TMI Blog2005 (7) TMI 577X X X X Extracts X X X X X X X X Extracts X X X X ..... for both the Assessment years pertains to disallowance of interest paid by the assessee to the bank on the ground that the assessee advanced interest-free loan to Maharashtra Trading Agency and, thus, the interest-bearing borrowed funds were diverted for non-business purpose. During the course of appellate proceedings before the learned CIT(A) the assessee filed detailed written submissions claiming that the assessee was having interest-free funds to the extent of Rs. 67.64 lakhs. It was further pointed out that the assessee was having business transactions with M/s. Maharashtra Trading Agency. The assessee was making sales and was also doing job work on behalf of the aforesaid concern. The assessee was to receive job work charges from M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outstanding are on account of job work charges receivable by the assessee, no disallowance of interest can be made. The Assessing Officer shall allow opportunity to the assessee to establish the source of any advances made to Maharashtra Trading Agency. After considering the entire facts the issue will be re-decided by the Assessing Officer. 5. Ground No. 2, which is also common for both the years, pertain to disallowance of deduction claimed by the assessee under sections 80HHA and 80-I. The assessee is engaged in sizing of yarn and the revenue authorities have held that the assessee is not engaged in manufacturing or production of any articles. On that basis the deductions claimed by the assessee were disallowed. The learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are then put on Sizing Machine whereby 7 Warping Yarn Rolls are put together on the Sizing Machine. 7. The yarns from seven Warping Yarn Rolls i.e. 7 x 400 yarn ends-2,800 yarn ends are drawn together and passed through saw box containing sizing mixture. 8. The sizing materials and chemicals such as Maize starch, RAN 2000, PVA 123, Gower gum, water etc. are mixed together under pressure in sizing tanks and through pipeline are transferred to the saw box as per requirements. 9. The 2,800 yarn ends together pass through the sizing mixture contained in the saw box whereby the sizing mixture get wrapped around the yarns giving the yarn required strength, properties and qualities to withstand the weaving loom pressure. This process is kn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 1998-99 has been filed at pages 25 and 26 of the paper book. In this order deduction under section 80HHA has been allowed by the Assessing Officer. It may be mentioned that the assessment year 1998-99 happens to be the 10th year and the last year of deduction as mentioned by the Assessing Officer in the assessment order. The learned counsel contended that the disallowance has been made by the Assessing Officer only in the assessments for the two assessment years under appeal. The learned counsel also relied on Mumbai ITAT decision in the case of Emptee Poy-Yarn (P.) Ltd. [ITA No. 1324 (Mum.) of 2000, dated 11-7-2000], copy of which has been filed. In this case the assessee was engaged in the business of texturing and twisting of yarn. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that commercially different commodity emerges after the POY is processed. As we are also of the same view, we respectfully follow the decision cited by the learned counsel and hold that the assessee is entitled to deductions stipulated under the Act. The decision relied upon by the C.I.T. (Appeals) are distinguishable on facts. At any rate no universal formula can be applied to analyse as to what amounts to production or manufacture, it depends on the facts and circumstances of each case. In the instant case revenue was consistently of the opinion that twisting of yarn is a manufacturing activity and in fact Assessing Officer has accepted the claim of the assessee in several years." 7. The learned Departmental Representative strong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking engaged in the process of calendering of gray cloth was entitled to deduction under section 80J of the Income-tax Act. The ratio of this decision is extracted below from the head note : "Held, that, in the present case, the assessee purchased gray cloth and added to it various chemicals and thereafter put it in a damping machine. The cloth was thereafter folded according to the size and stamped according to its length and breadth and a specific brand name was printed on its top. The calendering process employed by the firm was such as to give temporary finish by pressing the fabric for making it marketable. No lasting change was brought about. The assessee was, therefore, not entitled to special deduction under section 80J." (p. 83 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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