Per Shri S. Rajaratnam, Accountant Member - This is an appeal filed by Sivasundar Heat Treatment Services, against the order of the AAC, E-Range, Madras, for the assessment year 1979-80.

2. The assessee is a registered firm doing business of providing process servicing known as ‘hot-blasting’ in the processing of forgings. The assessee is eligible for relief under section 80HHA and section 80J of the Income-tax Act, 1961 (‘the Act’). In respect of relief under section 80J, the dispute relates to the question of treatment to be accorded to borrowed capital in ascertaining the capital base for the purposes of relief. The second dispute relates to the decision of the ITO that he cannot allow relief under section 80J if the relief under section 80HHA exceeds the relief under section 80J. On both these issues, the first appellate authority confirmed the view of the ITO. The assessee is, therefore, in second appeal. The learned counsel argued that the validity of the retrospective amendment authorising the exclusion of borrowed capital for capital base in the Finance (No. 2) Act, 1980 is pending adjudication before the Supreme Court and the other High Courts. As for the view of the ITO that he would allow either relief under section 80J or under section 80HHA whichever is larger, he claimed that there is no warrant for this view in law. He pointed out that section 80J(3) and section 8014HA(6) justified the claim of the assessee. The learned depart-mental representative claimed that the view of the ITO is correct on both the issues. The validity of retrospective amendment cannot be questioned before this Tribunal. As for the relief inter se between sections 80HHA and 80J, he claimed that only the order of priority as between the two is decided in the language of the portions pointed out by the learned counsel. In this view, there could not be an allowance under section 80J if a larger allowance had been made under section 80HHA.

3. We have carefully considered the records as well as the arguments. As for the issue relating to the borrowed capital, we have been remitting this issue back to the ITO for a fresh decision in accordance with law. We will do so in this case also.

4. The ITO has computed the business income of the assessee as under :

"Business income : Not profit as per profit and loss account : Rs. 47,218.

Deductions : The assessee performs a process known as hot-blasting. This is a part of manufacturing process relating to forgings. It is claimed that the assessee received only ‘conversion charges’ and not hire charges. The actual process as ascertained is the removal of scales from forgings to make them usable in automobile industries. As this can be regarded as a manufacture, the deductions under sections 80HHA and 80J are allowable.

Section 80J(1) authorises relief under that section, of a deduction from such profits and gains as is attributable to the new industrial undertaking, as reduced by the relief under section 80HH and section 80HHA. These words are found in parenthesis in the following words :

". . . (reduced by the deduction, if any, admissible to the assessee under section 80HH or section 80H1AA). . . ."

Section 80J(3) deals with the manner of adjustment of shortfall in th