2016 (6) TMI 257 - AT - Income Tax

Revision u/s 263 - allowing deduction u/s 80IC - treatment to transport subsidy, Central Insurance subsidy, power subsidy and interest subsidy - Held that - The Hon ble Gauhati High Court in the case of CIT vs Meghalaya Steels Ltd. 2013 (7) TMI 175 - GAUHATI HIGH COURT had decided the issue in favour of the assessee holding that all the mentioned subsidies have to be considered as profits and gains derived from the business of the assessee and therefore have to be considered for the purpose of allowing deduction u/s 80IC of the Act. It was also brought to our notice that the Hon ble Supreme Court has confirmed the order of Hon ble Gauhati High Court in the case of CIT vs Meghalaya Steels Ltd. 2016 (3) TMI 375 - SUPREME COURT We are of the view that the view taken by the AO cannot be considered to be erroneous and prejudicial to the interest of the revenue. Though the CIT has exercised the jurisdiction on the ground that the AO had failed to make proper inquiries before concluding the assessment, we are of the view that in the light of the decision of the Hon ble Supreme Court, such an inquiry at this stage would be a futile exercise. The decision rendered by the Hon ble Supreme Court has to be considered as law as it stood at all times and therefore the order of assessment in the present case passed by the AO that was sought to be revised by the CIT u/s.263 of the Act, cannot be considered as erroneous and prejudicial to the interest of the Revenue. - Decided in favour of assessee

Issues Involved:

1. Eligibility of subsidies (transport, power, interest, and insurance) for deduction under Section 80IC of the Income Tax Act, 1961.
2. Whether the assessment order passed by the AO was erroneous and prejudicial to the interest of revenue under Section 263 of the Income Tax Act.

Detailed Analysis:

1. Eligibility of Subsidies for Deduction under Section 80IC:

The primary issue was whether the subsidies received by the assessee (transport subsidy, power subsidy, interest subsidy, and insurance subsidy) could be considered as profits derived from the business of manufacturing calcined petroleum coke and thus eligible for deduction under Section 80IC of the Income Tax Act, 1961.

The assessee claimed these subsidies as profits derived from its business, which were included in the computation of income for claiming the deduction under Section 80IC. The CIT, however, contended that these subsidies should be considered as income from other sources and not eligible for deduction under Section 80IC.

The Tribunal referred to the judgment of the Hon'ble Gauhati High Court in the case of CIT vs Meghalaya Steels Ltd., which had decided in favor of the assessee, holding that such subsidies should be considered as profits derived from the business and thus eligible for deduction under Section 80IC. The Supreme Court had also confirmed this view.

The Tribunal analyzed each type of subsidy as follows:

- Transport Subsidy: The Gauhati High Court concluded that transport subsidy aimed at reducing the cost of production had a direct nexus with the manufacturing activities, thus qualifying as profits derived from the business.

- Power Subsidy: It was held that power subsidy, though revenue in nature, helped in the growth and profitability of the industrial undertaking and was covered under Section 80IC.

- Interest Subsidy: The interest subsidy aimed at reducing the interest payable on working capital had a direct nexus with the manufacturing activities, thus qualifying for deduction under Section 80IC.

- Insurance Subsidy: Similar to other subsidies, insurance subsidy also had a direct nexus with the business operations and was considered eligible for deduction under Section 80IC.

2. Assessment Order Under Section 263:

The CIT exercised powers under Section 263 of the Income Tax Act, arguing that the AO's order was erroneous and prejudicial to the interest of revenue because the AO failed to properly examine the allowability of the subsidies for deduction under Section 80IC.

The Tribunal, however, found that the issue of subsidies had already been settled by the Hon'ble Gauhati High Court and confirmed by the Supreme Court, which ruled in favor of the assessee. Thus, the AO's order could not be considered erroneous or prejudicial to the interest of revenue.

The Tribunal noted that further inquiry by the AO at this stage would be futile given the Supreme Court's decision, which must be considered as the law at all times. Consequently, the Tribunal quashed the CIT's order under Section 263 and allowed the assessee's appeal.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that the subsidies received were eligible for deduction under Section 80IC of the Income Tax Act. The order passed by the AO was not erroneous or prejudicial to the interest of revenue, and thus, the CIT's order under Section 263 was quashed.

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