Commissioner of Income Tax vs Harshwardhan Chemicals

Y.R. Meena, J.—On an application u/s 256(1) of the IT Act, 1961, Tribunal has referred the following question for the opinion of this Court:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to deduction under Sections 80HH and 80I on the enhanced income, notwithstanding the fact that the enhanced income was not earned from any industrial activity but by claiming false and excessive subsidy from Government ?"

The assessee is a public limited company, engaged in the. Business of manufacturing and selling single superphosphate (SSP) fertilizers.

The relevant assessment year is 1990-91. Assessee filed return on 31st Dec., 1990, declaring income of Rs. 15,25,190. During the course of assessment, the AO found various irregularities in the accounts maintained by the assessee. The AO, therefore, had to recast the manufacturing P&L a/c, applied the proviso of Section 145(2) of the IT Act, 1961 and assessed the income of the assessee at Rs. 1,60,79,957; The AO has also disallowed the deduction under Sections 80HH and 80I of the Act on enhanced income by way of excessive subsidy showing bogus sale and purchase in its accounts as that enhanced income was not earned out of the industrial activities carried out by the assessee-film.

In appeal before the CIT(A), CIT(A) has also confirmed the view taken by the AO that the relief under Sections 80HH and 80I is available on the profits earned by the industrial activities and if assessee has obtained any amount of subsidy on much higher figures showing false claim of higher purchases and" sales, on that amount relief under Sections 80HH and 80-I cannot be allowed.

In appeal before the Tribunal, Tribunal has concluded its decision in para 44, which reads as under :

"It has been established that the assessee had claimed the subsidy against subsidised production of SSP and the unsubsidised production of SSP was sold by it at higher prices. The relief under Sections 80HH and 80I was related to the Act of an assessee carrying on the industrial undertaking in a backward area of the State. In carrying out such activity in such an area and during the relevant period, if an assessee is found to have involved itself in earning unaccounted money, it cannot be held disentitled from claiming the other statutory benefit which are available to it at that time for its carrying on business in the backward area."

The facts are not in dispute that the deduction under Sections 80HH and 80I has been denied by the AO on the income other than the income from industrial manufacturing activities. For deduction u/s 80HH, there should be a profit and gains from newly established industrial undertaking and profit should be from the industrial activities carried out by the industry. Same requirement is for deduction u/s 80I.

When there is no dispute that the part of the income, on which the deduction under Sections 80HH and 80I has been denied relates to the income other than the income from industrial activities of the assessee, in our view, Tribunal has committed error in allowing deduction on the subsidy amount, which has been claimed on showing bogus enhanced purchase and sales by the assessee. AO as well as CIT(A) were justified in denying deduction under Sections 80HH and 80I on such income, which has nothing to do with the industrial activities.

In the result, we answer the question in negative i.e., in favour of the Revenue, and against the assessee.

Reference so made stands disposed of accordingly.