2017 (2) TMI 213 - AT - Income Tax

Deduction u/s.80IB(4) in respect of Scrap Sales - whether Scrap Sales be treated as income derived from business activity of the industrial undertaking - Held that - Assessing Officer has been directed to verify this fact that the scrap has direct nexus with the industrial operations thereby implying that to the extent scrap is the nature of by productive industrial operation then the same would qualify for section 80IB of the Act. The appellant has explained his version by letter dated 18.03.2013 which has been mentioned in the order of the CIT(A), however, after furnishing of the details to the Assessing Officer, the Assessing Officer failed to do any exercise to discredit the claim of the assessee. No claim of similar type of industry was compared. The explanation given by the assessee was verified. He further asked the details without verifying the explanation tendered by the assessee. No doubt in the said circumstances the CIT(A) has allowed the claim of the assessee in accordance with law. In view of the said circumstances, we are of the view that the CIT(A) has passed the order judiciously and correctly which is not required to be interfere with at this appellate stage. - Decided against revenue

Summary

Issues:
1. Whether deduction u/s.80IB(4) in respect of Scrap Sales was rightly allowed by CIT(A) for the A.Y.2005-06.

Detailed Analysis:
Issue No.1:
The case involved an appeal by the revenue against the order of the Commissioner of Income Tax (Appeal) relevant to the A.Y.2005-06, concerning the allowance of deduction u/s.80IB(4) for Scrap Sales amounting to ?52,95,310. The Assessing Officer initially disallowed the claim, prompting an appeal by the assessee. The Hon'ble ITAT directed the Assessing Officer to verify the direct nexus of the scrap with industrial operations. The CIT(A) allowed the claim based on the detailed manufacturing process provided by the assessee, showing scrap generation as an integral part of manufacturing. The CIT(A) found that the Assessing Officer failed to discredit the claim or provide contrary evidence, leading to the conclusion that the scrap was a by-product of industrial operations. Consequently, the CIT(A) deleted the addition made by the Assessing Officer for the relevant assessment years. The ITAT upheld the CIT(A)'s decision, emphasizing the Assessing Officer's failure to verify the claim adequately, resulting in the dismissal of the revenue's appeal.

In conclusion, the ITAT upheld the CIT(A)'s decision to allow the deduction u/s.80IB(4) for Scrap Sales for the A.Y.2005-06, as the Assessing Officer failed to provide substantial evidence to refute the claim made by the assessee regarding the direct nexus of the scrap with industrial operations. The ITAT found the CIT(A)'s order to be judicious and correct, leading to the dismissal of the revenue's appeal.