The ITO,Vapi Ward-4, Nani Daman V. Jitsan Enterprises, Nani Daman

ITA 2762/AHD/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2403 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 28-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S SHUKLA
• Assessee Lawyers: S N L AGARWAL
• Section: 80IB

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI MUKUL KR. SHRAWAR, JM AND D.C.AGRAWAL , AM INCOME-TAX OFFICER, VAPI WARD-4, DAMAN. VS. M/S JITSAN ENTERPRISE, PLOT NO.361/13,GANESH INDUSTRIAL ESTATE, KACHIGAM, NANI DAMAN. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI S. S. SHUKLA, DR RESPONDENT BY:- SHRI S. N. L. AGARWAL, AR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOL LOWING GROUNDS :- (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE DEDUCTION U/S 80IB OF THE ACT STATING THAT DISALLOWANCE OF CLAIM OF DEDUCTION U/S 80IB OF THE ACT ON THE SOLE GROUND THAT THE ASSESSEE WAS NOT HA VING FACTORY LICENSE BEFORE IT STARTED MANUFACTURING ACTIVITIES IS WITHOUT ANY MERITS. (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THE POINT THAT THE ASSESSEE HAS FAILED TO PROVE THAT IT HAS COMMENCED THE MANUF ACTURING ACTIVITY ON OR BEFORE 31.03.2004 AS STIPULATED IN S ECTION 80IB OF THE ACT. (3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE DEDUCTION U/S 80IB OF THE IT ACT ON DISALLOWANCE OF RS.63,332/-MADE ON SCRAP SAL ES INCOME. ITA NO.2762/AHD/2010 ASST. YEAR :2007-08 ITA NO.2762/AHD/2010 ASST. YEAR 2007-08 2 2. THE FACTS OF THE CASE ARE THAT ASSESSEE IS A PAR TNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING OF PLASTIC MOULDED PRODUCTS HAVING INDUSTRIAL UNDERTAKING IN THE UNION TERRITORIES OF DAMAN AND DIU BEING A NOTIFIED AREA. THIS WAS THE FOURTH YEAR OF OPERATIO N OF THE INDUSTRIAL UNDERTAKING. IT CLAIMED DEDUCTION U/S 80IB WHICH WA S DENIED BY THE AO ON THE GROUND THAT FACTORY LINCENSE WAS ISSUED TO T HE ASSESSEE ON 23.4.2004 ON THE BASIS OF WHICH DEDUCTION U/S 80IB WAS DISALLOWED IN ASST. YEAR 2005-06 AND 2006-07. THE LD. CIT(A) ALLO WED THE CLAIM FOLLOWING THE DECISION OF THE HON. APEX COURT IN LI BERTY INDIA VS. CIT 317 ITR 218 (SC) AND THE DECISION OF THE TRIBUNAL I N ITA NO.1006/AHD/2009 IN THE CASE OF M/S SAMARTH HEALTH CARE PRONOUNCED ON 5.6.2009. 3. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. THE ISSUE IS NOW COVERED IN FAVOUR OF THE A SSESSEE BY THE DECISION OF THE TRIBUNAL IN ITS OWN CASE FOR ASST. YEAR 2006 -07. THE TRIBUNAL VIDE PARA 9 & 10 OF ITS ORDER PRONOUNCED ON 30 TH JUNE, 2010 IN ITA NO.892/AHD/2010 HAS HELD AS UNDER :- 9. WE FIND THAT IN THE ASSESSMENT YEAR 2005-06 IN ASSESSEES OWN CASE, THE TRIBUNAL ALLOWED DEDUCTION UNDER SECTION 80IB O F THE ACT ON IDENTICAL FACTS BY OBSERVING AS UNDER:- 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE NOTICE THAT DEDUCTION U/S 80IB HAS BEEN DENIED IN T HE YEAR UNDER CONSIDERATION FOR WANT OF FACTORY LICENSE IN THE PRECEDING ASSESS MENT YEAR. UNDISPUTEDLY, FACTORY LICENSE WAS ISSUED ON 23.4.2004 I.E. IN THE YEAR CONSIDERATION. IN THESE CIRCUMSTANCES, ESPECIALLY WHEN LICENSE HAD BEEN ISS UED ON 23.4.2004 AND UNDISPUTEDLY, THE ASSESSEE FULFILLED ALL THE CONDIT IONS STIPULATED U/S 80IB OF THE ACT, THERE IS NO REASON TO DISALLOW THE CLAIM FOR D EDUCTION U/S 80IB OF THE ACT. EVEN OTHERWISE, THE ASSESSEE WAS ALLOWED PROVISIONA L REGISTRATION AS A SMALL SCALE INDUSTRY ON 13.2.2004 .BESIDES, THE ASSESSEE OBTAINED NECESSARY NOC AND POWER CONNECTION . WE FIND THAT A CO-ORDINATE B ENCH VIDE THEIR ORDER DATED 05-06-2009 IN THE CASE OF M/S SAMRATH HEALTH CARE IN ITA NO.1006/AHD/2009 FOR THE AY 2005-06, WHILE ADJUDICA TING A SIMILAR ISSUE, CONCLUDED AS UNDER: ITA NO.2762/AHD/2010 ASST. YEAR 2007-08 3 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNE D DR AND CAREFULLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES. IN OUR CONSIDERED VIEW THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF T HE LEARNED CIT(A). THE LEARNED CIT(A) HAS RIGHTLY MENTIONED THAT TO OBTAIN FACTORY LICENSE IS NOT A CONDITION PRECEDENT FOR CLAIMING DEDUCTION U/ S 80 IB OF THE ACT. IF WE PRESUME THAT THIS CONDITION IS ALSO REQUIRED TO BE FULFILLED BY THE ASSESSEE, THEN IT WOULD AMOUNT TO LEGISLATION BY IN SERTING ANOTHER CONDITION IN SECTION 80 IB FOR ALLOWING DEDUCTION U NDER THAT SECTION THOUGH PROVIDED IN THE STATUTE. THE AO DID NOT DOUB T ABOUT RAW MATERIAL CONSUMPTION, POWER CONSUMPTION, SALES AND EMPLOYMENT OF WORKERS. FURTHER, NO DOUBT WAS ALSO EXPRESSED BY TH E AO THAT ASSESSEE DID NOT CARRY ANY MANUFACTURING ACTIVITY.NONETHELES S, THE ASSESSEE HAS APPLIED FOR FACTORY LICENSE PRIOR TO COMMENCEMENT O F PRODUCTION THOUGH IT WAS GRANTED SUBSEQUENTLY. THE ASSESSEE HA S BEEN GIVEN A PERMANENT REGISTRATION AS A SMALL SCALE INDUSTRIAL UNDERTAKING AND HAS REGISTERED WITH THE; SALES TAX AND EXCISE AUTHORITI ES. FOR CLAIMING DEDUCTION U/S 80 IB OF THE ACT ONLY THE CONDITIONS LAID DOWN UNDER THAT SECTION ARE REQUIRED TO BE FULFILLED AND NO MORE. T HE REQUIREMENT UNDER OTHER STATUTES CANNOT BE BORROWED FOR ALLOWING/REFU SING DEDUCTION UNLESS IT IS SO PROVIDED IN THE IT ACT ITSELF. FOR EXAMPLE, THE LEGISLATURE THOUGHT IT FIT TO BRING THE CONDITION OF EMPLOYMENT OF 10 OR MORE WORKERS IF MANUFACTURING ACTIVITIES ARE CARRIED OUT WITH THE HELP OF POWER OR MORE THAN 20 WORKERS WITHOUT THE HELP OF P OWER. SIMILARLY, IF THE LEGISLATURE THOUGHT IT FIT TO OBTAIN FACTORY LI CENSE BEFORE ALLOWING DEDUCTION U/S 80 IB OF THE ACT THEN THEY WOULD HAVE SO PROVIDED. IN FACT, THERE ARE SEVERAL OTHER REQUIREMENTS IN DIFFE RENT ACT APPLICABLE TO AN INDUSTRY BUT ALL THESE ARE NOT TO BE COMPLIED WI TH FOR CLAIMING DEDUCTION U/ S 80 IB OF THE ACT. WHAT IS ESSENTIAL IS THAT THE ASSESSEE SHOULD MANUFACTURE OR PRODUCE AN ARTICLE OR THING. IF THERE IS ANY VIOLATION OF ANY PROVISIONS OF OTHER STATUTES THEN THE ASSESSEE HAS TO EXPLAIN THE SAME TO THE AUTHORITIES EXECUTING THOSE ACTS/ STATUTES. FURTHER FOR VIOLATION OF THE PROVISIONS UNDER OTHER ACTS THE ASSESSEE MAY FACE PENAL PROVISIONS AS PROVIDED UNDER THOSE A CTS. BUT FOR THAT COMMISSIONS/OMISSION UNDER OTHER ACTS THE DECISION UNDER THE IT ACT CANNOT BE AFFECTED UNLESS SO PROVIDED UNDER THE IT ACT. WE HOWEVER, NOTICE THAT THIS APPEAL IS FOR AY 2005-06..AND AS P ER FACTS STATED IN THE ORDER BY THE LEARNED CIT(A) THE ASSESSEE HAS OBTAIN ED FACTORY LICENSE ON 6-5-2004 WHICH IS FINANCIAL YEAR 2004-05. THEREF ORE, THERE SHOULD BE NO CASE FOR DISALLOWING THE CLAIM OF THE ASSESSE E U/S 80IB ON THE QUESTION OF NOT OBTAINING FACTORY LICENSE. AS A RES ULT, WE CONFIRM THE ORDER OF THE LEARNED CIT(A) AND DISMISS THE GROUNDS OF APPEAL OF THE REVENUE. 5.1 SIMILARLY, IN THE CASE OF M/S PRIYA PRINTEK IN ITA NO.2742/AHD/2009, FOLLOWING THE DECISION DATED 16.11.2009 OF THE ITAT IN THE CASE OF ADARSH PACKAGING VS. ITO IN ITA NOS.2253 AND 2254/AHD/2009 FOR AYS 2005-06 AND 2006-07, THE TRIBUNAL CONCLUDED VIDE THEIR ORDER DA TED 11.12.2009 AS UNDER: ITA NO.2762/AHD/2010 ASST. YEAR 2007-08 4 9. IN THE LIGHT OF THE AFORESAID ORDERS OF THE AHM EDABAD BENCHES OF THE TRIBUNAL THE FACT THAT IN THE PRESENT CASE THE ASSESSEE OBTAINED THE FACTORY LICENSE ONLY ON 08-2-2007, BEFORE 31-3-2004 IS IRRELEVANT FOR THE PURPOSE OF SECTION 80IB. THE QUESTION HOWEVER R EMAINS AS TO WHETHER THE ASSESSEE ACTUALLY STARTED PRODUCTION BE FORE 31-3-2004. IN THIS CONNECTION, THE ASSESSMENT ORDER ITSELF MENTIO NED THAT ON PERUSAL OF THE SSI REGISTRATION CERTIFICATE IT IS SEEN THAT THE PRODUCTION STARTED ON 31-3-2004. IT THEREFORE APPEARS TO US THAT THE S SI EGISTRATION CERTIFICATE WAS PRODUCED BEFORE THE AO. THE CIT(A) HAS HOWEVER TAKEN THE VIEW THAT SINCE THE FACTORY LICENSE WAS I SSUED ONLY ON 08.02.07 AND IT IS AN OFFENCE PUNISHABLE UNDER THE FACTORIES ACT AND | THE RULES FRAMED THEREUNDER TO COMMENCE MANUFACTURI NG ACTIVITY BEFORE ISSUE OF THE SAID LICENSE, IT WOULD BE AGAIN ST PUBLIC POLICY TO ALLOW THE BENEFIT OF DEDUCTION UNDER ONE STATUTE IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN VIOLATION O F THE PROVISIONS OF ANOTHER STATUTE WHICH ALSO INVITES PENALTY UNDER TH AT STATUTE. THUS EVEN THE CIT(A) DOES NOT APPEAR TO HAVE DOUBTED THE CLAI M OF THE ASSESSEE THAT THE MANUFACTURING ACTIVITY ACTUALLY COMMENCED BEFORE THE 31-3- 2004. THE REASONING OF THE CIT(A) HAS NOT BEEN ACCE PTED AS CORRECT IN THE AFORESAID ORDERS PASSED BY THE AHMEDABAD BENCHE S OF THE TRIBUNAL. THEREFORE RESPECTFULLY FOLLOWING THEM, WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR THE DEDUCTION UNDER SECTIO N 80IB AS CLAIMED AND ACCORDINGLY DIRECT THE AO TO ALLOW THE SAME. 5.2 UNDISPUTEDLY, THE AO DID NOT DOUBT EITHER CONSU MPTION OF RAW MATERIAL OR POWER WHILE SALES OF RS.1,16,39,418/-HAVE BEEN MADE IN THE YEAR UNDER CONSIDERATION. AS ALREADY MENTIONED, THIS IS THE SE COND YEAR OF PRODUCTION AND UNDISPUTEDLY, FACTORY LICENSE HAVING BEEN ISSUED ON 23-04-2004, THERE IS NO BASIS FOR DISALLOWING THE CLAIM FOR DEDUCTION U/S 8 0IB OF THE ACT IN THE YEAR UNDER CONSIDERATION ON THE GROUND OF NOT OBTAINING THE FACTORY LICENSE IN THE PRECEDING ASSESSMENT YEAR. IN THE LIGHT OF THE VIEW TAKEN IN THE AFORESAID DECISIONS OF THE TRIBUNAL, THE AO WAS NOT JUSTIFIED IN DISALLOWING THE DEDUCTION U/S 80IB OF THE ACT FOR THE YEAR UNDER CO NSIDERATION ON THE GROUND THAT THE FACTORY LICENSE WAS NOT OBTAINED IN THE PR ECEDING ASSESSMENT YEAR. THEREFORE, GROUND NO.1 IN THE APPEAL IS ALLOWED. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD N OT SHOW ANY GOOD REASON TO NOT TO FOLLOW THE ABOVE QUOTED ORDER OF T HE TRIBUNAL IN THE CASE OF THE ASSESSEE PASSED IN THE ASSESSMENT YEAR 2005- 06. THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO COULD NOT SHOW THA T THE ABOVE QUOTED ORDER OF THE TRIBUNAL WAS REVERSED IN APPEAL BY A H IGHER FORUM. IN THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NO T FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LEARNED C OMMISSIONER OF INCOME TAX(APPEALS). IT IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. ITA NO.2762/AHD/2010 ASST. YEAR 2007-08 5 RESPECTFULLY FOLLOWING THE ABOVE ORDERS WE ALLOW TH E CLAIM OF THE ASSESSEE. THIS GROUND OF REVENUE IS REJECTED. 4. THE NEXT ISSUE IS REGARDING CLAIM OF DEDUCTION U NDER SECTION 80IB ON SCRAP SALES. THE LD. AO WAS OF THE VIEW THAT SCR AP SALES ARE NOT PART OF MANUFACTURING ACTIVITIES AND HENCE NOT ENTITLED FOR DEDUCTION UNDER SECTION 80IB. THE LD. CIT(A), HOWEVER, ALLOWED THE CLAIM FOLLOWING THE DECISION OF HON. GUJARAT HIGH COURT IN HARJIVANDAS JHUTHABHAI ZAVERI AND ANOTHER VS. CIT 258 ITR 785 (GUJ). 5. THE LD. DR ON THE OTHER HAND SUBMITTED THAT ON T HE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A ) HAS ERRED IN DIRECTING NOT TO EXCLUDE THE INCOME EARNED FROM SALE OF SCRAP FROM THE PROFITS ELIGIBLE FOR DEDUCTION U/S 870IB THOUGH SAME HAVE N O DIRECT OR IMMEDIATE NEXUS WITH THE MANUFACTURING ACTIVITY OF THE ASSESS EE AS PER RATIO LAID DOWN BY THE HON. APEX COURT IN THE CASES CIT VS. ST ERLING FOODS (1999) 237 ITR 579; PANDIAN CHEMICALS VS. CIT (2003) 262 I TR 278 (SC); CIT VS. EASTERN SEA FOODS EXPORTS P. LTD. 215 ITR 26 AN D CAMBAY ELECTRIC SUPPLY CO. VS. CIT 113 ITR 84. THE DECISION OF THE LD. CIT(A) IS NOT ACCEPTABLE, AS THERE ARE CONTRARY DECISIONS ON THE ISSUE. THE HON. M.P. HIGH COURT IN THE CASE OF D.P. AGRAWAL VS. CIT 272 ITR 118 (MP) HAS HELD THAT THE SCRAP INCOME IS NOT ELIGIBLE FOR DEDU CTION U/S 80IB OF THE ACT. SIMILARLY, THE HON. JURISDICTIONAL ITAT AHMEDA BAD IN THE CASE OF STANDARD OIL AND GREASES (ITA NO.3096/AHD/2007) FOR ASST. YEAR 2005- 06 HAS GIVEN THE SAME VERDICT. FURTHER THE HON. GUJ ARAT HIGH COURT HAS ADMITTED THE DEPARTMENTAL APPEAL ON THE ISSUE; VIDE TAX APPEAL NO.368 OF 2008 DATED 31.0.7.08 IN THE CASE OF SHRI JIKAR A . SAIYED FOR ASST. YEAR 2001-02 WHICH IS PENDING. AS THE ISSUE, IS YET TO B E DECIDED FINALLY BY THE HON. GUJARAT HIGH COURT. CONSIDERING THE ABOVE FACT S AND IN VIEW OF THE ITA NO.2762/AHD/2010 ASST. YEAR 2007-08 6 PRINCIPLES, LAID DOWN BY THE HON. APEX COURT IN THE CASE OF CIT VS. STERLING FOODS (1999) 237 ITR 579, THE DECISION OF THE HON. CIT(A) IS NOT ACCEPTABLE. 6. THE LD. AR ON THE OTHER HAND SUBMITTED THAT SIMI LAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN THE CASE OF ITO VS. M/S SUBH PAPER PRODUCTION IN ITA NO.2413/AHD/2009 ASST. YEAR 2006-07 PRONOUNC ED ON 23 RD OCTOBER, 2009 WHEREIN THE TRIBUNAL HAS HELD AS UNDE R:- 6. WE HAVE HEARD THE LEARNED DR AND LEARNED AR OF THE ASSESSEE. IN OUR CONSIDERED VIEW, THE ISSUE WHETHER ASSESSEE IS ENTI TLED FOR DEDUCTION UNDER SECTION 80IB ON SALE OF SCRAP GENERATED IN TH E MANUFACTURING ACTIVITY IS COVERED BY THE DECISIONS OF HON'BLE SUP REME COURT IN INDIAN CINE AGENCIES VS. CIT (2009) 308 ITR 98 (SC) AND AL SO BY VARIOUS OTHER AUTHORITIES AS UNDER: (1) IN [2005] 273 ITR (A.T.) 0001- ASSISTANT COMMIS SIONER OF INCOME- TAX VS. MAXCARE LABORATORIES LTD. INCOME-TAX APPEL LATE TRIBUNAL CUTTACK HELD THAT THE INCOME FROM SALE OF EMPTY DRUMS/CONTAINERS, SAL E OF USELESS MATERIALS WAS OUT OF THE BUSINESS OF INDUSTRIAL UNDERTAKING O F THE ASSESSEE. FOR DETERMINING THE PROFITS OF BUSINESS OF THE INDUSTRIAL UNDERTAKING T HE SALE OF EMPTY DRUMS/CONTAINERS, SALE OF USELESS MATERIALS COULD BE TAKEN INTO ACCOU NT. (2) IN [2001] 251 ITR 0806- SHIP SCRAP TRADERS VS. COMMISSIONER OF INCOME-TAX BOMBAY HIGH COURT HAS OBSERVED THAT FOR ASSESSEES ENGAGED IN SHIP BREAKING THE SCRAP AN D, STEEL OBTAINED BY DISMANTLING AND BREAKING UP OF THE SHIP MUST BE REGARDED AS A DIFFERENT COMMERCIAL COMMODITY FROM THE SHIP ITSELF, AND THE ACTIVITY WOULD AMOUNT TO MANUFACTURE. HENCE, THE ASSESSEES WOULD BE ENTITLED TO THE SPECIAL DEDUCTION UNDER SECTIONS 80HHA AND 80-I. (3) IN [1982] 133 ITR T)034- COMMISSIONEROF INCOME -TAX VS. SUNDARAM CLAYTON LTD. MADRAS HIGH COURT HELD THAT THE SCRAP SOLD BY THE ASSESSEE BEING THE BYPRODUCT ARISING OUT OF THE MANUFACTURED ITEMS COMING WITHIN THE SCOPE OF A PRI ORITY INDUSTRY, THE INCOME ARISING FROM SUCH SALE WOULD BE ATTRIBUTABLE TO THE PRIORIT Y INDUSTRY. ITA NO.2762/AHD/2010 ASST. YEAR 2007-08 7 (CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. V. CIT[ 1978] 113ITR 84 (SC) APPLIED.) (4) IN [2005] 279 ITR (A.T.) 0024- DEPUTY COMMISSIO NER OF INCOME-TAX VS. INVESTWEL PUBLISHERS P. LTD. INCOME-TAX APPELLA TE TRIBUNALMUMBAI HELD THAT THE RADDI SALES FORMED PART OF THE INCOME DERIVED FROM THE PUBLISHING BUSINESS. THE MAGAZINES WHICH WERE NOT SOLD BECAME OBSOLETE AND WERE SOLD AS RADDI AND THEREFORE THIS INCOME WAS OF THE NATURE AS INCO ME RECEIVED BY SALE OF MAGAZINES. DEDUCTION UNDER SECTION 80-1 WOULD BE ELIGIBLE ON T HIS INCOME (5) IN [2000] 241 ITR 0803- FENNER (INDIA) LTD. VS. COMMISSIONER OF INCOME-TAX (NO. 2) MADRAS HIGH COURT HELD THAT IN THE INDUSTRIAL UNDERTAKING IN THE MANU FACTURE OF V-BELTS, OIL SEALS, O- RINGS AND RUBBER MOULDED PRODUCTS, CERTAIN SCRAP MA TERIALS RESULTED WHICH HAD A SALEABLE VALUE. THE SCRAP MATERIALS HAD DIRECT LINK OR'NEXUS WITH THE INDUSTRIAL UNDERTAKING. THEREFORE, PROFIT FROM THE SALE OF THE SCRAP MATERIALS WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HH. (6) IN NIRMA INDUSTRIES LTD. VS. ASSISTANT COMMISSI ONER OF INCOME-TAX, CENTRAL CIRCLE 2(1) NIRMA INDUSTRIES LTD. V/S. ACIT , 95 ITD 199 (AND.) (SB) IT WAS HELD : '.........REGARDING SALE OF BARDANA AND SALE OF WAS TE MATERIAL: 22. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITTED B Y THE LEARNED COUNSEL THAT SALE OF BARDANA AND WASTE MATERIAL HAS GENERATED DURING THE COURSE OF PRODUCTION OF THE INDUSTRIAL UNDERTAKING. THEREFORE, IT HAS DIRECT AN D IMMEDIATE NEXUS WITH THE INDUSTRIAL UNDERTAKING. THE LEARNED DR COULD NOT CO NTROVERT THE ABOVE STATEMENT MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE. MOREO VER IT WAS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE HON'BLE J URISDICTIONAL HIGH COURT HAS DECIDED IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE I N THE CASE OF DY. CIT V. HARJIVANDAS JUTHABHAI ZAVERI VIDE [IT REFERENCE NO. 189 OF 1999 ]. SINCE THE BARDANA WASTE MATERIAL HAS GENERATED DURING THE COURSE OF PRODUCT ION OF THE INDUSTRIAL UNDERTAKING, WE HOLD THAT IT HAS A DIRECT AND IMMEDIATE NEXUS WI TH THE INDUSTRIAL UNDERTAKING AND THEREFORE ENTITLED TO DEDUCTION UNDER SECTION 80HH/ 80-I. ACCORDINGLY, WE UPHOLD THE ORDER OF THE CLT(A) IN THIS RESPECT. REVENUE HAS RELIED ON DECISION OF HON'BLE M.P. HIGH COURT IN D.P. AGARAWAL VS. CIT 272 ITR 118 MP. HOWEVER, THE FACTS IN THAT CASE ARE DIFFERENT. THE ASSESSEE D.P. AGARWAL WAS ENGAGED IN REROLLING OF IRON AND STEELS. IT USED TO PURCHASE OLD/DISCARDED GUNS AND USED/THEIR CONTENTS FOR REROLLING. CERTAIN BRASS SCRAP WAS SEP ARATED FROM THE GUNS WHICH WAS SOLD SEPARATELY. HON'BLE M.P. HIGH COURT HELD THAT GENERATION OF BRASS SCRAP AND RE-ROLLING IRON AND STEEL HAS NO RELATIONSHIP. THAT, ITA NO.2762/AHD/2010 ASST. YEAR 2007-08 8 ASSESSEE HAD OBTAINED BRASS SCRAP BY DISMANTLING GU NS AND NOT FROM THE PROCESS OF REROLLING OF STEEL. THE GENERATION OF BR ASS SCRAP COULD NOT BE SAID TO BE FROM THE PROCESS OF MANUFACTURE OR IS NO T A PRODUCT OR BYPRODUCT FROM THE ACTIVITIES OF THE ASSESSEES IND USTRIAL UNDERTAKING. IN OTHER WORDS, BRASS SCRAP WAS GENERATED PRIOR TO THE START OF REROLLING PROCESS AND WAS NOT A PRODUCT OR BY PRODUCT OF THE PROCESS OF REROLLING. HOWEVER, BRASS SCRAP AND FINAL PRODUCT MANUFACTURED BY THE ASSESSEE I.E. IRON AND STEEL HAD NO COMMON RAW-MATERIAL. REVENUE HAS FURTHER RELIED ON THE DECISION OF THE APEX COURT IN CIT VS. STERLI NG FOODS (1999) 237 ITR 279 AND PANDAYAN CHEMICALS VS. CIT(2003) 262 IT R 278 (SC). THESE TWO DECISIONS HIGHLIGHTED THE DISTINCTION BET WEEN DERIVED FROM AND ATTRIBUTABLE TO AND REVENUE HAS SOUGHT TO EMP HASIS THAT SCRAP IS NOT DERIVED FROM THE BUSINESS OF MANUFACTURING ACTI VITY. AT BEST IT CAN BE ATTRIBUTED TO SUCH ACTIVITIES. WE DO NOT SUBSCRIBE TO THIS VIEW OF THE REVENUE. ONCE A PRODUCT OR BYPRODUCT OR WASTE IS TH E RESULT OF SOME MANUFACTURING PROCESS WHICH HAS RESULTED IN THE FIN ISHED GOODS SOLD BY THE ASSESSEE AND IF THE FINISHED GOODS CAN BE SAID TO BE DERIVED FROM MANUFACTURING ACTIVITY THEN THERE IS NO REASON TO H OLD THAT SCRAP RESULTED FROM THE SAME ACTIVITY IS NOT DERIVED FROM MANUFACT URING ACTIVITY. THE SAME PROCESS IS GENERATING TWO TIMES (I) FINISHED P RODUCT SOLD BY THE ASSESSEE AND THE OTHER, (II) WASTE, BYPRODUCT OR SC RAP. NO SUCH DISTINCTION CAN BE CREATED AS IF FINAL PRODUCT IS DERIVED FROM THE MANUFACTURING ACTIVITY AND OTHER IS NOT. BOTH ARE GENERATED AT TH E SAME TIME FROM THE SAME PROCESS EXCEPT THAT ONE HAS HIGHER MARKET VALU E AND OTHER HAS NOT, AND ACCORDINGLY THE SAME IS TREATED AS SCRAP. IN AN Y CASE, THE ISSUE IS NOW FULLY COVERED IN FAVOUR OF THE ASSESSEE BY THE LATER DECISIONS OF THE COURTS AND ALSO OF THE APEX COURTS AS NOTED ABOVE. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBU NAL, WE DISMISS THIS GROUND OF REVENUE. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 7-1-2011. SD/- SD/- (MUKUL KR. SHRAWAT) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT ME MBER AHMEDABAD, DATED : 7 TH JANUARY, 2011. ITA NO.2762/AHD/2010 ASST. YEAR 2007-08 9 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 03/ 01/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 4/01 / 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..