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TMI Blog2018 (11) TMI 635X X X X Extracts X X X X X X X X Extracts X X X X ..... st income issue. Accept assessee s and reject those raised at the Revenue instance on the former issue of non eligibility of interest income amounting ₹3,48,13,006/- for the purpose of computing u/s 80-IB deduction. Revision jurisdiction qua the assessee s assistance from Government of India under the Foreign Trade Policy SHIS Scheme (State Holder Incentive Scrip) - Held that:- Case records suggest that the assessee has availed Government of India s assistance / incentive for import of capital goods relating to manufacturing activity in plastic sector. It is thus an instance involving reimbursement of cost of running eligible business forming profits qualifying for sec 80-IB deduction. The assessee s paper book all the relevant details of the impugned sum of ₹1,16,89,000/- regarding purchase made out Buss Kneader Plant, Varex Coex 7 Layer Blown Film, Flexographic Press Machine, Super Combi Laminating Machine; all purchased in the relevant previous year. Corresponding specimen copies of bills of entry / utilization form part of records between pages 24 and 50 in paper book. The same are not disputed at the Revenue s behest very fairly. All this sufficiently indicates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heads not forming subject-matter of challenge before us. 3. It emerges that the P.CIT issued his section 263 show cause notice dated 29.12.2017 proposing to revise the above regular assessment after terming it as erroneous causing prejudice to interest of the Revenue as follows: The above mentioned assessment order has been examined by me along with the assessment record. I found that you have claimed deduction u/s. 80-IB on the entire amount of profit earned from the Silvasa Unit of your company. On further examination, I found that the profit and loss account of the Silvasa unit contains income from interest of ₹ 3,48,13,006/-. Export incentive of ₹ 1,16,89,00/- and other non-operational income of ₹ 15,809.-. These incomes are included in the profit eared from Silvasa unit considered for computation of deduction u/s. 80-IB. Te deduction u/s. 80-IB is provided from the income derived from the eligible business. The interest income of ₹ 3,48,13,006/- and the other non-operational income of ₹ 15,809/- are not related to the manufacturing activity carried out in Silvasa unit and hence, such income cannot be said to be derived from the eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rising of the former components of borrowings in earlier years followed by late payment of statutory dues amounting to ₹10,03,08,955.60 and ₹3,29,177.60 respectively. Its case therefore was that netting of above interest income and expenditure; if adopted as per various judicial precedents right from hon'ble apex court to this tribunal would result in interest expenditure to the tune of ₹6,54,95,949.60 leaving no scope for assessment of it is interest income. 5. There is no dispute about the P.CIT having dropped his show cause qua the non-operative income heads (supra). The assessee thereafter came to latter surviving issue of incentive income amounting to ₹1,16,89,000/- received as assistance from the Government of India under Foreign Trade Policy s (FTP) s SHIS Scheme (State Holder Incentive Scrip). It highlighted the relevant facets of the said policy as follows: On perusal of the Scheme, it shall be evident form page of the paper book that the SHIS Scheme was brought in by the Government of India as a part of its Foreign Trade Policy with the objective to promote investment in up gradation of technology of some specified sectors as listed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting to ₹ 98,51,9009/- and the other ₹ 57,89,171/-. Specimen copies of Bill of Entry, evidencing utilization of the sum of ₹ 1,16,89,000/- for import of capital goods (the machineries mentioned above) are enclosed at pages 28 to 35 and 40 to 50 of the paper book. In the light of the above the assessee would like to submit that the assistance received by it under the SHIS Scheme is not an Export Incentive, as alleged by your goodself in view of the Hon'ble Supreme Court of India s decision in the case of Liberty India (supra). Instead it is a subsidy received from the Government of India. 6. The assessee s strongly emphasis in above terms that the DCIT s show cause notice was liable to be dropped. The same stand declined in DCIT s order under challenge qua the two surviving issue (supra) as follows:- 4.1 I have considered the above written submission. The Ld. AR has opposed the revision u/s. 263 arguing mainly contending that all the three types of income mentioned by me in para 2 of this order are derived from thebu of the assessee eligible for deduction u/s. 80IB. 4.2 Regarding interest income of ₹ 3,48,13,006/-, the Ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in his written submission reproduced in para 3 of this order has shown that all the above three types of income in the nonoperational income are related to the business of manufacturing unit of the assessee, which is eligible for deduction u/s.80IB of the Act. After considering the explanation of the Ld AR about the nature of income included in the amount of ₹ 15,809/- and the judgements referred by him, I find that this income is related to manufacturing activities of the business of the assessee eligible for deduction u/s. 80IB of the Act and hence, on account of this income, no revision u/s. 263 is required to withdraw deduction u/s. 80IB. 4.4 As regard the export incentive of ₹ 1,16,89,000/-, the Ld. AR tried to explain this amount as being in the nature of subsidy used in import of capital goods relating to the manufacturing activity undertaken by it in the plastic sector and compared it with transport subsidy, interest subsidy and power subsidy received from the Government by another company, M/s Meghalaya Steels Ltd. in the case of which, Hon'ble Supreme Court income CIT vs. Meghalaya Steels Ltd. (2016) 383 ITR 217 (SC) has held that any assistance/i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f revision. Their lordships observed that every loss of revenue in consequence to the assessment in issue cannot be treated as prejudicial to interest of the revenue. For example, where an assessing authority adopts one of the course possible in law and it has resulted in loss of revenue or where two issues are possible and one of them has been taken in assessment and the Commissioner does not agree to same, it cannot be taken as an instance involving erroneous assessment prejudicial to interest of the revenue unless of course the Assessing Officer s view is unsustainable in law. The very view stood reiterated in CIT vs. Max India Ltd . (2007) 295 ITR 282 (SC), CIT v. Nahar Exports Ltd. (2007) 288 ITR 494 (P H), CIT vs Gabriel India Ltd (1993) 203 ITR 108 (Bom) Grasim Industries vs. CIT (2010) 321 ITR, 92 (Bom) and CIT vs. Honda Siel Power Products Ltd. ITA No.1376//2009 and 1382/2009 to name a few judicial precedents. We keep in mind all this settle legal preposition to revert back to the twin issues (supra) raised in the P.CIT s sec. 263 order under challenge. 8. It is not out of place for us to make it clear that the P.CIT has not made it as a case of Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 475 (Del) answer the very question in assessee s favour. Hon'ble Gujarat high court s judgment in CIT vs. Nirma Ltd. (2014) 367 ITR 12 (Guj) makes it clear that although the former foregoing judicial precedent dealt with 80HHC deduction involving complex computation formula this distinction in itself vis-a-vis section 80I of the Act will not be material the impugned deduction so far as the central question of exclusion of certain profits from the activity which is not eligible for deduction as per the two statutory provisions is concerned. Their lordships state in clear terms that as and when any profit is sought to be excluded from the impugned provision deduction, it is not gross but net only ( gross profit reduced by expenditure incurred for the same ) that would be excluded. This Tribunal s various decisions in Sagar Foods vs. ITO Wd 2(4) Bhavagar in ITA No. 750/Ahd/2014 , Al Reza Food vs. ITO Wd 2(4) Bhavnagar , ITA No.633/Ahd/2014 , M/s Lalsons Enterprises vs. DIT (2004) 89 ITD 255 [ITAT (Del)] and Pioneer Industries vs. ITO ITA No.250/Del/2015 echo the very legal principle. It thus emerges that the revenue authorities have to adopt only netting formula whils ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Blown Film, Flexographic Press Machine, Super Combi Laminating Machine; all purchased in the relevant previous year. Corresponding specimen copies of bills of entry / utilization form part of records between pages 24 and 50 in paper book. The same are not disputed at the Revenue s behest very fairly. All this sufficiently indicates that the impugned assistance availed under SHIS Scheme has been wrongly treated to be at par with an export incentive. 12. Hon'ble apex court s decision in CIT vs. Meghalaya Steels Ltd. (2016) 383 ITR (SC) has made it clear that the relevant issue in Liberty India (supra) pertained to DEPB credit / Duty Drawbacks. Their lordships have distinguished the clinching words in issue i.e. attributable to and derived from to hold that the latter expression is very much narrower in connotation to the former since intending not to cover beyond first degree nexus. Their lordships observe that transport, interest and powers subsidies go to reduce the cost of production and therefore, they amount to revenue receipts eligible for sec. 80-IB deduction since having a direct nexus with the manufacturing activity in other words. 13. We also wish t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d can be resolved if we apply the test laid down in the judgment of this court in the case of Sahney Steel and Press Works Ltd. *. In that case, on behalf of the assessee, it was contended that the subsidy given was up to 10 per cent of the capital investment calculated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales tax on raw materials, machinery and finished goods was also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this court by way of a special leave petition. It was held by this court on the facts of that case and on the basis of the analyses of the scheme therein that the subsidy given was on revenue account because it was given by way of assistance in carrying on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were made several times for some years. The Dock Co. had undertaken the work of extension of its docks. The extended dock was for relieving the unemployment. The main purpose was relief from unemployment. Therefore, the House of Lords held that the financial assistance given to the company for dock extension cannot be regarded as a trade receipt. It was found by the House of Lords that the assistance had nothing to do with the trading of the company because the work undertaken was dock extension. According to the. House of Lords, the assistance in the form of a grant was made by the Government with the object that by its use men might be kept in employment and, therefore, its receipt was capital in nature. The importance of the judgment lies in the fact that the company had applied for financial assistance to the Unemployment Grants Committee. The committee gave financial assistance from time to time as the work progressed and the payments were equivalent to half the interest for two years on approved expenditure met out of loans. Even though the payment was equivalent to half the interest amount payable on the loan (interest subsidy) still the House of Lords held that money recei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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