Industrial undertaking – Deduction under section 80IA – In the absence of separate books of accounts in respect of manufacturing activity and trading activity, the Assessing Officer was justified in working out the manufacturing account.

The assessee, engaged in manufacturing yarn, filed its return of income for the assessment year 1998-99 on 30-11-1998 showing total income of Rs.36,27,866 inter alia after claiming deduction u/s. 80IA of Rs.15,54,800 being 30% of the gross total income of Rs.51,82,666. The Assessing Officer found that the assessee had sold raw wool, wool waste and textile and knitting clothes and that the assessee had not maintained a separate trading and Profit and Loss account for the goods manufactured. The assessee contended that for certain business exigencies in the assessment year in question, it had sold the above items but such sale would not disentitle him from claiming the benefit u/s. 80IA on the told sum of Rs.51,82,666. The Assessing Officer, in the absence of separate accounts for manufacture of yarn actually produced as a part of the industrial undertaking, worked out on his own, the manufacturing account giving bifurcation in terms of quantity of wool produced. The assessee challenged the preparation of separate trading account by the Assessing Officer in respect of manufacturing and trading activity before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) allowed the appeal. The Tribunal reversed the order of the Commissioner of Income Tax (Appeals). The High Court upheld the order of the Tribunal.

On further appeal, the Supreme Court was of the view that the finding given by the Tribunal and the High Court were findings of fact. The Supreme Court dismissed the appeal, observing that the assessee ought to have maintained a separate account in respect of raw material which it had sold during the assessment year, so that a clear picture would have emerged indicating the income occurring from manufacturing activity and the income occurring on sale of raw materials.