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Brahmaputra Carbon Ltd. Versus C.I.T. - I, Kolkata

2016 (6) TMI 257 - ITAT KOLKATA

Revision u/s 263 - allowing deduction u/s 80IC - treatment to transport subsidy, Central Insurance subsidy, power subsidy and interest subsidy - Held that:- The Hon’ble Gauhati High Court in the case of CIT vs Meghalaya Steels Ltd. [2013 (7) TMI 175 - GAUHATI HIGH COURT] had decided the issue in favour of the assessee holding that all the mentioned subsidies have to be considered as profits and gains derived from the business of the assessee and therefore have to be considered for the purpose of .....

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oncluding the assessment, we are of the view that in the light of the decision of the Hon’ble Supreme Court, such an inquiry at this stage would be a futile exercise. The decision rendered by the Hon’ble Supreme Court has to be considered as law as it stood at all times and therefore the order of assessment in the present case passed by the AO that was sought to be revised by the CIT u/s.263 of the Act, cannot be considered as erroneous and prejudicial to the interest of the Revenue. - Decided i .....

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9 the assessee filed return of income declaring total income at Rs. Nil. The assessee was entitled to claim deduction u/s 80IC(2)(a)(iii) of the Act. Sec.80-IC (1) of the Act provides that where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a ded .....

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beginning- on the 24th day of December, 1997 and ending before the 1st day of April, 2007, in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with the scheme framed and notified by the Central Government in this regard, in any of the North-Eastern States. There is no dispute with regard to the question .....

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as manufactured in a new central unit at Industrial Estate, P.O.and Dist. New Bongaigaon, Assam. 3. In the accounting policies and notes on accounts in note no.6 the assessee has explained as follows :- Subsidies : The Company follows the system of accounting claims for various subsidies as and when the claims are actually filed and such filing is not strictly based on year to year basis. During the year, the Company has filed claim for various subsidies. The amount of transport subsidy of ͅ .....

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s however restricted to the total income of the Assessee viz., ₹ 17,47,36,922/-. The assessee s computation of income was as follows :- COMPUTATION OF TAXABLE INCOME FOR THE ASSESSMENT YEAR 2008-2009 1. TAXABLE INCOME AMOUNT (RS.) Profit as per profit and Loss Account 18,94,50,246/- Add - Depreciation as per P&L Account (Considered separately) - 1,39,30,518/- 20,33,80,764/- Less : Depreciation as per I.T. Rules (Details given in Tax Audit Report) 2,86,43,842/- Total Income - 17,47,36,9 .....

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g deduction u/s 80IC of the Act cannot be so considered for allowing deduction u/s 80IC of the Act. According to the CIT the aforesaid subsidies had to be considered as income from other sources and therefore was not eligible for deduction u/s.80-IC(2)(a)(iii) of the Act. The CIT accordingly issued a show cause notice u/s.263 of the Act dated 26.3.2013 and after considering the reply of the Assessee, concluded as follows :- 12. In this case the assessee in its accounts presented the subsidies as .....

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after examining the allowability of deduction of subsidies and incentive u/s 80IC of the I T Act'61 with reference to the relevant documents, facts and evidences and the case laws referred to in para 4 of this order. He is also directed to examine thoroughly the amount of subsidies and incentive of any nature received from central and state government. The AO should pass speaking order after providing reasonable opportunity to the assessee and verifying documents and evidences connected wit .....

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in favour of the assessee holding that all the above subsidies have to be considered as profits and gains derived from the business of the assessee and therefore have to be considered for the purpose of allowing deduction u/s 80IC of the Act. It was also brought to our notice that the Hon ble Supreme Court has confirmed the order of Hon ble Gauhati High Court in the case of CIT vs Meghalaya Steels Ltd. (2016) 67 taxmann.com 158(SC). 9. We have heard the rival submissions and perused the material .....

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In the light of what have been discussed above, there can be escape from the conclusion that transport subsidy was aimed at reducing the cost of production of the industrial undertakings covered by transport subsidy Scheme. Thus, there was a first degree nexus between the transport subsidy, on the one hand, and cost of production, on the other. When cost is reduced, it naturally helps in earning of profit and, at times, higher profits. Such profits and gains ought to have been treated, and has .....

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ing leading to earning of profits and making of gains by the industrial undertaking. 94. Put shortly, there is an existence of direct nexus between transport subsidy, on the one hand, and the manufacturing/production activities of industrial undertaking, on the other, stands well established. Unless shown otherwise, the industrial undertakings, in the present set of appeals, which have been granted transport subsidy, are entitled to claim deductions in terms of the directions of the learned Trib .....

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profits and make gains. Such a subsidy, though revenue in nature and taxable accordingly, is nonetheless covered by the provisions embodied in Section 80IB or 80IC, as the case may be. 106. Situated thus, the principle, deducible from the cases of Sahney Steel & Press Works Ltd s . case (supra), Rajaram Maize Products case (supra) and Eastern Electro Chemical Industries case (supra), is that when a subsidy, granted by Government, is operational in nature, which helps in generation of profits .....

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he region and, thus, reinforce the eventual income of the business of the undertaking. Though the case of Pancharatna Cement (P.) Ltd. (supra) is, as right pointed out by the learned ASG, arose out of a writ petition and not an appeal under the Act, the fact remains that the law, laid down therein, is relevant in determining the controversy, which is required to be dealt with in this set of appeals. The relevant observations, appearing at para 32, in Pancharatna Cement (P.) Ltd. (supra), is, the .....

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willing industrial establishments to cater to the industrial growth in the region and, therefore, the same (subsidy) are aimed necessarily at neutralizing the expenses incurred and thus reinforce the eventual income of the business undertaking. (Emphasis supplied) 110. We respectfully agree with the above observations, made in Pancharatna Cement (P)Ltd. case (supra), and the law laid down therein. 3.Interest Subsidy : 112. The facts are, therefore, not in dispute on this aspect. The dispute is : .....

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subsidy, on the other, received by the assessee-respondents and, in consequence thereof, since 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 subsidy, namely, interest subsidy, be not allowed to be deducted from the taxable income of the industrial undertaking concerned. 10. The Hon ble Gauhati High Court had distinguished the .....

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consumed in the manufacturing process and finished goods, which were actually produced and taken to the existing market for sale and, similarly, power subsidy, interest subsidy, and insurance subsidy are, as already indicated above, made available on the actual amount of the power bill, interest and insurance premium paid by the assesseerespondents concerned the inference, so drawn, gets reinforced from the fact that DEPB entitlement was freely transferable and saleable resulting in profit or l .....

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the Supreme Court, in Liberty India case (supra), that the Rules do not envisage a refund of an amount arithmetically equal to exemption duty or central excise duty actually paid by an individual importer/manufacturer. This is the striking difference between subsidies on transportation cost, power, interest and insurance, in the cases at hand, on the one hand, and Duty Drawback Scheme, on the other, inasmuch as the subsidies, so provided to the assesses concerned, are arithmetically equivalent .....

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the decision, in Liberty India (supra), was rendered, in the light of its own facts, and not for universal application. This inference gets strengthened from the following observations made in Liberty India case (supra) : The next question is - what is duty drawback? Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944 empower Government of India to provide for repayment of customs and excise duty paid by an assessee. The refund is of the average amount of duty pai .....

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relevant in respect of each of various classes of goods imported. Basically, the source of duty drawback receipt lies in Section 75 of the Customs Act and Section 37 of the Central Excise Act (Emphasis supplied) 128. In short, thus, the DEPB and Duty Drawback Scheme were not, as already indicated above, related to the business of industrial undertaking per se for its manufacturing or production. Entitlement for DEPB or Duty Drawback Scheme arose, when the undertaking decided to export after man .....

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s based on the artifice of average amount of duty paid. In the case of transport subsidy, power subsidy and insurance subsidy, the relation between subsidy received, on the one hand, and the profits earned or the gains made, by an industrial undertaking, stand, as already observed at paragraph 127, well established. 131. Liberty India case (supra), it may be noted, is, thus, an exposition of law on the schemes of DEPB and Duty Drawback Scheme, which relate to export of goods by an industrial und .....

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