2020 (9) TMI 609 - AT - Income Tax

Disallowance u/s 80IC on account of scrap sales - manufacturing activity of the appellant company - income from sale of scrap are inextricably intrinsically connected with the industrial undertaking and is derived from such industrial undertaking - HELD THAT - CIT (A) has duly obtained and analyzed unitwise details of scrap sold in the year under assessment and has not noticed any discrepancy therein, the decision rendered by Hon ble Delhi high court in the case of CIT vs. Sadu Forgings Ltd . 2011 (6) TMI 9 - DELHI HIGH COURT is applicable to the facts and circumstances of the case. Hence, receipt of scrap sales claimed as deduction by the assessee u/s 80IC is part and parcel of business activities and forms part of the business gains, thus required to be included in the gains from business to be eligible for deduction u/s 80IC. So, we are of the considered view that ld. CIT (A) has erred in disallowing the amount of ₹ 7,08,730/- as deduction from scrap sales u/s 80IC. Consequently, the appeal filed by the assessee is hereby allowed and remaining disallowance claimed by the assessee as deduction u/s 80IC is hereby allowed.

Summary

Issues involved:
Disallowance of deduction under section 80IC on scrap sales.

Detailed Analysis:

1. Factual Background:
The appellant, Isolloyd Engineering Technologies Ltd., sought to set aside an order passed by the Commissioner of Income-tax regarding the disallowance of deduction under section 80IC for the assessment year 2012-13. The appellant claimed that income from scrap sales is connected to its industrial undertaking and should be allowed as a deduction under section 80IC.

2. Assessment by AO:
The Assessing Officer disallowed the deduction claimed under section 80IC on the amount of scrap sales made by the appellant across its manufacturing units. The AO added the disallowed amount to the total income, resulting in an increased tax liability for the appellant.

3. Appeal to CIT (A) and Tribunal:
The appellant appealed to the Commissioner of Income-tax (Appeals), who partly allowed the appeal by restricting the disallowance. However, feeling aggrieved, the appellant further appealed to the Tribunal seeking a complete deletion of the disallowed amount.

4. Proceedings before the Tribunal:
Despite the appellant not appearing before the Tribunal, the case was decided based on the submissions of the Departmental Representative and available documents.

5. Tribunal's Decision:
The Tribunal analyzed the nature of the scrap generated by the appellant, which included various items like empty drums, off cuts, trims, etc. The Tribunal referred to a previous judgment by the Delhi High Court, stating that scrap generated in business is part of business income and eligible for deduction under section 80IC.

6. Conclusion:
The Tribunal found that the scrap sales claimed by the appellant are integral to its business activities and should be considered as business gains for the purpose of claiming deduction under section 80IC. Therefore, the disallowance made by the CIT (A) was deemed incorrect, and the Tribunal allowed the appellant's appeal, directing the allowance of the remaining disallowed amount as a deduction under section 80IC.

In conclusion, the Tribunal's judgment favored the appellant by allowing the deduction on scrap sales under section 80IC, emphasizing the connection between scrap sales and the appellant's industrial undertaking.