Law:

Section:

Section 80HH, read with section 263, of the Income-tax Act, 1961 -Deductions - Profits and gains from industrial undertakings in backword areas - Whether deductions under sections 80HH and 80HHC cannot be granted automatically but after due enquiry and ascertaining that assessee has complied with requirements of said sections - Held, yes - Assessee claimed subsidy and import entitlements as exempt from tax and also claimed deductions under sections 80HH and 80HHC, and same were allowed by Assessing Officer while making summary assessment under section 143(1) without making an enquiry - However, Commissioner invoked section 263 and found that Assessing Officer completed assessment without looking into question of eligibility of deductions or liability of receipts to tax and assessment made was erroneous and prejudicial to interests of revenue - He, therefore, set aside order of assessment and restored same to Assessing Officer - Whether Commissioner was justified in doing so - Held, yes FACTS For the assessment year 1986-87, the assessee-firm claimed that the amounts representing premium on sale of import entitlements and amount received towards cash compensatory support were liable to be exempt. It also claimed deductions under sections 80HH and 80HHC. The Assessing Officer accepted the return and completed assessment under section 143(1) allowing claims of the assessee. However, the Commissioner invoked section 263 and held that as far as subsidy and the import entitlements were concerned, they were the normal trade receipts of the assessee and there were number of decisions of the same High Court to support the view that the premium on sale of import entitlements received by an exporter arises in the course of business and is taxable as business income. He also held that the cash compensatory support amount was also business income. As far as the deductions under sections 80HH and 80HHC were concerned, the Commissioner held that it was for the assessee to prove that the conditions laid down in both the sections had been fulfilled and without being satisfied that the conditions had been complied with, the deductions under sections 80HH and 80HHC could not be…

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