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Income Tax Appellate Tribunal, DELHI BENCH ‘B’ : NEW DELHI
Before: SHRI R.S. SYAL & SHRI KULDIP SINGH
(PAN : AAACF0108K) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Suresh Anantharaman, CA REVENUE BY : Shri Anil Kumar Sharma, Senior DR Date of Hearing : 15.11.2016 Date of Order : 21.11.2016 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : Since common questions of facts and law have been raised in both the aforesaid appeals, the same are being disposed off by way of consolidated order to avoid repetition of discussion.
2. The Appellant, M/s. Flex Foods Limited (hereinafter referred to as ‘the assessee’), by filing both the aforesaid appeals sought to set aside the impugned orders both dated 22.11.2013 qua the assessment years 2009-10 and 2010-11 passed by the Commissioner of Income-tax (Appeals)-III, New Delhi on the grounds inter alia that:-
GROUNDS OF APPEAL
(AY 2009-10)
1. That on the facts and in the circumstances of the case, the lower authorities erred in law not allowing deduction U/s 80-IC on incentive granted under Vishesh Krishi and Gram Udyog Yojana (VKGUY) of Rs.1,17,83,416/- allowed to compensate high transport cost incurred by the company.
2. It is contended that incentives granted under Vishesh Krishi and Gram Udyog Yojana (VKGUY) have a direct, intrinsic and first degree nexus with the business operations of the appellant.
3. It is contended that incentive were given to offset the high freight costs incurred by the appellant and thus the net effect thereof on the profits is nil.
4. The lower authorities erred in holding that the profits generated out of such incentive are not operational profits.
5. The lower authorities erred in holding that source of subsidy I profits are not the business but the schemes central government.
6. Without prejudice to above, it is stated that the lower authorities erred in holding that incentive given under Vishesh Krishi and Gram Udyog Yojana (VKGUY) with an objective to generate employment and promote economic growth is not a capital receipt.
7. The lower authorities erred in holding that the said incentive being capital in nature is not to be deducted while arriving Book profits under section 115JB.
8. The appellant craves to add, reduce, withdraw, modify and alter the grounds of the appeal.”
GROUNDS OF APPEAL
(AY 2010-11)
1. That on the facts and in the circumstances of the case, the lower authorities erred in law not allowing deduction U/s 80-IC on incentive granted under Vishesh Krishi and Gram Udyog Yojana (VKGUY) of Rs.1,35,55,206/- allowed to compensate high transport cost incurred by the company.
2. It is contended that incentives granted under Vishesh Krishi and Gram Udyog Yojana (VKGUY) have a direct, intrinsic and first degree nexus with the business operations of the appellant.
3. It is contended that incentive were given to offset the high freight costs incurred by the appellant and thus the net effect thereof on the profits is nil.
4. The lower authorities erred in holding that the profits generated out of such incentive are not operational profits.
5. The lower authorities erred in holding that source of subsidy / profits are not the business but the schemes central government.
6. Without prejudice to above, it is stated that the lower authorities erred in holding that incentive given under Vishesh Krishi and Gram Udyog Yojana (VKGUY) with an objective to generate employment and promote economic growth is not a capital receipt.
7. The lower authorities erred in holding that the said incentive being capital in nature is not to be deducted while arriving Book profits under section 115JB.
8. The appellant craves to add, reduce, withdraw, modify and alter the grounds of the appeal.”
Briefly stated the facts necessary for adjudication of the issues involved in both the aforesaid appeals are : the case of the assessee was subjected to scrutiny for Assessment Years 2009-10 and 2010-11, which was contested by assessee through its representative, Shri Vipin Agrawal, CA and Shri Raja Banerjee, AR.
Assessee company provided information that it is a 100% Export Oriented Unit (EOU) engaged in growing and processing of Mushrooms, Culinary Herbs and other fruits and vegetables, declared total turnover of Rs.43.11 crores & Rs.35,89,06,421 for AYs 2009-10 & 2010-11 respectively. From the total gross income declared at Rs.8.80 crores & Rs.5,78,99,271/- for AYs 2009-10 & 2010-11 respectively, assessee company claimed deduction of Rs.7.29 crores & Rs.1,15,95,788/- qua AYs 2009-10 & 2010-11 respectively. AO observed that an amount of Rs.1,17,83,416/- & Rs.1,35,55,206/- for AYs 2009-10 & 2010-11 respectively had been credited as export incentive qua AYs 2009-10 & 2010-11 respectively and he was called upon to explain as to why the same be not excluded from the eligible profit u/s 80IB of the Act.
Assessee filed comprehensive reply. Being not satisfied, the AO proceeded to conclude that the amount of import incentive cannot be treated as income derived from the industrial undertaking so as to make the assessee eligible for deduction u/s 80IC of the Act because there must be a direct nexus between the profit and gains and the industrial undertaking and thereby made an addition of Rs.1,17,83,416/- & Rs.1,35,55,206/- qua AYs 2009-10 & 2010-11 respectively.
Assessee carried the matter before the ld. CIT (A) by way of filing an appeal who has dismissed the appeals. Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
GROUNDS NO.1 TO 5 OF GROUNDS NO.1 TO 5 OF
AO/CIT (A) disallowed the deduction u/s 80IC of the Act by holding that the incentive is not part of the profit and gains derived from the business of industrial undertaking so as to make the assessee eligible to deduction u/s 80IC.
Undisputedly, assessee company is a 100% EOU engaged in creating and processing of Mushrooms, culinary herbs and other fruits and vegetables.
The ld. AR for the assessee contended that assessee company being an EOU has been granted incentive under the scheme entitled Vishesh Krishi and Gram Udyog Yojana to promote the export of agricultural produce and their value added products and though it is stated as export incentive in Profit & Loss account but it is exactly not the export incentive rather the sum received under Visesh Kristi and Gram Udyog Yojana (VKGUY); and that to compensate the high transport cost of the agricultural produce which was lighter in weight but need more space in cargo and as such, the transport cost became very high, the VKGUY was formulated because as against the total incentive of Rs.1,35,55,206/- received the total freight outward is Rs.2,57,97,349/- that is about 10.76% of the total value of the export for AY 2010-11.
From the grounds of appeal, arguments addressed and case laws relied upon by the parties to the present appeal, the sole question arises for determination in this case is :-
“as to whether transport subsidy is to be treated as income derived from an industrial undertaking so as to make the assessee company eligible for deduction u/s 80IC?”
However, it is contended by the ld. AR for the assessee that in the preceding years, transport subsidy is being treated as income derived from industrial undertaking and assessee has been allowed deduction u/s 80IC. This view has not been controverted by the revenue. Keeping in view the undisputed fact that this is the 5th year of claim made by the assessee u/s 80IC and the assessee has been continuously allowed deduction u/s 80IC qua transport subsidy and AO/CIT(A) have not brought on record any reason for departing from the previous years as on the same set of facts pertaining to the year under assessment, the issue is required to be restored to the AO to decide afresh in the light of the orders passed in the preceding years. So, the grounds no.1 to 5 in both the assessment years i.e. 2009-10 & 2010-11 are determined in favour of the assessee for statistical purposes.
GROUNDS NO.6 & 7 OF GROUNDS NO.6 & 7 OF
Both the aforesaid grounds have been raised by the assessee company without prejudice to grounds no.1 to 5 by contending that the incentive being a subsidiary and capital in nature is not includible in determining the total income u/s 115JB. Again for the sake of repetition, we restore the matter to the AO to determine afresh in the light of what has been decided in the preceding years in assessee’s own case and in the light of the findings returned on grounds no.1 to 5. So, grounds no.6 & 7 raised in both the assessment years i.e. 2009-10 & 2010-11 are determined in favour of the assessee for statistical purposes.
In view of our findings on the aforesaid grounds, impugned orders are set aside and are ordered to be restored to the AO to decide afresh in the light of the decision taken in the preceding years by affording an opportunity of being heard to the assessee.