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TMI Blog2015 (9) TMI 493X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.2010 for the year under consideration, admitting total income of Rs. 5,69,35,280. During the course of assessment proceedings, the A.O. calculated the difference in interest received, as per Form 26AS(TDS) certificate and added an amount of Rs. 2,26,01,852. Besides this, the A.O. treated the income from sale of sludge and waste oil as income from other sources and not as business income as claimed by the assessee, by holding that they are impurities separated from the fuel to make it usable for running the machinery and are therefore not by-products of power generation process. Therefore, he disallowed the claim for deduction under section 80IA to the extent of Rs. 78,92,135, which is sale consideration of the sludge and waste oil. Aggrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted an amount of Rs. 78,92,135 as income from sale of the sludge/waste oil and claimed deduction under section 80IA. But the income from sale of sludge is neither a by-product nor an out-come of the process of power generation activity of the firm. The learned D.R. further argued that the income from sale of sludge is not income derived from the business of electricity generation. Therefore, the assessee is not eligible for deduction of such income. He further argued that sale of sludge is only incidental to assessee's business and there is no direct nexus between the profits and gains. The learned D.R. strongly relied on the decision of Hon'ble Supreme Court in the case of CIT vs. Pandian Chemicals Ltd., (2003) 262 ITR 278 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sludge which is nothing but used oil arising out of the exclusive business of power generation and further that the company never manufactured and sold such a product as a separate product. 6.1. He argued further that income generated from sale of sludge and waste oil being related and derived from the power generation process, is eligible for deduction under section 80IA of the Act. The Ld. Counsel for the assessee also contended that the A.O. relied on the decisions of Hon'ble Supreme Court in the case of CIT vs. Sterling Foods (1999) 237 ITR 579 and CIT vs. Pandian Chemicals Ltd., (2003) 262 ITR 278 (wherein the Court has held that there must be a direct nexus, for the application of words 'derived from' between 'prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the income generated from sale of sludge was at Rs. 78,92,135. However, the A.O. disallowed the claim relatable to the sale of sludge on the ground that sale of sludge is only incidental to the business and there is no direct nexus between the profits and gains of industrial undertaking. For application of words 'derived from', A.O. had relied on the decision of Hon'ble Supreme Court in the case of Pandian Chemicals Limited vs. CIT (supra). We have perused the judgment of Hon'ble Supreme Court in the case of Pandian Chemicals Ltd., vs. CIT wherein the Hon'ble Court held that sale of scrap cannot be considered as profits and gains of industrial undertaking, as sale of scrap is not relatable to the industrial activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 80IA refers to profits and gains derived by an industrial undertaking or enterprise from any business carried on by such undertaking. The decision of Hon'ble Supreme Court in the case of Pandian Chemicals Ltd., (supra) was in the background of the provisions of section 80HH, while deduction claimed by the assessee in the present case is with reference to deduction under section 80IA being in the eligible business of power generation. Apart from this, the Hon'ble Delhi High Court in the case of CIT vs. Eltek SGS (P) Ltd. (2008) 300 ITR 6 (HC) (Del.) has held that "... the language used in Sec.80HH/80I is materially different. Section 80IB does not use the expression 'profits and gains derived from the industrial undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X
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