2016 (6) TMI 1085 - AT - Income Tax

Withdrawal of deduction u/s 80IC on transport charges & transport subsidy - whether a mistake apparent from record in terms of section 154 - Held that - If transportation charges are excluded from the business profits on which the deduction u/s 80IC of the Act is to be allowed then the corresponding expenses will also have to be excluded in which case profits of the business will get reduced to the extent of difference between the transportation charges received by the assessee namely ₹ 8,70,91,329/- and the transport charges incurred by the assessee namely ₹ 8,43,77,509/-. It is not possible for the AO to exclude the entire receipts on account of transport charges only from the profits eligible for deduction u/s 80IC of the Act. We are of the view that the question as to whether the transport chares on finished goods could be considered as profits derived from an undertaking u/s 80IC of the Act and what is to be excluded as to whether the gross transport charges received or the net transport charges received are highly debatable issues which cannot be resolved in the proceedings u/s 154 of the Act. The CIT(A) has taken note of this principle has followed the decision of the Hon ble Supreme Court in the case of M/s. Mepco Industries Limited vs CIT 2009 (11) TMI 24 - SUPREME COURT wherein the principle that debatable issues cannot be the subject matter of proceedings u/s 154 of the Act has been reiterated. In the light of the judicial pronouncements referred to above we are of the view that CIT(A) was fully justified in cancelling the order u/s 154 of the Act. Order of CIT(A) is accordingly upheld and this appeal of the revenue is dismissed. - Decided in favour of assessee

Summary

Issues:
- Appeal against order related to deduction u/s 80IC on transport charges & transport subsidy
- Whether withdrawal of deduction u/s 80IC on transport charges & transport subsidy can be rectified u/s 154

Analysis:
1. The appeal was filed by the revenue against the order of CIT(A) relating to the deduction u/s 80IC for AY 2005-06. The AO reduced the deduction claimed by the assessee due to interest paid to a bank, which was diverted to a sister concern. The CIT(A) allowed the deduction without excluding the interest expenditure. The AO later issued a notice u/s 154 to modify the deduction by excluding income from transport charges and transport subsidy, citing precedents where transport subsidy was deemed ineligible for deduction u/s 80IC.

2. The AO, through an order u/s 154, excluded transport charges and transport subsidy from the profits derived by the enterprise, thereby revising the deduction u/s 80IC. The assessee appealed to CIT(A), who canceled the AO's order. CIT(A) referenced precedents and decisions, including one by the Supreme Court, to support the inclusion of transport charges and subsidy as part of business receipts eligible for deduction u/s 80IC.

3. The revenue appealed to the Tribunal, where the arguments were heard. The Counsel for the assessee highlighted a Supreme Court judgment supporting the eligibility of transport subsidy for deduction u/s 80IC. The Tribunal upheld CIT(A)'s decision, noting that excluding transport charges would reduce business profits, and the issue was debatable and not suitable for rectification u/s 154. The Tribunal cited precedents emphasizing that debatable issues cannot be addressed under section 154 of the IT Act.

4. Ultimately, the Tribunal dismissed the revenue's appeal, affirming CIT(A)'s decision to cancel the order u/s 154. The Tribunal held that the exclusion of transport charges and subsidy from the deduction u/s 80IC was a debatable issue and not subject to rectification u/s 154. The decision was based on legal principles and judicial pronouncements, including the Supreme Court's stance on similar matters.

Judgment:
The Tribunal upheld CIT(A)'s decision, emphasizing the debatable nature of the issue and the inapplicability of rectification u/s 154. The appeal by the revenue was dismissed, and the order pronounced on 01.06.2016 stood.