Commercial Iron and Steel Company (p) Ltd., Byrnihat V. Assistant Commissioner of Income Tax, Circle-Shillong, Shillong

ITA 114/GTY/2020

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 3240 (ITAT-GUWAHATI)
• Duration Of Justice: 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2008-2009
• Appeal Filed On: 23-07-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: JAY PRAKASH GUPTA
• Keywords: Business income
• Section: 80IB; 80IC; 80IC

Judgement Text

ITA NO. 114/GAU/2020 COMMERCIAL IRON & STEEL COMPANY PVT. LTD. A.Y. 2008-09 1 | P A GE IN THE INCOME TAX APPELLATE TRIBUNAL GAUHATI BENCH: GUWAHATI VIRTUAL HEARING AT KOLKATA [BEFORE SHRI A. T. VARKEY, JM] I.T.A. NO. 114/GAU/2020 ASSESSMENT YEAR: 2008-09 COMMERCIAL IRON & STEEL COMPANY PVT. LTD. (PAN: AABCC 6819 M) VS. ACIT, CIRCLE-SHILLONG APPELLANT RESPONDENT DATE OF HEARING (VIRTUAL) 25.02.2021 DATE OF PRONOUNCEMENT 05.03.2021 FOR THE APPELLANT SHRI JAY PRAKASH GUPTA, A.R FOR THE RESPONDENT SHRI ARUP CHATTERJEE, ADDL. CIT ORDER THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINS T THE ORDER OF LD. CIT(A)- SHILLONG, DATED 11.03.2013 FOR A.Y. 2008-09. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IS AS UNDER: 1. THAT THE LEARNED CIT(APPEALS) ERRED IN LAW AS WE LL AS ON FACTS IN CONFIRMING THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER AS REGARD TO TRANSPORT SUBSIDY, POWER SUBSIDY AND INTEREST SUBSIDY AND THE REBY WENT WRONG IN DISALLOWING THE DEDUCTION UNDER SECTION 80IC OF THE ACT ON THE AFORESAID SUBSIDIES. 2. THAT THE APPELLANT CRAVES LEAVE TO SUBMIT ANY OT HER GROUND/S ON OR BEFORE THE HEARING OF THE APPEAL. 3. BRIEF FACTS OF THE CASE AS NOTED BY THE AO IS TH AT THE ASSESSEE IS A PRIVATE LIMITED COMPANY WHICH IS ENGAGED IN THE MANUFACTUR ING OF M. S. INGOTS AND FERRO SILICON. THE AO NOTES THAT IT IS A NOTIFIED INDUSTR Y COVERED U/S 80IC OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) ELIG IBLE FOR DEDUCTION FOR A PERIOD OF TEN ASSESSMENT YEARS WITH INITIAL ASSESSMENT YEAR 2003- 04. DURING THE YEAR UNDER ITA NO. 114/GAU/2020 COMMERCIAL IRON & STEEL COMPANY PVT. LTD. A.Y. 2008-09 2 | P A GE CONSIDERATION THE AO NOTED THAT THE ASSESSEE COMPAN Y HAD RECEIVED TRANSPORT SUBSIDY AMOUNTING TO RS. 28,65,412/- WHICH WAS ADJUSTED WIT H CHARGES ON RAW MATERIALS IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE COMPANY HAD A LSO RECEIVED POWER SUBSIDY OF RS. 7,00,000/- AND IT HAS BEEN ADJUSTED WITH ELECTRICIT Y POWER CHARGES AND INTEREST SUBSIDY (WORKING CAPITAL) OF RS. 2,42,245/- AND INTEREST SU BSIDY (TERM LOAN) OF RS. 2,20,000/-. THE AO NOTED THAT THE ASSESSEE HAS CLAIMED THIS INC OME AS BUSINESS INCOME. ACCORDING TO AO, HE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THIS SUBSIDY INCOME SHOULD BE ALLOWED AS DEDUCTION U/S 80IC OF THE ACT. AND SECTION 80IC OF THE ACT READS AS UNDER: (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE IN CLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFE RRED TO IN SUB-SECTION (2), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF TH IS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION FORM SUCH PROFI TS AND GAINS, AS SPECIFIED IN SUB-SECTION(3). 4. ACCORDING TO AO, ONLY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM THE ELIGIBLE BUSINESS IS ENTITLED T O DEDUCTION. THE ASSESSEE CONTENDED BEFORE THE AO THAT ALL THE PAYMENTS ( SUBSIDY RECEIVED BY IT ) HAVE DIRECT NEXUS BETWEEN THE INCOME AND THE INDUSTRIAL ACTIVITIES. AND AS SU CH, IT CANNOT BE SAID THAT SUCH INCOME IS NOT DERIVED FROM INDUSTRIAL ACTIVITY. FUR THER SUCH NEXUS SHOULD BE DIRECT AND NOT INCIDENTAL. ACCORDING TO THE ASSESSEE, THE REVE NUE SUBSIDIES RECEIVED/RECEIVABLE BY THE ASSESSEE ARE BECAUSE ITS UNDERTAKING/ENTERPRISE HAS BEEN SET UP IN THE BACKWARD AREAS. AND ACCORDING TO ASSESSEE, THE SOURCE FROM W HICH THE SUBSIDY HAS BEEN PAID IS NOT A DETERMINING FACTOR TO FIND OUT THE ORIGIN FRO M WHICH THE SUBSIDIES WERE FLOWING/OBTAINED. IT WAS POINTED OUT BY THE ASSESSE E THAT IT IS THE BUSINESS OF THE ASSESSEE WHICH PROMPTED THE GOVERNMENT TO GRANT SU BSIDY. ACCORDING TO ASSESSEE, EVEN TO TREAT WHETHER A PARTICULAR SUBSIDY IS CAPIT AL OR REVENUE, SOURCE FROM WHICH PAYMENT IS MADE IS NOT RELEVANT. HOWEVER THE AO RE PELLED THE CONTENTION OF ASSESSEE COMPANY AND WAS OF THE OPINION THAT THE EXPRESSION DERIVED FROM HAS A NARROW MEANING AND IT CANNOT BE SUBJECT TO A FLEXIBLE OR W IDER INTERPRETATION. ACCORDING TO AO, ANY INDIRECT OR INCIDENTAL PROFIT CANNOT BE REG ARDED AS PROFIT EARNED OUT OF THE MAIN BUSINESS ACTIVITY. RELIANCE WAS PLACED BY THE AO ON THE DECISION OF THE HONBLE ITA NO. 114/GAU/2020 COMMERCIAL IRON & STEEL COMPANY PVT. LTD. A.Y. 2008-09 3 | P A GE GUWAHATI HIGH COURT IN CIT VS. MEGHALAYA FEED PRODU CTS, ITA 23/2010 DATED 16.09.2010 WHEREIN THE HONBLE HIGH COURT REITERATE D THE DECISION OF THE APEX COURT IN LIBERTY INDIA VS. CIT (2009) 317 ITR 218. ACCOR DING TO AO, THE HONBLE SUPREME COURT HAS OBSERVED THAT THE ACT BROADLY PROVIDES FO R TWO TYPES OF TAX INCENTIVES NAMELY INVESTMENT-LINKED INVESTMENTS AND PROFIT LIN KED INCENTIVES. CHAPTER-VIA OF THE ACT PROVIDES FOR INCENTIVES IN THE FORM OF TAX DEDUCTION WHICH BELONG TO THE CATEGORY OF PROFIT LINKED INCENTIVES. ACCORDING TO AO, THE HONBLE COURT HELD THAT WHAT ATTRACTS INCENTIVES UNDER SECTION 80IB OF THE ACT IS THE GENERATION OF OPERATIONAL PROFITS. SECTION 80IB OF THE ACT THEREFORE PROVIDES FOR ALLOWING OF A DEDUCTION IN RESPECT OF PROFITS AND GAINS DERIVED FROM THE BUSIN ESS OF THE ASSESSEE AND PARLIAMENT INTENDED TO COVER SOURCES OF PROFITS AND GAINS NOT BEYOND THE FIRST DEGREE. ACCORDING TO AO, THE HONBLE APEX COURT HAD HELD THAT THERE MUST BE A DIRECT NEXUS BETWEEN THE GENERATION OF PROFITS AND GAINS AND THE SOURCE OF PROFITS AND GAINS, THE LATTER BEING DIRECTLY RELATABLE TO THE BUSINESS OF THE ASSESSEE. ANY OTHER SOURCE NOT FALLING WITHIN THE FIRST DEGREE COULD THEREFORE BE DESCRIBED AS AN CILLARY TO THE BUSINESS OF THE ASSESSEE. AND THE AO NOTED THAT THE HONBLE HIGH C OURT HAD HELD THAT THE SUBSIDY DID NOT HAVE ANY DIRECT NEXUS WITH THE PROFITS OR GAINS DERIVED BY THE ASSESSEE FROM ITS INDUSTRIAL ACTIVITY AS THE BENEFIT TO THE ASSESSEE WAS ONLY ANCILLARY TO ITS INDUSTRIAL ACTIVITY. 5. THUS ACCORDING TO AO, THE DERIVATION OF THE INCO ME MUST BE DIRECTLY CONNECTED WITH THE BUSINESS IN THE SENSE THAT THE INCOME IS G ENERATED BY THE UNDERTAKING FROM THE BUSINESS. THEREFORE, TRANSPORT SUBSIDY OF RS. 28,65 ,412/-, POWER SUBSIDY OF RS. 7,00,000/- INTEREST SUBSIDY (WORKING CAPITAL) OF RS . 2,42,245/- AND INTEREST SUBSIDY (TERM LOAN) OF RS. 220,000/- WAS TREATED AS OTHER INCOME NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT AND THUS DISALLOWED T HE CLAIM OF ASSESSEE COMPANY. 6. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFOR E THE LD. CIT(A) WHO CONFIRMED THE SAME BY CITING THE DECISION OF HONBL E JURISDICTIONAL HIGH COURT (GUWAHATI HIGH COURT ) IN THE CASE OF CIT VS. MEGHA LAYA STEELS LTD. REPORTED IN 332 ITR 91 (GAU). ITA NO. 114/GAU/2020 COMMERCIAL IRON & STEEL COMPANY PVT. LTD. A.Y. 2008-09 4 | P A GE 7. AGGRIEVED THE ASSESSEE IS BEFORE THIS TRIBUNAL. 8. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE RE CORDS. THE FACTS STATED BY THE AO IS NOT REPEATED FOR THE SAKE OF BREVITY. THE AO AS WELL AS THE LD. CIT(A) HAVE DECIDED THE SUBSIDY ISSUE ON THE STRENGTH THE DECIS ION OF HONBLE JURISDICTIONAL HIGH COURT (GUWAHATI HIGH COURT) IN THE CASE OF CIT VS. MEGHALAYA STEEL LTD. REPORTED IN 332 ITR 91 (GAU). IT WAS POINTED OUT BY THE LD. A.R OF THE ASSESSEE SHRI JAY PRAKASH GUPTA, CA THAT THE HONBLE GUWAHATI HIGH COURT HAS REVIEWED THIS ORDER AND RECALLED IT WHICH ORDER HAS BEEN REPORTED IN 358 ITR 551 (GA U). ACCORDING TO LD. A.R THIS DECISION OF HONBLE GUWAHATI HIGH COURT WAS CHALLEN GED BY THE DEPARTMENT BEFORE HONBLE SUPREME COURT WHICH WAS REJECTED AND THIS I S REPORTED IN 377 ITR 112 (SC). ACCORDING TO LD. A.R THE HONBLE GUWAHATI HIGH COUR T THEREAFTER DECIDED THE SUBSIDY ISSUE IN THE CASE OF CIT VS. MEGHALAYA STEE L LTD. IN FAVOUR OF THE ASSESSEE BY AN ORDER WHICH IS REPORTED IN 356 ITR 235 (GAUHATI) . FURTHER ACCORDING TO LD. A.R, THIS DECISION WAS CHALLENGED BY THE DEPARTMENT BEFO RE THE HONBLE SUPREME COURT AND HONBLE SUPREME COURT WAS PLEASED TO UPHOLD THE VIEW OF THE HONBLE GUWAHATI HIGH COURT IN FAVOUR OF THE ASSESSEE WHICH IS REPOR TED IN 383 ITR 217 (SC). THEREFORE, ACCORDING TO LD. A.R, THIS ISSUE IS NO L ONGER RES INTEGRA AND IS SQUARELY COVERED IN ASSESSEES FAVOUR. IN THE LIGHT OF THE A FORESAID SUBMISSION WE NOTE THAT THE HONBLE JURISDICTIONAL HIGH COURT (GUWAHATI HIGH CO URT) WHILE DEALING WITH THE NATURE OF THE ABOVE REFERRED SUBSIDY (TRANSPORT SUB SIDY, POWER SUBSIDY AND INTEREST SUBSIDY) HELD IN 356 ITR 235 AS FOLLOWS: WHAT CRYSTALLIZES FROM THE ABOVE DISCUSSION IS THA T THE ASSESSEES INCOME, WITH THE COST OF PRODUCTION BEING REDUCED, BECAUSE OF THE SUBSIDI ES RECEIVED, WOULD OBVIOUSLY RISE AND IN CONSEQUENCE THEREOF, THE PROFITS EARNED, AND THE GAINS MADE, BY THE INDUSTRIAL UNDERTAKING CONCERNED WOULD ALSO INCREASE. THE PROF ITS, SO INCREASED, WOULD BE PART OF THE GROSS TOTAL INCOME OF THE ASSESSEE AS DEFINED U NDER SECTION 80B OF THE ACT SUBJECT TO DEDUCTIONS, AS PROVIDED UNDER CHAPTER VIA OF THE AC T, WHICH INCLUDES DEDUCTIONS UNDER SECTION 80B AS WELL AS 80C. IF AN ASSESSEE BECOMES ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OR 80IC, HE WILL NOT BE LIABLE TO PAY INCOME T AX ON THE INCREASED PROFIT. CONVERSELY PUT, THE SUBSIDIES SERVE NO PURPOSE IF HE HAS TO PA Y INCREASED TAX ON THE PROFITS, WHICH HE HAS MADE, BECAUSE OF THE OPERATIONAL SUBSIDIES RECE IVED BY HIM. SITUATED THUS, THERE CAN BE NO ESCAPE FROM THE CONC LUSION THAT THE SUBSIDIES, IN QUESTION, BEING OPERATIONAL IN NATURE, HELP THE ASSESSEE CONC ERNED EARN PROFITS AND THE PROFITS, SO ITA NO. 114/GAU/2020 COMMERCIAL IRON & STEEL COMPANY PVT. LTD. A.Y. 2008-09 5 | P A GE EARNED, BECAUSE OF THE SUBSIDIES, IN QUESTION, ARE DEDUCTIBLE IN TERMS OF THE PROVISIONS OF SECTION 80IB OF THE ACT. 9. I NOTE THAT THE AFORESAID DECISION OF THE HONB LE GUWAHATI HIGH COURT WAS CONFIRMED BY THE HONBLE APEX COURT [CIT VS. MEGHA LAYA STEEL LTD. [2016] 383 ITR 217] IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER : TRANSPORT SUBSIDY, INTEREST SUBSIDY, POWER SUBSIDY AND INSURANCE SUBSIDY ARE REVENUE RECEIPTS WHICH ARE REIMBURSED TO THE ASSESSEE FOR E LEMENTS OF COST RELATING TO MANUFACTURE AND SALE OF ITS PRODUCTS; THERE IS CERT AINLY A DIRECT NEXUS BETWEEN THE PROFITS AND GAINS OF THE INDUSTRIAL UNDERTAKING OR BUSINESS AND SUCH SUBSIDIES AND THEREFORE, THE AMOUNT RECEIVED BY THE ASSESSEE AS SUBSIDIES QUALIF Y FOR DEDUCTION UNDER SECTION 80IB AND 80IC. 10. IN THE LIGHT OF THE AFORESAID RATIO LAID DOWN B Y THE HONBLE SUPREME COURT, THE ASSESSEE SUCCEEDS AND CLAIM OF THE ASSESSEE IN RESP ECT OF DEDUCTION U/S 80IC OF THE ACT IN RESPECT OF SUBSIDY (TRANSPORT SUBSIDY, POWER SUBSIDY AND INTEREST SUBSIDY) SHOULD BE GRANTED AND THE AO IS DIRECTED TO DO SO. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 5 TH MARCH, 2021. SD/- (A. T. VARKEY) JUDICIAL MEMBER DATED: 5 TH MARCH , 2021. SB, SR. PS ITA NO. 114/GAU/2020 COMMERCIAL IRON & STEEL COMPANY PVT. LTD. A.Y. 2008-09 6 | P A GE COPY OF THE ORDER FORWARDED TO: 1. APPELLANT- COMMERCIAL IRON AND STEEL COMPANY PVT . LTD., PLOT NO. 17, EPIP, BYRNIHAT, RI-BHOI-793101, MEGHALAYA 2. RESPONDENT- ACIT, CIRCLE-SHILLONG 3. THE CIT(A)-SHILLONG 4. CIT- GUWAHATI 5. DR, GAUHATI BENCH, GUWAHATI TRUE COPY BY ORDER SR. PRIVATE SECRETARY ITA T, KOLKATA BENCHES, KOLKATA