Tribunal allows assessee's appeal on deduction under section 80 IA for subsidies received

The Tribunal allowed the assessee's appeals for statistical purposes and dismissed the department's appeal regarding the availability of deduction under section 80 IA on subsidies received. The Tribunal directed the assessing officer to reconsider the deduction claim in light of the Supreme Court judgment, emphasizing that subsidies reimbursed for costs incurred in the business are eligible for deduction. The nature of the subsidy was assumed to be revenue in nature, following the precedent that subsidies can be included under the head "profits and gains of business or profession."

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Issues:
1. Availability of deduction under section 80 IA on subsidy received.
2. Nature of subsidy - capital or revenue.

Issue 1: Availability of deduction under section 80 IA on subsidy received:
- The assessee claimed deduction under section 80 IA against business income, including MEDA subsidy and Sales Tax entitlement.
- Assessing officer disallowed the deduction on the grounds that the subsidy and incentive were not profits derived from the industrial undertaking.
- CIT (Appeal) upheld the disallowance based on judicial precedents.
- The assessee argued that the income from subsidy and incentive had a direct nexus to the wind mill project, making it eligible for deduction under section 80 IA.
- The Tribunal referred to a Supreme Court judgment in the case of CIT Vs. M/S Meghalaya Steel Ltd., where it was held that subsidies reimbursed for costs incurred in the business are eligible for deduction.
- The Tribunal set aside the CIT (Appeal) order and directed the assessing officer to reconsider the deduction claim in light of the Supreme Court judgment.

Issue 2: Nature of subsidy - capital or revenue:
- The nature and character of the subsidy and incentive were not disputed in this case.
- The Tribunal proceeded on the assumption that the subsidy and incentive were revenue in nature.
- The Tribunal emphasized that the immediate source of the subsidies being the government does not affect their eligibility for deduction under section 80 IA.
- The Tribunal cited the Supreme Court's ruling in CIT Vs M/S Sri Balaji Alloys, supporting the inclusion of subsidies under the head "profits and gains of business or profession."
- The Tribunal allowed the assessee's appeal for statistical purposes, directing a reevaluation by the assessing officer.

In conclusion, the Tribunal allowed the assessee's appeals for statistical purposes and dismissed the department's appeal. The orders were pronounced on 10.02.2017.

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