COMMISSIONER OF INCOME TAX Vs. ENVIRO CONTROL ASSOCIATES

JUDGEMENT

(1.) At the instance of the Revenue, Income Tax Appellate Tribunal has referred the following question for our consideration; 'Whether, on the facts and circumstances of the case and in law, the Tribunal was right in holding that the assessee firm is entitled for deduction under sec. 80HH and 80J of the Income Tax Act, 1961 ?'

(2.) The assessee was a partnership firm carrying on business of manufacturing water/air pollution control plant at the site of its customers. It claimed deduction under Section 80HH and 80J of the Income Tax Act, 1961 [hereinafter referred to as 'the Act'] since the very year of its inception, i.e., Assessment Year 1982-83 and the Assessing Officer was also allowing the said deductions as claimed. For the Assessment Year 1987-88, the assessee firm claimed deduction of Rs. 23,023/- under Section 80J of the Act and Rs. 11,696/- under Section 80H of the Act and the Assessing Officer allowed the same in the assessment order framed under Section 143(3) of the Act. The Commissioner of Income Tax, Surat issued a notice dated 18.1.1990 upon the assessee for the proposed action under Section 263 of the Act on the ground that the assessment order passed by the Assessing Officer was erroneous and prejudicial to the interests of the Revenue as conditions laid down for allowing deduction under Section 80HH and 80J of the Act have not been fulfilled by the assessee and the assessee was called upon to show cause as to why deductions allowed by the Assessing Officer should not be deleted. The assessee firm submitted a reply on 29.1.1990 and after considering the same, the Commissioner of Income Tax, Surat, did not agree with the contentions raised on behalf of the assessee and he passed the order under Section 263 directing the Assessing Officer to withdraw the deductions allowed by him under Section 80HH and 80J of the Act. Being aggrieved and dissatisfied with the order passed by the C.I.T., Surat under Section 263 of the Act directing the Assessing Officer to withdraw the deductions allowed by him under Section 80HH and 80J of the Act, the assessee approached the Income Tax Appellate Tribunal, Ahmedabad Bench 'B', by way of an appeal which was numbered as ITA No. 1650/Ahd/1990. It was the contention on behalf of the assessee before the Tribunal that the assessee firm fulfilled all the conditions required for deduction under Section 80HH and 80J of the Act and that the assessee firm was claiming such deductions from the very beginning of the concern itself and its claim for deduction was being allowed by the concerned Assessing Officer and now the Department cannot be permitted to reopen the matter once decided. It was further submitted that the assessee was an industrial undertaking as enumerated in Section 80HH and 80J of the Act. The Tribunal, by its order dated 28th June 1994, allowed the assessee's appeal by quashing and setting aside the order passed by the C.I.T., Surat, passed under Section 263 by holding that the case of the assessee was rightly processed by the Assessing Officer and there was no justification for the C.I.T., Surat to make an order under Section 263 of the Act with direction to Income Tax Officer to withdraw the deduction made in favour of the assessee under Section 80HH and 80J of the Act. The Tribunal based the foundation of its order with the ruling of the Hon'ble Supreme Court in the case of C.I.T. Vs. N.C. Buddharaja & Co. (1993) CTR 420 as well as in the case of Bangalore Water Supply and Sewerage Board Vs. A. Rajappa, AIR 1978 SC Page 549. However, at the instance of the Revenue, the Income Tax Appellate Tribunal, Ahmedabad Bench 'B' has referred the aforesaid question for our due consideration.

(3.) Shri B.B. Naik, learned counsel appearing on behalf of the Revenue, has submitted that the Tribunal has committed an error in holding that all the conditions which are enumerated in Section 80HH of the Act have been met with. He has further submitted that for the purpose of availing the benefit under Section 80J, an Industrial Undertaking, eligible for deduction under Section 80HH has to manufacture or produce articles in any backward area and that even if it is split up, it loses the benefit of deduction under Section 80HH. It is submitted that, so far as the assessee is concerned, it has shifted the place of work from place to place after the entrusted job was completed in a particular place, the assessee had not a fixed place of work in a specified backward area, and it might be that it worked in backward areas on tentative basis but that does not establish that the assessee was having its industrial undertaking in backward area. It is further submitted by him that the assessee had its Head Office in Surat City which was not a backward area and therefore the the Tribunal has committed an error in upsetting the order passed by the Commissioner of Income Tax, Surat. Shri Naik has further submitted that in any case in view of the decision of the Hon'ble Supreme Court in the case of C.I.T. Vs. N.C. Budharaja And Co.And Another, 204 ITR 412, the learned Tribunal has committed an error in holding that assessee firm was manufacturing and producing an article or thing in terms of Section 80J and 80HH for being entitled for deduction under the said Sections.