ALPA INDIA PRIVATE LIMITED,HYDERABAD V. DCIT CIRCLE -1(1), HYDERABAD

ITA 457/HYD/2022

AI Insights

Alpla India Private Limited appealed against the order of the Deputy Commissioner of Income Tax, which had disallowed certain deductions under Section 80IC of the Income Tax Act, 1961, for the assessment year 2018-19. The primary contention was whether various income streams, including lease rental income and other miscellaneous incomes, were eligible for deduction under Section 80IC. The Tribunal examined the nature of these incomes and their direct nexus to the manufacturing activities of the assessee. The Tribunal found that lease rental income and other specified incomes did not qualify as they were not derived from the eligible business activities of manufacturing blow molded products. However, the matter of product development income was set aside for further examination to determine if it was part of the sales.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 396450 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-05-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Assessment Year: 2018-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Capital asset; Opportunity of being heard; Transfer pricing; International transaction; Depreciation; TDS; Search and seizure
• Section: 143(3); 115JB; 80IB

Judgement Text

"1 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 आयकर अपीलीय ᭠यायािधकरण मᱶ, हैदराबाद ‘ए’ बᱶच, हैदराबाद IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A ‘ Bench, Hyderabad ᮰ी रवीश सूद, माननीय ᭠याियक सद᭭य एवं ᮰ी मधुसूदन साविडया, माननीय लेखा सद᭭य SHRI RAVISH SOOD, HON’BLE JUDICIAL MEMBER AND SHRI MADHUSUDAN SAWDIA, ACCOUNTANT MEMBER आयकरअपीलसं./I.T.A. No. 457/Hyd/2022 (िनधाŊरण वषŊ/ Assessment Year: 2018-19) Alpla India Private Limited, Hyderabad. PAN: AAFCA3145M VS. Deputy Commissioner of Income Tax, Circle-1(1), Hyderabad. (अपीलाथŎ/ Appellant) (ŮȑथŎ/ Respondent) करदाता का Ůितिनिधȕ/ Assessee Represented by : Sri PVSS Prasad, CA राजˢ का Ůितिनिधȕ/ Department Represented by : Sri B. Bala Krishna, CIT-DR सुनवाई समाɑ होने की ितिथ/ Date of Conclusion of Hearing : 20/03/2025 घोषणा की तारीख/Date of Pronouncement : 26/05/2025 O R D E R Ůित रवीश सूद, जे.एम./PER RAVISH SOOD, J.M. The present appeal filed by the assessee company is directed against the order passed by A.O U/s. 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 (in short, ‘the Act’) dated 23/08/2022 for the 2 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 assessment year 2018-19. The assessee company has assailed the impugned order on the following grounds of appeal before us: “1. The A.O. / Dispute Resolution Panel (DRP) are erroneous in law and on the facts of the case. 2. The A.O. / DRP erred in holding that the other incomes mentioned in the draft assessment order are not eligible for deduction U/s 80IC of the Act. 3. The A.O. / DRP ought to have considered the fact that the said income is assessable as income from business and is eligible for deduction U/s. 80IC of the Act. 4. The A.O. / DRP erred by not appreciating the fact that job work charges wrongly classified as lease rental income represent the income derived from manufacture of goods and the same forms part of business income which is eligible for deduction U/s. 80IC of the Act. 5. The A.O. / DRP erred in making an addition on account of excess deduction U/s. 80IC of Rs. 1,21,41,264/-. 6. Any other ground that may be urged at the time of hearing with the prior approval of the Hon'ble Members of Income Tax Appellate Tribunal.” 2. Succinctly stated, the assessee company which is engaged in the business of manufacturing of blow moulded and injection moulded plastic products such as bottles & caps etc., had e-filed its return of income for A.Y 2018-19 on 28/11/2019 declaring an income of Rs. 29,16,74,520/- under the normal provisions and an income of Rs. 22,48,28,203/- U/s. 115JB of the Act. Subsequently, the case of the assessee company was selected for scrutiny assessment U/s. 143(2) of the Act. 3. During the course of the assessment proceedings, the A.O. observed that the assessee company during the subject year had entered into international transactions within the meaning of section 3 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 92CA of the Act. On a reference made by the A.O. to the Deputy Commissioner of Income Tax (TPO-1), Hyderabad (in short “TPO”) on 31/07/2021 a Transfer Pricing (TP) Adjustment towards License Fee paid by the assessee company to is Associated Enterprise (in short “AE”) of Rs. 11.26 crores was suggested. 4. Further, the A.O. observed that the assessee company had during the subject year carried out its manufacturing activities in five different units located at Sitarganj, Baddi-1, Baddi-2, Pashamylaram and Silvassa. It was observed by him that the assessee company had raised a claim for deduction U/s. 80-IC of the Act of the profits of its unit located at Baddi-2. The A.O. on perusal of the record observed that the assessee company had included its muti-facet “Other incomes” in its business profit for the subject year for computing the deduction U/s. 80-IC of the Act, as under: Sl No Description of the income Baddi II unit (Amount in Rs.) 1. Interest on others 1,63,125 2. Scrap Sales 15,05,946 3. Product Development Income (Net) 54,76,624 4. Liabilities written back 16,65,013 5. Lease Rental Income 3,01,50,000 6. Capital subsidy amortization 30,00,000 7. Miscellaneous Income 16,118 8. Total 4,19,76,826 On further scrutiny, the A.O. observed that the aforementioned “Other incomes”, inter alia, included “lease rental income” of Rs. 4 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 3,01,50,000/-. On being queried, it was submitted by the assessee company that it had established its machines at the business premises of its client for manufacturing of blow moulding products, and the products therein manufactured were sold to the said client. Elaborating further, it was submitted by the assessee company that as the profits from the manufacturing/sale of its products to its aforementioned client was the income derived from its business, therefore, it was included in its eligible profits while computing deduction u/s 80IC of the Act. However, the A.O. did not find favour with the explanation of the assessee company that the “lease rental income” of Rs. 3.01 crores (approx.) would fall within the meaning of profits derived from its business. Also, the A.O. observed that as per the 26AS statement of the assessee company, the aforesaid receipts were disclosed and subjected to deduction of tax at source as “lease rental income”. Further, the A.O. observed that the lease rental was not shown by the assessee company as a part of its sales and was rather shown separately as “lease rental” in its books of accounts. On further being confronted, the assessee company submitted that the subject income i.e., “lease rentals” though should have been credited in its books of accounts as “job work charges”, but the same had wrongly been classified as “lease rental income”. Although, the A.O. did not find any substance in the aforesaid claim of the assessee 5 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 company regarding the wrong nomenclature used for its aforesaid receipts, but even otherwise, held a firm conviction that as “job work charges” were also receipts from an incidental activity, thus, the same could not be equated with the principal activity of the assessee company and brought within the meaning of “profits derived from the eligible undertaking” for purpose of claiming deduction U/s. 80IC of the Act. 5. Apart from that, the A.O. observed that there were other receipts on which the assessee company had claimed deduction under Section 80IC of the Act, viz., (i) interest income; (ii) product development income (net); (iii) liabilities written back; (iv) capital subsidy amortization; and (v) miscellaneous income. The A.O. was of the view that as the aforesaid receipts did not fall within the meaning of “profits derived” from the eligible undertaking, therefore, the same were not eligible for deduction U/s. 80IC of the Act. 6. Accordingly, the A.O. based on his aforesaid deliberations confined the assessee’s claim for deduction U/s. 80IC of the Act to Rs. 1,68,72,300/-, and further after making an addition towards TP adjustment Rs. 11.26 crores (supra), vide his draft assessment order u/s 143(3) r.w.s 144C of the Act, dated 29/09/2021 proposed to assess its income at Rs. 41.65 crores (approx.) 6 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 7. The assessee company filed its objections before the Dispute Resolution Panel-1, Bangalore (in short, “DRP”). 8. The DRP after necessary deliberations directed the A.O. to delete the proposed TP adjustment on the license fee paid of Rs. 11.26 crores (supra). 9. Apropos the assessee’s claim for deduction under Section 80IC of the Act, the DRP finding no infirmity in the view taken by the A.O, upheld the same by observing as under: 7 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 8 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 9 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 10 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 11 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 12 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 13 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 14 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 10. Thereafter, the A.O. vide his final assessment order passed U/s. 143(3) r.w.s 144C(13) of the Act, dated 23/08/2022 gave effect to the directions of the DRP and determined the income of the assessee company at Rs. 30,38,15,784/-. 11. The assessee company, being aggrieved with the order passed by the A.O. U/s. 143(3) r.w.s 144C(13) of the Act has carried the matter in appeal before us. 12. We have heard the Ld. Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements 15 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 that have been pressed into service by them to drive home their respective contentions. 13. Controversy involved in the present appeal lies in a narrow compass, i.e., as to whether or not the “lease rental income”, and income from the other streams of income disclosed by the assessee company under the head “Other income” in its books of account, and reported as such in its audited financials are eligible for claim of deduction under Section 80IC of the Act?. 14. Before proceeding any further, we deem it fit to cull out section 80IC of the Act, which reads as under (relevant extract): “Section. 80-IC. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3). (2) This section applies to any undertaking or enterprise,—(a) which has begun or begins to manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth Schedule, or which manufactures or produces any article or thing, not being any article or thing specified in the Thirteenth Schedule and undertakes substantial expansion during the period beginning—….” 15. Ostensibly, the deduction under Section 80IC of the Act is allowed on the profits and gains derived by an undertaking or an enterprise from an eligible business referred to in sub-section (2). 16. On a perusal of the record, it transpires that the assessee company had executed two agreements with its client, i.e. M/s. 16 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 Reckitt Benckiser (India) Private Limited, viz., (i). agreement for equipment lease, dated 22/05/2015; and (ii) agreement for manpower supply and maintenance, dated 22/05/2015. Ostensibly, the assessee company in the course of the assessment proceedings, on being queried, that as to how the “lease rentals” as disclosed in its books of accounts falls within the meaning of “profits derived from” its business of manufacturing of blow molded products, and thus, eligible for deduction u/s 80IC of the Act, had claimed, that the nomenclature used was a misnomer and the amount received was on account of “Job work charges”. 17. Ostensibly, the “agreement for equipment lease” (supra) – Clauses 1.1.2 and 1.1.4 – provided that equipment has to be delivered and installed at the site of the lessee i.e., M/s. Reckitt Benckiser (India) Private Ltd at Hosur. Also, as per Clause 6.1, the assessee company was to provide trained manpower to the lessee and was responsible for maintenance of the equipment. Further, as observed by the A.O/DRP, the “agreement” nowhere mentioned that the assessee company is to manufacture articles or products on job work basis. Apart from that, the A.O/DRP had observed that a perusal of the “manpower supply and maintenance agreement” (supra), revealed that the assessee company had further represented to the lessee for operating and maintaining the equipment. Accordingly, the assessee 17 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 company had based on the aforesaid “agreements” both agreed to lease its equipment as well as entrust the operation and maintenance of the equipment. Our aforesaid view can be safely be gathered from the recitals of the latter “agreement”, which reads as under: “AND WHEREAS the company has taken on lease vide a lease deed dated 22nd May 2015 from the service provider 2 SEB machines (“Equipment”) with supporting infrastructure (Chiller, Compressor, Pneumatic Systems) for manufacturing of blow moulding components i.e, the plastic bottle’s (Bottles”) AND WHEREAS the service provider has represented to the company that for operating and maintaining the equipment it possesses specialized staff, skill, knowledge, expertise and licenses. AND WHEREAS the company based on the representation made by the service provider has to entrust the operation and maintenance of the equipment to the service provider on the terms and conditions hereinafter contained.” (emphasis supplied by us) 18. Also, we find that the DRP had observed that the invoices raised by the assessee company on its aforementioned client, viz. M/s. Reckitt Benckiser (India) Private Ltd was for providing of equipment/machinery to the lessee with the narration “rental charges on account of lease of equipment”. Also, the lessee had made payment to the assessee company on account of “lease rental charges” and not towards any manufacturing activity or job work charges. Further, the service tax was also charged in all the “invoices” raised by the assessee company for providing of equipment on lease and not for any job work. Also, the AS 26 statement of the assessee company revealed beyond doubt that the amounts so received were towards lease rental 18 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 income on which the lessee had deducted tax at source (TDS) by treating the same as lease rental income. Further, it is also a fact that the lease rental had been shown by the assessee company under the head “Other income” in its profit and loss account for the year under consideration and had not formed part of its sales. 19. On the basis of the aforesaid facts, we are of the firm conviction that as there is no direct nexus between the manufacturing activity of the assessee company carried out at its eligible unit i.e., at the Baddi- 2 and the lease income so earned by it, therefore, the revenue recognized from the said stream of income could not have been brought within the meaning of profits and gains derived by the assessee company from its eligible business of manufacturing and sale of specified products i.e., blow molded products for claiming deduction under Section 80IC of the Act. 20. Our aforesaid view that there has to be a direct nexus between the income derived and the business of the industrial undertaking can safely be gathered from the judgment of the Hon'ble Supreme Court in the case of Cambay Electrical Supply Industrial Co. Ltd. Vs. CIT (1978) 113 ITR 84 (SC). The Hon'ble Apex Court deliberating upon the pari materia provisions of section 80IA of the Act, had observed, that though the expression “attributable to”, has a much wider import and takes within its meaning receipts which are incidental to the 19 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 actual conduct of the business of the industrial undertaking yet the same may not fall within the meaning “derived from” so as to be eligible for the benefit envisaged U/s. 80IA of the Act. Also, we find that the Hon'ble Apex Court in its order in the case of Sterling Foods Vs. CIT (1999) 237 ITR 53 (SC), had held, that where the nexus between the income and the industrial undertaking was not direct but was only incidental, it would not fall within the expression “profits derived from industrial undertaking”. Also, the Hon'ble Apex Court in the case of Pandian Chemicals Ltd. (2003) 262 ITR 278 (SC), had held, that though certain incomes falling within the parameters of being incidental to business, can fall within the scope of the business of the assessee, yet it cannot be said to have been derived from the eligible industrial undertaking of the assessee so as to be eligible for deduction U/s. 80IA of the Act. Further, the Hon'ble Apex Court in its celebrated judgment in the case of Liberty India Ltd vs. CIT [2009] 183 Taxman 349 (SC), had brought out a fine distinction between the expressions “first degree source”, “derived from” as against “attributable to”. Referring to section 80IB of the Act, it was observed that the same provided for allowing of deduction of the profits and gains derived from the eligible business. It was observed that the words “derived from” are narrower in connotation as compared to the words “attributable to”. It was observed that by using 20 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 the expression “derived from”, the parliament had intended to cover sources not beyond the first degree. 21. We thus, in terms of our aforesaid deliberations are of the firm conviction, that as the lease rental income received by the assessee company from supplying of equipment or machinery on lease to its client viz., viz., M/s. Reckitt Benckiser (India) Private Ltd could not have been brought within the meaning of profits and gains derived by the assessee company from its eligible business of manufacturing blow molded products, therefore, the authorities below had rightly concluded that the amount so received was not eligible for claim of deduction under Section 80IC of the Act. 22. Alternatively, we also concur with the DRP that as the assessee company was entitled to claim deduction under Section 80IC of the Act for carrying out manufacturing activity at its eligible unit, viz., Baddi-2 unit (out of 5 different units), therefore, it could not have claimed deduction for the manufacturing activity that was carried out at any other premises other than that of the eligible unit. Accordingly, for the said reason also, the assessee company had rightly been held to be ineligible for claiming of deduction on the subject income under Section 80IC of the Act. 21 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 23. Apropos the judicial pronouncements that have been relied upon by the Ld. AR, we are afraid that the same being distinguishable on facts will not carry the case of the assessee company any further. We shall deal with the respective orders/judgments relied upon by the Ld. AR, as under: (A). M/s Torsa Machines Ltd. Vs. CIT (2017) 81 taxmann.com 282 (Gauhati) (i). At the threshold, we may herein observe, that the facts involved in the aforesaid case are distinguishable as against those in the case of the assessee company before us. Unlike the facts involved in the aforesaid judicial pronouncement, wherein the issue involved was as to whether the amount received by the assessee company on account of the installation of self- manufactured stone crushing plants will fall within the meaning of “profits derived by” the assessee company from its eligible business for claiming deduction u/s 80IC of the Act, the issue involved in the case of the assessee company before us is that whether the “lease income” received by it from supply of machinery and equipment at the business premises of its client, viz., M/s. Reckitt Benckiser (India) Private Ltd. will be eligible for deduction u/s 80IC of the Act. We may herein observe that both the “agreements”, viz. (i). agreement for equipment lease; and (ii). manpower supply and maintenance agreement, both dated 22.05.2015 are for the supply of equipment, manpower and maintenance, and nowhere mentions that the assessee company is manufacturing articles or products on job work basis. Apart from that, as observed by us at length hereinabove, viz. (i) 22 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 disclosure of the amount received by the assessee company as “lease income” and not as a part of its sales in its audited books of accounts; (ii). raising of invoices by the assessee company on its client viz., M/s. Reckitt Benckiser (India) Private Ltd. mentioning “rental charges on account of lease of equipment”; (iii). charging of service tax by the assessee company in the invoices on account of “lease income” for supplying of equipment; and (iv). 26AS statement of the assessee company disclosing that the amount was paid by the lessee to the assessee company as lease rental income on which tax was deducted at source on the said count itself, proves beyond doubt that the amount received by the assessee company was on account of “lease income” for supply of equipment to its client and not for manufacturing or job work charges. We thus, are of the firm conviction that the support drawn by the assessee company from the aforesaid judicial pronouncement will not come to its rescue. (B). DCIT Vs. M/s Dynamic Transmission Ltd, ITA No, 1569/Del/2015 (Delhi-Tribunal) (i). In the captioned case, it is categorically observed that it is an undisputed fact that job work charges were received from articles or things manufactured or produced at the assessee’s unit. As in the case of the present assessee company before us, it is proved beyond doubt that the amount that it had received was on account of lease income for supply of equipment to its client and not for manufacturing or job work charges, and thus, not in lieu of articles or things manufactured or produced at its business premises i.e at Badi-2 unit; therefore, the same being 23 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 factually distinguishable as against the facts involved in the aforesaid case will not carry the case of the assessee company before us any further. (C). ACIT Vs. M/s Sectors Food Specialities Ltd., ITA No. 71/Chd/2018 (Chandigarh-Tribunal) Once again, as in the case of the assessee company before us, it is proved to the hilt that the amount that it had received was on account of “lease income” for the supply of equipment to its client and not for manufacturing or job work charges, thus, the same being distinguishable as against the facts that were involved in the aforesaid case relied upon i.e. as to whether the amount received by the assessee company towards job work charges which involved the same basic process that was involved in production will qualify for deduction under Section 80IC of the Act, being distinguishable on facts will not carry the case of the assessee company any further. (D). ITO Vs. Zeon Life Sciences Ltd. (2015) 59 taxmann.com 299 (Delhi) As in the case of the assessee company before us, it is proved that the subject amount was received on account of “lease income” for the supply of equipment to its client and not for manufacturing or job work charges, thus, the same being distinguishable as against the facts that were involved in the aforesaid case i.e. as to whether the amount received by the assessee company towards job work charges will qualify for deduction under Section 80IC of the Act, being distinguishable 24 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 on facts will not carry the case of the assessee company any further. 24. We shall now deal with the claim of the assessee company that the remaining receipts/income that were disclosed in “Note-19” under the head “Other incomes” of its “Profit and loss account” for the subject year, viz., (i) interest on others: Rs. 1,63,125/-; (ii) Product Development Income (Net): Rs. 54,76,624/-; (iii) liabilities written back: Rs. 16,65,013/-; (iv) capital subsidy amortization: Rs. 30,00,000/- and (v) Miscellaneous income: Rs. 16,116/- had rightly been included as a part of the eligible profits for computing deduction u/s 80IC of the Act. A). Interest on others: Rs. 1,63,125/- (i). The assessee company has claimed before us that the “Interest on others”: Rs. 1,63,125/- comprises of, viz. (i). interest on electricity deposit: Rs. 1,44,736/-; and (ii). interest on sales tax deposit: Rs. 18,389/-. It is stated that as the subject deposits were indispensably required to be made for obtaining GST license and electricity supply, therefore, the same being related to its business activity was eligible for deduction u/s 80IC of the Act. (ii). We have thoughtfully considered the aforesaid claim of the assessee company and find no substance in the same. As the interest 25 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 income received by the assessee company can be held to be “attributable to” its business, but cannot be construed as having been “derived by” from its business, therefore, the same in our view would not be entitled for deduction u/s 80IC of the Act. Our aforesaid view is fortified by the judgment of the Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. (2003) 262 ITR 278 (SC). B). Project Development Income (Net): Rs. 54,76,624/- (i). Ostensibly, the A.O. in his draft assessment order passed under Section 143(3) r.w.s 144C of the Act, dated 29/09/2021, had observed, that as the assessee company had failed to establish any nexus between the deriving of the said income and its business operations, therefore, the subject income cannot be held as profit derived from its eligible undertaking. (ii). Rebutting the observation of the A.O., the assessee company has stated before us that as the subject income was inextricably interwoven with its eligible business, thus, it was entitled for deduction u/s 80IC of the Act. Elaborating on the nature of the income, it is stated that the same was received on account of the technical data of the product that was sent by the assessee company along with its product so as to enable the customer to use the product properly. Further, the assessee company states that the aforesaid 26 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 amount forms part of the actual sale price of the goods with technical data. (iii). We have thoughtfully considered the aforesaid issue, and principally concur with the assessee company that if the subject amount was received on account of technical data supplied along with the manufactured product, then, the same will form part of the sales, and thus, be a part of the profit “derived by” the assessee company from its eligible business. At the same time, we find that though it is the claim of the assessee company that the subject amount forms part of its sales, but if that would have been so, then why it has separately been accounted for in its financial statement under the head “Other income”. (iv). Be that as it may, we herein set-aside the issue to the file of the AO for fresh adjudication. If the claim of the assessee company that the subject amount was received on account of technical data supplied to the customer alongwith the manufactured product is found to be in order, then, the A.O shall allow the assessee’s claim for deduction on the said receipt u/s 80IC of the Act. Needless to say, the AO shall in the course of the set-aside proceedings afford a reasonable opportunity of being heard to the assessee company which shall remain at liberty to substantiate its claim based on fresh documentary evidence/material, if any. 27 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 C. Liabilities written back: Rs. 16,65,013/- (i). The assessee company states that the subject amount relates to the excess provision that was made in the earlier years, which, having been debited to its “Profit & loss account” had in the said preceding years gone to reduce its income that was eligible for deduction u/s 80IC of the Act. It is claimed that as the excess provision had now been written off during the subject year, therefore, it is eligible for deduction u/s 80IC of the Act. (ii). We have thoughtfully considered the aforesaid claim of the assessee company and find substance in the same. As the credit balances of parties “written off” during the year can safely be held to be derived from its business activities, therefore, the same in our view will be eligible for deduction u/s 80IC of the Act. Our view is supported by the order of the coordinate bench of the ITAT, Chandigarh, viz. The DCIT Vs. M/s Anasyco Sunrise Complex, ITA No. 486/Chd/2016, dated 16.12.2016. However, as certain facts regarding the “liabilities written back” by the assessee during the subject year, viz. (i). that the same pertains to the eligible business of the assessee company; and (ii). that the same having been debited to the profit & loss account of the assessee company for the preceding years (eligible years) had gone to reduce its income eligible for deduction u/s 80IC of the Act; are not discernible from the record, therefore, the matter is 28 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 set-aside to the file of the A.O who is directed to carry out necessary verification and re-adjudicate in terms of our aforesaid deliberations the entitlement of the assessee company for deduction u/s 80IC on the subject amount credited in its books of account. D. Capital subsidy amortization: Rs. 30,00,000/- (i). The assessee states that it had received Investment subsidy from the Government of Himachal Pradesh for promoting industries in notified areas. It is further stated that as the investment subsidy falls within the meaning of “business income” under Section 28 of the Act, and has basic nexus with its operations, therefore, it is eligible for deduction u/s 80IC of the Act. (ii). We have thoughtfully considered the aforesaid issue in the backdrop of the orders of the lower authorities and the material available on record. Before proceeding any further, it would be relevant to point out that a capital subsidy is typically a grant received from the government to assist in the acquisition of capital assets (like plant and machinery) or for setting up a new industrial unit. Its purpose is generally to encourage industrialization in the backward areas or specific sectors. (iii). Although clause (xviii) to Section 2(24) of the Act, as made available on the statute vide the Finance Act, 2015 explicitly includes 29 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 \"assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee\" in the definition of \"Income\", but an exception is carved out, wherein it is provided that if the subsidy has been reduced from the “actual cost” of the asset in accordance with the “Explanation 10” to Section 43(1) of the Act., then the provisions of Section 2(24)(xviii) will not be applicable. (iv). We are of the view that amortization of a capital subsidy in itself is not allowable as a direct deduction under Section 80-IC or under the Income Tax Act, but rather, the impact of the capital subsidy is reflected in the reduced \"actual cost\" of the asset, leading to a claim of lower depreciation over the asset's life. Although revenue subsidies that form part of the \"profits and gains of business\" are eligible for deduction under Section 80-IC of the Act, but, we are afraid that the amortization of a capital subsidy does not so qualify. We say so, for the reason that a capital subsidy's effect is indirectly captured through its impact on the depreciation calculation i.e lowering the claim of depreciation (on the reduced cost of the capital asset), which then influences the profit of the business before the claim for deduction is computed under Section 80-IC of the Act. In essence, the benefit of the 30 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 capital subsidy is passed on through lower depreciation claims,rather than a separate amortization deduction. (v). Although the assessee company to buttress its claim that the “capital subsidy amortization” qualifies for deduction u/s 80IC of the Act, had pressed into service the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Meghalaya Steel Limited (2016) 67 taxmann.com 158 (SC), but the same being distinguishable on facts will not assist its case. The Hon’ble Apex Court in the aforesaid order, had observed, that as the revenue subsidies (e.g., transport, power, interest subsidies) received by an industrial undertaking, which are in the nature of reimbursement of costs related to manufacture/sale of products, have a direct nexus with the business, therefore, such subsidies are considered part of \"profits and gains of business\" and are eligible for deduction under sections like 80IB/80IC. Rather, we find that the CBDT had also issued Circular No. 39/2016, dated 29.11.2016 aligning with the aforesaid view and, had observed, that as the Hon’ble Apex Court in its order passed in the case of CIT Vs. Meghalaya Steel Limited (supra), had held, that the subsidies of transport, power and interest given by the Government to the Industrial undertaking are receipts, which have the elements of cost relating to the manufacture/sale of products, and thus, are part of the profits and gains of the business derived from the Industrial 31 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 undertaking, therefore, deduction is admissible under Section 80IB/80IC of the Act on such revenue receipts derived from the Industrial undertaking. Accordingly, the CBDT had directed the revenue authorities that department appeals should not be filed on the aforesaid settled issue. However, as observed by us hereinabove, as a capital subsidy received for the acquisition of a capital asset reduces the actual cost of the asset for depreciation purposes under Section 43(1) of the Act, thus, the depreciation allowed on the asset would be on the reduced cost with a resultant higher profit eligible for deduction under Section 80IC of the Act. (vi). We thus, are of the firm conviction, that though the revenue subsidies are included in the profits eligible for deduction under Section 80IC of the Act due to their direct nexus with business operations, but the capital subsidies impact profits through the reduced depreciation allowable on the subsidized cost of the asset, and thus, the inclusion by the assessee company of the amount of \"capital subsidy amortization\" in the eligible profits for deduction under Section 80IC, based on our aforesaid deliberations will not qualify for deduction under Section 80IC of the Act. E. Miscellaneous income: Rs. 16,118/- 32 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 (i). In the absence of any material/evidence regarding the nature of the aforesaid income/receipt, we are unable to conclude that the same was derived by the assessee company from its eligible business. 25. The Grounds of Appeal No.2 to 5 are partly allowed for statistical purposes. 26. The Grounds of appeal Nos. 1 and 6 being general are dismissed as not pressed. 27. In the result, the appeal of the assessee company is partly allowed for statistical purposes in terms of our aforesaid observations. Order pronounced in the open court on 26th May, 2025. Sd/- (᮰ी मधुसूदन साविडया) (MADHUSUDAN SAWDIA) लेखा सद˟/ACCOUNTANT MEMBER Sd/- (᮰ी रवीश सूद) (RAVISH SOOD) Ɋाियक सद˟/JUDICIAL MEMBER Sd/- Hyderabad, dated 26.05.2025. **okk/sps आदेशकी Ůितिलिप अŤेिषत/ Copy of the order forwarded to:- 1. िनधाŊįरती/The Assessee : Alpla India Private Limited, Prasad and Prasad CAs, Flat No. 301, MJ Towers, H.No. 8-2-698, Road No. 12, Banjara Hills, Hyderabad, Telangana-500034. 2. राजˢ/ The Revenue : DCIT, Circle-1(1), Hyderabad. 3. The Principal Commissioner of Income Tax, Hyderabad. 4. िवभागीयŮितिनिध, आयकर अपीलीय अिधकरण, हैदराबाद / DR, ITAT, Hyderabad 33 Alpla India Private Limited vs. DCIT ITA 457/Hyd/2022 5. गाडŊफ़ाईल / Guard file आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Hyderabad "