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2005 (1) TMI 702 - ITAT MUMBAIUnaccounted sales - addition made on presumption and without any material or evidence to suggest that the sales of waste material - deduction under ss. 80HHC and 80-I - business income - HELD THAT:- It is also notable that during the asst. yrs. 1992-93 and 1993-94, the sale proceeds shown in the books of account in respect of rags amounts to ₹ 68,455 and ₹ 54,260, respectively. Interestingly, in the asst. yr. 1997-98, the sales of such material shot to ₹ 4,56,262. Thus, we hold that it would be fair and reasonable to sustain the addition of ₹ 3,60,000 to the extent of ₹ 2 lakhs only. Accordingly, the addition stands reduced to ₹ 2 lakhs. These sales, for the purpose of ss. 80HHC and 80-I, will have to be treated as local sales and not export sales. Obviously, the waste generated during the manufacturing process will be sold only locally and cannot be exported. However, it is in the nature of income derived from the industrial undertaking and, therefore, the assessee will be entitled to deduction under s. 80-I. For the purposes of s. 80HHC, the addition will be treated as business profits and the same will also be included in the total turnover while computing deduction under s. 80HHC. The AO is accordingly, directed to recompute the deduction under ss. 80HHC and 80-I. In the result, while the assessees' appeals are party allowed, both the Departmental appeals are dismissed.
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