2015 (5) TMI 674 - AT - Income Tax

Tribunal decision: Transport and interest subsidies eligible for deduction under section 80-IC

ASSISTANT COMMISSIONER OF INCOME-TAX Versus MANAS SALT IODISATION INDUSTRIES P. LTD.

The Tribunal allowed the appeal, holding the Commissioner of Income-tax's order under section 263 invalid. The Tribunal dismissed the cross-appeal, ... Exemption claimed u/s 80-IC denied - REVISION U/S 263 - manufacturing of crushed iodised salt carried on by the appellant as an activity not within the purview of section 80-IC(2)(b) as held by CIT(A) - Held that:- Commissioner of Income-tax in his revisional jurisdiction should only set aside the order and direct the Assessing Officer for making fresh assessment instead of himself passing final orders. In the case under consideration the Commissioner of Income-tax has decided the two issues instead of remitting them back to the file of the Assessing Officer by holding that the assessee was not engaged in the manufacturing/production and that second unit was established by the splitting up of its existing business. He had left no option for the Assessing Officer to decide the issue on the merits. The provisions of section 263 of the Act were incorporated in the Act to revise the orders that were found to be erroneous and prejudicial to the interests of the Revenue. The Commissioner of Income-tax as senior officer had to indicate the omissions/commissions of the Assessing Officer while passing the revisionary orders. But, in the case before us, the Commissioner of Income-tax had taken over the role of the Assessing Officer. In our opinion, direction of the Commissioner of Income-tax was not justified. Besides, by directing the Assessing Officer not to give opportunity of hearing he has violated the basic principles of natural justice. Thus, on both counts the order of the Commissioner of Income-tax cannot be endorsed. Therefore, we hold that the order of the Commissioner of Income-tax passed under section 263 of the Act is invalid Transport subsidy and interest subsidy - non eligible for deduction under section 80-IC - Held that:- In the appellate proceedings the first appellate authority referred to the decision of of Asst. CIT v. Maithan Smelters Ltd. [2008 (1) TMI 424 - ITAT CALCUTTA-A] 307 ITR (AT) 225 (Kolkata) and held that transport and other subsidies granted by the Government to the assessee for promoting economic growth in the North East Region has direct nexus of the normal activities and hence were rightly included in the profit and loss account of the assessee and were entitled for deduction under section 80-IB of the Act. Finally, he held that subsidies were received by the assessee were exempt as per the provisions of section 80-IC of the Act. The issue is squarely covered in favour of the assessee by the decision of the hon'ble jurisdictional High Court delivered in the case of CIT v. Meghalaya Steels Ltd. [2013 (7) TMI 175 - GAUHATI HIGH COURT) - decided in favour of assessee. Issues Involved:1. Validity of the revision order passed by the Commissioner of Income-tax (CIT) under section 263 of the Income-tax Act, 1961.2. Eligibility of the assessee's activity of manufacturing iodized salt for deduction under section 80-IC.3. Allegation of splitting up of existing business for claiming deduction under section 80-IC.4. Eligibility of transport and interest subsidies for deduction under section 80-IC.Detailed Analysis:1. Validity of the Revision Order under Section 263:The assessee challenged the revision order dated March 23, 2010, passed by the CIT, Dibrugarh, under section 263 of the Income-tax Act, 1961. The assessee contended that the order was 'bad in law as well as on facts' and should be nullified. The CIT had observed that the Assessing Officer (AO) had not examined the conditions laid down under sections 80-IB/80-IC of the Act to determine the eligibility for deduction. The CIT held that the AO had only dealt with subsidies and had accepted the assessee's fulfillment of conditions without proper examination. The Tribunal found that the CIT had overstepped his jurisdiction by deciding the issues himself rather than remitting them back to the AO for fresh assessment. The Tribunal cited the case of Bongaigaon Refinery and Petrochemicals Ltd. v. Union of India and Bharat Petroleum Corporation Ltd. v. Joint CIT to support this view. The Tribunal concluded that the CIT's order violated the basic principles of natural justice by directing the AO not to give further opportunity to the assessee. Therefore, the Tribunal held that the CIT's order under section 263 was invalid.2. Eligibility of Manufacturing Iodized Salt for Deduction under Section 80-IC:The CIT had held that the assessee's activity of spraying iodine on common salt did not amount to manufacture or production of a new article or thing. The CIT argued that the process did not result in a new distinct object with a different name, character, and use. The Tribunal, however, found that the CIT had pre-decided the issue about the eligibility under section 80-IB/80-IC without giving the AO a chance to examine the matter afresh. The Tribunal held that the CIT should have set aside the order and directed the AO to consider the issues afresh after giving the assessee an opportunity to present its case.3. Allegation of Splitting Up of Existing Business:The CIT had also held that the assessee had set up a new unit by splitting up its existing business, thereby denying the exemption claimed under section 80-IC. The CIT observed that there was substantial diversion of funds and manpower from Unit I to Unit II, indicating a case of splitting of business. The Tribunal found that the CIT had taken over the role of the AO by deciding this issue himself. The Tribunal reiterated that the CIT should have remitted the matter back to the AO for fresh examination rather than making a final decision.4. Eligibility of Transport and Interest Subsidies for Deduction under Section 80-IC:The AO had initially held that transport and interest subsidies were not eligible for deduction under section 80-IC. However, the first appellate authority (FAA) referred to the decision of the Income-tax Appellate Tribunal, Kolkata Bench, in the case of Asst. CIT v. Maithan Smelters Ltd. and held that such subsidies were eligible for deduction. The Tribunal found that the issue was covered in favor of the assessee by the decision of the Hon'ble Gauhati High Court in the case of CIT v. Meghalaya Steels Ltd. The High Court had held that subsidies which reduce the cost of production are directly linked to the business activity and are eligible for deduction under section 80-IC. The Tribunal, therefore, decided the issue against the AO and in favor of the assessee.Conclusion:The Tribunal allowed the appeal filed by the assessee, holding that the CIT's order under section 263 was invalid. The Tribunal also dismissed the cross-appeal filed by the AO, affirming that transport and interest subsidies were eligible for deduction under section 80-IC. The order was pronounced in the open court on January 20, 2015.