2015 (9) TMI 551 - AT - Income Tax

Deduction u/s 80IB on account of transport and other subsidies - CIT(A) allowed the claim - Held that - Interest subsidy, transport subsidy and power subsidy received by the assessee are eligible for deduction u/s 80IB of the Act - See Commissioner of Income-tax Versus Meghalaya Steels Ltd. and M/s Pride Coke Pvt. Ltd. 2013 (7) TMI 175 - GAUHATI HIGH COURT - Decided in favour of assessee. Addition on account of closing stock valuation of raw materials - CIT(A) deleted the addition - Held that - Fortunately the ld. DR had brought the assessment records at the time of hearing and on verification of the same, it was found that the assessee had indeed filed a reply letter containing the month-wise quantitative details together with its values, consumption details etc. for raw materials vide reply to question no.4 in his letter dated 26.12.2007. It is also seen that the revenue had not raised any ground before us for violation of Rule 46A and hence the contention raised by the ld. DR in this regard is dismissed. It is also seen that the assessee has been consistently following the weighted average price for valuation of closing stock of raw materials and similar addition made for A.Y.2004-05 in the hands of the assessee had been deleted by this Tribunal in assessee s own case reported in 2008 (1) TMI 424 - ITAT CALCUTTA-A - Decided in favour of assessee.

Summary

Issues Involved:
1. Deduction under Section 80IB on account of transport and other subsidies.
2. Addition on account of closing stock valuation of raw materials.

Issue-wise Detailed Analysis:

1. Deduction under Section 80IB on account of transport and other subsidies:

The primary issue was whether the CIT(A) was correct in directing the AO to grant deduction under Section 80IB of the Income Tax Act for transport and other subsidies amounting to Rs. 52,22,555/-. The assessee company, engaged in manufacturing ferro alloys at an industrial unit in Meghalaya, received various subsidies from the government, including transport subsidy, working capital interest subsidy, power tariff subsidy, and long-term loan interest subsidy. The AO disallowed the deduction, arguing that these subsidies were ancillary and not directly derived from the industrial undertaking's business activities.

The CIT(A) allowed the deduction, relying on previous orders for earlier assessment years. The revenue's appeal cited the Supreme Court's judgment in Liberty India vs. CIT, which held that such subsidies are not derived from the industrial undertaking.

However, the Tribunal upheld the CIT(A)'s decision, referencing the Gauhati High Court's ruling in CIT vs. Meghalaya Steels Ltd., which distinguished the Liberty India case. The High Court emphasized that subsidies like transport and power subsidies reduce production costs and have a direct nexus with the business operations, thus qualifying for deduction under Section 80IB. The Tribunal also noted that similar additions had been deleted in the assessee's case for previous years.

2. Addition on account of closing stock valuation of raw materials:

The second issue concerned the addition of Rs. 84,75,159/- due to the closing stock valuation of raw materials. The assessee used a weighted average rate for valuing its closing stock, consistent with its method over the years, resulting in a rate of Rs. 5109/- per MT. The AO, however, adopted the latest purchase price of Rs. 7,437/- per MT, leading to the addition.

The CIT(A) deleted the addition, finding that the assessee's method of valuation was consistent and accepted in previous years. The revenue argued that the CIT(A) admitted additional evidence without seeking a remand report from the AO, violating Rule 46A.

The Tribunal found that the assessee had indeed provided the necessary details to the AO during the assessment proceedings, and there was no violation of Rule 46A. It upheld the CIT(A)'s decision, noting the consistent application of the weighted average method and the lack of any adverse comments on the assessee's audited accounts. The Tribunal also referenced its earlier decision in the assessee's case for A.Y.2004-05, where a similar addition had been deleted.

Conclusion:

In conclusion, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decisions on both issues. The Tribunal held that the subsidies received by the assessee were eligible for deduction under Section 80IB and that the assessee's method of valuing closing stock was consistent and acceptable. The appeal was dismissed in its entirety.