Direct nexus test under Section 80IB bars deduction for surrendered income absent proof of linkage to the industrial undertaking.

Deduction under Section 80IB is available only for profits and gains derived from the industrial undertaking, so the assessee must prove a direct and proximate nexus between the claimed income and the undertaking. Surrendered income does not qualify on presumption merely because it is assessed as business income. In the absence of positive material showing unaccounted turnover, inflated expenses, or another direct link with the industrial undertaking, the burden is not discharged. The surrendered amount was therefore held ineligible for deduction, and the assessee's claim failed.

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Issues: Whether surrendered income was entitled to deduction under Section 80IB of the Income-tax Act, 1961 on the ground that it had a direct nexus with the industrial undertaking and was derived from its business activities.

Analysis: Deduction under Section 80IB is available only on profits and gains derived from the industrial undertaking, which requires a direct nexus between the income and the undertaking. A surrendered amount, even if assessed as business income, does not automatically qualify for the deduction. The burden lies on the assessee to establish by positive material that the surrendered income was derived from the industrial undertaking. In the present case, no evidence was produced to show that the surrendered amount represented unaccounted turnover, inflated expenses, or any other income having a direct link with the industrial undertaking. The mere assertion that the amount was part of business activities was insufficient to discharge that burden.

Conclusion: The surrendered income was not eligible for deduction under Section 80IB, and the assessee's claim failed.

Final Conclusion: The substantial questions of law were answered against the assessee, and the appeal was dismissed.

Ratio Decidendi: For deduction under Section 80IB, the assessee must prove a direct and proximate nexus between the income claimed and the industrial undertaking; surrendered income is not deductible on presumption alone.

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