rather than the specific unit.

Claim under Section 80J:
Regarding the claim under section 80J, the Commissioner concluded that the conditions stipulated were not fulfilled, as separate accounts for the industrial unit were not maintained, and the allowance granted was for the entire business instead of being restricted to the capital investment in the unit.

Tribunal's Decision:
The Tribunal found that further inquiry was necessary into the claims under sections 80HH and 80J. However, the Tribunal's approach was criticized for making inquiries on its own instead of assessing based on the conditions laid down in the sections. The Tribunal's decision was deemed incorrect as it did not consider all the materials required for assessment under sections 80HH and 80J.

Court's Ruling:
The High Court ruled in favor of the Revenue, stating that the Tribunal's approach was incorrect. The Commissioner had not given a finding but had remanded the case back to the Income-tax Officer for reassessment in compliance with the conditions for granting benefits under sections 80HH and 80J. The Income-tax Officer was directed to examine the matter afresh without considering any adverse observations made by the Commissioner.

---