- (1.) THE subject matter of challenge in this appeal is a judgment and order dated 12th November, 2010 pertaining to the assessment year 2003 -04. The Revenue has come up in appeal. The following three questions were admitted : "(a) Whether the learned Tribunal below committed substantial error of law in allowing deduction of Rs. 79,42,442/ - under section 80HHBA notwithstanding the fact that the said receipt was from the sale of scrap which has nothing to do with a housing project awarded to the assessee. (b) Whether the learned Tribunal below committed substantial error of law in approving the deletion of interest accrued in favour of three companies on the ground that before accrual of interest the Board of Directors had waived interest by totally overlooking the fact that in that event there was no justification of showing those interest in the account of the company. (c) Whether the learned Tribunal below committed substantial error of law in treating the expenses on registration and stamp duty as revenue expenditure instead of capital expenditure."
(2.) IN so far as question No. 1 is concerned, the learned Tribunal concurred with the views expressed by the CIT(A). The CIT(A) held as follows: "As regards 'sale of scrap', this issue has not been before the ITAT. However the tribunal considered other incomes like income from sale of empty bags and income from used oil and decided in favour of the appellant. In my opinion, the same ratio can be applied to 'sale of scrap' which is directly connected to execution of the project. Thus the income on sale of scrap needs to be considered for working out a deduction. I direct the A.O. to consider this income also for a deduction u/s. 80HHBA." The aforesaid views were upheld by the learned Tribunal. Mr. Poddar, learned senior advocate appearing for the assessee, drew our attention to a judgment in the case of Fenner (India) Ltd. v. CIT, reported in : (2000) 241 ITR 803, wherein the following views were expressed: "For the sake of emphasis, we may say that the scrap materials come within the manufacturing process of the industrial undertaking in the manufacture of certain products such as V -belts, oil seals. O -rings and certain rubber moulded products, etc. In this view of the matter, we are of the view that profits and gains from the sale of scrap materials are eligible to deduction in an amount equal to twenty per cent under section 80HH, inasmuch as such gains or profits are derived from the industrial undertaking and includible in the gross total income of the assessee and the question relatable to the profit on the sale of scrap is thus answered in favour of the assessee."
(3.) SO far as question No. 2 is concerned, the views expressed by the learned Tribunal are as follows: "6.2. In the case before us, there is no dispute to the fact that the assessee -company had passed requisite Board Resolutions not to charge interest from aforesaid 3 parties on the advances given by it to them. Therefore, we hold that the Assessing Officer was not justified to consider that the interest income has accrued to the assessee on the outstanding advances as the assessee has agreed not to charge interest on the outstanding advances before the interest income had accrued to it. In view of the above, we uphold the order of the Ld. CIT(A) in deleting the aforesaid interest addition of Rs. 1,21,05,788/ - made by the Assessing Officer. Therefore, ground No. 1 of the appeal taken by the Department is rejected.";