Processing activity can qualify as production for section 80J, and deduction is not denied merely for lack of separate unit accounts.

Dyeing of yarn was treated as a processing activity that resulted in production of articles or goods for section 80J relief, even though it did not amount to manufacture because no new product with a different chemical composition or integral structure emerged. The unit therefore qualified as an industrial undertaking engaged in production, and the prior allowance of investment allowance supported that characterisation. Separate unit-wise accounts were not a prerequisite for deduction where the new unit was not merely an extension of the existing business and its profits could reasonably be ascertained from audited records and reasonable charge allocation. On that basis, section 80J deduction remained available for the spinning unit as well.

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Issues: (i) Whether the dyeing unit was an industrial undertaking engaged in the production of articles or goods so as to qualify for deduction under section 80J of the Income-tax Act, 1961; (ii) Whether the absence of separately maintained accounts for the new unit disentitled the assessee to deduction under section 80J, including in relation to the spinning unit for the relevant assessment year.

Issue (i): Whether the dyeing unit was an industrial undertaking engaged in the production of articles or goods so as to qualify for deduction under section 80J of the Income-tax Act, 1961.

Analysis: Dyeing of yarn did not amount to manufacture because no new product with a different chemical composition or integral structure came into existence. However, dyeing remained a processing activity that brought into existence a product after processing the raw material without changing its inherent quality or chemical composition. On that basis, the activity constituted production of articles or goods within section 80J(4)(iii). The allowance of investment allowance on the same unit also supported the view that the unit was an industrial undertaking engaged in production.

Conclusion: The dyeing unit satisfied the requirement of production of articles or goods under section 80J, and the assessee was entitled to deduction.

Issue (ii): Whether the absence of separately maintained accounts for the new unit disentitled the assessee to deduction under section 80J, including in relation to the spinning unit for the relevant assessment year.

Analysis: A new unit was not shown to be merely an extension of the existing business. The difficulty of separately computing profits was not decisive where profits could reasonably be ascertained. The record showed that the accounts were audited and that the relevant charges for the spinning unit were recorded on a reasonable basis. Separate accounts for the new unit were therefore not a prerequisite for the allowance.

Conclusion: The absence of separate accounts did not defeat the claim, and the deduction under section 80J was allowable for the spinning unit as well.

Final Conclusion: The Revenue failed to dislodge the findings allowing section 80J relief, and the common order of the first appellate authority was sustained for all the assessment years in question.

Ratio Decidendi: For section 80J, a processing activity may amount to production even if it does not amount to manufacture, and the deduction is not denied merely because separate unit-wise accounts are not maintained if the profits of the new unit can reasonably be ascertained.

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