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Issues involved: The main issue involved is regarding the allowability of deduction u/s. 80-IB in respect of scrap sales. Additionally, for the assessment year 2003-04, an additional ground is taken regarding the deduction u/s. 80IB(4) in respect of interest on bank fixed deposits.
Assessment Year 2003-04: The assessee raised grounds related to the treatment of interest received on Bank Fixed Deposits as "Business Income" and the allowance of deduction u/s. 80IB(4) for the same. The Assessing Officer treated the interest under the head income from other sources, disallowing the claim under section 80-IB(4), which was confirmed by the CIT(A). Decision on Interest Income: The Tribunal did not find a reason to interfere with the CIT(A)'s order based on the decision of the Hon'ble Supreme Court in the case of Liberty India. The Court clarified that section 80IB allows deduction for profits and gains derived from the eligible business, emphasizing that the term "derived from" has a narrow connotation. Therefore, the grounds raised by the assessee regarding interest income were dismissed. Scrap Sales Issue: The Assessing Officer disallowed the assessee's claim under section 80IB for scrap sales from Unit I and Unit II, stating that scrap does not form part of business income derived from the industrial undertaking. The CIT(A) upheld this decision, noting that the industrial units' business was not focused on generating and selling scraps. Tribunal's Analysis on Scrap Sales: The Tribunal considered that the income from scrap sales was included in the profit and loss account, indicating it was assessable as business income. The issue was whether the scrap was derived from the industrial undertaking as required by section 80IB. Referring to the Supreme Court's decision in Liberty India, the Tribunal highlighted that the generation of profit, not ownership, attracts incentives u/s. 80IB. The Tribunal directed the AO to verify the direct nexus of the scrap with industrial operations for eligibility under section 80IB. Final Decision: The Tribunal allowed ground No. 3 for A.Y. 2003-04 and ground No. 1 for A.Ys. 2004-05 and 2005-06 for statistical purposes, restoring the issue of scrap sales to the AO for verification. The appeals were allowed for statistical purposes. This judgment addressed the issues of deduction u/s. 80-IB for scrap sales and interest income on bank fixed deposits, providing clarity on the interpretation of the law and directing further verification for specific claims.
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