COMMISSIONER OF INCOME TAX Vs. J.D. FARMS

JUDGEMENT

(1.) IN all these appeals the respondent/assessee is same, namely, M/s J.D. Farms. It is in the business of poultry framing and the question is as to whether the business activity can be treated as manufacturing activity thereby giving the benefit of deductions under Section 80HHA and 80 -I of the IT Act (in short 'the Act'} to the assessee. For the sake of convenience we shall take note of the facts from IT Appeal No. 740 of 2007. The assessee had filed return declaring income at Rs. 3,80,234 for the asst. yr. 1998 -99. This return was filed on 30th Oct., 1998 in which the assessee had also claimed deduction under Sections 80HHA and 80 -I of the Act claiming itself to be an industrial undertaking. Assessment was made. However, thereafter action under Section 147 of the Act was initiated against the assessee with reasons recorded vide order sheet entry dt. 17th April, 2002. The basic reason was that the assessee was not an industrial undertaking as it was not having any manufacturing unit and was, thus, not entitled to deductions under Sections 80HHA and 80 -I of the Act.

(2.) AS per the AO, the deduction under Section 80HHA is allowed only to the newly established small scale industrial undertakings which are engaged in the manufacturing and production of articles in rural areas. The deduction under Section 80 -I on the other hand is allowed to newly established industrial undertakings. One of the necessary conditions to be fulfilled by the assessee in order to become eligible for deductions under Section 80HHA and 80 -I is that it should produce or manufacture any article or thing. In the reasons recorded for initiating action under Section 147 of the Act, recorded vide order sheet entry dt. 17th April, 2002, it was recorded that 'In the returns filed by the assessee for the asst. yrs. 1996 -97 to 2000 -01, it has claimed deduction under Sections 80HHA and 80 -I, thus, claiming to be an industrial undertaking. However, in the case of Indian Poultry v. CIT : (1997) 138 CTR (MP) 382 : (1998) 230 ITR 909, 911 (MP), the High Court held that the business of rearing chicks to broilers did not amount to manufacturing, even though the assessee used scientific methods in the process of rearing chicks. Hence, the assessee carrying on the business of rearing chicks, is not entitled to any deduction under Sections 80 -I and 80HHA.' Accordingly, notice dt. 22nd April, 2002 under Section 148 of the Act was served upon the assessee followed by detailed questionnaire dt. 14th Aug., 2002 along with notice dt. 142(1) dt. 14th Aug., 2002.

(3.) IN this backdrop, the following question of law has arisen for consideration in the present appeal: Whether the Tribunal was correct in law in allowing deduction under Section 80HHA and 80 -I of the Act to the assessee holding that the activity carried on by the assessee amounted to producing or manufacturing of an article or thing