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2015 (10) TMI 490 - ALLAHABAD HIGH COURT

2015 (10) TMI 490 - ALLAHABAD HIGH COURT - [2016] 382 ITR 66 - Revision u/s 263 - fresh assessment order passed in both the assessment years i.e. 1985-86 and 1987-88 in which the claim of the appellant under Sections 88HH and 80I was allowed - Held that:- Admittedly, the appellant's unit came into existence in the assessment year 1980-81 prior to the insertion of Section 80I of the Act, which came into effect from 1.4.1981. Consequently, we are of the opinion that since the appellant's industry .....

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t laid down certain conditions which were required to be fulfilled before claiming deduction. In this regard, one such condition was that the industrial undertaking has begun or begins to manufacture or produce articles after 31.12.1970. In the instant case, admittedly, the appellant's unit came into existence and started business in the assessment year 1980-81 by doing job works i.e. repair of transformers but started manufacturing activity from the assessment year 1985-86 and, consequently, cl .....

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from the assessment year 1980-81, but started the manufacturing process in the assessment year 1985-86, it would be entitled for deduction under Section 80HH from that year, namely, 1985-86. The finding that the appellant's unit was not a new unit in the year from which it started manufacturing is erroneous and misconceived. Section 80HH does not provide that the industrial undertaking should be a new undertaking and starts manufacturing from that year itself. The essential requirement is, the .....

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he order of the Commissioner of Income Tax, we find that a specific finding has been recorded that the assessment was erroneous and prejudicial to the interest of the revenue. The learned counsel for the appellant could not point out anything to the contrary. Consequently, we are of the opinion that once a specific finding has been recorded by the Commissioner that the assessment order was erroneous and prejudicial to the interest of the revenue, the Commissioner had validly passed an order unde .....

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company and started its business activity during the previous years relevant to the assessment year 1980-81. In that year, the appellant derived its income from job work of repairing of transformers inasmuch as the appellant could not carry its manufacturing activity as it did not get any order for manufacture and supply of transformers. For all the above assessment years, the Assessing Officer in his assessment order disallowed the claim under Section 80HH and 80J of the Income Tax Act (hereina .....

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wed. Subsequently, the Commissioner of Income Tax issued a notice under Section 263 of the Act and, after considering the objection, passed an order setting aside the assessment order and directed the Assessing Officer to make a fresh assessment order. The assessee, being aggrieved, filed an appeal before the Tribunal, which was dismissed. 2. For the assessment years 1987-88, 1988-89 and 1990-91 the assessing authority disallowed the claim under Section 80HH and 80I of the Act, against which an .....

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e learned counsel for the appellant and Sri Ashok Kumar along with Sri Shubham Agrawal, the learned counsel for the Department. 4. Section 80I of the Act was inserted by the Finance (No.2) Act, 1980 w.e.f. 1.4.1981. For facility, the extract of the provision is extracted hereunder: "80-I. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel [or the business of repairs to ocean-going vessels .....

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otel] as if for the words "twenty per cent", the words "twenty-five per cent" had been substituted. [(1A) Notwithstanding anything contained in sub-section (1), in relation to any profits and gains derived by an assessee from- (i) an industrial undertaking which begins to manufacture or produce articles or things or to operate its cold storage plant or plants; or (ii) a ship which is first brought into use; or (iii) the business of a hotel which starts functioning, on or afte .....

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e business of a hotel as if for the words "twenty-five per cent", the words "thirty percent" had been substituted.] (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely :- (i) it is not by the splitting, or the, of a business already in existence; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose; (ii) it manufactures or produces any article or thing, not being any .....

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e where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power : Provided that the condition in clause (i) shall not apply in respect of any industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any .....

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so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with. Explanation 3......................................................... (3).......................................................................... (4).......................................................................... (4A).................... .....

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sels or other powered craft] (such assessment year being hereafter in this section referred to as the initial assessment year) and each of the seven assessment years immediately succeeding the initial assessment year. Provided..............................................................." 5. The Finance Minister in his Budget Speech indicated the reason for insertion of Section 80I indicating that this provision was inserted to promote new investment in the industry and to give a tax holid .....

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ose to continue the tax holiday in respect of new industrial undertakings, ships and hotels, but in a modified form. Under my proposal, tax holiday will be available in respect of new industrial undertakings, ships or approved hotels with reference to a specified percentage of the income derived from these sources. In the case of companies, 25 percent of the profits derived from these sources will be exempt for a period of seven years. In the case of non-corporate taxpayers, the percentage of ex .....

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y do not produce articles or things listed in the Eleventh Schedule to the Income-tax Act. The concession will also be available in the case of approved hotels which start functioning or new ships which are acquired during that period." 6. In K.P.Varghese Vs. Income-tax Officer, Ernakulam and another, AIR 1981 Supreme Court 1922, the Supreme Court held that speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debat .....

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l aid to find out the purpose for introduction of the section. From a perusal of Section 80I of the Act read with speech of the minister, it is apparently clear that the provision is applicable to a new industrial unit, which came into existence after 1.4.1981. Such industries, which came into existence after 1.4.1981 would be given a tax holiday of a specified percentage of the income for a period of seven years where such new undertaking come into production after 31.3.1981. 8. In the light of .....

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the appellant is not entitled for any deduction under Section 80I of the Act. 9. The relevant portion of Section 80HH of the Act, as existed in the relevant assessment year is extracted hereunder: "80HH. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the tota .....

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area : Provided that this condition shall not apply in respect of any industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose in any backward area; (iv) it employs ten or m .....

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r plant used in the business, then, for the purposes of clause (iii) of this sub-section, the condition specified therein shall be deemed to have been fulfilled. (3) This section applies to the business of any hotel, where all the following conditions are fulfilled, namely :- (i) the business of the hotel has started or starts functioning after the 31st day of December, 1970 [but before the 1st day of April, 1990], in any backward area; (ii) the business of the hotel is not formed by the splitti .....

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ctioning. Provided............................................................................................................................ [(11) For the purposes of this section, "backward area" means such area as the Central Government may, having regard to the stage of development of that area, by notification in the Official Gazette, specify in this behalf : Provided that any notification under this sub-section may be issued so as to have retrospective effect to a date not earli .....

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appellant's unit came into existence and started business in the assessment year 1980-81 by doing job works i.e. repair of transformers but started manufacturing activity from the assessment year 1985-86 and, consequently, claimed deduction under Section 80HH of the Act from that assessment year onwards. The Tribunal including the authorities rejected the claim of the assessee-appellant on the ground that the appellant's undertaking was not a new undertaking in the year of claim of deduc .....

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rroneous. The Tribunal has not considered sub-clause (iv) of Section 80HH of the Act, which only allows the assessee to claim deduction from that assessment year in which the industrial undertaking began to manufacture or produce the articles. From this provision, it is apparently clear that even though the undertaking came into existence from the assessment year 1980-81, but started the manufacturing process in the assessment year 1985-86, it would be entitled for deduction under Section 80HH f .....

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