INCOME TAX OFFICER WARD-4(2), GUWAHATI vs. M/S. KISHLAY FOOD (P) LTD, GUWAHATI

IN THE INCOME TAX APPELLATE TRIBUNAL GAUHATI BENCH “E” COURT AT KOLKATA Before Shri S.S.Godara, Judicial Member and Dr. A.L.Saini, Accountant Member ITA No.232/Gau/2018 Assessment Year :2011-12

Income Tax Officer V/s. M/s Kishlay Foods Pvt. Ward-4(2), Guwahati, Ltd, Dewan Patty, Fancy 5thFloor, Aayakar Bazar, Guwahati-781001 Bhawan, G.S. Road, [PAN No.AABCK 8337 J] Guwahati-781005 .. अपीलाथ� /Appellant ��यथ�/Respondent

Shri M.C Omi Ningshen, JCIT SR-DR अपीलाथ� क� ओर से/By Appellant None ��यथ� क� ओर से/By Respondent 09-12-2019 सुनवाई क� तार�ख/Date of Hearing 13-12-2019 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER BEMCH:- This Revenue’s appeal for assessment year 2010-11 arises against the Commissioner of Income Tax (Appeals)-2 Guwahati’s order dated 29.06.2018 passed in case No.Guwa-708/2015-16/34 involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short ‘the Act’. Case called twice. None appears at the assessee’s behest. Heard learned departmental representative.

ITA No.232/Gau/2018 Assessment Year: 2010-11 ITO Wd-4(2), Guwa Vs. M/s Kishlay Foods Pvt. Ltd. Page 2 “8. Points for determination, the reasons for determination and the decision on the points for determination under Section 250(6) of the Income Tax Act, 1961: i) Ground No. 1 This ground of appeal being general in nature, require no adjudication. X X X iii) Ground Nos.3 and 4 The above grounds of appeal are directed against denying the allowability of Excise refund, VAT remission, subsidies and disallowance u/s.14A as deduction u/s.80-1B/1C. During the course of appellate proceedings, the appellant had submitted as under: - "The Third Ground of appeal is towards addition of Rs.2,92,20,684/- received towards VAT remission and interest subsidy as not eligible for deduction u/s.80-IC as these are not derived from the business of the assessee. The AO treated these items of disallowances as income from other sources. In this regard, it is submitted that the issue relating to subsidy has reached it finality as Hon'ble Supreme Court in the case of CIT vs. Meghalaya Steels Ltd. has decided that subsidies are part of business income eligible for deduction u/s 80-IB/IC. Further regarding VAT remission, Gauhati Bench of ITAT has decided the issue against the departmental in the case of Meghalaya Mineral Products vs ACIT [167 TTJ 143] ACIT- C-3, Guwahati vs Plast India Enterprises (P) Ltd [ITA No.50/Gau/2009, A Y 2006-07] and subsequently numerous cases based on the ratio of these decided cases. The department has not filed any appeal before the High court against these ITAT orders. As such the order is binding on the department. Moreover, on identical issue relief has been granted to your appellant in earlier years by your goodself. The entire addition has been made on wrong assumptions and should be considered as part of our business income eligible for deduction u/s.80-IC and addition made to tax this item should be deleted. Decision I have gone through the submission of the appellant as also the relevant observations of the Ld AO. In view of the decision of the Hon'ble Supreme Court in the case of CIT vs. Meghalaya Steels Ltd. [192 (2016) 6 SCC 747], the aggregate addition of RS.2,92,20,684/- on account of VAT remission and interest subsidy, made by the AO on this account, are hereby deleted. Since, the above amounts have been found to be exigible for deduction under section 80IC of the Act, consequential ground qua permitting the deduction under section 80IC in respect of disallowance of these incomes, though being duly covered by CBDT vide Circular No. 37/2016 dated 02-11-2016 requires no further adjudication. The above grounds of appeal are accordingly allowed. iv) Ground No.5

ITA No.232/Gau/2018 Assessment Year: 2010-11 ITO Wd-4(2), Guwa Vs. M/s Kishlay Foods Pvt. Ltd. Page 3

The above ground is directed towards not allowing deduction under section 80IC of the Act, wrt disallowance made under section 43B of the Act. During the course of appellate proceedings, the appellant had contended that the disallowances made under the head profits and gains from business and profession duly qualify for deduction under section 80lC of the Act and the same cannot be treated as income from other source. The appellant accordingly submitted that the disallowance under section 43B is exigible for deduction under section 80IC of the Act. Decision I have gone through the submission of the appellant as also the relevant observations of the Ld AO. The Ld AO has made a disallowance under section 43B of Rs. 15,34,644/-. The matter has been considered. Section 80lC of the Income Tax Act, 1961 provides for a deduction of such profits and gains as are derived by eligible business. Section 29 of the Income Tax Act, 1961 stipulates that income from profits and gains of business referred to in Section 28 shall be computed in accordance with the provisions contained in Sections 30 to 43D. A plain reading of the Section shows that the disallowances made under Section 43B in the computation of income from business, therefore form part of the profits and gains of business. This has been affirmed by the aforementioned decision of the Hon'ble ITAT, Bench A, Hyderabad in the case of M/s Promantra Synergy Solutions Ltd. [in ITA No. 140/HYD/2013]. Similarly, income emanating out of late deposit of employees' contribution to provident fund forms a part of the profits and gains of business. In view of the above, any additions made on account of the above will result in enhanced profits of the Appellant and as such these will be eligible for deduction under Section 80lC of the Act. This issue was examined and CBDT vide Circular No. 37/2016 dated 02-11- 2016 has clarified that where disallowance has been made u/s. 32, 40(a)(ia), 40A(3), 43B etc., of the Act and other specific disallowance relating to business activity deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance. The relevant extract of the circular is as under: "Chapter VI-A of the Income-tax Act, 1961 ("the Act"), provides for deductions in respect of certain incomes. In computing the profits and gains of a business activity, the Assessing Officer may make certain disallowances, such as disallowance pertaining to sections 32, 40(a)(ia), 40A(3), 43B etc., of the Act. At times disallowance out of specific expenditure claimed may also be made. The effect of such disallowances is an increase in the profits. Doubts have been raised as to whether such higher profits would also result in claim for a higher profit-linked deduction under Chapter VI-A 2. The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been claimed, the

ITA No.232/Gau/2018 Assessment Year: 2010-11 ITO Wd-4(2), Guwa Vs. M/s Kishlay Foods Pvt. Ltd. Page 4 deduction needs to be allowed on the enhanced profits. Some illustrative cases upholding this view are as follows: (i) If an expenditure incurred by assessee for the purpose of developing a housing project was not allowable on account of non-deduction of TDS under law, such disallowance would ultimately increase assessee's profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40(a)(ia) of the Act would qualify for deduction under section 80-IB of the Act. This view was taken by the courts in the following cases: • income-tax Officer - Ward 5(1) vs. Keval Construction, Tax Appeal No. 443 of 2012, December 10, 2012, Gujarat High Court. • Commissioner of Income-tax-IV, Nagpur vs. Sunil Vishwambharnath Tiwari, IT Appeal No. 2 of 2011, September ITA No. 463/PUN/2014, A. Y. 2010-11 11,2015, Bombay High Court. (ii) If deduction under section 40A(3) of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-IB of the Act. This view was taken by the court in the following case: • Principal CIT, Kanpur vs. Surya Merchants Ltd., I.T. Appeal No. 248 of 2015, May 03, 2016, Allahabad High Court. The above views have attained finality as these judgments of the High Courts of Bombay, Gujarat and Allahabad have been accepted by the Department. 3. In View of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance." 4. Accordingly, henceforth, appeals may not be filed on this ground by officers of the Department and appeals already filed in Courts/Tribunals may be withdrawn/not pressed upon. The above may be brought to the notice of all concerned. “ It is imperative to mention here that the ratio of the above CBDT circular had been examined by Hon'ble ITAT Pune Bench in the case of DCIT vs Ram Infrastructure Ltd. [ITA No. 463/PUN/2014, dated 11/01/2017] also. In view of the above discussion, this ground of appeal is allowed. “ 9. In the result, the appeal is allowed. In the result the appeal is decided as above.”

ITA No.232/Gau/2018 Assessment Year: 2010-11 ITO Wd-4(2), Guwa Vs. M/s Kishlay Foods Pvt. Ltd. Page 5 3. The Revenue’s only case during the course of hearing is that since the impugned VAT remission cannot be held to have been “derived” from the eligible undertaking, the Assessing Officer had rightly disallowed the same for the purpose computing assessee’s deduction claim u/s 80IC of the Act. We find no merit in Revenue’s foregoing arguments. Hon'ble apex court’s decision in CIT vs. Meghalaya Steels Ltd. (2016) 192 6 SCC 747 (SC) has made it clear that any head of expenditure in the revenue account which forms part of running deserves to be treated as eligible for the impugned deduction The impugned VAT admittedly pertains to assessee’s core business only. We further find that the CIT(A) has not only considered the same precedent but also he has gone by the CBDT Circular No.37 of 2016 dated 02.11.2016 binding on the revenue authorities. We therefore see no reason to interfere with the CIT(A)’s detailed discussion holding the assessee’s VAT remission amount eligible for the purpose u/s 80IC deduction. The Revenue fails in its sole substantive grievance. 4. This Revenue’s appeal is dismissed. Order pronounced in the open court 13/12/2019 Sd/- Sd/- (A.L.Saini) (S.S.Godara) (Accountant Member) Judicial Member) Kolkata, *Dkp �दनांकः- 13/12/2019 कोलकाता/। आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-ITO ward-4(2), 5th Fl, Aayakar Bhawan, G.S. Road, Guwahati-05 2. ��यथ� /Respondent-M/s Kishlay Foods Pvt.Ltd.,Dewan Patty, Fancy Bazar,Guwahati-001 3. संबं*धत आयकर आयु-त / Concerned CIT Guahati 4. आयकर आयु-त- अपील / CIT (A) Guahati 5. 0वभागीय �3त3न*ध, आयकर अपील�य अ*धकरण, / DR, ITAT, Guahati 6. गाड7 फाइल / Guard file. By order/आदेश से, /True Copy/ Sr. Private Secretary, Head of Office/DDO आयकर अपील�य अ*धकरण, गूवाहाठ� ।