Arisudana Spinning Mills Ltd vs. CIT (Supreme Court)

S. 80IA: In absence of separate books, AO entitled to estimate eligible profits

The assessee manufactured yarn and also sold raw wool, wool waste and textile and knitting cloth. It claimed a deduction of 30% in respect of the profits of the “manufacturing activity”. As the assessee had not maintained accounts for manufacture of yarn actually produced as a part of industrial undertaking, the AO worked out the manufacturing account giving a bifurcation in terms of quantity of raw wool produced. The assessee challenged the preparation of separate trading account by the AO in respect of manufacturing and trading activities. The CIT(A) upheld the assessee’s claim though the Tribunal and High Court upheld the AO’s stand. On appeal by the assessee to the Supreme Court, HELD dismissing the appeal:

The findings given by ITAT and the High Court are findings of fact. We are not concerned with the interpretation of Section 80IA of the Act. On facts, we find that the assessee ought to have maintained a separate account in respect of raw material which it had sold during the assessment year. If the assessee had maintained a separate account, then, in that event, a clear picture would have emerged which would have indicated the income accrued from the manufacturing activity and the income accrued on the sale of raw material. We do not know the reason why separate accounts were not maintained for the raw material sold and for the income derived from manufacture of yarn.