P.K. BANSAL, ACCOUNTANT MEMBER 
AND D.T. GARASIA, JUDICIAL MEMBER

ORDER

The order of the Bench was delivered by

P.K. Bansal, Accountant Member - The cross-appeals for the assessment year 2008-09 have arisen against the order of the Commissioner of Income-tax (Appeals) dated January 19, 2011, while the cross-appeals for the assessment year 2009-10 have arisen against the order of the Commissioner of Income-tax (Appeals) dated December 2, 2012. Since the issues in both years are common, therefore, all the appeals are being disposed of by this common order.

2. In the assessment year 2008-09, the Revenue has taken the following effective ground of appeal :

3. In the assessment year 2009-10, the Revenue has taken the following effective grounds of appeal :

4. In the assessment year 2008-09, the assessee has taken the following effective grounds of appeal :

5. In the assessment year 2009-10, the assessee has taken the following effective grounds of appeal :

6. In the assessment year 2009-10, the assessee has not pressed ground No. 4. Therefore, ground No. 4 is dismissed as not pressed.

7. The learned authorised representative before us vehemently contended that in the assessment year 2008-09 in the assessee's appeal, the issues relate to the claim of deduction to the assessee under section 80-IC in respect of transport subsidy, interest subsidy and power subsidy, while in the assessment year 2009-10 in the assessee's appeal, the issues relate to claim of deduction under section 80-IC in respect of transport subsidy, interest subsidy, insurance subsidy and power subsidy, whereas in the Revenue's appeal, the issues in the assessment year 2008-09 relate to claim of deduction by the assessee under section 80-IC in respect of value added tax remission and in the assessment year 2009-10 in the Revenue's appeal, the issues relate to the claim of deduction by the assessee under section 80IC in respect of value added tax remission and central excise duty refund. It was pointed out that all the issues were decided by this Tribunal so far which relates to transport subsidy, interest subsidy and central excise refund by the decision of this Bench in favour of the assessee in I.T.A. No. 46/Gau/2009 vide order dated March 19, 2010, in the case of Meghalaya Steels Ltd.(supra). The issue relating to value added tax/CST remission had also been decided by this Tribunal in favour of the assessee in I. T. Appeal No. 43 of 2009 in the case of ACIT v. G.L. Coke (P.) Ltd. vide order dated April 5, 2010. This Tribunal has already decided the issue in the case of Plast India Enterprises (supra) vide order dated April 5, 2010. In this decision, the hon'ble Tribunal held that the amount of transport subsidy, power subsidy, interest subsidy and insurance subsidy would go to reduce the corresponding expenditure incurred under those heads and resultant profit would be the profits and gains of the business of the industrial undertaking eligible for deduction under section 80-IC of the Income-tax Act. The Tribunal also took the view that all these subsidies were interlinked, interlaced and had a direct nexus with the manufacturing activities of the assessee which are inseparable from the related expenditure incurred by the assessee. So far as the, central excise duty refund and value added tax remission are concerned, the hon'ble Tribunal took the view that this has a direct nexus with the manufacturing business of the assessee and hence were eligible for deduction under section 80-IB/80-IC of the Income-tax Act. It was pointed out that the Revenue in most of the cases before the hon'ble Gauhati High Court vide its order dated September 16, 2010, passed in the case of CIT v.Meghalaya Steels Ltd. [2011] 332 ITR 91/201 Taxman 135 (Mag.)/12 taxmann.com 451 (Mag.) held that the transport subsidy did not have any direct nexus with the profits and gains derived by the assessee from its industrial activity but so far the central excise duly refund is concerned, it was held that it had a direct nexus with the manufacturing activity of the assessee. The Department has not filed any appeal in respect of the issue relating to the eligibility of the claim of deduction under section 80-IC for value added tax/sales-tax remission. Subsequently, it was pointed out that a Review Petition No. 108 of 2010 was filed in the case of Meghalaya Steels Ltd. v. CIT [2013] 358 ITR 551/[2014] 47 taxmann.com 235 (Gua.) on the ground that the said appeal was decided without having formulated the substantial question of law at the admission stage. Thus, not following the mandatory requirement of section 260A of the Income-tax Act, subsequently the hon'ble jurisdictional High Court vide its order dated April 8, 2013, reviewed and recalled its judgment and order dated September 16, 2010, passed in the case of Meghalaya Steels Ltd. (supra). Subsequent to the reviewing and recalling of its judgment in the case of MeghalayaSteels Ltd. (supra), the hon'ble jurisdictional High Court has decided a set of 24 appeals, the lead case being MeghalayaSteels Ltd. (for a different assessment year) and CIT v. Pride Coke (P.) Ltd. IT Appeal No. 16 of 2011, dated 29-5-2013] vide its order dated May 29, 2013, CIT v. Meghalaya Steels Ltd. [2013] 356 ITR 235/217 Taxman 184/34 taxmann.com 34 (Gau.). Vide its order at page 281, the hon'ble High Court took the view that the cost of production got reduced by the subsidy received and therefore, the major profit of the assessee of the eligible unit will get increased and the assessee will be entitled on the increased profit for deduction under section 80-IC. Thus, it was contended that the issue relating to the eligibility of the deduction under section 80-IB/80-IC of the Income-tax Act, 1961, in respect of transport subsidy/power subsidy/interest subsidy/insurance subsidy is covered by the judgment of the hon'ble jurisdictional High Court in the case ofMeghalaya Steels Ltd. (supra) and Pride Coke (P.) Ltd. case (supra) and for this our attention was drawn towards pages 66, 68, 104 and 135 of the paper book which contain the decision of the hon'ble jurisdictional High Court in Meghalaya Steels Ltd's case (supra). It was further submitted that the issue relating to the allowability of the deduction under section 80-IB/80-IC of the Income-tax Act in respect of central excise duty refund/value added tax remission is covered by the orders of this hon'ble Bench in the following cases :

8. The learned Departmental representative, on the other hand, relied on the order of the Commissioner of Income-tax (Appeals).

9. We have gone through the decisions as relied on by the learned authorised representative. We noted that so far the issues involved in the assessee's appeals are covered by the decision of the hon'ble Gauhati High Court in the case of CIT v.Meghalaya Steels Ltd. (I.T. Appeal No. 7 of 2010) and CITv. Pride Coke (P.) Ltd. (supra) (Gau.). In this case, when the issue relating to the claim of deduction under sections 80-IB and 80-IC in respect of transport subsidy, power subsidy, interest subsidy and insurance subsidy travelled to the hon'ble High Court, the hon'ble High Court held as under (headnote) :

"In order to claim deduction either under section 80-IB or under section 80-IC of the Income-tax Act, 1961, an assessee has to establish that there is a direct, intrinsic and first degree nexus between a subsidy, on the one hand, and the profits and gains, on the other, derived from, or derived by, the industrial undertaking concerned. If a subsidy goes to reduce the cost of production of an industrial undertaking, the resultant profits and gains are deductible under the provisions of section 80-IB or section 80-IC, as the case may be. The expression 'derived from' has been used in section 80-IB, and it means that it is the business of the undertaking, which is the direct source from which the profits and gains are derived. In the case of a subsidy, the expression 'derived from', appearing in section 80-IB, would, logically extended, mean that the subsidy provided by the State, directly affects the business activity of the industrial undertaking. The Supreme Court in Mepco Industries Ltd.'s case [2009] 319 ITR 208 (SC) held that in each case, the nature of subsidy needs to be examined by the court. Consequently, without determining the nature of subsidy, including the object thereof, the impact of the subsidy on the operation of the industrial undertaking cannot be determined. The Supreme Court in Sahney Steel and Press Works Ltd. v. CIT [1997] 228 ITR 253 (SC)lays down an immensely important aspect of a subsidy, vis-a-vis, liability to pay tax. What the Supreme Court clarifies is that when a subsidy is given for the purpose of setting up of an industry, such a subsidy is a capital receipt. When, however, the subsidy is given for the purpose of operating an industry more profitably, the subsidy would be revenue receipt and, being revenue receipt, it has to be taxed in accordance with law meaning thereby that the profits and gains derived from, or derived by, an industrial undertaking in a case, where operational cost is reduced by providing subsidy, in any form, the profits and gains earned, because of such subsidy, would be eligible for deduction under section 80-IB or section 80-IC, as the case may be. The principle deducible from the cases of Sahney Steel and Press Works Ltd. v. CIT [1997] 228 ITR 253 (SC) ; CITv. Rajaram Maize Products [2001] 251 ITR 427 (SC)and CIT v. Eastern Electro Chemical Industries [1999] 9 SCC 20 is that when a subsidy, granted by the Government, is operational in nature, which helps in generation of profits for any industrial undertaking, such a profit is, indeed, covered by the provisions embodied in section 80-IB or section 80-IC, as the case may be.

Held, that there was clear finding of the Tribunal that there was a direct nexus between the subsidies, on the one hand, and the profits and gains derived by, or derived from, the industrial undertakings concerned. This finding was not purely a finding of fact inasmuch as the finding had been reached on the interpretation of the schemes of subsidies. The assessee was entitled to claim deduction either under section 80-IB or under section 80-IC on the transport subsidy, interest subsidy, power subsidy and insurance subsidy because :

10. Respectfully following the decision of the hon'ble jurisdictional High Court, we allow the appeals of the assessee and direct the Assessing Officer to allow the deduction, to the assessee under section 80-IC treating all the aforesaid subsidies received to be part of the business profit and gains from the industrial undertaking in accordance with law. Thus, the grounds taken by the assessee are allowed. So far the appeals filed by the Revenue are concerned, we noted that both issues involved in the appeals in both assessment years filed by the Revenue are covered by the decision of this Tribunal in favour of the assessee dated March 19, 2010 and April 5, 2010, through which we have gone into. The issue relating to the central excise duty refund is duly covered by the decision of this Tribunal in the case of Meghalaya Steels Ltd. (supra) while the decision on the issue of value added tax/sales tax remission is duly covered by the following decisions :

11. Respectfully following the decision of this Tribunal, we dismiss the grounds taken by the Revenue. Therefore, we dismiss both appeals filed by the Revenue.

12. In the result, both appeals filed by the assessee are allowed while both appeals filed by the Revenue stand dismissed.