Brief of the Case
In the case DCIT Vs. Maithan Smelters Ltd. the Hon’ble Kolkata ITAT held that the interest subsidy, transport subsidy and power subsidy received by the assessee are eligible for deduction u/s 80IB of the Act.
Facts of the Case
The assessee company started its factory unit at Export Promotional Industrial Park, Byrnihat, Meghalaya for manufacture of ferro alloys and in order to avail incentive declared by Government of Meghalaya in its industrial policy formulated in 1997 effective from 15th August, 1997. The assesse had commenced its commercial production on 02.10.2001 relevant to A.Y.2002-03 and in view of the loss, no deduction u/s 80IB was claimed by the assessee for the said assessment year. However, the claim of deduction u/s 80IB of the Act was made for the first time by the assessee in A.Y.2003-04 which was duly granted by the ld.AO in the scrutiny assessment proceedings u/s 143(3) r.w.s. 147 of the Act. During the course of assessment proceedings under appeal i.e. 2005-06, the ld. AO found that the assessee was in receipt of the following subsidies from the Government :-
|1) Transport subsidy :||Rs.34,30,378/-|
|2) Subsidy on working capital interest :||Rs. 1,52,177/-|
|3) Subsidy on Power Tariff :||Rs.14,00,000/-|
|4) Subsidy on long term loan interest :||Rs. 2,40,000/-|
The ld. AO concluded that the aforesaid subsidies were not entitled for deduction u/s 80IB of the Act as they cannot be construed as profits and gains derived from the industrial undertaking on the ground that the subsidy receipts are ancillary in nature or merely incidental to the business of the assessee and they are only supplementary in nature doled out by the Government for encouragement and growth of business in the backward area and the accrual of these subsidies was not dependent on the nature or yield of the products of the assessee company.
Aggrieved, the assessee challenged this issue before the ld. CIT(A), who deleted the addition made by the ld.AO by relying on the earlier year i.e. A.Y.2004-05 order of the ld. CIT(A) and ITAT on the identical issue.
Contention of the Revenue
The ld. DR argued that the issues before the Tribunal have been decided against the assessee by the Hon’ble Apex Court on similar issue in the case of Liberty India vs CIT (2009) 317 ITR 218 and accordingly prayed for setting aside the ld. CIT(A)’s order and restore the order of the ld. AO.
Contention of the Assessee
The ld. AR argued that the subsidies provided by the Government form an integral part of business receipts of the assessee and they are directly related to the cost of production and sales and administration incurred by the industrial units. He further argued that the selling price of the products are fixed after determining the cost which is reduced by the amount of subsidy expected to be received from the Government and hence subsidy received by the industrial unit have direct and immediate nexus with the business operations of the assessee. He also pleaded that this issue raised by the revenue is directly covered in favour of the assessee by the decision of this Tribunal for A.Y.2004-05 in assessee’s own case and the decision of the Hon’ble Gauhati High Court in the case of CIT vs Meghalaya Steels Ltd. (2013)34 Taxmann.com 34 (Gauhati) vide order dated 29.05.2013 clearly distinguished the decision of the Hon’ble Apex Court in the case of Liberty India.
Held by ITAT
The Hon’ble ITAT found that this issue has been elaborately dealt with by the Hon’ble Gauhati High Court in the case of CIT vs Meghalaya Steels Ltd vide order dated 29.05.2013 wherein their lordships had clearly distinguished the decision of the Hon’ble Apex Court in the case of Liberty India case and it is pertinent to go into the operative portion of the Hon’ble Gauhati High Court’s decision in respect of each category of subsidy which is in dispute i.e. Transport Subsidy, Power Subsidy and Interest Subsidy. The Hon’ble ITAT reproduced the relevant paragraphs of the above mentioned order wherein it has been clearly stated that all these subsidies results into Profits and Gains from, or derived by an Industrial undertaking. It also relied on the judgement of the Kolkata ITAT in the assessee’s own case reported in (2009) 118 ITD 273 (Kol).
Thus the Hon’ble Kolkata ITAT held that the interest subsidy, transport subsidy and power subsidy received by the assessee are eligible for deduction u/s 80IB of the Act.
Case laws relied upon by the ITAT
CIT vs Meghalaya Steels Ltd. (2013)34 Taxmann.com 34 (Gauhati)