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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
This appeal filed by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-16, Mumbai [in short CIT(A)], in appeal No. CIT(A)-16/ITO-8(1)(2)/IT-14/2014-15, dated 28.10.2015. The Assessment was framed by the Income Tax Officer, ward- 8(1)(2), Mumbai (in short ‘ITO/ AO’) for the A.Y. 2011-12 vide order dated 11.03.2014 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2. The only issue in this appeal of Revenue is against the order of CIT(A) directing the AO to allow deduction of interest subsidy under section 80IC of the Act. For this Revenue has raised the following three grounds: - “1. On the facts and in the circumstances of the case and in, law, the Ld. CIT(A) erred in directing the AO to include interest subsidy for computing deduction u/s 80IC without appreciating that the source of subsidy is the scheme of Government and not the eligible undertaking for being considered for the purposes of deduction. u/s. 80IC."
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to include interest -subsidy for computing deduction u/s. 80IC without appreciating that interest subsidy being a receipt from Government under a Scheme cannot be said to be income, the source of which is the industrial undertaking."
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to include interest subsidy for computing deduction u/s. 80IC without considering decisions of (1) The Hon'ble Himachal Pradesh High Court in the case of Supriya Gill Vs. CIT, 293 Taxman 12(HP); and (ii) The Hon'ble ITAT, F-Bench, Mumbai, in the case of Unmesh M. Joshi (ITA No. 4287/Mum/2010 dated 23.12.11), on the subject.”
Briefly stated facts are that the assessee company is engaged in the business of manufacturing of cotton yarns and having its manufacturing unit at plot No. 9, section 9 SIDUL, Pantnagar, Rudrapur 263153, Uttarakhand. The AO noticed during the course of assessment proceedings that as per schedule 22 of the profit and loss account the assessee has received a subsidy from TUFS on interest paid of ₹ 2,13,26,706/- and claimed the same as deduction under section 80IC of the Act. According to AO, this interest need to be included in the profit and loss accounts of the undertaking or enterprises and hence, in term of section 80IC(1) of the Act this interest subsidy on TUFS is to be excluded while allowing deduction. Aggrieved, assessee preferred the appeal before CIT(A), who after following the decision of Hon’ble Guwahati High Court in the case of CIT vs. Meghalaya Steels Ltd. [2013] 356 ITR 235 (Gauhati), allowed the claim of the assessee by observing in Para 4.2.3 as under: - “4.2.3. This issue is exactly same, as was in immediately preceding year and in assessee's own case for A.Y. 2010-11 which was adjudicated in favour of the assessee by my Ld. predecessor vide order dated 30.12.2013. The relevant pant of the same is reproduced here under:-
As regards Ground no. 5 viz, interest subsidy, the appellant has relied upon Meghalaya Steels Ltd and Pride Coke P Ltd (supra) in which case the Gauhati HC has held that interest subsidy has direct nexus With the profits of the industrial undertaking and is to be taken into account in computing deduction u/s. 80IC.
4.2.4 Since, the facts of the case in present AY i.3. 2011-12 are pari Matria with AY 2010-11, which was decided by my Ld. Predecessor. As submitted in preceding year also, said interest subsidy under the scheme of Ministry of Textiles amounting to ₹ 2,13,26,706/- was received as refund/ reimbursement of the actual interest after payment of the assessee to the banks. The said refund/ reimbursement was accordingly shown as reduction from the interest expenses in accordance with the accounting standard 12 issued by the Chartered Accountants of India. It is apatly clear that that the said amount was not in the nature of any income to the assessee company and the same was merely reimbursement/ refund out of the actual interest paid by the assessee to the banks which was according to the scheme of the Ministry of Textiles. In view of all the facts narrated above, merit of the case and decision of my predecessor in earlier AY appeal of the assessee is allowed and disallowance of amount of Rs. 2,13,26,706/- made by the AO is disallowed.”
Aggrieved, now Revenue is in appeal before Tribunal.
After hearing both the sides and going through the facts and circumstances of the case, we find that this issue is squarely covered by the decision of Hon’ble Supreme Court in the case of CIT vs. Meghalaya Steels Ltd [2016] 383 ITR 217 (SC), which was also considered by Tribunal in assessee’s own case for AY 2010-11 in vide order dated 16.03.2017, wherein exactly identical issue was considered and decided in favour of assessee vide para 6 to 9 as under: - “6. However, AO did not accept the submissions of the assessee and denied the benefit of deduction u/s-80-IC. In appeal before Ld. CIT(A), detailed submissions were made by assessee which have been accepted by Ld. CIT(A) in his order. Relevant part of these submissions is reproduced here under for ready reference:
Regarding Ground No.5. which is against the disallowance made by the AO in respect of interest reimbursement amounting to 1,34,45,475/- received back by the Assessee from banks under the scheme of the 'Ministry of Textile, it was submitted that the said amount is not in the nature of income and is merely re-imbursement out of the actual interest first paid by the Assessee to the Banks As per the scheme of the Ministry of Textile, the Assessee is entitled to receive back 5% of the interest actually paid by the Assessee to the Banks That the said reimbursement of interest would only reduce the interest cost of the Assessee already incurred by it and the same cannot be termed as any. income earned by the assessee. That the Ministry has made such mechanism to claim interest reimbursement, whereby the Assessee is first required to pay the amount of interest to the Bank and thereafter receives back 5% reimbursement of such interest paid by it to the Bank. Thus the said receipt of interest reimbursement has direct, live link and first degree nexus with the expenses of Industrial Undertaking and has effect of reducing the operational cost of the Undertaking. The Assessee has, merely for the control purpose, shown the said interest reimbursement separately in credit side of the Profit & Loss Account. I had the Assessee adopted the alternative method of accounting, whereby the reimbursement of expenses are credited to/reduced from the particular expenses head, there would have been no' surplus/credit balance under any accounting head. It was further, submitted that the said method of accounting is recognized metld4 as per the Accounting Standard 12 issued' by the Institute of Chartered Accountants wherein It is categorically, provided that any grant or subsidy received against any expenses can be reduced from the said expenses and accordingly the said expenses may be, shown as net of such grants. The documents showing that the amount was towards the part reimbursement of interest already paid by the Assessee, with calculation of such claims were filed. It is a well settled law that government grants/ subsidy are reimbursement of actual cost 'and expenses incurred by the Assessee and the same do not tantamount to any income earned by the Assessee. As a matter of fact, the receipts of such subsidies are deduction in operational cost of the Assessee and thereby have dirt and first degree nexus with the profits. derived by the undertaking. Reliance was placed in the case of. CIT Vs.
Meghalaya Steels Ltd.
Pride Coke Pvt. Ltd. [2013] 356 ITR 235 [Gauhati] That the case law cited, and relied upon by the AO being CIT vs Gheria Oil.Grarnudyog Workers Welfare Association 330 ITR 117 (2011) has also been referred to and considered while settling the above ratio in the said judgment reported in [2013] .356 ITR 235 supra. Further, the said case law has been given on the basis of interpretation on. the said issue by the Hon'ble Supreme 'Court in the case of Sahney Steel and Press Works Ltd v CIT [1997] 228 ITR 253 (SC); CIT v Rajararn Maize Products [2011] 251 ITR 427 (SC) and CIT v Eastern Electro Chemical Industries [1999]. Thus that the judgment cited in 356 ITR 235 relied, upon by the Assessee as supra has considered all earlier judgments and given the finality on the issue involved. It was, therefore, submitted that the amount of "interest.- reimbursement" amounting to Rs.1,34,45,475/- should not be excluded while amounting deduction u/s 80-IC and the same. be. allowed to the Assessee in full.
Ld. CIT(A) considered the submissions of the assessee and found that this issue was covered in favour of the assessee in view of the judgments of Hon'ble Gauhati High Court in the case of CIT Vs. Meghalaya Steels Vs. and Pride Coke Pvt. Ltd. 356 ITR 235 (Gauhati), and thus he allowed the claim of the assessee.
During the course of hearing before us, it has been brought to our notice that judgment in the case of Meghalaya Steels Ltd. has been affirmed by Hon'ble Supreme Court reported at 383 ITR 217.
We have gone through the judgment of the Hon'ble Supreme Court. It has been held by the Hon'ble Supreme Court that if, cash assistance received or receivable against export schemes are included as being income under the head ‘Profit & Gains of business or profession’, it is obvious that subsidies which go to reimbursement of cost in the production of goods of a particular business would also have to be included under the head ‘profit & gains of business or profession’, and not under the head of income from other sources. The facts of the case before us are that the impugned amount was received back by the assessee from banks under the scheme of Ministry of Textile in respect of reimbursement out of the actual interest first paid to the assessee to the banks. These facts have not been disputed by the Ld. DR before us. Under these circumstances, we find that judgment of Hon'ble Supreme Court in the case of Meghalaya Steels Ltd. (supra) squarely covers the issues involved. Thus, in view of the aforesaid judgment we find no need for making interference in the order passed by Ld. CIT(A) wherein claim made by the assessee was allowed by Ld. CIT(A) after considering the ratio of decision of Hon'ble Gauhati High Court in the aforesaid case which has been confirmed by the Hon'ble Supreme Court, as stated above. Thus, order of CIT(A) is upheld and grounds raised
by the revenue in its appeal are dismissed.”
5. Since, the facts are exactly identical and issue is covered, we dismiss this appeal of Revenue.
6. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 04-09-2018.