ORDER :

Sonia Gokani, J.

1. It is an appeal under section 260A of the Income Tax Act, 1961, (“the Act” for short) where the challenge is made to the order of the Income Tax Appellate Tribunal (ITAT), Ahmedabad “B” Bench for the Assessment Year 2009-10 dated 16.03.2022.

2. Aggrieved and dissatisfied by the order of the ITAT, the Revenue has preferred the present appeal raising the following substantial questions of law:

“[A] Whether the Appellate Tribunal has erred in law and on facts in deleting the disallowance of Rs.1,32,64,686/- made on account of disallowance of deduction on foreign exchange gain u/s.80IC of the Act?

[B] Whether the Appellate Tribunal has erred in law and on facts in deleting the disallowance of Rs.35,59,463/- made on account of disallowance of deduction on exports benefits u/s.80IC of the Act?”

[C] Whether the Appellate Tribunal has erred in law and on facts in deleting the disallowance of Rs.14,26,979/- made on account of disallowance of deduction on scrap value u/s.89IC of the Act?”

3. We have heard Mrs.Kalpana Raval, learned Senior Standing Counsel assisted by Mr.Karan Sanghani, learned advocate for the appellant and Mr.Dhinal Shah, learned advocate assisted by Mr.Raviraj Singh for the respondent.

4. The return of income for the Assessment Year 2009- 10 was filed by the assessee declaring the total income of Rs.14,66,29,789/- and the book profit under section 115JB of the Act of Rs.64,90,33,459/-. The assessee furnished its Transfer Pricing Report under section 92E read with Rule 10D in Form No.3CEB on 30.09.2009. Notice under section 143(2) of the Act had been issued.

5. Miscellaneous income of the assessee comprised of scrap income generated during the manufacturing process. The income from scrap sale generated through production process, since reduced the cost of production, the same was held to be in direct nexus with the business income of the eligible unit. It was urged that miscellaneous income is eligible for deduction under section 80IC of the Act. The Assessing Officer did not accept the contentions putforth by the assessee, where it claimed the exchange difference of Rs.1,32,64,686/-, which was disallowed, while computing the deduction under section 8OIC of the Act on the ground that foreign exchange did not satisfy the income derived from business condition. The gain did not have immediate and direct nexus with the manufacturing activity as the same had not been found eligible for deduction under section 10A. It has relied on the decision of the Apex Court in the case of Liberty India vs. Commissioner of Income-tax, 317 ITR 218(SC), where it was also not found to be applicable to the case of the assessee on the ground that what was held as the profits of business of the undertaking would include only those streams of income, which have close and direct nexus with the undertaking.

6. When challenged by the assessee before the CIT(Appeals), it is held that the Foreign Exchange Fluctuation Scheme was earned by the assessee on the import in the course of the business. The purchase price of the product was reduced due to the rate fluctuations, as is settled, the same is to be held as having direct nexus with the business activity of the assessee undertaking and, thus, would be eligible for deduction under section 80IC.

7. The Revenue challenged this before the Tribunal. It has held thus:

“5. We have heard the rival contentions and perused the material on record. We are in agreement with the submissions of the assessee that foreign exchange gains are inextricably linked to export of goods and hence have a direct and first degree nexus with the manufacturing activity. The assessee is accordingly eligible for deduction u/s. 80IC on such foreign exchange gain. It would also be useful to refer to the following decisions which have held that foreign exchange gains are eligible for deduction u/s. 80IC of the Act. In the case of DCIT v. Ansysco [2017] 88 taxmann.com 768 (Chandigarh - Trib.) (UO), the ITAT held tha