TMI Blog2015 (5) TMI 674X X X X Extracts X X X X X X X X Extracts X X X X ..... dicate the omissions/commissions of the Assessing Officer while passing the revisionary orders. But, in the case before us, the Commissioner of Income-tax had taken over the role of the Assessing Officer. In our opinion, direction of the Commissioner of Income-tax was not justified. Besides, by directing the Assessing Officer not to give opportunity of hearing he has violated the basic principles of natural justice. Thus, on both counts the order of the Commissioner of Income-tax cannot be endorsed. Therefore, we hold that the order of the Commissioner of Income-tax passed under section 263 of the Act is invalid Transport subsidy and interest subsidy - non eligible for deduction under section 80-IC - Held that:- In the appellate proceedings the first appellate authority referred to the decision of of Asst. CIT v. Maithan Smelters Ltd. [2008 (1) TMI 424 - ITAT CALCUTTA-A] 307 ITR (AT) 225 (Kolkata) and held that transport and other subsidies granted by the Government to the assessee for promoting economic growth in the North East Region has direct nexus of the normal activities and hence were rightly included in the profit and loss account of the assessee and were entitled for de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar under appeal, the Commissioner of Income-tax was of the view that the order passed by the Assessing Officer was erroneous and prejudicial to the interests of the Revenue. He observed that the Assessing Officer had not dealt/ examined the conditions laid down under section 80-IB/80-IC of the Act would entitle the assessee to claim deduction under the said sections, that the claim made by the assessee fell under the second proviso to section 80IB(4)/80-IC(2)(b)(iii) of the Act, that it was imperative on the part of the Assessing Officer to examine whether the assessee manufacture/produce any article or things specified therein, that he was required to see whether the conditions laid down in the sections were fulfilled to determine the eligibility for deduction, that he dealt only with subsidies, that he had accepted the fact that the assessee fulfilled the conditions laid down under section 80-IB(2)/80-IC(4) of the Act without examining its veracity, that there was no submission on the part of the assessee to justify that the said conditions were fulfilled. He further mentioned that against the assessment order, the assessee had filed appeal before the first appellate authority ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80-IB/80-IC of the Act. The other issues confronted to the assessee in the show-cause notice was that there was splitting up of existing business. The examination of records for the year under consideration, as per the Commissioner of Income-tax, revealed that the assessee had started operation on December 18, 1993 as its factory located at Mohanbari, Dibrugarh that was identified Unit I, that it had claimed its activity as eligible business for claiming deduction under section 80-IA of the Act, that the assessee had established its business for availing of deduction as provided under section 80-IA(2)(iv)(b) of the Act, that the assessee had claimed 100 per cent. deduction for the first five years and at the rate of 25 per cent. in the subsequent five years, that there was virtual close down after assessment year 2004-05, that unit II became operational from the year relevant to the assessment year 2000-01, that in assessment year 2005-06 it had claimed its profit from Unit II to be eligible for deduction under section 80-IB of the Act, that the Assessing Officer had allowed the claim by excluding profit attributable to subsidies, that the conditions of applicability sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee opportunity of representing his case before the Assessing Officer, that he had pre-decided the issue about the eligibility under section 80-IB/ 80-IC of the Act, that by holding that second unit was established as a result of restructuring/splitting he had decided the issue, that directions given by the Commissioner of Income-tax were against the scheme of section 263 of the Act. The authorised representative relied upon the cases of Bongaigaon Refinery and Petrochemicals Ltd. v. Union of India [2006] 287 ITR 120 (Gauhati), Venkatakrishna Rice Company v. CIT [1987] 163 ITR 129 (Mad). He also referred to the order of G Bench of the Income- tax Appellate Tribunal, Mumbai in the case of Bharat Petroleum Corporation Ltd. v. Joint CIT [2004] 3 SOT 44 (Mumbai). The Departmental representative (DR) supported the order of the Commissioner of Income- tax. 4. We find that in the case of Bongaigaon Refinery and Petrochemicals Ltd. [2006] 287 ITR 120 (Gauhati), the Commissioner of Income-tax had directed to recompute the deduction under sections 80HH and 80-I of the Act. The matter travelled up to the hon'ble High Court. In the Writ Petition No.1416 of 2001, the hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tunity of hearing he has violated the basic principles of natural justice. Thus, on both counts the order of the Commissioner of Income-tax cannot be endorsed. Therefore, we hold that the order of the Commissioner of Income-tax passed under section 263 of the Act is invalid. 7. The effective ground of appeal filed by the assessee is decided in its favour. 8. In the cross appeal filed by the Assessing Officer for assessment year 2005-06 has taken the following ground : 1. On the facts and in the circumstances of the case the Commissioner of Income-tax (Appeals), had erred in facts and law by considering the transport subsidy and interest subsidy as income derived from industrial undertaking within the provisions of eligibility under section 80-IC of the Income-tax Act, 1961. 9. In the cross appeal filed by the Assessing Officer the issue is about transport subsidy and interest subsidy. As stated earlier, the Assessing Officer had held that both subsidies were not eligible for deduction under section 80-IC of the Act. In the appellate proceedings the first appellate authority referred to the decision of Income-tax Appellate Tribunal, Kolkata Bench in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) lays down an immensely important aspect of a subsidy vis-a-vis liability to pay tax. What the Supreme Court clarifies is that when a subsidy is given for the purpose of setting up of an industry, such a subsidy is a capital receipt. When, however, the subsidy is given for the purpose of oper ating an industry more profitably, the subsidy would be revenue receipt and, being revenue receipt, it has to be taxed in accordance with law meaning thereby that the profits and gains derived from, or derived by, an industrial undertaking in a case, where operational cost is reduced by providing subsidy, in any form, the profits and gains earned, because of such subsidy, would be eligible for deduction under section 80-IB or section 80-IC, as the case may be. The prin ciple deducible from the cases of Sahney Steel and Press Works Ltd. v. CIT [1997] 228 ITR 253 (SC) ; CIT v. Rajaram Maize Products [2001] 251 ITR 427 (SC) and CIT v. Eastern Electro Chemical Indus tries [1999] 9 SCC 20 is that when a subsidy, granted by the Government, is operational in nature, which helps in generation of profits for any industrial undertaking, such a profit is, indeed, covered by the provisions embodied in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of production, on the other stood well established. Consequently, the profits earned and the gains made from the industrial undertakings concerned will amount to profits and gains derived from, or derived by, the industrial undertakings concerned entitling the assessee to claim deduction under section 80-IB or section 80-IC, as the case may be. (c) The scheme of the interest subsidy clearly showed that it reduced the interest payable on working capital advanced to an industrial undertaking by a scheduled bank or Central/State financial institutions. The interest subsidy aimed at reducing the interest payable on working capital by an industrial undertaking helped directly in reducing the cost of manufacturing or production activities and established thereby direct and the first degree nexus between the industrial activities of the assessee, on the one hand, and the interest subsidy, on the other, received by the assessee and, in consequence thereof, since the interest subsidy results into profits and gains derived from or derived by, an industrial undertaking, there is no reason as to why such profits and gains, earned by an industrial undertaking on the strength of such a su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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