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D.C.I.T., Central Circle-VI, Kolkata Versus M/s. Maithan Smelters Ltd.

2015 (9) TMI 551 - ITAT KOLKATA

Deduction u/s 80IB on account of transport and other subsidies - CIT(A) allowed the claim - Held that:- Interest subsidy, transport subsidy and power subsidy received by the assessee are eligible for deduction u/s 80IB of the Act - See Commissioner of Income-tax Versus Meghalaya Steels Ltd. and M/s Pride Coke Pvt. Ltd. [2013 (7) TMI 175 - GAUHATI HIGH COURT ] - Decided in favour of assessee.

Addition on account of closing stock valuation of raw materials - CIT(A) deleted the addition .....

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ld. DR in this regard is dismissed. It is also seen that the assessee has been consistently following the weighted average price for valuation of closing stock of raw materials and similar addition made for A.Y.2004-05 in the hands of the assessee had been deleted by this Tribunal in assessee’s own case reported in [2008 (1) TMI 424 - ITAT CALCUTTA-A] - Decided in favour of assessee. - ITA No.1327/Kol/2011 - Dated:- 26-8-2015 - Shri Mahavir Singh and Shri M.Balaganesh, JJ. For the Appellant : S .....

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are that the assessee company started its factory unit at Export Promotional Industrial Park, Byrnihat, Meghalaya for manufacture of ferro alloys and in order to avail incentive declared by Government of Meghalaya in its industrial policy formulated in 1997 effective from 15th August, 1997. The assessee had commenced its commercial production on 02.10.2001 relevant to A.Y.2002-03 and in view of the loss, no deduction u/s 80IB was claimed by the assessee for the said assessment year. However, the .....

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er Tariff : ₹ 14,00,000/- 4) Subsidy on long term loan interest : ₹ 2,40,000/- Rs.52,22,555/- The ld. AO concluded that the aforesaid subsidies were not entitled for deduction u/s 80IB of the Act as they cannot be construed as profits and gains derived from the industrial undertaking on the ground that the subsidy receipts are ancillary in nature or merely incidental to the business of the assessee and they are only supplementary in nature doled out by the Government for encouragemen .....

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e facts and in the circumstances of the case, Ld.CIT(A) erred in directing the AO to allow deduction under section 80IB on transport and other subsidy of ₹ 52,22,555/-. 2. That in doing so, Ld. CIT(A) failed to consider the categorical findings of Hon ble Apex Court in the case of Liberty India Vs CIT (2009) 317 ITR 218. 3. That on the facts and circumstances of the case, Ld. CIT(A) failed to appreciate that transport subsidy and interest subsidy were not derived from the industrial undert .....

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s, the ld. AR argued that the subsidies provided by the Government form an integral part of business receipts of the assessee and they are directly related to the cost of production and sales and administration incurred by the industrial units. He further argued that the selling price of the products are fixed after determining the cost which is reduced by the amount of subsidy expected to be received from the Government and hence subsidy received by the industrial unit have direct and immediate .....

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submissions and perused the materials available on record. We find that this issue has been elaborately dealt with by the Hon ble Gauhati High Court in the case of CIT vs Meghalaya Steels Ltd vide order dated 29.05.2013 wherein their lordships had clearly distinguished the decision of the Hon ble Apex Court in the case of Liberty India case and it is pertinent to go into the operative portion of the Hon ble Gauhati High Court s decision in respect of each category of subsidy which is in dispute .....

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ught to have been treated, and has rightly been treated, by the learned Tribunal, to be profits and gains derived from, or derived by, the industrial undertaking concerned. 89. The Revenue, it has been rightly contended by Mr. Agarwalla, learned Senior counsel, has not even attempted to distinguish the decision, in Jai Bhagwan Oil & Flour Mills case (supra), in any manner whatsoever, when this decision makes it more than abundantly clear that transport subsidy goes on to reduce the cost of p .....

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f the directions of the learned Tribunal. 2. Power Subsidy : 105. From a combined reading of the two decisions, rendered in Rajaram Maize Products (supra) and Eastern Electro Chemical Industries case (supra), what becomes transparent is that power subsidy is meant to enable a person meet a certain percentage of expenditure on power and is, therefore, revenue in nature. However, though revenue in nature, the fact remains that it helps in not only growth of the industrial undertaking, but also hel .....

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which helps in generation of profits for any industrial undertaking, such a profit is, indeed, covered by the provisions embodied in Section 80IB or 80IC, as the case may be. 109. We, now, turn to the case of Pancharatna Cement (P) Ltd. (supra), wherein Amitava Roy, J., (as his Lordship, then, was ), has, upon consideration of the subsidy involved, took the view that the amount of subsidy, given by way of assistance or grants by the Government, serves as stimulus to the willing industrial establ .....

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na Cement (P.) Ltd. (supra), is, therefore, quoted below : …..It cannot be gainsaid that having regard to the layout of investment and income designed for any commercial or business venture, reimbursement of the expenses incurred to whatever extent, would logically contribute to the profits and gains derived from the related enterprise and thus would augment the overall income. The amounts of subsidies as the facts of the case reveal are by way of Government assistance or grants under the .....

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ute on this aspect. The dispute is : Whether the interest subsidy is payable on non-operational or operational subsidy? If the object of the relevant Scheme is borne in mind, it clearly shows that interest subsidy, having aimed at reducing the interest payable on working capital by an industrial undertaking, helps directly in reducing the cost of manufacturing or production activities and establish thereby direct and first degree nexus between the industrial activities of the assessee-respondent .....

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to understand how the Hon ble Gauhati High Court had distinguished the decision of the Hon ble Apex Court in Liberty India case. The Hon ble Gauhati High Court has held as under :- 124. Logically extended, this would mean that there was no relationship or nexus between the export incentive, on the one hand, and manufacturing/production, on the other. DEPB entitlement was based on the artifice of deemed import content of export product and was not even based on actual import content of the export .....

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ts reinforced from the fact that DEPB entitlement was freely transferable and saleable resulting in profit or loss. 125. That the case of Liberty India case (supra) is not applicable to the cases at hand is also evident from the fact that the object behind DEPB was to neutralize the incidence of customs duty payment on the import duty of the export product and, hence, the DEPB scheme was not aimed at neutralizing the cost of production; rather, as observed by the Supreme Court, it was an incenti .....

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on the other, inasmuch as the subsidies, so provided to the assesses concerned, are arithmetically equivalent to the cost of raw materials actually used in the manufacturing process and the finished goods, which is actually taken to the existing market for sale within and outside the north-eastern region and, similarly, the assessees concerned have the right to receive power subsidy, arising out of power bills paid, or interest subsidy or insurance subsidy, equivalent to the amount paid on inte .....

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e for repayment of customs and excise duty paid by an assessee. The refund is of the average amount of duty paid on materials of any particular class or description of goods used in the manufacture of export goods of specified class. The Rules do not envisage a refund of an amount arithmetically equal to customs duty or central excise duty actually paid by an individual importer-cum-manufacturer. Sub-section (2) of Section 75 of the Customs Act requires the amount of drawback to be determined on .....

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roduction. Entitlement for DEPB or Duty Drawback Scheme arose, when the undertaking decided to export after manufacturing or production and this incentive was restricted only to the export of goods of a specified class. Consequently, if there was no export, there was no incentive from DEPB or Duty Drawback. This apart, DEPB or Duty Drawback Scheme did not provide refund of exemption from Central Excise Duty actually paid. 129. Thus, the relationship under the DEPB or Duty Drawback Scheme, on the .....

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on of law on the schemes of DEPB and Duty Drawback Scheme, which relate to export of goods by an industrial undertaking; whereas the Scheme of transport subsidy, interest subsidy, power subsidy and insurance subsidy, is inextricably and directly connected with the reduction of cost of production and manufacturing of an industrial undertaking entitling thereby the eligible industrial undertakings to claim deduction under Section 80IB or 80IC, as the case may be. 132. The decision, in Liberty Indi .....

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requires to be interpreted liberally and not to frustrate it and since in the present case also, the scheme of transport subsidy and other subsidies granted by the Government to the assessee is intended to promote industrial and economic growth in North-Eastern State, such receipt of subsidy by the assessee certainly form part of its normal business activity and has a direct nexus with the normal business transaction for which deduction under section 80-IB is available to the assessee. We, ther .....

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d. 8. The next issue to be decided in this appeal of the revenue is as to whether the ld. CIT(A) is correct in deleting the addition made in the sum of ₹ 84,75,159/- on account of closing stock valuation of raw materials. 9. The brief facts of the case are that the assessee is engaged in the manufacture of ferro alloys and for which purpose manganese ore is the main raw material. The assessee had purchased the same on different dates during the year and had furnished month-wise quantitativ .....

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7,437/- per MT for valuation of closing stock of raw materials thereby making an addition of ₹ 84,75,159/- in the assessment. Aggrieved, the assessee challenged this issue before the ld. CIT(A), who gave a finding that the assessee has been adopting average weighted price consistently over the years and there is no need to disturb the same and accordingly deleted the addition. Aggrieved by the ld. CIT(A) s order, the revenue is in appeal before us on the following ground :- 4. That on the .....

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n additional evidence and accordingly the CIT(A) ought to have sought for a remand report from the AO before passing the order and hence there is violation of Rule 46A of the Income Tax Rules and prayed for setting aside this issue to the file of AO for his verification. 11. On the contrary, the ld. AR vehemently opposed the arguments advanced by the ld. DR and stated that the month-wise quantitative particulars together with their values have been duly filed before the ld. AO during the assessm .....

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se quantitative details together with its values, consumption details etc. for raw materials vide reply to question no.4 in his letter dated 26.12.2007. It is also seen that the revenue had not raised any ground before us for violation of Rule 46A and hence the contention raised by the ld. DR in this regard is dismissed. It is also seen that the assessee has been consistently following the weighted average price for valuation of closing stock of raw materials and similar addition made for A.Y.20 .....

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balance, production, sales and closing stock and the Assessing Officer has not made any adverse comments on such stock statement submitted by the assessee. The ld. CIT(A) has further observed that the books of account of the assessee are audited and no defect has been pointed out by the Assessing Officer on such audited sets of accounts and the action of Assessing Officer in considering the stock of finished goods and raw materials as undervalued is based on mere presumption and without any mat .....

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