Law:

Section:

Section 80HH of the Income-tax Act, 1961 - Deductions - In respect of profits and gains of newly established industrial undertakings in backward areas - Assessment year 1977-78 - For assessment years 1975-76 and 1976-77, assessee-firm was disallowed deductions under sections 80HH and 80J on ground that cost of old machinery used in undertaking exceeded 20 per cent of total cost of machinery and plant - Whether it would be wrong to disallow deduction under sections 80HH and 80J in a subsequent year merely on ground that assessee was disallowed these deductions for earlier assessment years even though during assessment year in question total cost of old machinery was less than 20 per cent of total cost of machinery and plant used in business - Held, yes FACTS The assessee-firm started an industrial undertaking in 1977. The claim of deduction under section 80J for the assessment years 1975-76 and 1976-77 was disallowed by the ITO on the ground that the cost of old machinery used in the undertaking exceeded 20 per cent of the total cost of machinery and plant. Again for the assessment year 1977-78 the assessee claimed deduction under sections 80J and 80HH. The ITO disallowed the assessee's claim on the ground that since in the earlier assessment years the assessee was not allowed these deductions, it was not entitled to claim these deductions for the assessment year in question even if the total cost of the old machinery was less than 20 per cent of the total value of the machinery and plant used in the business. On second appeal, the Tribunal held that the assessee was entitled to deductions claimed under sections 80HH and 80J for the assessment year in question, even if it was not so entitled in the earlier years. On reference: HELD The legislative intent behind sections 80HH and 80J is a tax holiday to the newly-established industrial undertaking. It is benefit given to the assessee for a limited period. The aforesaid benefit accrues from year to year as and when the income of each year is to be assessed. It should be noticed that the deduction under section 80J(1) is to be allowed in computing the total income in respect of the assessment year, relevant to the…

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