2009 (11) TMI 969 - AT - Income Tax

Summary

Issues involved: Appeal against CIT(A) order for AY 2006-07, restricting deduction u/s 10B on income from scrap sale.

Summary:
The appeal was filed by the assessee against the CIT(A) order dated 7.7.2009 for the Assessment Year 2006-07, specifically concerning the restriction of deduction u/s 10B related to income derived from scrap sale. The assessee, a company engaged in manufacturing various products, including gardening tools and machinery, claimed deduction u/s 10B for its export-oriented unit at Bhiwadi, which included income from scrap sale amounting to Rs. 5,86,443. The ACIT contended that the sale of scrap was not connected to export activities and thus not eligible for deduction u/s 10B.

Upon review, it was established that the generation and disposal of scrap were integral to the manufacturing activities of the assessee, constituting profits derived from the industrial undertaking. The income from the sale of scrap was deemed to be part of the manufacturing process and not akin to incentives or duty drawbacks from external sources. Citing the Supreme Court's decision in the case of Liberty India, which pertains to incentives like DEPB/duty drawback, it was clarified that such ruling did not apply to income from scrap generation and sale during manufacturing. Consequently, the AO was directed to allow the deduction u/s 80IB for income derived from scrap generation.

In conclusion, the appeal of the assessee was allowed, and the decision was pronounced on 5th November 2009.