1982 (8) TMI 73 - AT - Income Tax

Tribunal directs reassessment of deduction claim for 'Industrial Undertaking' activities under section 35B

The Tribunal allowed the appeal, directing the matter back to the ITO for reconsideration of the weighted deduction claim under section 35B. The Tribunal ... Industrial Undertaking - Weighted deduction under section 35B - Meaning of manufacture and production - Small-scale exporter - Remand for verification of expenditureIndustrial Undertaking - Meaning of manufacture and production - Weighted deduction under section 35B - Whether the activities of the assessee amount to an 'Industrial Undertaking' thereby entitling it to claim weighted deduction under section 35B - HELD THAT: - The Tribunal, following the decision of the Hon'ble Allahabad High Court in Radhey Mohan Narain, held that conversion of plain cloth into dyed, printed and cut pieces (bed-spreads, scarves and garments) involves changes in the article such that the end product is different from the raw material and the processes adopted bring the activity within the definition of an Industrial Undertaking. In view of that conclusion, the assessee satisfies the precondition in the Explanation to section 35B(1A) (as read with section 32A(2)) that a person exporting goods manufactured or produced in a small-scale industrial undertaking is a small-scale exporter for the purposes of claiming the weighted deduction. The Tribunal therefore held that the assessee is entitled to claim the weighted deduction under section 35B, subject to verification of the correctness of the individual items of expenditure claimed. [Paras 6]Assessee's activities constitute an Industrial Undertaking; assessee is entitled to claim weighted deduction under section 35B in principle.Remand for verification of expenditure - Weighted deduction under section 35B - Whether the claimed items of expenditure qualify for weighted deduction and the consequential direction to the assessing officer - HELD THAT: - The Tribunal observed that the ITO had not examined and discussed the individual items of expenditure on which the weighted deduction was claimed. As the entitlement to deduction under section 35B was established in principle by treating the assessee as an Industrial Undertaking, the Tribunal set aside the orders of the income-tax authorities on this limited point and directed that the matter be restored to the file of the ITO for fresh decision. The ITO is to consider the allowability of each item in light of the observations in this order and after giving the assessee an opportunity of being heard. [Paras 6]Assessment order set aside on the limited question of individual items of expenditure; matter remanded to the ITO for fresh decision after hearing the assessee.Final Conclusion: Appeal allowed for statistical purposes: the assessee held to be an Industrial Undertaking and entitled in principle to weighted deduction under section 35B; however, the assessment is remitted to the ITO for fresh consideration of the allowability of the specific expenditure items after affording the assessee an opportunity to be heard. Issues:Claim for weighted deduction under section 35B of the Income-tax Act, 1961.Analysis:The appeal before the Appellate Tribunal ITAT Allahabad involved the assessee's claim for weighted deduction of Rs. 64,040 under section 35B of the Income-tax Act, 1961. The assessee, a firm exporting various goods, claimed the deduction based on specific expenditures incurred during the relevant assessment year. However, the Income Tax Officer (ITO) disallowed the claim, stating that the assessee did not qualify as an 'Industrial Undertaking' as defined under Explanation 1 to section 35B. The ITO emphasized that the business activities of the assessee did not involve any mechanical provision or machinery for processing, thereby not meeting the criteria for being classified as an Industrial Undertaking.Upon appeal before the Commissioner (Appeals), the decision of the ITO was upheld. The Commissioner stated that the assessee's activities did not align with the definition of a 'Small Scale Industrial Undertaking' as required for claiming the weighted deduction under section 35B. The Commissioner highlighted that the process of printing bed-spreads, scarves, and garments undertaken by the assessee did not constitute manufacturing in the true sense and lacked the mechanical nature associated with industrial operations.Subsequently, the assessee appealed to the Tribunal, arguing that it qualified as an 'Industrial Undertaking' and should be entitled to the claimed deduction. The Tribunal, after considering the submissions of both parties, found merit in the assessee's arguments. Citing relevant sections 35B and 32A of the Act, the Tribunal emphasized the definition of 'Small Scale Industrial Undertaking' and the criteria for claiming weighted deduction. Referring to a decision of the Allahabad High Court in a similar case, the Tribunal concluded that the activities of the assessee, involving converting plain cloth into printed and dyed products, constituted an 'Industrial Undertaking.'The Tribunal directed the matter back to the ITO for a fresh decision on the specific items of expenditure for which the weighted deduction was claimed. The Tribunal set aside the previous orders and instructed the ITO to reconsider the claim in light of the Tribunal's observations and the assessee's status as an 'Industrial Undertaking.' Consequently, the Tribunal allowed the appeal for statistical purposes, indicating a favorable outcome for the assessee regarding the weighted deduction claim under section 35B.