High Court excludes scrap sale from business profits for Section 80HHC deduction, emphasizes export promotion. Remanded for fresh assessment.

The High Court upheld the exclusion of sale of scrap from 'profits of the business' for deduction under Section 80HHC. The Court referred to a Supreme Court judgment emphasizing export promotion. The matter was remanded for fresh assessment. In the penalty appeal, the Court ordered reconsideration by the Assessing Officer following the quantum appeal decision. Both appeals were remanded for fresh consideration in accordance with the law.

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Issues involved:
1. Challenge to addition made in assessment order relating to sale of scrap in ITA No. 3 of 2010.
2. Challenge to levy of penalty under Section 271(1)(c) of the Income Tax Act in ITA No. 489 of 2010.

Issue 1 - ITA No. 3 of 2010:
The appellant-revenue appealed against the order of the Income Tax Appellate Tribunal (ITAT) regarding the exclusion of the sale of scrap from the 'profits of the business' while calculating deduction under Section 80HHC of the Income Tax Act, 1961. The Tribunal upheld the Assessing Officer's decision to exclude the sale of scrap from the total turnover and the proportionate profit on the sale of scrap from the 'profits of the business' for computing the deduction under Section 80HHC. The High Court referred to a Supreme Court judgment emphasizing the need to encourage exports and held that the sale of scrap should not be included in the total turnover. Consequently, the matter was remanded to the Assessing Officer for fresh consideration.

Issue 2 - ITA No. 489 of 2010:
The substantial question of law in this appeal was whether the ITAT was justified in deleting the penalty imposed under Section 271(1)(c) of the Income Tax Act, amounting to a specific sum, despite the assessee furnishing inaccurate particulars of income by claiming excess deduction under Section 80HHC. Since the decision in the quantum appeal (ITA No. 3 of 2010) was set aside and remanded for fresh consideration, the High Court ordered a similar course of action for the penalty issue in ITA No. 489 of 2010. The matter was directed to be reconsidered by the Assessing Officer after the decision in the quantum proceedings.

In conclusion, both appeals were disposed of by setting aside the previous orders and remanding the matters to the Assessing Officer for fresh consideration in accordance with the law.

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