2009 (10) TMI 910 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility of scrap sales income for deduction u/s 80IB of the Income Tax Act.
2. Treatment of disallowed expenditure under section 40(a)(ia) for deduction u/s 80IB.

Issue 1: Eligibility of Scrap Sales Income for Deduction u/s 80IB:
The appellant, engaged in manufacturing, claimed 100% deduction u/s 80IB for profit from its manufacturing unit in a backward area. The Assessing Officer disallowed the deduction on scrap sales income, stating it was not derived from manufacturing activity. However, the Ld. Commissioner of Income Tax(Appeals) allowed the claim, emphasizing the direct nexus of scrap with manufacturing activity. Citing various judgments, including Ship Scrap Traders vs. Commissioner of Income-tax, it was held that scrap sales income is attributable to the priority industry and eligible for deduction under section 80IB.

Issue 2: Treatment of Disallowed Expenditure under Section 40(a)(ia) for Deduction u/s 80IB:
The Assessing Officer disallowed expenditure due to delayed TDS deposits and classified it as income from other sources. The Ld. Commissioner of Income Tax(Appeals) upheld the disallowance but directed to treat it as business income for deduction u/s 80IB. The Tribunal noted that even if the addition is sustained, the assessee would be entitled to deduction u/s 80IB as it forms part of business profit. It was clarified that any addition under section 40(a)(ia) falls under the head computation of business income, not income from other sources. The Tribunal dismissed the Revenue's appeal, affirming the eligibility of the assessee for deduction u/s 80IB on the disallowed expenditure.