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Issues Involved:
1. Whether the amount of capital subsidy should be deducted from the cost of the assets while calculating depreciation allowance. 2. Whether the income from interest should be treated as business income for the purpose of deduction under section 80HH and section 80-I of the Income-tax Act, 1961. 3. The procedural defect regarding the filing of two copies of grounds of appeal and statement of facts before the first appellate authority. Issue-wise Detailed Analysis: 1. Capital Subsidy and Depreciation Allowance: The CIT(A) directed the Assessing Officer not to deduct the amount of capital subsidy from the cost of the assets while calculating depreciation allowance. This direction was based on the judgment of the Hon'ble Gauhati High Court in the case of CIT v. Meghalayan Plywood Ltd. The Tribunal found that this issue is squarely covered by the decision of the Hon'ble Supreme Court in the case of CIT v. P.J Chemicals Ltd., which favored the assessee. Consequently, no interference with the order of the CIT(A) was called for. 2. Interest Income as Business Income: The CIT(A) directed the Assessing Officer to treat the interest income as business income and recalculate the deduction under sections 80HH and 80-I. The CIT(A) observed that the interest earned went to reduce the net interest burden of the assessee, thereby constituting business income. However, there was a difference of opinion among the Tribunal members on this issue. The Judicial Member opined that the interest earned from surplus funds should be treated as income from other sources, not business income, citing the Hon'ble Madras High Court's decision in South India Shipping Corpn. Ltd. v. CIT and the Supreme Court's decision in Tuticorin Alkali Chemicals & Fertilizers Ltd. The Third Member upheld this view, emphasizing the binding nature of the jurisdictional High Court's decision in North East Gases (P.) Ltd. v. CIT, which stated that for the purpose of section 80HH, there must be a direct nexus between the activity and the earning of the profit or gain. 3. Procedural Defect in Filing Appeal: The Tribunal noted that the Revenue's appeal was not accompanied by two copies of grounds of appeal and two copies of the statement of facts, as required under rule 9(1) of the ITAT Rules, 1963. The Accountant Member initially dismissed the appeal on this ground, referencing the Tribunal's decision in Dy. CIT v. Lohit Co-operative General Stores Ltd. However, the Judicial Member disagreed, arguing that no defect memo was issued to the appellant, and no opportunity was given to rectify the defect. The Third Member supported this view, stating that the Tribunal should not dismiss the appeal without giving notice for rectifying the defect, especially when the issue was not raised by the respondent. It was held that the substantive right of appeal should not be curtailed by procedural rules, and the appeal should be decided on merit. Conclusion: In conclusion, the appeal filed by the Revenue was partly allowed. The Tribunal upheld the CIT(A)'s direction not to deduct the capital subsidy from the cost of assets for depreciation purposes. However, it ruled that the interest income should be treated as income from other sources, not business income, for the purpose of deductions under sections 80HH and 80-I. The procedural defect in filing the appeal was not considered sufficient grounds for dismissal, as the Tribunal did not issue a defect memo to the appellant, and the substantive right of appeal was upheld.
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