Tribunal grants partial appeal, dismisses cross objection, and provides detailed directions for income tax deductions.

The Tribunal partly allowed both appeals, dismissing the cross objection. Specific directions were given for re-computation and verification of deductions and disallowances, including disallowance of staff welfare expenses, contributions to PF/ESI, deduction u/s 80HHC and 80IB, additions on various expenses, and exclusion of excise duty and sales tax from turnover for deduction u/s 80HHC. The Tribunal also addressed the inclusion of interest income, exchange gains, cash discounts, rental income, and miscellaneous income for deduction under different sections, providing guidance on allowable deductions based on related expenses and nature of income.

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Issues Involved:
1. Disallowance of staff welfare expenses.
2. Disallowance of contributions to PF/ESI.
3. Consideration of export benefit for deduction u/s 80HHC.
4. Consideration of interest income for deduction u/s 80HHC.
5. Deduction u/s 80HHC.
6. Consideration of export benefit for deduction u/s 80IB.
7. Consideration of interest income for deduction u/s 80IB.
8. Deduction u/s 80IB.
9. Deletion of addition on account of sales promotion expenses.
10. Deletion of addition on account of foreign traveling expenses.
11. Deletion of addition on account of miscellaneous expenses.
12. Deletion of addition on account of advance written off.
13. Deletion of addition on account of legal and professional expenses.
14. Deletion of addition on account of excise refund receivable.
15. Exclusion of excise duty and sales tax from turnover for deduction u/s 80HHC.
16. Inclusion of exchange gain, cash discount, and miscellaneous income for deduction u/s 80HHC.
17. Inclusion of exchange gain, cash discount, rental income, and miscellaneous income for deduction u/s 80IA.

Detailed Analysis:

1. Disallowance of Staff Welfare Expenses:
The assessee claimed staff welfare expenses of Rs. 1,31,880/- for providing refrigerators to staff on auspicious occasions. The AO disallowed this amount, deeming it as gifts rather than business expenses. The CIT(A) upheld this disallowance. The Tribunal confirmed the disallowance, stating that the expenditure was voluntary and not for business purposes, thus not allowable under section 37(1).

2. Disallowance of Contributions to PF/ESI:
The AO disallowed Rs. 880/- for late contributions to PF/ESI. The Tribunal reversed this disallowance, citing the Supreme Court's decision in CIT v Vinay Cement Ltd., which allows such payments if made before the filing of the return.

3. Consideration of Export Benefit for Deduction u/s 80HHC:
The assessee did not press this ground during the hearing, so it was dismissed as not pressed.

4. Consideration of Interest Income for Deduction u/s 80HHC:
The AO assessed interest income of Rs. 6,04,462/- as business income but excluded 90% of it for deduction u/s 80HHC. The Tribunal directed the AO to exclude 90% of the net interest, not gross, provided the assessee proves related expenses.

5. Deduction u/s 80HHC:
This ground was not pressed by the assessee during the hearing and was dismissed.

6. Consideration of Export Benefit for Deduction u/s 80IB:
The AO excluded export benefits of Rs. 3,95,05,367/- from deduction u/s 80IB, stating it was derived from the Export Promotion Scheme, not the industrial undertaking. The CIT(A) upheld this, relying on CIT v Sterling Foods. The Tribunal directed the AO to allow the deduction after verifying the nature of DEPB received by the assessee.

7. Consideration of Interest Income for Deduction u/s 80IB:
The AO disallowed interest income of Rs. 13,37,366/- for deduction u/s 80IB. The Tribunal upheld this disallowance, citing Pandian Chemicals Ltd. v CIT, but directed the AO to exclude only the net interest after verifying related expenses.

8. Deduction u/s 80IB:
Grounds related to this issue were not pressed and thus dismissed.

9. Deletion of Addition on Account of Sales Promotion Expenses:
The AO disallowed Rs. 8,381/- out of sales promotion expenses. The CIT(A) deleted this disallowance, stating the AO did not justify that the expenses were not for business purposes. The Tribunal upheld the CIT(A)'s decision.

10. Deletion of Addition on Account of Foreign Traveling Expenses:
The AO disallowed Rs. 7,32,290/- out of foreign travel expenses, suspecting personal use. The CIT(A) deleted this disallowance, noting the AO did not prove the expenses were personal. The Tribunal upheld the CIT(A)'s decision.

11. Deletion of Addition on Account of Miscellaneous Expenses:
The AO disallowed Rs. 14,628/- out of miscellaneous expenses. The CIT(A) deleted this disallowance, stating the AO made the addition based on presumptions. The Tribunal upheld the CIT(A)'s decision.

12. Deletion of Addition on Account of Advance Written Off:
The AO added back Rs. 7,47,181/- of advances written off, questioning their business purpose. The CIT(A) deleted this addition, referencing CIT v Girish Bhagwati Prasad. The Tribunal upheld the CIT(A)'s decision.

13. Deletion of Addition on Account of Legal and Professional Expenses:
The AO disallowed Rs. 35,000/- of legal and professional expenses, deeming them capital in nature. The CIT(A) deleted this addition, stating no asset of enduring nature was created. The Tribunal upheld the CIT(A)'s decision.

14. Deletion of Addition on Account of Excise Refund Receivable:
The AO added Rs. 1,71,50,151/- of excise refund receivable as income. The CIT(A) deleted this addition, noting it was not claimed as an expense in the profit and loss account. The Tribunal upheld the CIT(A)'s decision.

15. Exclusion of Excise Duty and Sales Tax from Turnover for Deduction u/s 80HHC:
The Tribunal ruled in favor of excluding excise duty and sales tax from turnover for deduction u/s 80HHC, citing Laxmi Machine Works Ltd.

16. Inclusion of Exchange Gain, Cash Discount, and Miscellaneous Income for Deduction u/s 80HHC:
The Tribunal directed the AO to verify if the exchange gain was received within the permissible period and exclude 90% of rental income, but not discount from suppliers or insurance claims.

17. Inclusion of Exchange Gain, Cash Discount, Rental Income, and Miscellaneous Income for Deduction u/s 80IA:
The Tribunal allowed deductions for exchange gain, discount from suppliers, and insurance claims but excluded rental income from eligible business profit for deduction u/s 80IB.

Conclusion:
Both the appeals were partly allowed, and the cross objection filed by the assessee was dismissed. The Tribunal provided specific directions for re-computation and verification of various deductions and disallowances.

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