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TMI Blog2015 (2) TMI 1198X X X X Extracts X X X X X X X X Extracts X X X X ..... arising out of sales of scrap as eligible for deduction u/s 801B ignoring the fact that the income from sale of scrap is not derived from the industrial undertaking as contemplated u/s 80113(3) and not eligible for deduction u/s 80IB." ii)"Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the claim of deduction u/s 80IB on the income derived from sale of scrap ignoring the decision of the Hon'ble ITAT "G" Bench, Mumbai wherein relying on the decision of the Hon'ble Supreme Court in the case of Liberty India v/s CIT (2009) 317 ITR 218 (SC) the Hon'ble ITAT in the case of ACIT v/s Zenith Wire Industries (2012) 330CH 890 held that sale of scrap and job work receipts are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incidental to its business, that mere technical or commercial gain of the scrap to the manufactured product could not be treated as income of industrial unit from the eligible business, that as per the provisions of section 80IB of the Act that deduction was allowable from profits /gains derived from eligible business, that the receipt on account of scrap sale could not be held to constitute profit from industrial unit. The AO referred to cases of Sterling Foods (237 ITR 579), Cambay Electric Supply Indl. Co. Ltd. (113 ITR 84), Standard Motor Products of India Ltd. (46 ITR 614), Madras Motor Ltd. (257 ITR 60). Finally, he held that receipt/income on account of sale of scrap at Rs. 23.15 Lakhs was not derived from the industrial unit eligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factured and galvanized wires/strips, that there were various kinds of scrap generated in each stage of manufacturing process, that scrap was nothing but defective/rejected intermediate product generated during the manufacturing process, that manufacturing process involved was same for both the regular product and the scrap, that scrap are generated out of the manufacturing activity and sale of scrap and the income arising out of it was essentially derived manufacturing activity of the industrial undertaking, that same was eligible for deduction u/s 80IB of the Act. He referred to the judgment of Hon'ble Delhi High Court delivered in the case of Sadhu Forging Ltd.(supra) and the matter of Sahani Computers Ltd. of Hon'ble Karnataka H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e need to consider, firstly, as to whether the scrap, generated at various stages of manufacturing process, was part of manufacturing activity of the industrial unit and thus represented profits and gains derived from the industrial undertaking on this account were entitled to deduction under section 80-IB. .....There cannot be any two opinions that manufacturing activity of the type of material being undertaken by the would also generate scrap in the process of manufacturing. The receipts of sale of scrap being part and parcel of the activity and being proximate thereto would also be within the ambit of gains derived from the industrial undertaking for the purpose of computing deduction under section 80-IB." Considering the above, we hold ..... X X X X Extracts X X X X X X X X Extracts X X X X
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