2013 (12) TMI 1562 - HC - Income Tax

Deduction under Section 80IB of the Act is allowable for the income from sale of scrap - The receipts from sale of scrap being part and parcel of the activity and being proximate thereto would also be within the ambit of gains derived from the industrial undertaking for the purpose of computing deduction under Section 80IB.

Summary

Issues:
1. Whether deduction under Section 80IB is allowable from the income derived from the sale of scrap?

Analysis:
The case involves a dispute regarding the eligibility of a deduction under Section 80IB of the Income Tax Act from the income generated by the sale of scrap. The appellant, engaged in manufacturing cardboard boxes, also earned income from the sale of scrap during the relevant assessment year. The Assessing Officer disallowed the deduction under Section 80IB for the income from scrap, stating that it was not directly derived from the industrial undertaking. However, the CIT(A) allowed the appeal, deleting the disallowance. The revenue then appealed to the ITAT, which upheld the CIT(A)'s decision based on a previous judgment of the Gujarat High Court in a similar case.

The key question before the High Court was whether the ITAT was correct in allowing the deduction under Section 80IB for the income generated from the sale of scrap. The High Court noted that the ITAT had relied on the Gujarat High Court's decision in a previous case involving similar issues. The High Court referred to the judgment in the case of Harjivandas Juthabhai Zaveri and Anr, where it was held that receipts from activities directly connected with the manufacturing process should be allowed as deductions under Section 80IB. The court emphasized that if the activities were not industrial in nature, such deductions would not apply.

Furthermore, the High Court cited a decision of the Delhi High Court in the case of Commissioner of Income Tax vs. Sadhu Forging Limited, where it was held that the sale of scrap was an integral part of the industrial activity and thus eligible for deduction under Section 80IB. The court emphasized that the sale of scrap was a byproduct of the manufacturing process and therefore fell within the ambit of gains derived from the industrial undertaking for the purpose of computing deductions under Section 80IB.

Based on the precedents set by the Gujarat High Court and the Delhi High Court, the High Court concluded that the ITAT had not erred in allowing the deduction under Section 80IB for the income derived from the sale of scrap. Therefore, the substantial question of law raised by the revenue was answered against them, and the appeal was dismissed accordingly.