Income Tax Appeal No. 91 of 2008 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 91 of 2008 Date of decision: 18.3.2011 The Commissioner of Income Tax-III Ludhiana --- Appellant Versus M/s. Bicycles Wheels (India) Ludhiana --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. Denesh Goyal, Standing Counsel for the appellant-Revenue. --- AJAY KUMAR MITTAL, J. This order will dispose of Income Tax Appeal Nos. 91, 92, 94 and 96 of 2008, as according to the learned counsel for the appellant- Revenue, identical questions have been claimed in these appeals. For purpose of disposal, facts have been taken from Income Tax Appeal No. 91 of 2008. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the Revenue against the order dated 11.7.2005 and the corrigendum issued on 8.12.2005, by the Income Tax Appellate Tribunal Chandigarh Bench ‘B’, Chandigarh (in Income Tax Appeal No. 91 of 2008 2 short “the Tribunal”) in ITA No. 231/CHANDI/2002, relating to the assessment year 1994-95. The appeal was admitted for determination of the following substantial questions of law by this Court: 1- Whether on the facts and in the circumstances of the case, the Hon’ble ITAT was right in law in holding that sale of scrap in India is not a part of total turnover of the Respondent firm for the purpose of calculation of deduction under section 80HHC? 2- Whether on the facts and circumstances of the case, the ITAT was justified in ignoring sales of scrap in computing total turnover, when such generation was a by-product of manufacturing process? 3- Whether on the facts and in the circumstances of the case, a by-product in a manufacturing process is not eligible for being considered in computation of total turnover for computing deduction under Section 80HHC?" The facts, in brief, necessary for adjudication as narrated in the appeal, are that the respondent-assessee is a firm and it derives its income from manufacturing and export of bi-cycle parts. The assessee filed its return for the assessment year 1994-95 on 31.10.1994 declaring income as NIL. The assessee in the return filed, claimed deduction under Section 80HHC of the Act, amounting to Rs. 33,82,230/-. The assessing officer framed assessment under Section 143(3) of the Act, by order dated 12.3.2001 whereby an addition of Rs. 2,88,230/- was made. It was found that the assessee had not added an amount of Rs. 25,08,829/- on account of sales of scrap made in India, in the total Income Tax Appeal No. 91 of 2008 3 turnover while computing deduction under Section 80HHC. The assessing officer on the basis of assessee’s own admission that disposal of the scrap was by way of sale in India, came to the conclusion that the amount that was derived by means of sale of scrap made in India was to be included in the total turnover. The assessing officer observed in the assessment order that the expression ‘turnover’ used in Section 80HHC unambiguously referred to the total turnover of the entire business and not to the total turnover of the export business. The appeal carried by the assessee challenging the order of the assessing officer was allowed by the Commissioner of Income Tax (Appeals), [hereinafter referred to as “CIT(A)”], vide order dated 11.1.2002 and the assessing officer was directed to allow deduction under Section 80HHC to the assessee without including the sale of scrap in the total turnover. The Revenue, aggrieved by the order of the CIT(A) preferred appeal before the Tribunal. The Tribunal upheld the order of the CIT(A) vide order dated 11.7.2005 observing that the sale of scrap was only incidental to the activity of manufacturing, and the export of bi-cycle parts could not be considered as turnover because the assessee was not dealing in purchase and sale of the scrap. The appeal of the Revenue was, thus, dismissed. At the outset, learned counsel for the appellant-Revenue submitted that the issue noticed hereinabove had already been concluded in favour of the Revenue by this Court in Income Tax Appeal No. 31 of 2002 (Commissioner of Income-tax-III, Ludhiana v. Bicycle Wheels (India) decided on 11.10.2010. In the said case, it was held that the sale of scrap in the domestic market would form part of total Income Tax Appeal No. 91 of 2008 4 turnover for calculating the deduction claimed under Section 80HHC of the Act. Accordingly, the substantial questions of law are answered in favour of the Revenue and against the assessee. The appeals stand allowed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) March 18, 2011 JUDGE *rkmalik*