2017 (2) TMI 551 - AT - Income Tax

Availability of deduction of u/s 80 IA on the subsidy received - Held that - The assessee s claim of deduction u/s 80 IA (4) qua the amounts received towards Sales Tax incentive and subsidy has to be considered in the light of the ratio laid down by the honourable Supreme Court in case of CIT Vs. M/S Meghalaya Steels Ltd. (2016 (3) TMI 375 - SUPREME COURT) wherein held so long as profits and gains emanate directly from the business itself, the fact that the immediate source of the subsidies is the Government would make no difference, as it cannot be disputed that the subsidies are only in order to reimburse wholly or partially costs actually incurred by the assesse in the manufacturing and selling of its products. Since the aforesaid decision of the honourable Apex Court was not available before the AO and the CIT appeal, we deem it appropriate to set aside the impugned order of CIT (appeal) and restore the matter back to the file of the assessing officer to consider assessee s claim of deduction u/s 80 IA (4) in the light of the ratio laid down in the decision of the honourable Supreme Court referred to above. We may further observe, the assessing officer must also consider assessee s claim on the quantum of subsidy actually received from the MSED

Summary

Issues:
1. Availability of deduction under section 80 IA on subsidy received.
2. Nature of subsidy - capital or revenue.

Issue 1: Availability of deduction under section 80 IA on subsidy received:
- The assessee claimed deduction under section 80 IA against business income, including MEDA subsidy and Sales Tax entitlement.
- Assessing officer disallowed the deduction on the grounds that the subsidy and incentive were not profits derived from the industrial undertaking.
- CIT (Appeal) upheld the disallowance based on judicial precedents.
- The assessee argued that the income from subsidy and incentive had a direct nexus to the wind mill project, making it eligible for deduction under section 80 IA.
- The Tribunal referred to a Supreme Court judgment in the case of CIT Vs. M/S Meghalaya Steel Ltd., where it was held that subsidies reimbursed for costs incurred in the business are eligible for deduction.
- The Tribunal set aside the CIT (Appeal) order and directed the assessing officer to reconsider the deduction claim in light of the Supreme Court judgment.

Issue 2: Nature of subsidy - capital or revenue:
- The nature and character of the subsidy and incentive were not disputed in this case.
- The Tribunal proceeded on the assumption that the subsidy and incentive were revenue in nature.
- The Tribunal emphasized that the immediate source of the subsidies being the government does not affect their eligibility for deduction under section 80 IA.
- The Tribunal cited the Supreme Court's ruling in CIT Vs M/S Sri Balaji Alloys, supporting the inclusion of subsidies under the head "profits and gains of business or profession."
- The Tribunal allowed the assessee's appeal for statistical purposes, directing a reevaluation by the assessing officer.

In conclusion, the Tribunal allowed the assessee's appeals for statistical purposes and dismissed the department's appeal. The orders were pronounced on 10.02.2017.