2022 (3) TMI 1011 - AT - Income Tax

Deduction claimed u/s. 80IC - transport subsidy, central interest subsidy, power subsidy and central excise refund - Addition on the ground that the same were not derived from manufacturing activities and thus the deduction claimed is totally illegal, illegitimate - HELD THAT - As in the case of CIT vs Meghalaya Steels Ltd 2016 (3) TMI 375 - SUPREME COURT whereby the appeal of the Hon'ble Guwahati High Court upheld 2013 (7) TMI 175 - GAUHATI HIGH COURT holding that the amounts received by the assessee in respect of transport, central interest subsidy, power subsidy and central excise refund are in the nature of reimbursement of cost to the assessee for setting up industries in the backward areas as per the policy of government. In our opinion the issue is settled in favour of the assessee and we, therefore, respectfully following the aforesaid decision set aside the order of CIT and direct the AO allow the claim of deduction u/s. 80IC - Appeal of assessee is allowed.

Summary

Issues:
Appeal against denial of deduction u/s. 80IC for subsidies not derived from manufacturing activities.

Analysis:
The appellant contested the denial of deduction u/s. 80IC for subsidies totaling ?7,17,27,768, including transport, central interest, power subsidies, and central excise refund. The AO rejected the claim, citing that these subsidies were not from manufacturing activities. The appellant, engaged in manufacturing M.S. Ingots, Bars, etc., in the North Eastern Region, had claimed the deduction as in previous years. The AO, based on earlier rejections and citing Sahney Steel and Press Works Ltd. case, disallowed the claim. The CIT(A) upheld this decision for the current year as well.

The appellant argued that a previous Tribunal bench decision favored them, following the Guwahati High Court's ruling in CIT vs Meghalaya Steels Ltd., affirmed by the Supreme Court. They contended that these subsidies were reimbursement for manufacturing costs, directly linked to their expenses. The appellant sought allowance of the deduction, while the DR supported the lower authorities' orders.

Upon review, considering the decisions of the Tribunal, Guwahati High Court, and the Supreme Court in the Meghalaya Steels Ltd. case, the ITAT concluded in favor of the appellant. They held that the subsidies were indeed reimbursements for costs incurred in establishing industries in backward areas as per government policy. Consequently, the ITAT set aside the CIT's order and directed the AO to allow the deduction u/s. 80IC.

In conclusion, the ITAT allowed the appellant's appeal, emphasizing the settled nature of the issue in favor of the appellant based on the legal precedents and the direct nexus established between the subsidies and manufacturing costs. The order was pronounced on 16th February 2022.