Deduction u/s 80HH of the Act in respect of profit and gains from newly established industrial undertaking in backward areas would be given subject to fulfillment of certain conditions as provided in sub section (2) of the said provision.
In the case in hand it is not the case of the AO that the assessee is not entitled for deduction because it is not fulfilling conditions mentioned in subsection (2) but the case of the AO is that the assessee is primarily engaged in the business of construction and lying of railways track / line and hence it is not entitled for deduction of u/s 80 HH & 80I of the Act. The CIT has in order u/s 263 of the Act for asstt. year 1984-85 (supra), in para 4 dismissing said claim of the assessee in regard to manufacturing activities, observed as follows :-
“4. At the outset, I would like to point out that the department has never doubted the status of the company as not being an Industrial Undertaking. Therefore, the arguments of the assessee company in this context are redundant. Regarding the manufacturing activity as listed in the reply, the claim of the assessee company is still inadmissible because the end product after the execution of the project is a Railway track or a bridge. As already explained, they do not constitute an article or a thing being immovable in character. There might be a minor activity of manufacture of articles but the purpose of this activity is to complement the main project i.e laying of Railway track. In view of this, the arguments of the assessee company are devoid of any substance and, therefore, the same are rejected. It would not be out of place to mention that while framing the assessment for the assessment year 1985-86, the claim of the assessee for deductions u/s 80-HH and 80-I was not allowed to the assesee company by the Assessing Officer on similar grounds. This order has been confirmed by the CIT(A).”
In view of above observation it is vivid that the factum of said manufacturing activities are being undertaken by the assessee was well known to authorities below but they denied deduction not only on the income from construction activity but also dismissed prayer of deduction on manufacturing activities. We are not agree with the contention the Ld. CIT(A) and subsequently raised by Ld. CIT(DR) that there might be a minor activity of manufacture of articles buy the purpose of the activity is to complete the main project of laying railways track / line as when the provisions of the Act mandates that the assessee is eligible for deduction pertains to income accrued from manufacturing activities then in our considered view, the manufacturing activity was an integral part of entire activity and namely for the reason that such an activity was not very significant compared to total turnover of the assessee it could not be said the assessee not engaged in manufacturing activity. In the provision of 80HH of the Act, as noted above, it is mandated that where the total gross income of an assessee includes any profits and gains derived from an industrial undertaking then this section of deduction applies. In the present case also the gross total income of the assessee includes income from manufacturing activity of an industrial undertaking irrespective of the fact that the activities is being carried out either at small scales or large scale and such activity was significant or not compared to total turnover of the assessee including income of the business which is not eligible for such deduction.
In view of above we hold that the assessee is eligible for deduction u/s 80HH of the Act on the income from manufacturing We may point out that the Ld. Counsel for the assessee fairly accepted that the assessee has not maintained separate book of accounts for construction and manufacturing activities hence these details have not been placed on record. He further submitted that if opportunity is allowed then the calculation in regard to income from manufacturing activities may be placed before the competent authority to discharge onus cast upon the assessee to substantiate its claim of deduction. The Ld. CIT(DR) has objected to above submissions of assessee by contending that when there is not separate accounts then and details and amount of income from small and insignificant manufacturing are not on record then it would be futile exercise to grant an opportunity to assessee to submit the same at this belated stage hence, claim of the assessee should be dismissed.
On careful consideration above it was the duty and onus on the shoulder of the assessee to show that he was also engaged in manufacturing activities and the gross total income declared by it also include income from manufacturing activity and on the basis of foregoing discussion we have held that the assessee is entitled for deduction u/s 80HH and 80I of the Act on the part of income earned from manufacturing activities. However, for want of adequate material on the record of the Tribunal, it is not possible for us to calculate quantum of deduction and thus we find it appropriate to send the issue for limited purposes i.e. for calculation of deduction u/s 80HH on the income earned from manufacturing activities during the relevant periods under consideration for all five assessment years. ITAT directed the AO to calculate the quantum of deduction for all the five assessment years under consideration.