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Income Tax Appellate Tribunal, DELHI BENCH ‘C’ : NEW DELHI
Before: SHRI O.P. KANT & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
(hereinafter referred to as ‘the assessee’) by filing the present appeal sought to set aside the impugned order dated 14.03.2017 passed by the learned Commissioner of Income-tax (Appeals)-39, New Deli qua the assessment year 2012-13 on the grounds inter alia that :-
“1. The Ld. CIT (A) has erred in law and on facts in confirming the disallowance to the extent of Rs.7,08,730/- u/s 80IC on account of scrap sales alleging the same not relating to the manufacturing activity of the appellant company. The disallowance sustained by the ld. CIT (A) is wrong and bad in law and hence deserves to be deleted.
2. The appellant contends that income from sale of scrap are inextricably intrinsically connected with the industrial undertaking and is derived from such industrial undertaking. Therefore the claim made by the assessee is a legally and factually allowable claim u/s 80IC and the same should be allowed to the appellant."
Briefly stated the facts necessary for adjudication of the controversy at hand are : assessee is having 3 manufacturing units at Nalagarh, Baddi, District Solan, Himachal Pradesh. Assessee claimed deduction under section 80IC of the Income-tax Act, 1961 (for short ‘the Act’) qua its Supercera Fibres unit, Polyurethane unit and Acoustic unit @ 30% on the first two units and @ 100% on the last one. However, Assessing Officer (AO) noticed substantial amount of scrap sales having been credited in the profit and loss account qua which assessee has claimed deduction under section 80IC of the Act at the respective rates of reduction.
Declining the contentions raised by the assessee company, AO disallowed deduction claimed under section 80IC on the amount of scrap sales and added to the total income for the taxation as under:-
Name of the unit Amount Rate of Deduction of scrap deduction u/s 80IC (in sale (in claimed Rs.) Rs.) Supercera Fibres Unit 297409 30% 89223 Polyurethane Unit 3624514 30% 1087354 Acoustic Division 4090661 100% 4090661 Total amount of disallowance 5267238 And thereby made an addition of Rs.52,67,238/- and assessed the total income at Rs.5,14,04,350/-.
Assessee carried the matter before the ld. CIT (A) by filing the appeal who has restricted the addition to Rs.7,08,730/- by allowing the deduction to the extent of Rs.45,58,500/- u/s 80IC by partly allowing the appeal. Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal.
Assessee has not preferred to put in appearance despite issuance of the notice and consequently, we proceeded to decide the present appeal with the assistance of the ld. DR as well as on the basis of documents available on the file.
We have heard the ld. Departmental Representative for the revenue to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
5.A We have heard ld. DR for the Revenue on clarification who has explained the queries put forth by the Bench.
Undisputedly, scrap qua which deduction has been claimed by the assessee is consisting of empty drums, off cuts, trims, coil, leftovers, packing material, gatta, scrap rolls, etc. which has been generated in the business of the assessee. It is settled principle of law that scrap generated in the business is part and parcel of the income derived from business and as such forms part of the business profit as has been held by Hon’ble High Court of Delhi in case of CIT vs. Sadu Forgings Ltd. (2011) 336 ITR 444 (Del.).
However, ld. CIT (A) though mentioned in para 5.3 of the impugned order that, “the assessee’s contention appears prima facie plausible yet it is necessary to examine the assessee’s claim in the present case to ensure that the facts of the case aligning with the extant law”. Ld. CIT (A) accepting the contentions raised by the assessee allowed the deduction under section 80IC to the extent of Rs.45,58,508/- but disallowed the deduction to the tune of Rs.7,08,730/- on the basis of whims and fancies.
We are of the considered view that during the appellate proceedings, when ld. 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. (supra) 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 Rs.7,08,730/- as deduction from scrap sales u/s 80IC.
Consequently, the appeal filed by the assessee is hereby allowed and remaining disallowance of Rs.7,08,730/- claimed by the assessee as deduction u/s 80IC is hereby allowed. Order pronounced in open court on this 4TH day of September, 2020.