1988 (9) TMI 72 - AT - Income Tax

Tribunal affirms disallowed deduction, directs carry forward for future years under section 80J(3)

The Tribunal partly allowed the appeal, affirming the disallowance of the deduction under section 80J due to the loss in the new industrial unit. The ... - Issues:1. Whether the deduction under section 80J of the Income Tax Act, 1961 is allowable when there is a loss in the new industrial undertaking.2. Whether the capital employed for the purpose of deduction under section 80J should only consider the profits and gains of the new industrial undertaking.Analysis:1. The appeal was against the order passed by the Commissioner of Income Tax (CIT) under section 263 of the Income Tax Act, 1961. The CIT found that a deduction under section 80J had been allowed to the assessee, a private limited company engaged in manufacturing detergent powder, despite a loss in the new manufacturing division. The CIT opined that the deduction under section 80J could only be allowed if there was a profit in the new industrial undertaking. The CIT directed the Income Tax Officer (ITO) to rework the capital employed by considering funds borrowed by the assessee and invested in the new unit. The assessee challenged these directions. The Tribunal noted that the show cause notice was limited to the claim under section 80J and did not include directions on computing capital. The Tribunal held that the deduction should be based on the profits and gains of the new industrial undertaking, not the overall business profits.2. The Tribunal considered the relevant provisions of section 80J of the Income Tax Act, which state that the deduction is based on profits and gains derived from the industrial undertaking. The Tribunal emphasized that the capital employed for the deduction should be specific to the new industrial unit, not the overall capital of the assessee's business. The Tribunal distinguished the case from previous Supreme Court decisions related to carry forward of losses between units. The Tribunal referred to a Supreme Court decision in CIT vs. Canara Workshop P. Ltd., emphasizing that each industry must be considered independently for deductions under section 80J. The Tribunal upheld the CIT's decision to disallow the deduction under section 80J due to the loss in the new unit but allowed the amount to be carried forward for future years as per section 80J(3).3. In conclusion, the Tribunal partly allowed the appeal, affirming the disallowance of the deduction under section 80J due to the loss in the new industrial unit. The Tribunal directed the amount to be carried forward for future assessment years in accordance with section 80J(3).