The valued company, Commercial Iron & Steel Company is a limited liability company engaged in the manufacture of MS ingots and ferro silicon. The AO notes that this is a notified industry referred to in Article 80IC of the Income Tax Act, 1961 eligible for a deduction for a ten-year period of contribution with the original 2003-2004 contribution year.
During the reporting year, the AO noted that the assessed company received a transportation subsidy in the amount of Rs. 28,65412 which was adjusted for raw material charges in the income statement.
The appraised company had also received an electricity subsidy of Rs. 7.00,000 and it was adjusted with the electricity charges and the interest subsidy (working capital) of Rs. 2,42,245 and the subsidy of interest (term loan) of Rs. 2,20,000.
The AO noted that the appraised person reported this income as business income. According to AO, he asked the person assessed to explain why this grant the income should be allowed as a deduction under section 80IC of the Act. And article 80IC of the law.
According to AO, the calculation of income must relate directly to the business in that the income is generated by the business from the business. Hence transmission subsidy of Rs. 28,65,412, electricity 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 Article 80IC of the law and therefore rejected the claim of the assessed company, which was upheld CIT (A).
The issue raised was that CIT (Appeals) erred in law as well as in fact in confirming the addition made by the learned assessor with respect to the transmission subsidy, the electricity subsidy and the interest subsidy. and therefore erred in denying the deduction under Section 80IC of the Act on the aforementioned subsidies.
The coram of a Judicial Member, AT Varkey in light of the Supreme Court ruling in CIT v Meghalaya Steel Ltd., in which it was held that the transmission subsidy, interest subsidy, electricity subsidy and insurance subsidy are receipts that are reimbursed to the assessed person for cost elements relating to the manufacture and sale of their products; there is certainly a direct link between the profits and gains of the industrial enterprise or enterprise and these subsidies and, therefore, the amount received by the person assessed as subsidies can be deducted under Articles 80IB and 80IC.
Therefore, the ITAT ruled that the assessed person succeeds and the assessed person’s claim for the deduction under Article 80IC of the Law for the subsidy (transmission subsidy, electricity subsidy and interest subsidy) should be granted and the OA is invited to do so.