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2017 (2) TMI 446 - AT - Income TaxDeduction u/s 80IC - whether the incentive is not part of the profit and gains derived from the business of industrial undertaking so as to make the assessee eligible to deduction u/s 80IC? - assessee company is a 100% EOU engaged in creating and processing of Mushrooms, culinary herbs and other fruits and vegetables - Held that - Keeping in view the undisputed fact that this is the 5th year of claim made by the assessee u/s 80IC and the assessee has been continuously allowed deduction u/s 80IC qua transport subsidy and AO/CIT(A) have not brought on record any reason for departing from the previous years as on the same set of facts pertaining to the year under assessment, the issue is required to be restored to the AO to decide afresh in the light of the orders passed in the preceding years. So, the grounds no.1 to 5 in both the assessment years i.e. 2009-10 & 2010-11 are determined in favour of the assessee for statistical purposes.
Issues involved:
- Disallowance of deduction under section 80-IC on incentives granted under Vishesh Krishi and Gram Udyog Yojana (VKGUY) for compensating high transport costs incurred by the company. - Treatment of transport subsidy as income derived from an industrial undertaking for eligibility of deduction under section 80IC. - Inclusion of incentive as a subsidiary and capital in nature for determining total income under section 115JB. Analysis: Issue 1: Disallowance of deduction under section 80-IC on incentives - The Appellant, M/s. Flex Foods Limited, contested the assessment years 2009-10 and 2010-11 before the Commissioner of Income-tax (Appeals)-III, New Delhi, seeking to set aside the impugned orders disallowing deduction under section 80-IC on incentives granted under VKGUY to offset high transport costs. The lower authorities erred in not allowing the deduction, stating that the profits generated from the incentives were not operational profits and were not directly linked to the industrial undertaking. The Appellant argued that the incentives had a direct nexus with its business operations, aiming to compensate for high freight costs, and therefore, the net effect on profits was nil. The Tribunal found in favor of the assessee, directing the matter to be decided afresh by the Assessing Officer (AO) in line with previous years' treatment of transport subsidies under section 80IC. Issue 2: Treatment of transport subsidy for deduction under section 80IC - The dispute revolved around whether the transport subsidy should be considered as income derived from the industrial undertaking to make the assessee eligible for deduction under section 80IC. The Appellant contended that the transport subsidy was crucial to offset high transport costs incurred due to lightweight agricultural produce requiring more cargo space. The Tribunal noted that in previous years, the transport subsidy was treated as income derived from the industrial undertaking, and the assessee was allowed deduction under section 80IC. As the revenue did not provide reasons for deviating from past practices, the Tribunal directed the AO to reconsider the issue in line with previous years' decisions, ruling in favor of the assessee for statistical purposes. Issue 3: Inclusion of incentive as subsidiary and capital in nature for total income calculation - The Appellant raised additional grounds, arguing that the incentives were subsidiary and capital in nature, thus should not be included in determining total income under section 115JB. The Tribunal, without prejudice to previous grounds, directed the matter to be reconsidered by the AO in light of previous years' decisions and the findings on the primary issues. Consequently, the Tribunal set aside the impugned orders, ordering a fresh assessment by the AO while allowing the appeals for statistical purposes. In conclusion, the Tribunal's judgment favored the assessee on all issues, directing a reassessment by the AO in line with previous years' treatment of incentives and transport subsidies for deduction under relevant sections.
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