ITO 8(1)(2), MUMBAI V. BST TEXTILE MILS P.LTD, MUMBAI

ITA 1684/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8162 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-03-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 11-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.1684/MUM/2014 ASSESSMENT YEAR: 2010-11 ITO 8 (1) (2) MUMBAI PIN 400020 / VS. BST TEXTILE MILLS PVT. LTD. 309, 3 RD FLOOR WODROW BLDG, VERA DESAI MUMBAI PIN 400053 (APPELLANT) (RESPONDENT ) P.A. NO.AACCB7130P APPELLANT BY SHRI SUMAN KUMAR (DR.) RESPONDENT BY NONE DATE OF HEARING: 8/3/2017 DATE OF ORDER: 16 /03/2017 / O R D E R PER ASHWANI TANEJA, A.M: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST O RDER OF COMMISSIONER OF INCOME TAX (APPEALS), MUMBAI-21 [IN SHORT, CIT(A)], DATED 13.12.2013 PASSED AGAINST THE ASSESSMENT ORDE R U/S-143(3), DATED 11.1.2013 FOR A.Y. 2010-11 ON THE FOLLOWING GROUNDS . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) ERRED IN DIRECTING THE AO TO INCLUDE INTERES T SUBSIDY OF RS.1,34,45,475FORCOMPUTING DEDUCTION U/S 801C WITHO UT APPRECIATING THAT THE SOURCE OF SUBSIDY IS THE SCHEME OF GOVERNM ENT AND NOT THE ELIGIBLE UNDERTAKING FOR BEING CONSIDERED FOR THE P URPOSE OF DEDUCTION U/S 801C. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE C1T(A) ERRED IN DIRECTING THE AO TO INCLUDE INTERES T SUBSIDY FOR COMPUTING DEDUCTION U/S 80-IC WITHOUT APPRECIATING THAT INTEREST M/S BST TEXTILE MILLS PVT. LTD. 2 SUBSIDY BEING A RECEIPT FROM GOVERNMENT UNDER A SCH EME CANNOT BE SAID TO BE INCOME, THE SOURCE OF WHICH IS THE INDUS TRIAL UNDERTAKING.' 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE C1T(A) ERRED IN DIRECTING THE AO TO INCLUDE INTERES T SUBSIDY FOR COMPUTING DEDUCTION U/S 801C WITHOUT CONSIDERING DE CISIONS OF (I) THE HON'BLE HIMACHAL PRADESH HIGH COURT IN THE CASE OF SUPRIYA GILL VS UT, 193 TAXMANN 12(HP); AND (II) THE HON'BLE ITAT, F-BENCH, MUMBAI, IN THE CASE OF UNMESH M. JOSHI ( ITA NO 4287/MUM/2010 DT.23-12-11), ON THE SUBJECT.' THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE 1TO/AC/DCIT BE RESTORE D. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY.' THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE 1TO/AC/DCIT BE RESTORE D. 2. DURING THE COURSE OF HEARING, IT WAS SUBMITTED AT T HE OUTSET, BY THE LD. COUNSEL OF ASSESSEE THAT SOLITARY ISSUE INVOLVE D IN THIS APPEAL IS WITH REGARD TO ALLOWABILITY OF DEDUCTION U/S 80IC ON THE AMOUNT OF INTEREST SUBSIDY RECEIVED BY ASSESSEE DURING THE YEAR, IN PU RSUANCE TO SCHEME OF THE GOVERNMENT. IT WAS SUBMITTED THAT THIS ISSUE I S NOW COVERED IN FAVOUR OF ASSESSEE BY THE JUDGMENT OF HON'BLE SUPREME COUR T IN THE CASE OF CIT VS. MEGHALAYA STEELS LTD, THEREFORE, THE CLAIM HAS RIGHTLY BEEN ALLOWED BY LD. CIT(A) AND HIS ORDER SHOULD BE UPHELD IN VIEW O F AFORESAID JUDGMENT OF HON'BLE SUPREME COURT. 3. PER CONTRA LD. DR RELIED UPON THE ORDER OF THE A.O. BUT HE DID NOT MAKE ANY DISTINCTION ON LAW OR ON FACTS BETWEEN THE AFORESAID JUDGMENT OF THE HON'BLE SUPREME COURT AND FACTS OF THE CASE OF ASSESSEE. 4. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWER AUTHORITIES AS WELL AS AFORESAID JUDGMENT OF THE HON'BLE SUPREME C OURT. THE BRIEF BACKGROUND IS THAT DURING THE YEAR ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF COTTON YARN. IT HAD A MANUFACTURING UNIT AT M/S BST TEXTILE MILLS PVT. LTD. 3 SIDCUL, RUDRAPUR, (UTTRAKHAND) AND CLAIMED BENEFIT OF DEDUCTION U/S 80-IC IN THE WRITTEN FILED BY HIM. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTED BY THE A.O. THAT ASSESSEE CREDITED IN ITS PROFIT & LOSS AC COUNT VARIOUS ITEMS UNDER THE HEAD OTHER INCOME WHICH INCLUDED TUFS INTEREST SUBSIDY AMOUNTING TO RS.1,34,45,475/-. AS PER ASSESSING OFFICER, DEDUCTI ON 80-IC WAS NOT ALLOWABLE ON THE SAID AMOUNT SINCE THIS INCOME COUL D NOT BE SAID TO BE DERIVED BY THE UNDERTAKING OF THE ASSESSEE. THE ASS ESSEE SUBMITTED THE NATURE OF THE AFORESAID INTEREST SUBSIDY AS UNDER. HEAD: TUFS INTEREST SUBSIDY (TECHNOLOGY UP-GRADATI ON FUND SCHEME) NATURE: THIS IS IN THE NATURE OF INTEREST SUBSIDY BRING THE PART REIMBURSEMENT MADE BY MINISTRY OF TEXTILE OF INDIA, OF THE INTEREST PAID BY THE ASSESSEE TO THE BANKS. AS PER THE SCHEM E OF THE MINISTRY OF TEXTILE, GOVERNMENT OF INDIA, THE ASSESSEE COMPA NY IS ENTITLED TO RECEIVE PART RE-IMBURSEMENT OF THE INTEREST PAID TO THE BANKS ON LOANS AVAILED AND USED FOR THE PURPOSE OF BUSINESS ACTIVITIES CARRIED ON BY THE ASSESSEE. THE SAID AMOUNT MERELY FOR THE PURPOSES OF ACCOUNTING CONTROL WAS ACCOUNTED FOR SEPARATELY BY THE ASSESSEE COMPANY AND ACCORDINGLY SHOWN TO THE CREDIT OF PROF IT & LOSS ACCOUNT UNDER THE HEAD; WHICH IN FACT IS THE PART REIMBURSE MENT OF EXPENSES INCURRED BY THE ASSESSEE ON ACCOUNT OF INTEREST PAI D TO THE BANKS AND NOT IN THE NATURE OF ANY INCOME EARNED BY THE ASSES SEE. ACCORDINGLY, THE FULL AMOUNT OF INTEREST PAID TO THE BANK HAS BE EN DEBITED AND SHOWN SEPARATELY AS FINANCIAL EXPENSES IN PROFIT AN D LOSS ACCOUNT. 6. HOWEVER, AO DID NOT ACCEPT THE SUBMISSIONS OF THE A SSESSEE AND DENIED THE BENEFIT OF DEDUCTION U/S-80-IC. IN APPEA L BEFORE LD. CIT(A), DETAILED SUBMISSIONS WERE MADE BY ASSESSEE WHICH HA VE BEEN ACCEPTED BY LD. CIT(A) IN HIS ORDER. RELEVANT PART OF THESE SUB MISSIONS IS REPRODUCED HERE UNDER FOR READY REFERENCE: REGARDING GROUND NO.5 WHICH IS AGAINST THE DISALLOWANCE MADE BY THE AO I N RESPECT OF INTEREST REIMBURSEMENT AMOUNTING TO 1,34,45,475/- R ECEIVED BACK BY THE ASSESSEE FROM BANKS UNDER THE SCHEME OF THE 'MI NISTRY OF TEXTILE, M/S BST TEXTILE MILLS PVT. LTD. 4 IT WAS SUBMITTED THAT THE SAID AMOUNT IS NOT IN THE NATURE OF INCOME AND IS MERELY RE-IMBURSEMENT OUT OF THE ACTUAL INTE REST FIRST PAID BY THE ASSESSEE TO THE BANKS AS PER THE SCHEME OF THE MINISTRY OF TEXTILE, THE ASSESSEE IS ENTITLED TO RECEIVE BACK 5 % OF THE INTEREST ACTUALLY PAID BY THE ASSESSEE TO THE BANKS THAT THE SAID REIMBURSEMENT OF INTEREST WOULD ONLY REDUCE THE INT EREST COST OF THE ASSESSEE ALREADY INCURRED BY IT AND THE SAME CANNOT BE TERMED AS ANY. INCOME EARNED BY THE ASSESSEE. THAT THE MINIST RY HAS MADE SUCH MECHANISM TO CLAIM INTEREST REIMBURSEMENT, WHEREBY THE ASSESSEE IS FIRST REQUIRED TO PAY THE AMOUNT OF INTEREST TO THE BANK AND THEREAFTER RECEIVES BACK 5% REIMBURSEMENT OF SUCH I NTEREST PAID BY IT TO THE BANK. THUS THE SAID RECEIPT OF INTEREST REIM BURSEMENT HAS DIRECT, LIVE LINK AND FIRST DEGREE NEXUS WITH THE E XPENSES OF INDUSTRIAL UNDERTAKING AND HAS EFFECT OF REDUCING THE OPERATIO NAL COST OF THE UNDERTAKING. THE ASSESSEE HAS, MERELY FOR THE CONTR OL PURPOSE, SHOWN THE SAID INTEREST REIMBURSEMENT SEPARATELY IN CREDIT SIDE OF THE PROFIT & LOSS ACCOUNT. I HAD THE ASSESSEE ADOPTED T HE ALTERNATIVE METHOD OF ACCOUNTING, WHEREBY THE REIMBURSEMENT OF EXPENSES ARE CREDITED TO/REDUCED FROM THE PARTICULAR EXPENSES HEAD, THERE WOULD HAVE BEEN NO' SURPLUS/CREDIT BALANCE UNDER ANY ACCOUNTING HEAD. IT WAS FURTHER, SUBMITTED THAT THE SAID METHOD OF ACCOUNTING IS RECOGNIZED METLD4 AS PER THE ACCOUNTING STANDARD 12 ISSUED' BY THE IN STITUTE OF CHARTERED ACCOUNTANTS WHEREIN IT IS CATEGORICALLY, PROVIDED THAT ANY GRANT OR SUBSIDY RECEIVED AGAINST ANY EXPE NSES CAN BE REDUCED FROM THE SAID EXPENSES AND ACCORDINGLY THE SAID EXPENSES MAY BE, SHOWN AS NET OF SUCH GRANTS. THE D OCUMENTS SHOWING THAT THE AMOUNT WAS TOWARDS THE PART REIMBU RSEMENT OF INTEREST ALREADY PAID BY THE ASSESSEE, WITH CALC ULATION OF SUCH CLAIMS WERE FILED. IT IS A WELL SETTLED LAW TH AT GOVERNMENT GRANTS/ SUBSIDY ARE REIMBURSEMENT OF ACTUAL COST 'A ND EXPENSES INCURRED BY THE ASSESSEE AND THE SAME DO N OT TANTAMOUNT TO ANY INCOME EARNED BY THE ASSESSEE. AS A MATTER OF FACT, THE RECEIPTS OF SUCH SUBSIDIES ARE DEDUCTI ON IN OPERATIONAL COST OF THE ASSESSEE AND THEREBY HAVE D IRT AND FIRST DEGREE NEXUS WITH THE PROFITS. DERIVED BY THE UNDER TAKING. RELIANCE WAS PLACED IN THE CASE OF. CIT VS. 1. MEGH ALAYA STEELS LTD. 2. PRIDE COKE PVT. LTD. [2013] 356 ITR 235 [GA UHATI] THAT THE CASE LAW CITED, AND RELIED UPON BY THE AO BEING CIT VS GHERIA OIL.GRARNUDYOG WORKERS WELFARE ASSOCIATION 3 30 ITR M/S BST TEXTILE MILLS PVT. LTD. 5 117 (2011) HAS ALSO BEEN REFERRED TO AND CONSIDERED WHILE SETTLING THE ABOVE RATIO IN THE SAID JUDGMENT REPOR TED IN [2013] .356 ITR 235 SUPRA. FURTHER, THE SAID CASE LAW HAS BEEN GIVEN ON THE BASIS OF INTERPRETATION ON. THE SAID ISSUE B Y THE HON'BLE SUPREME 'COURT IN THE CASE OF SAHNEY STEEL AND PRES S WORKS LTD V CIT [1997] 228 ITR 253 (SC); CIT V RAJARARN MAIZE PRODUCTS [2011] 251 ITR 427 (SC) AND CIT V EASTERN ELECTRO C HEMICAL INDUSTRIES [1999]. THUS THAT THE JUDGMENT CITED IN 356 ITR 235 RELIED, UPON BY THE ASSESSEE AS SUPRA HAS CONSIDERE D ALL EARLIER JUDGMENTS AND GIVEN THE FINALITY ON THE ISSUE INVOL VED. IT WAS, THEREFORE, SUBMITTED THAT THE AMOUNT OF 'INTEREST.- REIMBURSEMENT' AMOUNTING TO RS.1,34,45,475/- SHOULD NOT BE EXCLUDED WHILE AMOUNTING DEDUCTION U/S 80-IC AND TH E SAME. BE. ALLOWED TO THE ASSESSEE IN FULL. 7. LD. CIT(A) CONSIDERED THE SUBMISSIONS OF THE ASSESS EE AND FOUND THAT THIS ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE JUDGMENTS OF HON'BLE GAUHATI HIGH COURT IN THE CASE OF CIT VS. M EGHALAYA STEELS VS. AND PRIDE COKE PVT. LTD. 356 ITR 235 (GAUHATI), AND THU S HE ALLOWED THE CLAIM OF THE ASSESSEE. 8. DURING THE COURSE OF HEARING BEFORE US, IT HAS BEEN BROUGHT TO OUR NOTICE THAT JUDGMENT IN THE CASE OF MEGHALAYA STEEL S LTD. HAS BEEN AFFIRMED BY HON'BLE SUPREME COURT REPORTED AT 383 I TR 217. 9. WE HAVE GONE THROUGH THE JUDGMENT OF THE HON'BLE SU PREME COURT. IT HAS BEEN HELD BY THE HON'BLE SUPREME COURT THAT IF, CASH ASSISTANCE RECEIVED OR RECEIVABLE AGAINST EXPORT SCHEMES ARE I NCLUDED AS BEING INCOME UNDER THE HEAD PROFIT & GAINS OF BUSINESS OR PROFE SSION, IT IS OBVIOUS THAT SUBSIDIES WHICH GO TO REIMBURSEMENT OF COST IN THE PRODUCTION OF GOODS OF A PARTICULAR BUSINESS WOULD ALSO HAVE TO BE INCLUDE D UNDER THE HEAD PROFIT & GAINS OF BUSINESS OR PROFESSION, AND NOT UNDER T HE HEAD OF INCOME FROM OTHER SOURCES. THE FACTS OF THE CASE BEFORE US ARE THAT THE IMPUGNED AMOUNT WAS RECEIVED BACK BY THE ASSESSEE FROM BANKS UNDER THE SCHEME OF MINISTRY OF TEXTILE IN RESPECT OF REIMBURSEMENT OUT OF THE ACTUAL INTEREST M/S BST TEXTILE MILLS PVT. LTD. 6 FIRST PAID TO THE ASSESSEE TO THE BANKS. THESE FACT S HAVE NOT BEEN DISPUTED BY THE LD. DR BEFORE US. UNDER THESE CIRCUMSTANCES, WE FIND THAT JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF MEGHALAYA S TEELS LTD. (SUPRA) SQUARELY COVERS THE ISSUES INVOLVED. THUS, IN VIEW OF THE AFORESAID JUDGMENT WE FIND NO NEED FOR MAKING INTERFERENCE IN THE ORDE R PASSED BY LD. CIT(A) WHEREIN CLAIM MADE BY THE ASSESSEE WAS ALLOWED BY L D. CIT(A) AFTER CONSIDERING THE RATIO OF DECISION OF HON'BLE GAUHAT I HIGH COURT IN THE AFORESAID CASE WHICH HAS BEEN CONFIRMED BY THE HON' BLE SUPREME COURT, AS STATED ABOVE. THUS, ORDER OF CIT(A) IS UPHELD AND G ROUNDS RAISED BY THE REVENUE IN ITS APPEAL ARE DISMISSED. 10. AS A RESULT, APPEAL FILED BY THE REVENUE IS DISMISS ED. ORDER WAS PRONOUNCED IN THE OPEN COURT AT THE CONC LUSION OF HEARING. SD/- SD/- (MAHAVIR SINGH) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 16 .03.2017 V. P. SINGH