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2008 (3) TMI 365 - AT - Income TaxEligibility for deduction under s. 80-IB - Income from industrial undertaking - conversion charges derived from the industrial undertaking - profit on sale of scrap generated during the course of manufacturing activity - Interest on delayed payments. Inclusion of conversion charges derived from the industrial undertaking - HELD THAT:- From the judgment of the apex Court in the case of K. Ravindranathan Nair [2007 (11) TMI 10 - SUPREME COURT], it is obvious that the income shall be derived from export of goods and merchandise for the purpose of claiming deduction under s. 80HHC. However, for the purpose of claiming deduction under s. 80-IA/80-IB, the income has to be derived from the industrial undertaking, as held by the apex Court in the case of Sterling Foods [1999 (4) TMI 1 - SUPREME COURT] and Liberty Shoes Ltd [2006 (8) TMI 163 - PUNJAB AND HARYANA HIGH COURT]. In the case of Liberty Shoes Ltd. before the Punjab & Haryana High Court also, the assessee exported goods manufactured by third parties and, therefore, it was held that there was no nexus between the profit and the industrial undertaking. In this case, the assessee manufactured and processed raw material supplied by third parties in its own undertaking by utilising the same machinery and labour. Therefore, there was direct nexus. Therefore, we do not find any infirmity in the order of the lower authority. Accordingly, we confirm the same. Profit on sale of scrap for the purpose of deduction under s. 80-IB - scrap generated during the course of manufacturing activity - The profit on sale of the scrap material has a direct nexus with the manufacturing activity of the assessee and receipt of income. In other words, unless the assessee manufactured the goods, the scrap would not have been generated at all. Therefore, in our opinion, the income on sale of scrap is derived from the industrial undertaking and eligible for deduction under s. 80-IB. As we have discussed, the income received from sale of scrap may not have any relation with export of goods and it may not be eligible for deduction u/s 80HHC. However, it has a direct nexus with the industrial undertaking and, therefore, it is eligible for deduction under s. 80-IB. Thus, we do not find any infirmity in the order of the lower authority. Interest on delayed payments - We find that this issue was considered in the case of Madras Motors Ltd.[2002 (3) TMI 10 - MADRAS HIGH COURT] and it was held that interest on delayed payments of purchase money is directly related to the industrial undertaking and, therefore, eligible for deduction u/s 80HH. A similar view was taken in the case of Rane (Madras) Ltd.[1998 (2) TMI 68 - MADRAS HIGH COURT], and in the case of Nirma Industries Ltd. vs. Dy. CIT[2006 (2) TMI 92 - GUJARAT HIGH COURT]. Therefore, we do not find any infirmity in the order of the lower authority. Accordingly, we confirm the same. In the result, the appeal of the Revenue stands dismissed.
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