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TMI Blog2008 (3) TMI 371X X X X Extracts X X X X X X X X Extracts X X X X ..... n business income for the purpose of allowing deduction under section 80JJA of the Income-tax Act, 1961." 2. We have heard the parties. Briefly stated that the facts of the case are that the assessee has claimed deduction under section 80JJA on the subsidy amount of Rs. 32,15,780 which was received by the assessee from the Agricultural Department. Therefore, the Assessing Officer has given a show- cause notice to the assessee that, since the receipt of subsidy is not derived from the specified business and manufacturing activity as prescribed under section 80JJA, therefore, why not the deduction claimed be disallowed. After excluding the said subsidy, the net profit of the assessee comes into negative figure. Thereafter the Assessing Officer considered the reply furnished by the assessee and gave a categorical finding based on certain judicial decisions that the said subsidy received from the Agricultural Department cannot be said as derived from the specified business as mentioned in section 80JJA of the Income-tax Act. With this discussion, he disallowed the said deduction claimed at Rs. 26,16,886. 3. The learned Commissioner of Income-tax (Appeals) vide pages 3 to 5 of his ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich are given for specific purpose to enable him to export his items at the global competitive price. However, in such case such assistance/subsidy cannot be said as derived from the business of such industrial under taking. This ratio has been laid down clearly by the hon'ble Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 wherein it has been held by the hon'ble Supreme Court that the expression ' derived from' has a much narrower meaning than the expression ' attributable to' or ' from' . With this discussion in my considered view, the Assessing Officer was fully justified in excluding the said subsidy amount from the business profit of the assessee for the purpose of computing deduction under section 80JJA of the Income-tax Act and since it was worked out to a negative figure, therefore, his action of denying the deduction claimed under section 80JJA of the Income-tax Act is hereby confirmed." 4. We have perused the facts of the case. The dispute before us prima facie is that subsidy of Rs. 32,50,780 (correct figure as stated to be Rs. 32,15,780) received by the assessee included in its profit was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturer/dealers was also brought to our notice which makes it evident that subsidy scheme has nothing to do with the selling prices. The mode of computation of subsidy was depending upon different products and it was brought to our notice that it was mandatory to print out the maximum retail price (MRP) on all packages of bio-fertilisers for sale. The determination of subsidy is w.r.t. the sales price or weight of the products sold. As mentioned in the scheme dated May 27, 2002 (supra), a part of the sales price is realised directly from the buyer and part from the State Government. The determination of subsidy does not affect from sales price. The said subsidy is not meant directly to the manufacturer/seller is not based on the sales target. The certificate of the Additional Director of Agriculture makes it evident that subsidy on behalf of the cultivators had been paid to manufacturers and they are providing subsidy to the cultivators and not to the manufacturers. As regards entry in the books of account, the mention of subsidy in the trading account does not change the facts of the case, i.e., the misinterpretation made by the Assessing Officer that the subsidy is received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot a separate subsidy given by the State Government which is evident from the fact that the State Government, has deducted Rs. 38,225 from the gross amount of Rs. 32,54,005 payable by the State Government, directly to the assessee because, such deduction was made because of the sub-standard quality of goods sold by the assessee which makes it clear that the State Government, was working for and on behalf of the ultimate buyer cultivator. The sales price was reduced, therefore, to this extent. Had it been a subsidy directly meant for the assessee manufacturer/dealer, there would not have been any deduction of such type. The State Government, keeps a control on the quality and on variation, a deduction is made. The learned authorised representative has placed on record the communication No. 5335-500 dated May 27, 2002, issued by the Director-Agriculture, Rajasthan State Government. The Assessing Officer himself admitted that subsidy was not based on the production which supports the case of the assessee. The assessee manufactured the product with a trade name and sold in the market as per prevailing prices. We are convinced with the arguments of the learned authorised representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar facts. The decision in Sterling Foods [1999] 237 ITR 579 (SC) was based on DEPB scheme, where there was a sale of licence in the open market and hence the assessee in that case, received profit thereon, whereas here there was no such licence given to the assessee saleable in open market. Moreover in this case, the profits are arising due to actual conduct of the business, as was stressed in the case of Cambay Electric [1978] 113 ITR 84 (SC). Also the significant words " profits and gains derived from any business of an industrial undertaking", are missing in the provisions, with which the hon' ble court was concerned. The above distinction has been noted in ITO v. Five Star Rugs [2006] 100 TTJ (Delhi) 222 vide paragraph 5. Incentive provision to be construed liberally : We may also mention that sections 80HH and 80-IB are incentive provisions, meant for the promotion of industrial growth as per CBDT Circular No. 421 dated June 12, 1985 ([1985] 156 ITR (St.) 130 ). It has been held that an incentive provision has to be construed liberally, kindly refer Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188 (SC). The present case, also helps achieving the avowed object of maximising the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 6,548 12. The brief facts of the case are that the Assessing Officer observed as under : " The following expenses debited to the profit and loss account were found to include expenses on account of personal use by the assessee as well as his family members also. Therefore, disallowance are made out of these expenses claimed as under : S. No. Head of expenditure Claimed in P&L account (Rs.) Rate of disallowance Amount disallowed (Rs.) 1 Car repair 44,913 20 % 8,983 2. Local conveyance 12,683 20 % 2,537 3. Petrol 22,521 20 % 4,504 4. Depreciation on car 57,645 20 % 11,529 5. Telephone expenses 47,417 20 % 9,483 6. Travelling expenses 79,043 20 % 15,809 7. Entertainment expenses 32,739 20 % 6,548 Hence, a sum of Rs. 59,393 out of the above expenses of Rs. 2,96,961 claimed in the profit and loss account is disallowed as element of per sonal use in these expenses cannot be ruled out in the absence of log book of cars and call registers of telephone. Further vouchers of car repairs, local conveyance, travelling and entertainment are not properly maintained some voucher related there expenses are self-made. I therefore add a sum of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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