ITO 9(2)(2), MUMBAI vs. BST TEXTILE MILLS P.LTD, 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.”

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.

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.

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.