I.T.O WD - 1(2),KOLKATA, KOLKATA vs. M/S S.K.J.COKE INDUSTRIES LTD., KOLKATA

The grounds of appeal

The AO thereafter issued notice u/s 154 of the Act, proposing to modify the deduction already allowed u/s 80IC of the Act by excluding two items of income which were included in the profits of the business on which deduction u/s 80IC of the Act was claimed by the assessee and allowed by the AO in the proceedings u/s 143(3) of the Act by order dated 31.12.2007. The following was the basis on which the AO issued notice u/s 154 of the Act. “Income from transport charges on finished goods of Rs.8,70,91,329/- would not constitute the profit derived from the business by an undertaking as mentioned in the provisions of sec. 80IC. Hence, was not eligible for deduction u/s 80IC. Transport subsidy of Rs.10,22,96,544/- as received by the assessee during the relevant asst. year also not eligible for deduction u/s 80IC following the decision in the case of CIT vs. Andaman Timber Industries Ltd. [2000] 242 ITR 204 (Cal) & CIT Vs, Meghalaya Steels Ltd. [2011] 332 ITR 91 (Gau), where it has been decided specifically that transport subsidy is not eligible for deduction u/s 80HH or 80IB.”

Aggrieved by the order of AO the assessee preferred an appeal before CIT(A). The CIT(A) after considering the submissions of the assessee cancelled the order u/s.154 of the Act. The CIT(A) held that the AO while completing the assessment had consciously allowed the claim of the Assessee for deduction u/s.80-IC of the Act. He also noticed that the Hon’ble Guwahati High Court had in the case of Meghalaya Steels 317 ITR 259(Guwahati HC) interpreted the expression "derived by" an undertaking from the business of manufacture used in section 801C(1) would also include subsidies received by an Assessee such as transport subsidy. In Assessee’s own case for AY - 2003-04 and 2004-05 the Hon'ble ITAT, Kolkata Bench vide order dated 14.07.2006 accepted the contention of the assessee regarding eligibility of transport charges and subsidy as part of business receipts and eligible for deduction under 80IC and the Hon'ble Kolkata High Court also vide order dated 02.04.2007 held that no substantial question of law was involved in the matter. The Hon'ble ITAT in its order dated 14.07.2006 relied upon the decision of Supreme court in the case of Ponny Sugars Mills (Erode) Ltd. to hold that transport charges and subsidy was includable in business profits eligible for deduction u/s.80-IC of the Act. The CIT(A) found that these aspects were discussed by the AO in para 3.3 of the order of assessment dated 31.12.2007 passed u/s.143(3) of the Act. The CIT(A) also took note of the argument of the Assessee that as per the decision of Hon'ble Supreme court in the case of M/s Mepco Industries Ltd.dtd.19.11.2009 decision on debatable point of view cannot be treated as mistake apparent from the record. Keeping in view all the above facts and circumstances, the CIT(A) held that the order of AO dated 31.03.2012 for withdrawal of deduction under 80IC on transport charges and transport subsidy cannot be considered as mistake apparent from record in terms of section 154 as issue was debatable and cannot be rectified u/s 154 of the IT 3

Aggrieved by the order of CIT(A) the revenue has preferred the present appeal before the Tribunal.

We have heard the rival submissions. The ld. DR relied on the observations of the AO in the order passed u/s 154 of the Act. The ld. Counsel for the assessee relied on the order of CIT(A). He further brought to our notice the decision of the Hon’ble Supreme Court in the case of CIT vs Meghalaya Steel Ltd.Civil No.7622 of 2014 judgment dated 09.03.2016 wherein the Hon’ble Supreme Court considered the question as to whether identical transport subsidy is eligible for deduction u/s 80IC of the Act. The Hon’ble Supreme Court held that transport subsidy had to be recorded as part of the eligible business u/s 80IC of the Act has to be allowed. In view of the aforesaid decision we are of the view that order of CIT(A) has to be upheld. As far as the transport charges on finished goods of Rs.8,70,91,329/- is concerned, we find that the assessee has been accounting for the transport charges which it had incurred for transportation of finished goods to its customer as part of the selling and distribution expenses. This is clear from the Schedule-B to the profit and loss account which contains expenditure of Rs.8,43,77,509/- which the transport expenses incurred by the Assessee. The transport charges which the assessee receives from the customers for transporting finished goods is shown as income in the profit and loss account as a sum of Rs.8,70,91,329/- . The first aspect which we notice is that if transportation charges are excluded from the business profits on which the deduction u/s 80IC of the Act is to be allowed then the corresponding expenses will also have to be excluded in which case profits of the business will get reduced to the extent of difference between the transportation charges received by the assessee namely Rs.8,70,91,329/- and the transport charges incurred by the assessee namely Rs.8,43,77,509/-. It is not possible for the AO to exclude the entire receipts on account of transport charges only from the profits eligible for deduction u/s 4 M/ss. S.K.J.Coke Industries Ltd. A.Yr.2005-06 80IC of the Act. We are of the view that the question as to whether the transport chares on finished goods could be considered as profits derived from an undertaking u/s 80IC of the Act and what is to be excluded as to whether the gross transport charges received or the net transport charges received are highly debatable issues which cannot be resolved in the proceedings u/s 154 of the Act. The CIT(A) has taken note of this principle has followed the decision of the Hon’ble Supreme Court in the case of M/s. Mepco Industries Limited vs CIT Civil No.7662 and 7663 of 2009 judgment dated 19.11.2009 wherein the principle that debatable issues cannot be the subject matter of proceedings u/s 154 of the Act has been reiterated. In the light of the judicial pronouncements referred to above we are of the view that CIT(A) was fully justified in cancelling the order u/s 154 of the Act. Order of CIT(A) is accordingly upheld and this appeal of the revenue is dismissed.

In the result the appeal of the revenue is dismissed. Order pronounced in the court on 01.06.2016. Sd/- Sd/- [M.Balaganesh] [ N.V.Vasudevan ] Accountant Member Judicial Member Dated : 01.06.2016. [RG PS] Copy of the order forwarded to: