ITAT deletes Addition made on account of Transport Subsidy, Power Subsidy, and Interest Subsidy [Read Order]

ITAT - Transport Subsidy Power Subsidy - Interest Subsidy - taxscan

The Income Tax Appellate Tribunal (ITAT), Kolkata Bench deleted the addition made on account of Transport Subsidy, Power Subsidy and Interest Subsidy.

The assessee, Commercial Iron & Steel Company is a private limited company which is engaged in the manufacturing of M. S. Ingots and Ferro Silicon. The AO notes that it is a notified industry covered under section 80IC of the Income Tax Act, 1961 eligible for deduction for a period of ten assessment years with initial assessment year 2003-04.

During the year under consideration the AO noted that the assessee company had received transport subsidy amounting to Rs. 28,65,412 which was adjusted with charges on raw materials in the profit and loss account.

The assessee company had also received power subsidy of Rs. 7,00,000 and it has been adjusted with electricity power charges and interest subsidy (working capital) of Rs.2,42,245 and interest subsidy (term loan) of Rs. 2,20,000.

The AO noted that the assessee has claimed this income as business income. According to AO, he asked the assessee to explain as to why this subsidy income should be allowed as deduction under section 80IC of the Act. And section 80IC of the Act.

According to AO, the derivation of the income must be directly connected with the business in the sense that the income is generated by the undertaking from the business. Therefore, transport subsidy of Rs. 28,65,412, power subsidy of Rs. 7,00,000 interest subsidy (working capital) of Rs. 2,42,245 and interest subsidy (term loan) of Rs.220,000 was treated as “other income” not eligible for deduction under section 80IC of the Act and thus disallowed the claim of assessee company, which was further affirmed by the CIT(A).

The issue raised was CIT(Appeals) erred in law as well as on facts in confirming the addition made by the learned assessing officer as regard to Transport Subsidy, Power Subsidy and Interest Subsidy and thereby went wrong in disallowing the deduction under section 80IC of the Act on the aforesaid subsidies.

The coram of a Judicial Member, A.T. Varkey in the light of the decision of the Supreme Court in the case of CIT vs. Meghalaya Steel Ltd. wherein it was held that transport subsidy, interest subsidy, power subsidy and insurance subsidy are revenue receipts which are reimbursed to the assessee for elements of cost relating to manufacture and sale of its products; there is certainly a direct nexus between the profits and gains of the industrial undertaking or business and such subsidies and therefore, the amount received by the assessee as subsidies qualify for deduction under Section 80IB and 80IC.

Therefore, the ITAT held that the assessee succeeds and claim of the assessee in respect of deduction under section 80IC of the Act in respect of subsidy (transport subsidy, power subsidy and interest subsidy) should be granted and the AO is directed to do so.

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