THE ACIT, VAPI CIRCLE,, VAPI vs. M/S. N.R. AGARWAL INDUSTRIES LTD.,, VAPI

आयकरअपीलीयअिधकरण, सुरत�ायपीठ, सुरत INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND Dr. ARJUN LAL SAINI, ACCOUNTANT MEMBER (Virtual Hearing) I.T.(SS)A’s No.14,15,16/AHD/2016, ITA’s No.1302,1303& 3032/AHD/2016 Assessment Years: 2007-08, 09-10, 10-11; 2011-12,12-13& 2013-14 N.R.Agarwal Industries Ltd., Vs The ACIT/DCIT, Circle-3, Plot No.169 to 169, Phase No.1, Surat. GIDC, Vapi. [PAN: AAACN 7721 N] अपीलाथ� / Appellant ��थ�/Respondent

आ.अ.सं./I.T.(SS).A’s No. 46,47,48,49,1526 & 1527/Ahd/2016 िनधा�रणवष�/Assessment Years: 2007-08 to 2012-13 The ACIT/DCIT, Circle-3, Surat. Vs N.R.Agarwal Industries Ltd., Plot No.169 to 169, Phase No.1, GIDC, Vapi. [PAN: AAACN 7721 N] अपीलाथ� / Appellant ��थ�/Respondent

Cross Objection’s No:41& 42/Ahd/2016 and 04/Ahd/2016 (Arising out of IT(SS)A’s No.46& 47/Ahd/2016 and ITA No.3032/Ahd/2016) िनधा�रणवष�/Assessment Years: 2007-08, 08-09 &2013-14 The ACIT/DCIT, Circle-3, Surat. Vs N.R.Agarwal Industries Ltd., Plot No.169 to 169, Phase No.1, GIDC, Vapi. [PAN: AAACN 7721 N] अपीलाथ� / Appellant ��थ�/Respondent

िनधा�रतीकीओरसे /Assessee by Shri SaurabhSoparkar Senior Advocate with Ms Urvashi Shodhan Advocate, Sh. Nitin Gheewala&Pareen Shah– CA राज�कीओरसे/Revenue by Shri Ritesh Mishra – CIT-DR सुनवाई की तारीख/ Date of hearing: 08.04.2021 उद्घोषणाकीतारीख/Pronouncement on: 05.07.2021

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 आदेश /O R D E R PER PAWAN SINGH, JUDICIAL MEMEBER: 1. This group of fifteen appeals, including cross appeals and cross objections, are directed against the order of learned Commissioner of income tax (Appeals), Surat, hereinafter referred as “ld. CIT(A)” for assessment years (AYs) 2007-08 to 2013-14. Out of which five appeals by assessee for AYs 2007-08, 2009-10 to 2012-13 being ITA No.(s) 14, 15, 16, 1302 & 1303/Ahd/2016 and seven appeals by revenue being ITA (s) No. 46,47,48,49,1526 & 1527/Ahd/2016 for AYs 2007-08 to 2012-13 & ITA No. 3032/Ahd/2017 for AY 2013-14,further the assessee also filed its Cross Objections (CO) in appeals filed by Revenue in AYs No. 2007-08, 2008-09 & 2013-14 being C.O. No. 41&42/Ahd/2016 & 4/Ahd/2017. The ld. CIT(A) passed consolidated order dated 27.11.2015 for AY 2007-08 to 2010-11. However, for remaining years the ld. CIT(A) passed separate orders. 2. In appeals for AY 2007-08, 2009-10 to 2013-1 and in CO for AY 2008-09 the assessee vide additional grounds of appeal filed on 14.12.2020, has raised additional grounds of appeal that assessing officer and ld. CIT(A) erred in not allowing the deduction of education cess and higher education cess as allowable expenditure under section 40(a)(ii). The additional grounds of appeal is raised on the basis of decision of Rajasthan High Court 2

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 in CIT Vs Chambal Fertilizer and Chemicals Ltd (Tax Appeal No. 52/2018) and Circular of Central Board of Direct Taxes (CBDT) dated 18th May 1967 vide F.No.91/58/66-ITJ(19). 3. In all appeal, and cross appeals, the parties have raised certain common grounds of appeal, facts in all years are almost similar except variation of figures of additions/ disallowance on various claims, thus, with the consent of the parties all the appeals were clubbed, heard and are decided by common order to avoid the conflicting decisions /findings on various. 4. Brief facts of the cases as extracted from the orders of the lower authorities are that the assessee is a Public Limited Company, engaged in the business of manufacturing, paper, craft paper, duplex boards and news prints. The assessee also has two captive power generation plants of three Megawatts and five Megawatts of its own use. The assessee generating electricity from its captive power plants by generation of steam. Such generated steam is also used for industrial purpose. In the power plant of five Megawatts (power plant-1), the assessee was claiming benefits of deduction of section 80IA and on other power plant the assessee claimed depreciation @ 80%. During the period relevant to the AY 2008-09, Suman Paper & Board and NR Paper & Board, the group companies of the assessee were amalgamated with the assessee and become third power plant (Unit-III). A search action under 3

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 section 132 of Income tax Act (Act) was carried out on the assessee group on 16.07.2009. In the search certain discriminatory documents and evidences were allegedly recovered which were inventorised by the search party. Consequent upon the search action, notices under section 153A was served on the assessee. The assessee in response to such notices filed its return of income and assessment order under section 143(3) r.w.s 153A of the Act was passed for A.Y. 2007-08 to 2010-11 on 30.12.2011. The assessing officer made various additions/ disallowances in the assessment orders. Aggrieved by the additions, the assessee filed appeal before CIT(A). The Appeals of the assessee was decided by Ld. CIT(A) vide its appellate order dated 12.06.2012 (First round). The ld. CIT(A) granted part relief to the assessee on various issues. However, during the hearing the ld. CIT(A) issued notice for enhancement on account of Coal consumption in all Units and enhance income by re-computing the working of coal consumption in different Units and also revise the cost allocation of High Power (HP) steam and Low Power (LP) steam. 5. Further aggrieved, the assessee as well as revenue filed appeal before Tribunal. The Tribunal vide order dated 26.07.2013 set aside the grounds of appeal to the file of ld. CIT(A). Thereafter, ld. CIT(A) again vide his order dated 27.11.2015 has passed fresh order granting partial relief to the assessee. Further aggrieved 4

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 both, the assessees as well as the revenue have filed their respective appeals before this Tribunal. 6. The assessing officer passed regular assessment order under section 143(3) for A.Y. 2011-12 to 2013-14 and made various additions. On appeal the ld. CIT(A) by relying upon appellate order of his predecessor dated 27.11.2015 adjudicated various grounds of appeal. The department and assessee both have also filed their respective appeals against such orders before this Tribunal. 7. We have heard the submissions of Sh. Saurabh Soparkar learned Senior Advocate assisted by Ms Urvashi Shodhan Advocate and Sh. Nitin Gheewala learned instructing Chartered Accountant (CA) for the assessee, hereinafter referred as “ld. Senior Counsel” and Sh. Riteesh Mishra learned Commissioner of Income-tax- Departmental representative hereinafter referred as ( ld. CIT-DR) for the revenue. With their active assistance we have also gone through the orders of lower authorities. 8. At the outset of hearing the ld. Senior Counsel for the assessee submits that in appeals for all assessment years the assessee has raised additional grounds of appeal, for allowance of education cess and higher education cess. No new additional facts for consideration and adjudication of additional grounds of appeal are required to be brought on record; the facts relating to the additional grounds of appeal are emanating from the record of 5

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 assessing officer. The additional round of appeal is purely legal in nature and there is no dispute that Tribunal is empowered to admit the additional claim of assessee. The learned senior counsel further submits that the assessee has raised additional round of appeal on the basis of decision of Rajasthan High Court in case of Chambal Fertilizers and Chemicals Ltd (supra), decision of Bombay High Court in case of Sesa Goa Ltd versus JCIT (117 taxmann.com 96) and the decision of the Ahmedabad Tribunal in General Worldwide Ltd in ITA No. 2316 /AHD /2018. The learned senior counsel submits that the decision of all the case law relied by him are filed on record. On the basis of aforesaid submission the learned senior counsel submits that the additional grounds of appeal in all the appeals may be admitted and these additional issues may be restored to the file of assessing officer to consider the plea of assessee and decide the same by following the aforesaid decisions relied by him. 9. On the other hand the learned CIT-DR for the revenue submits that the assessee has raised the additional ground of appeal for the first time before this Tribunal. The assessee has not raised such ground of appeal either before the assessing officer or before first appellate authority as no such claim was raised before lower authorities, the additional grounds of appeal should not be admitted. The learned CIT -DR further submits that in case the 6

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 additional round of appeals are admitted by the Tribunal, then this issue in all the years may be restored to the file of assessing officer to examine the facts and adjudicate the same in accordance with law. 10. We have considered the rival submission of both the parties and have gone through the additional grounds of appeal raised by assessee. We have noted that assessee has raised the additional round of appeal vide grounds of appeal dated 14 December 2020; on perusal of record and the order of the lower authorities, we further find that the facts relating to adjudication of additional ground of appeal raised by assessee are available on the record of assessing officer. Moreover, the assessee has raised grounds of appeal on the basis of decision of Hon’ble Rajasthan and Bombay High Court in Chambal Fertilisers and Chemicals Ltd (supra) and Sesa Goa Ltd (supra). The Hon’ble Bombay High Court in Sesa Goa Ltd (supra) held that Education Cess and Higher and Secondary Education Cess are allowable for deduction in computing income chargeable under head of 'profits and gains of business or profession’. Considering the decision of Hon’ble High Courts, we admit the additional round of appeal raised by assessee and restore the additional ground of appeal to the file of assessing officer to examine the facts and adjudicate the same by considering the decision of Hon’ble Rajasthan and Bombay High 7

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 Court in Chambal Fertilizers and Chemicals Ltd and Sesa Goa Ltd (supra). In the result the additional round of appeal raised by assessee for assessment years 2008 – 09 to 2013 -14 are allowed for statistical purposes. 11. So far as allowance of additional ground of appeal in AY-2007-08 is concerned that will be seen at the time of adjudication of other grounds of appeal in that year, as the assessee has challenged the jurisdiction of assessing officer in making additions in unabated assessment. Thereby, if the assessee succeeded on the legal issue, the assessee will not be entitled to raise such additional ground in AY 2007-08. 12. Now adverting to the original grounds of appeal raised by the assessee as well as by revenue. Ground No. 1 is assessee’s appeal for AY 2007-08, relates to confirming the partial enhancement on account of coal consumption made by ld. CIT(A), not based on incriminating material. The learned senior counsel for assessee submits that during the appellate proceeding in first round of appeal before ld.CIT(A), the learned CIT(A) has given enhancement notice with regard to excess coal consumption for unit No. I, unit- II and unit-III. On the basis of such notice, the learned CIT(A) made enhancement of income. On further appeal before Tribunal the issue of enhancement was set aside vide order dated 26th July 2017, and matter was restore back to the file of learned CIT(A) 8

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 consider it afresh. The learned CIT(A) in set aside proceedings, after obtaining remand report from the assessing officer reduced it substantially. The learned senior counsel submits that that addition made on the basis of notice of enhancement of income by learned CIT(A) is not based on any incriminating material found during the course of search. A search action was carried out in case of assessee on 16th July 2009, on the date of search time- limit for issuance of notice under section 143(2) for assessment year 2007-08 had expired. Thus, no assessment for AY 2007-08 can be said to have been pending on the day of search. In other words the assessment for AY 2007-08 remained unabated. Therefore, no addition can be made, which is not based upon any incriminating material found during the course of search. To support his submission the learned senior counsel relied upon the decision of Delhi High Court in case of Commissioner of Income tax Vs Kabul Chawla (61 taxman.com 412) and of Gujarat High court in the case of PCIT Vs Saumya Construction Pvt Limited (81 taxmann.com 292 Gujarat High Court). 13. On the other hand the ld CIT-DR for the revenue supported the order of assessing officer and the order of ld. CIT(A) in the first round of appeal. 14. We have considered the rival submissions of the parties and perused the orders of ld. CIT(A) in first as well as in second round 9

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 of appeal. We have also deliberated on the various case laws relied by the assessee. There is no dispute about the date of search action on the assessee group on 16.07.2009. The time period for issuance of notice under section 143(2) for assessment year 2007- 08 had admittedly expired on 16.07.2009. In other words the assessment for AY 2007-08 was not pending thus the assessment for this year remained unabated. It is settled law that no addition can be made in the unabated assessment, in absence of any incriminating material found during the course of search. The assessee was served with the notice under section 153A. The assessee in response to notice under section 153A, filed it return of income for this assessment year on 12.02.2010. The assessment was completed under section 143(3) read with section 153A on 30.12.2011. The assessing officer made various additions including disallowance of prior period expenses, disallowance of interest, additions under section 14A, disallowance under section 80IA(4) and disallowance of purchases. In the entire assessment order the assessing officer nowhere mentioned that any of the additions or disallowances made in the assessment order is based on the incriminating evidence found during the search qua such additions. Thus, in view of the case laws of Delhi High Court in case of CIT Vs Kabul Chawla (supra) and of Gujarat High court in the case of PCIT Vs Saumya Construction Pvt Limited (supra), no 10

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 additions or disallowance is justifiable in the unabated assessment, when no material related to such additions was found. Therefore, all the additions made by the assessing officer in the assessment are not valid being beyond the scope of section 153A. Accordingly, the ground No. 1 of appeal raised by the assessee is allowed. Considering the facts that the additions made in the assessment order is held invalid, therefore all other grounds of appeal raised by the assessee have become academic. 15. In the result the appeal of the assessee for AY 2007-08 is allowed and the appeal of the revenue for AY 2007-08 has become infructuous and dismissed as such. Considering the fact that the appeal of the assessee is allowed on legal ground and the appeal of the revenue is also dismissed being infructuous, therefore the Cross Objections raised by the assessee are also held as infructuous and dismissed as such. The additional ground of appeal raised by the assessee for AY 2007-08 is also dismissed. 16. Ground No. 4 in revenues appeals for AY 2008-09, 2009-10, and 2010-11 and grounds No. 3 in assessee’s appeal for AY 2009-10 and 2010-11 relates to enhancement relating to Unit-III for coal consumption. The learned senior counsel for the assessee submits that that while passing appellate order in first round, the ld. CIT(A) has discussed and made following tabular chart showing

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 coal consumption, electricity generated and steam generated by Unit-III in the following manner; Assessment Coal Electricity Steam Electricity Steam per Year Consumed generated Generated ton of per ton coal of MT (units) (MT) coal (Units) (MT) 2007-08 24496 1997921 105435 81.56 4.30 2008-09 21729 2159200 94654 115.94 4.36 2009-10 32361 4326360 120296 133.69 3.72 2010-11 30204 3700491 118112 122.52 3.91 17. On the basis of the above stated details the ld CIT(A) in first round has observed that in A.Y. 2009-10, electricity generation per ton of coal consumption has increased from 115.94 of A.Y. 2008-09 units to 133.69 units, however ratio of steam per ton of coal instead of increasing has reduced from 4.36MT of 2008-09 to 3.72MT in A.Y. 2009-10. Similarly in A.Y. 2010-11, electricity generation per ton of coal has reduced from 133.69 units to 122.52 units, steam per ton of coal has increased from 3.72MT to 3.92MT.Thus, he observed that increase in steam production is not commensurate with increase in coal consumption which proves that assessee has debited/claimed excess consumption of coal. On this basis, ld. CIT(A) has arrived at coal requirement for 1 ton production of duplex board based upon data of earlier years as under :

Assessment Year Production of duplex Coal Consumption Coal requirement one ton board in MT (MT) production (Kg) Suman Paper & Boards Limited 2002-03 11197 4541 406 2003-04 11381 6211 338

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 2004-05 18821 6831 363 2005-06 15952 6993 439 NR Paper & Boards Limited 2002-03 15346 6598.555 430 2003-04 16369 6642.719 406 2004-05 14241 4470.02 313 Average 385

A.Y. Production Coal Coal Excess coal Averag Value of in MT for Consump consumption consumptio e excess Unit-3 and 4 tion required on n purcha consumption actually the basis of se price of coal to be debited average of of coal disallowed in unit-III 385Kg 2007-08 50690 24496 19516 4980 2330 1,16,03,400 2008-09 50082 21729 19281 2448 2673 65,43,504 2009-10 55952 32361 21541 10820 3250 3,51,65,000 2010-11 57616 30204 22183 8021 3033 2,43,27,693 Total 7,76,39,597

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 before AO. The copy of which is filed at page no. 149 to 173 of PB. The AO has furnished his remand report dated 18.07.2014 and another remand report dated 22.08.2014, copy of which are also filed on record. The assessee has submitted its rejoinder on relevant issues vide letter dated 20.09.2014, which is also filed on record. In the second round ld. CIT(A) on his appreciation on this issue and rectified the mistake made by his predecessor ld. CIT(A) in as much as considering coal requirement for one ton production after considering data from A.Y. 2002-03 to 2006-07 whereas his predecessor CIT(A) has ignored such data for A.Y. 2005-06 for N.R. Paper and Board Limited and A.Y. 2006-07 of Unit-III post amalgamation. The ld. CIT(A) computed average coal requirement for one ton of production at 460.88 per MT as under :

Production of Coal Consumption Coal Requirement one A.Y. duplex board in MT (MT) ton production Suman Paper And boards 2002-03 11197 4541 406 2003-04 18381 6211 338 2004-05 18821 6831 363 2005-06 15952 6993 439 N.R. Paper & Boards Limited 2002-03 15346 6599 430 2003-04 16369 6643 406 2004-05 14241 4470 313 2005-06 21041 12332 586 2006-07(Consolidated after Amalgamation) 47149 27646 586 Average 178497 82265 460.88

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 20. The ld. CIT(A) has applied coal consumption ratio to actual production of duplex board in all the years and reworked the figure of enhancement as under :

Coal Coal consumption Value of Productio Consumption required on Excess excess coal n in MT actually the basis of Coal Average consumpti for Unit-3 debited in average Consumpt purchase on to be A.Y. and 4 Unit-III 460.88 ion price of coal disallowed 2007-08 50690 24496 23362 1134 2330 2642203 2008-09 50082 21729 23082 -1353 2673 -3616013 2009-10 55952 32361 25787 6574 3250 21364987 2010-11 57616 30204 26554 3650 3033 11070262

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 submits that once assessee has submitted entire details relating to coal consumption and there is no discrepancy in such details, additions cannot be sustained. It is submitted that in both the remand report AO has repeated the same argument as was raised by ld. CIT(A) in first round. Once assessee has submitted all the evidences related to coal consumption, no discrepancies are pointed out in details submitted by appellant including SAP records, books of accounts are accepted to be correct by appellate authorities, no evidences were found during the course of search relating to excess coal consumption, CIT(A) in second round is incorrect in holding that issue was remitted back only for limited purpose whereas fact is that issue was remitted back for fresh consideration by Tribunal. 22. The learned senior counsel for assessee submits that coal consumption has no nexus with production of duplex board hence coal requirement cannot be worked out comparing coal consumption with production of duplex board. For production of duplex board, coal consumption cannot be held to be raw material like other raw materials hence there is no basis for making enhancement of income by making incorrect comparisons. It is stated that coal consumption cannot be consistent as quality of coal differs on every order placed and same cannot be expected to be constant and even quality of paper produced also varies from each lot to lot and depending upon the thickness of paper, requirement of steam changes. Even AO in 16

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 subsequent assessment order passed under section 143(3) of the Act from AY 2011-12 has not made any such additions. 23. The contention raised by assessee that addition being estimated excess coal consumption cannot be made on presumption and that too without rejecting books of accounts, no evidences were found during the course of search regarding excess coal consumption , enhancement of income not emanating from any additions made in Assessment Order as discussed in herein above along with various decisions are not repeated in this contention and contention raised by appellant along with judicial pronouncement equally apply to enhancement of income pertaining to Unit III. Considering such facts, entire enhancement of income made by ld. CIT(A) in first round of appeal and partially confirmed by CIT(A) in second round are liable to be deleted. It was submitted that enhancement relating to excess coal consumption cannot be mainly made on following grounds : (i) The purchase of coal has been substantiated by proper invoices, vouchers, inward receipts, issue slips and bank statementssince payment has been made through cheques only. (ii) All the above mentioned details were made available to the Assessing Officer and CIT(A) for verification. On verification of such details no defect has been noticed in the purchase of coal both in quantity and in value. Even opening stock

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 and closing stock of coal as per books of accounts has not been disputed. (iii) The department is not in possession of any bogus bills pertaining to purchase of coal for which payment is made outside books account to prove the fact that any bogus purchase or issue of such coal has been made. (iv) During original assessment proceedings or during appellate proceedings and even during search carried on in case of Appellant , not even an iota of evidence has been discovered by the department to substantiate that any purchase of coal out of books has been done by the Appellant. (v) No enquiries have been made from suppliers to clarify the doubt, if any, to prove that purchases of coal have been inflated by the Appellant. (vi) It has not been proved that coal consumption which has stated to be deflated in Unit-I has been otherwise diverted to any other Unit for production. During the course of remand proceedings, appellant has submitted complete records of coal consumption for the entire year maintained in SAP accounting system. The Learned. A.O. has not detected any defects in such details. (vii) The quantity of finished goods produced during the year which is clearly reflected in the books of accounts in quantity as well as value for all the three Units has been duly accepted. In such a case where output has been accepted there can be no adverse view related to use of input for the same.

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 round as well to A.O. in in remand proceedings. The A.O. filed remand report and even without pointing out any discrepancy in coal consumption, he has sustained the addition relating to enhancement of income which is patently incorrect. It is reiterated that during the course of search, stock of coal was reconciled and there is no evidences in form of loose papers, bills or any unaccounted transaction which supports the contention of ld. CIT(A) that assessee has either inflated / deflated consumption of coal. It was submitted that ld. CIT(A) has not pointed out any inconsistency in books of accounts nor rejected such books of accounts hence enhancement of income cannot be made on the ground that expenses incurred by appellant are inflated or appellant has claimed lower expenditure in particular year. The appellant relies upon various judicial pronouncements ;  Hon’ble Madras High Court in PCIT, Chennai v/s. Marg Ltd. [2017] 84 taxmann.com 52 (Madras)  Hon’ble Karnataka High Court in CIT, Belgaum v/s. Anil Kumar & Co. [2016] 67 taxmann.com 278 (Karnataka)  Hon’ble Gujarat High Court in the case of CIT- Vs Nangalia Fabrics Pvt. Ltd. [2013] 40 taxmann.com 206 (Gujarat),  Hon’ble Punjab and Haryana High Court in CIT, Karnal v/s. Om Overseas [2008] 173 Taxman 185 (Punjab & Haryana),  Hon’ble Gujarat High Court in CIT v/s. Kashiram Textile Mills Pvt. Ltd. [2007] 160 TAXMAN 4 (GUJ).

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 25. In alternative submissions the ld. Senior counsel submits that ld. CIT(A) is not competent to enhance the income by taking any issue which was not considered expressly or by necessary implication by AO during original Assessment Proceedings. Reliance is placed on following decisions:  Decision of Delhi Tribunal in Hari Mohan Sharma Vs ACIT 110 Taxman.com 119 ,  Decision of Delhi High court in CIT Vs Union Tyres 107 Taxman 447,  Decision of Jaipur ITAT in Zuberi Engineering Company Vs DCIT 103 Taxmann.com 196.

A.Y. Production Consumption of Coal per Ton of Production (Kgs) (Duplex Board coal (MT) (MT) 20

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 NR Paper & Boards Limited 2005-06 21041 12332.120 586.100 Suman Paper & Boards Limited 2005-06 15952 6993.410 438.403 Appellant company Unit-III and Unit-IV after amalgamation 2006-07 47149 27646 586.354 Average 558.241

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 increase in steam production is not commensurate with increase in coal consumption which prove that appellant has debited/claimed excess consumption of coal. 29. We have considered the rival submissions of the parties and have gone through the orders of the ld. CIT(A) in both the rounds. We have also deliberated on the various facts and figures compiled by ld. CIT(A) in first round of appeal. We have also deliberated on various case laws relied by the learned senior counsel. During the first round of appeal the ld. CIT(A) noted that increased in the steam production is not commensurate with increase of coal consumption which shows that assessee claimed excess consumption of coal. The ld. CIT(A) arrived at coal requirement for 1 ton production of duplex board based upon average data of earlier years of Suman Papers ( AY 2002-03 to 2005-06) and N R Papers Boards (AY 2002-03 to 2004-05), which were amalgamated with assessee and were termed (named ) as Unit-III and enhanced income of Rs. 7,76,39,597/- for four assessment years i.e AY 2007- 08 to 2010-11. However, in the second round the ld. CIT(A) held that he is rectifying mistake of his predecessor as much as considering coal requirement for one ton production after taking into the considering the data for AY 2005-06 for NR Paper and Board Limited and AY 2006-7 of Unit-III (post amalgamation). Thus, the ld. CIT(A) worked out average coal requirement for one 22

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 ton of production per MT. The ld. CIT(A) after considering the rate of Rs. 460.88/- sustained enhancement in AY 209-10 and 2010-11 only of Rs. 2,13,64,987/- and Rs. 1,10,70,262/- respectively. We find that no enhancement was sustained in AY 2007-08 and 2008- 09, as there was no excess coal consumption considering the average rate of coal @ Rs.460.88/- per ton. Before us, the learned senior counsel for the assessee vehemently submitted that coal consumption cannot be estimated on presumption basis, enhancement is not emanating from additions made in the assessment order, purchase of coal has been substantiated, no defect in opening and closing stock is disputed, no evidence about the purchase of coal outside the books was prove, in assessment as well as in search not a single evidence was found that purchase of coal has been done outside the books, no enquiries from the supplier of coal is made. It was also pressed that during the remand proceeding completed details were provided to the AO, no defect was detected by AO and ld. CIT(A) has also not pointed out any discrepancy in the books of account. All these submissions of the learned senior counsel was carefully examined by us and all the submissions in the form of objection raised by assessee are found as correct. In fact the ld. CIT(A) in the first round of appeal tried to rewrite the books of accounts of the assessee, without rejecting the books of accounts of the assessee. It is settled law 23

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 that without pointing out the specific defects the books of account, books of account cannot be rejected by the revenue authorities. 30. We have also examined the remand reports dated 30.11.2013, (page No. 149 to 173 of PB), 18.07.2013 (page No. 215 to 232 of PB) and dated 22.08.2014 (page No. 233 to & 247 of PB), furnished by the assessing officer in second round of appeal before ld. CIT(A). We find that in the remand report no discrepancy in the coal consumption was pointed out by the AO, rather only supported the view taken by ld. CIT(A) in first round of appeal. The AO also stated in his remand report dated 22.08.2014 that issue under consideration is only pertaining to cost of various internal constituents of the business and concomitant addition under section 69C. The trading result of the assessee was not tinkered by ld. CIT(A). And there is no requirement to invoke the provision of section 145(3) for making addition under section 69C. 31. The Hon’ble Gujarat High Court in CIT Vs Nangalia Fabrics Pvt. Ltd (supra) held that where purchases were supported by bills, entries were made in books of account and payment was made by cheque, said purchases could not be held as bogus purchases. Similarly in CIT Vs Kashiram Textile Mills Pvt Ltd (supra), the Hon’ble High Court held that there was no material on record to conclude that in addition to the alleged fictitious purchases there were also some other purchases for the same material under 24

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 different invoices, which could be reflected in the closing stock. The finding recorded by the Tribunal that to the contrary, from the details submitted, even if such a doubt existed regarding existence of some purchases over and above, the alleged fictitious purchases, the doubt on that aspect was also removed. For that purpose, the High Court further held that Tribunal had, by way of illustration, analysed the account of one of the items, appearing as Annexure in the paper book filed before the Tribunal and concluded that quantity remaining in the closing stock was only out of the purchases effected by the assessee. It was in light of the findings of the Tribunal, it was held that no addition was warranted on account of alleged fictitious purchases. 32. The Hon’ble Karnataka High Court in PCIT Vs Marg Ltd (supra) held that the profit of the assessee cannot be estimated without rejecting books of accounts. In view of the aforesaid legal position, we are in agreement with the submissions of the ld senior counsel for the assessee that that coal consumption cannot be estimated on presumption basis, purchase of coal has been substantiated, no defect in opening and closing stock is disputed, no evidence about the purchase of coal outside the books was prove, in assessment as well as in search not a single evidence was found that purchase of coal has been done outside the books, and no defect was detected by AO or by ld. CIT(A) while making enhancement or not pointed 25

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 out any discrepancy in the books of account. Therefore, the assessee is succeeded on this ground of appeal on the primary submissions of learned senior counsel for the assessee. 33. We further find that enhancement on account of coal consumption is not emanating from addition made in the assessment order. The Hon’ble Delhi High Court in CIT Vs Union Tyres (supra) held that that the first appellate authority is invested with very wide powers under section 251(1)(a) and once an assessment order is brought before the authority, his competence is not restricted to examining only those aspects of the assessment about which the assessee make a grievance and ranges over the whole assessment to correct the Assessing Officer not only with regard to a matter raised by the assessee in appeal but also with regard to any other matter which has been considered by the Assessing Officer and determined in the course of assessment. However, there is a solitary but significant limitation to the power of revision, viz., that it is not open to the CIT(A) to introduce in the assessment a new source of income and the assessment has to be confined to those items of income which were the subject-matter of original assessment. Thus, the assessee is also liable to be succeeded in toto on the second alternative contention of the learned senior counsel of the assessee.

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 34. We also find merit in the second alternative submissions of learned senior counsel that on computing the average rate for two immediately preceding years, as shown to us in a chart (as referred in para 26-supra), the correct average comes to 558.241 and applying such rate the coal requirement per ton of production is computed in that manner, there would be no material excess coal consumption. Thus, the assessee is liable to be succeeded on third alternative submissions of ld. senior counsel. 35. In the result the ground No. 4 of revenues appeal in AY 2008-09, 2009-10 and 2010-11 are dismissed and the Ground No.1 in the assessee’s cross objection for AY 2008-09 and Ground No 3, in assessee’s appeal for 2009-10 and 2010-11 are allowed. 36. Next grounds of appeal relates to enhancement of income for excess coal consumption of Unit-II in A.Y. 2009-10 (Ground of appeal no. 4 in assessee’s appeal). The learned senior counsel for the assessee submits that the CIT(A) in first round of appeal has enhanced income mainly by taking the following view : (i) In A.Y. 2009-10, the coal consumption has increased for producing per ton of electricity as compared to A.Y. 2008- 09. (ii) The argument that appellant has used mainly imported coal during 2008-09 which has increased generation of electricity per ton of coal is not acceptable. (iii) The argument of Appellant that during A.Y. 2009-10 it has consumed low cost lignite and Indian steam coal due to 27

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 which electricity generation per unit of coal is low is not acceptable. (iv) Steam generation in A.Y. 2009-10 per unit of coal is also low as compared to A.Y. 2007-08 and 2008-09 which suggests that appellant has claimed higher coal consumption during the year under consideration. (v) Higher consumption of coal has been shown to divert expenditure from eligible to ineligible unit.

Particulars Amount Rs. Electricity generated in units in A.Y. 2009-10 2,47,23,000 Electricity per ton of coal (avg of three years) 623.56 2007-08 621.66 2008-09 676.66 2010-11 577.22 Total 1875.54 / 3 = 625.18 Coal consumption required (27423000 / 623.56) 39648 Actual coal consumption shown by appellant 45871 Excess coal consumption (45871 – 39648) 6223 Average rate of coal per MT in A.Y. 2009-10 3250 Value of excess coal consumption claimed by appellant 2,02,24,750 38. Aggrieved by the enhancement, the assessee filed appeal before Tribunal, The Tribunal has remitted the issue to the file of ld. CIT(A) for fresh consideration after obtaining remand report from AO. During the remand proceedings, on above issue, assessee furnished his reply along with evidences including complete record of coal consumption. The AO furnished his remand report vide letter dated 30.11.2013, dated 18.07.2014 and another remand report dated 22.08.2014 and repeated the same contention as noted by ld. CIT(A) 28

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 in first round of appeal. The assessee also filed its rejoinder on relevant issues vide letter dated 20.09.2014. The CIT(A) in second round has also upheld enhancement of income as made by his predecessor ld. CIT(A). The learned senior counsel for the assessee submits that he adopts the same submissions as made against the enhancement of income on account of excess coal consumption in Unit-III. 39. On the other hand the ld. CIT-DR for the revenue also supported the order of ld. CIT(A) in second round of appeal and he has also adopted his earlier submissions as made on the issue of coal consumption in Unit No. III. 40. We have considered the rival submissions of the parties and have gone through the orders of the ld. CIT(A) in both rounds of appeal. Considering the facts that we have deleted the entire additions of enhancement made by ld. CIT(A) with regards to UNIT-III. The enhancement made with regards to Unit –II, is also based on similar observation by ld. CIT(A), as made for UNIT-III, considering our finding on similar enhancement, the enhancement made with regards to excess cola consumption in UNIT-II is also deleted with similar direction. In the result the enhancement of income for excess coal consumption of Unit-II in A.Y. 2009-10 is also deleted. In the result the ground No. 4 in assessee’s appeal for AY 2009-10 is allowed. 29

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 41. Next Ground of appeal relates to disallowance of deduction under section 80IA for want of separate books of accounts. The revenue has raised ground No. 1 in appeals for AY 2008-09 to 2013-14. 42. The learned senior counsel for the assessee submits that AO has rejected claim of deduction under section 80IA(4) on income generated from co-generation plant by applying provisions of section 80IA(7) of the Act, on the ground that books of accounts were not separately maintained by assessee. It was submitted that this issue was decided by CIT(A) in first round in favour of assessee. The revenue has filed appeals in all the assessment years and issue was remitted back to the file of ld. CIT(A) for de novo consideration. The ld. CIT(A) in second round of appeal has decided the issue in favour of assessee. The learned senior counsel thus, relies upon detailed finding given by both the CIT(A). 43. The learned senior counsel further submits that for the purpose of accounting, the appellant implemented SAP, an ERP Accounting package and defined various Profit Centers in relation to its different Units. At the time of preparing the Accounts, it extracts information from SAP, downloads it to Excel sheets and prepares the Profit & Loss Account and Balance Sheet. Such accounts are provided to the Statutory Auditors for the purpose of Audit and thereafter it obtains the Audit Report in Form 10CCB before the statutory time limit provided under the Act. The audit report 30

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 obtained in from 10CCB also comprises of Balance Sheet, profit & Loss Account and calculation of section 80IA of the Act, apart from the verification by the auditor for eligibility of business under section 80IA of the Act. The assessee obtained Audit Report (10CCB report) as required, for claiming deduction under section 80IA of the Act, before the due date of filing of original return of income. Had assessee has not prepared profit & loss and balance sheet in Excel format as claimed by it, it would have not been in position to compute eligible profit for industrial undertaking generating power. It is submitted that ld. CIT(A) while granting relief to the assessee, in his order has accepted such facts. There is no requirement of maintaining separate books of accounts for claiming benefits of section 80IA(4). Therefore, the assessee has duly complied with the provisions of section 80IA(7) of the Act. To support his submissions the learned senior counsel for the assessee also relied on the decision of Ahmedabad Tribunal in Jay Chemical Industries Ltd in ITA No. 4237/Ahd/2007 & ITA No. 1539/Ahd/2008 dated 31.05.2011 and order of Hon’ble Punjab & Haryana High Court in case of CIT Vs Micro Instruments Company in IT No. 958 of 2008(O&M) dated 02.09.2016. On the basis of his submissions the learned senior counsel for the assessee prayed for dismissal of the appeals filed by the revenue in all the years.

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 44. On the other hand the learned CIT-DR for the revenue supported the order of AO in all years. The ld. CIT-DR for the revenue further submits that the AO rightly rejected the claim of the assessee under section 80IA(4) by taking view that no separate books of accounts was maintained by the assessee. Even at the time of search no separate books of account were found with regards to eligibility of claim under section 80IA(4). No separate Audit has been carried out by the assessee. The ld CIT-DR prayed for restoring the order of AO by revering the order of ld. CIT(A) in second round. 45. We have considered the rival submissions of the parties and have gone through the orders of the ld. CIT(A) in both rounds of appeal. The AO rejected the claim of the assessee under section 80IA(4) by taking view that no separate books of accounts was maintained by the assessee. Even at the time of search no separate books of account were found with regards to eligibility of claim under section 80IA(4) and further no separate Audit report has been obtained by the assessee. The ld. CIT(A) in first round of appeal has held that the assessee implemented SAP Accounting software and on the basis of extraction of data, excel sheet containing profit and balance sheet was prepared for computing income eligible for 80IA(4). It was also held that the assessee claimed deduction under section 80IA(4) in original as well as in return filed in response to notice under section 153A and these facts are not disputed by the AO. The assessee 32

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 maintained separate books of accounts filed before AO. Further the assessee has obtained Audit report in Form-10CCB, before due date of fling the return of income, which is sufficient compliance as per decision of Delhi High Court in Centimeters Electricals in ITA No. 1336/Delhi/2008. 46. We find that in second round of appeal the ld. CIT(A) allowed relief to the assessee by following the order of his predecessor. Before us, the learned senior counsel vehemently argued that the assessee using SAP, and ERP Accounting package in its different Units and obtained extracts information from SAP, downloaded it to Excel and prepares the Profit & Loss Account and Balance sheet. The audit report was obtained in From 10CCB, which consist of Balance Sheet, profit & Loss Account and calculation of section 80IA for eligibility of business under section 80IA of the Act, thus the assessee fully complied the eligibility criteria for claiming benefits of section 80IA(4). 47. We find that coordinate bench of Tribunal in Jay Chemical Industries Ltd (supra) while considering the similar grounds of appeal held as under “Fourth objection of the A.O. is that no books of accounts have been maintained by undertaking or enterprise. In this regard, we have noted that it is stated by learned CIT (A) at page-7 of his order that assessee has filed copies of Profit and loss account for power plant but the A.O. has not furnished any adverse comment before the Ld. CIT (A). There is no specific requirement u/s. 80IA 33

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 that the assessee should maintain separate books of account for the power plant. As per sub-section 7 of section 80IA, it has been specified that with effect from 1-4-2002 the accounts of the undertaking for the previous year relevant to Assessment year for which the deduction is claimed should have been audited and audit report as prescribed is furnished along with the return of income. The Ld. CIT (A) has given a clear finding on page-7 of his order that the assessee has already filed the audit report along with Profit and loss account and balance sheet of new unit. On this aspect also, Ld. D.R. of the Revenue could not controvert the clear finding of Learned CIT (A). We are of considered opinion that no adverse inference can be drawn.”

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 by CIT(A) in first round in favour of assessee. The revenue filed appeal in all the assessment years and issue was remitted back to the file of CIT(A) for de novo consideration by Tribunal. The CIT(A) in second round has again decided the issue in favour of assessee. The learned senior counsel thus relies upon detailed finding given by both the CIT(A). The learned senior counsel the entire controversy whether steam is power or not is decided by Ahmedabad Tribunal in the case of Jay Chemicals 105 taxman 41 [2019]. It was shown to us that the decision of Tribunal in Jay Chemicals (supra) later on confirmed by Hon’ble Gujarat High Court in (120 taxman 315), copy of which is placed on record. The Hon’ble High Court has held that the word “Power” should be understood in common parlance as “Energy”. “Energy” can be in any form being mechanical, electricity, wind or thermal. In such circumstances, the “steam” produced by the assessee can be termed as power and qualify for the benefits available under section 80IA(4) of the Act. On the basis of the above submissions the learned senior counsel submits that the entire issue now is covered in favour of assessee by decision of High Court and prayed for dismissal of revenues grounds of appeal in all years. 50. On the contrary the learned CIT-DR for the revenue supported the order of the AO. The ld. CIT-DR for the revenue further submits that there is no direct nexus of sale of steam with the essential activity of industrial undertaking being generation of power and steam is not 35

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 power. Hence, the assessee cannot claim deduction of generation of steam. The assessee has not setup separate business undertaking for generation and distribution of power. Therefore, the assessee is not eligible for deduction under section 80IA(4) for sale of steam. The ld. CIT-DR prayed for restoring the order of AO. 51. We have considered the rival submissions of the parties and have gone through the orders of the ld. CIT(A) in both rounds of appeal. The AO rejected the claim of the assessee under section 80IA(4) by taking view thatthere is no direct nexus of sale of steam with the essential activity of industrial undertaking being generation of power as the assessee has not setup separate business undertaking for generation and distribution of power and that ‘steam’ is not ‘power’. The ld. CIT(A) allowed relief to the assessee in first round of appeal by taking view that steam generated during the process of generating the electricity in a captive power plant is by product of electricity power and is eligible for deduction under section 80IA(4). The ld. CIT(A) while granting relief to the assessee followed the decision of Jaipur Tribunal in Shree Maharaja Umaid Singh Mills Ltd (120 TTJ 711), Mumbai Tribunal in DCW Ltd (132 TTJ 442), Delhi Tribunal in Sial SBEC Bioenergy ( 83 TTJ 866) and Hon’ble Apex Court in Tanfac Industries Ltd [ SLP (C) No.18537 of 2009]. In the second round the ld. CIT(A) grated again granted relief to the assessee by taking view that for claiming deduction under this section material 36

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 is generation of power and not form of power. And further whether ‘steam’ is power is decided by Mumbai Tribunal in West cost Paper Mills (3802/Mum/2006). The ld. CIT(A) also followed the decision in Shree Maharaja Umaid Singh Mills Ltd (supra). 52. We find that the Hon’ble Gujarat High Court in PCIT Vs Jay Chemical Industries Ltd (supra) while considering the question whether Tribunal erred in law and on fats in considering the steam as ‘Power’ for the purpose of deduction under section 80IA(4) held that power should be construed in common parlance as ‘ Energy’. “Energy” can be in any form being mechanical, electricity, wind or thermal. In such circumstances, the “steam” produced by the assessee can be termed as power and would qualify for the benefits available under section 80IA(4) of the Act. Thus, respectfully following the decision of Jurisdictional High Court, we affirm the order of ld. CIT(A) on this issue. In the result ground No. 2 in revenue’s appeals for AY 2008-09 to 2013-14 are dismissed. 53. Next ground of appeal relates to allocation of cost between high power (HP) steam and low power (LP) steam (Ground no. 3 in departmental appeal for A.Y. 2008-09 to 2013-14, and Ground no. 2 in assessee’s appeal in A.Y. 2009-10, 2010-11, and further Ground no. 1 in A.Y. 2011-12, 2012-13 and Ground no.1 of CO in A.Y. 2013- 14). The learned senior counsel for the assessee submitted that the assessee has also claimed deduction under section 80IA of the Act for 37

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 its Unit-I, which is a co-gen captive power plant. Cogeneration or combined heat and power is use of a heat engine or power station to simultaneously generate electricity and useful heat. The co-gen power plant installed in the aforesaid unit houses a 5MW extraction condensing turbine gives the output in two ways that is; a) High Pressure steam which is subsequently converted into electricity and; b) Lower volume High Pressure steam which gets converted into low Pressure steam with high volume and is subsequently utilized for drying up of paper in its paper unit.

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 plant generates electricity as well as LP steam used by paper unit for drying paper. The assessee has submitted entire working of profit derived by such unit before AO. On perusal of such Audited accounts of Unit I (along with Form-10CCB report), it is apparent that entire cost of co-generation power plant is shown as expenditure and assessee is disclosing sale of electricity and steam as income. The profit of eligible undertaking is derived after reducing total cost from sale value of electricity and steam and on such profit;the assessee has claimed deduction under section 80IA of the Act. It is submitted that controversy as to which rate electricity units generated by Unit I and transferred to paper unit should be shown as income is decided in favour of assessee by Tribunal in first round of appeal in appellate order dated 26.07.2013. Now dispute remains regarding value of LP steam shown as income in audited annual accounts for the purpose of section 80IA. Both AO and CIT(A) has disputed the method of allocation of cost between HP steam and LP steam and thereby contended that appellant has allocated higher cost to LP steam and thereby claim excess deduction under section 80IA. 55. The ld. CIT(A) in his first round of appeal for A.Y. 2007-08 to 2010-11 has discussed entire issue as to how the working made by AO and assessee is incorrect. (page no. 77 to 85 of his order). The ld. CIT(A) has allocated cost to LP steam and HP steam(used for electricity) and compared such cost of LP steam with Steam shown as income in 39

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 Profit & loss account and differential amount is considered for disallowance of deduction under section 80IA. Both assessee and revenue has preferred appeal before Tribunal and the issue was set aside the issue to CIT(A). The ld. CIT(A) in second round has mainly followed finding of his predecessor CIT(A), given his finding at para 5.7 to 5.11 and reworked cost attributable to Lower Pressure steam at page No 123. The said working is extracted as under:

Sr. Particulars 2007-08 2008-09 2009-10 2010-11 No 1 Total HP steam 78,044 1,86,493 2,27,827 2,33,973 2 Total LP steam 46,090 1,14,490 1,36,547 1,54,616 3 Heat value of HP Steam 691 691 691 691 4 Total heat value of HP Steam 53928 128867 157428 161675 in ‘000 (1 X 3) 5 Heat value of LP Steam 593 593 593 593 6 Total heat value of LP Steam 27331 67893 80972 91687 in ‘000(2x5) 7 Ratio of allocation of cost 26597(5392 60974 76456 69988 between HP Steam and LP 8-27331) Steam 27331 67893 80972 91687 8 Total cost incurred by 71272720 177235211 257466711 226868395 Appellant in Co-Gen Plant 9 Less: depreciation on 1097618 2195236 2195236 2195236 alternator and turbine 9 Total cost after depreciation 70175103 175039975 255271475 224673160 10 Cost of LP steam (9/4 *6) 3 55 65 334 9 22 18 682 13 12 97 333 12 74 13 818 11 Value of steam considered by 2,99,58,500 7,44,18,500 15,08,84,435 14,62,66,736 the Appellant as cost assigned 12 Further Deduction/Addition (56 06 834) (1 78 00 182) 1 95 87 102 1 88 52 918 56. The learned senior counsel submitted that ld. CIT(A) has re-worked deduction under section 80IA based upon above working in assessment years being AY 2011-12 to 2013-14. The assessee has preferred appeal for additions partially confirmed by ld. CIT(A) and the revenue has preferred appeal for additions deleted by ld. CIT(A). It is 40

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 submitted that Unit I of assessee being eligible for deduction under section 80IA is recovering cost of LP steam from paper unit which is considered as sale value of steam in Audited annual accounts of such unit and based upon such accounts, 10CCB report was prepared. The AO and ld.CIT(A) has disputed value of steam charged from paper unit. The learned senior counsel by referred the provisions of section 80IA(8) of the Act, which reads as under:

“(8) Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, hadbeen made at the market value of such goods or services as on that date: Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation.—For the purposes of this sub-section, "market value", in relation to any goods or services, means— (i) the price that such goods or services would ordinarily fetch in the open market; or (ii) the arm's length price as defined in clause (ii) of section 92F, where the transfer of such goods or services is a specified domestic transaction referred to in section 92BA. 41

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 required to be found out. The whole assumption is fundamentally erroneous. The assessee does not produce 2 different kinds of steam. When from the boiler steam is generated, it is of high pressure which is used to rotate the turbine. Once the turbine is rotated the steam released becomes low pressure. There for there is only one steam; before it is put into turbine it is having high pressure and post the turbine stage it is low pressure. The whole attempt to allocate costs to these 2 kinds of steam is fundamentally misconceived. This becomes clear from the diagram produced by the assessee at page No. 185 of PB as also the diagram produced by the Department at page No. 238 of PB, which clearly show that only one kind of steam is generated by the assessee. Once assessee has claimed relevant cost of power plant and recognized revenue for generation of power and steam at specific value and AO has not brought any evidences that steam value charged from other unit is not at market value, he is not empowered to re-compute profit and loss account of eligible unit. The learned senior counsel submits that considering these facts, there is no need to prepare re-casted Profit & loss account or compute excess LP cost recovered from Paper units as made by AO as well as CIT(A). 58. In alternative and without prejudice submissions the learned senior counsel for the assessee submits thatCost of LP steam cannot be derived based upon Heat Value of HP Steam and LP steam. As Co- 43

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 Gen Power plant is generating HP steam and LP steam, entire cost in any case can be allocated in ratio of HP steam and LP steam generated by such power plant and there is no dispute regarding quantum of generation of both steam. It is pertinent to refer finding of the Tribunal of the order (first round) wherein it has stipulated the quantity of high pressure steam and low pressure steam in the assessment years under consideration:

. Assessment 2007-08 (*) % 2008-09 (*) % 2009-10 (*)% 2010- (*)% Year 11 A Total quantity of 78044 100% 186493 100% 136547 100% 233973 100% steam B Less: Low 46090 59% 114490 61% 136547 60% 154616 66% Pressure steam extracted for paper drying (A- High Pressure 31954 41% 72003 39% 91280 40% 79357 34% B) Steam utilised for generating electricity 59. On the basis of the aforesaid quantities of High Pressure Steam and Low Pressure steam, cost should be allocated between generations of two steams. Such working was also submitted before CIT(A). (Refer Paper Book Page Np 284 and 285 of PB -1). The said working is reproduced herein below:

Particulars 2007-08 2008-09 2009-10 2010-11 78 044 1 86 493 2 27 827 2 33 973 Total quantity A 46 090 1 14 490 1 36 547 1 54 616 Less: LP for paper dying extracted B 31 954 72 003 91 280 79 357 HP Steam utilized for generating electricity C Ratio of allocation of 46090 : 31954 114490 : 72003 136547 : 91280 154616 : 79357 cost between HP and LP D steam 44

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 Total cost incurred by 7 10 24 927 17 14 06 234 25 16 37 734 22 13 50 855 appellant in CO GEN E Plant Cost of LP Steam(F) = 4 19 44 786 10 52 28 077 15 08 17 847 14 62 74 928 F E*B/A Value of Steam 2 99 58 500 7 44 18 500 15 08 84 435 14 62 66 736 considered by the G appellant - 1 19 86 286 - 3 08 09 577 66 588 - 8 192 (Deficit)/excess(G-F) H 60. On the other hand the ld. CIT-DR for the revenue supported the order of AO and submits that during the assessment the AO disputed the method of allocation for HP steam and LP steam and thereby find that the assessee has allocated higher cost to LP steam thereby claimed excess deduction of section 80IA. The ld. CIT-DR prayed for restoring the order of AO. 61. We have considered the rival submissions of the parties and have gone through the orders of AO as well as orders of the ld. CIT(A)’s in both rounds of appeal. We find that during the assessment the AOdisputed the method of allocation for HP steam and LP steam and thereby find that the assessee has allocated higher cost to LP steam thereby claimed excess deduction of section 80IA. In first round of appeal the ld. CIT(A) further disputed the method of allocation of cost of HP steam and LP steam as made by the assessee as well as by AO. The ld. CIT(A) made his own working . In the second round of appeal the ld. CIT(A) held that there is mathematical error made by his predecessor, such error was rectified by him. It was further noted by him that LP steam is generated out of the HP steam only and LP steam is used for drying paper and remaining HP steam is used for 45

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 electrical system used for electricity steam hence the allocation of expenditure need to be between heat value of LP steam and remaining heat value of HP steam. Thereby the ldCIT(A) re-worked the deduction under section 80 IA which has bearing in AY 2011-12 to 2013-14. 62. Before us, the learned senior counsel for the assessee vehemently argued that assessee has claimed deduction under section 80IA for income generate by Co-gen power plant and there cannot be bifurcation of cost between HP cost and LP cost. Further entire cost incurred by power plant is towards generation of electricity and steam and as both the revenue is eligible for deduction under section 80IA as submitted earlier above, there is no basis for allocating cost between HP steam and LP steam as made by AO and CIT(A). We find that whole basis of additions made by the revenue is that Assessee is producing 2 kinds of steam namely high pressure steam (HP) and low pressure steam (LP) and separate cost of each kind of steam is required to be found out is fundamentally erroneous. After considering the factual matrix of the case and the diagram shown to us, we are in agreement with the learned senior counsel for the assessee that the assessee is not producing 2 different kinds of steam. It is fact that from the boiler steam is generated; it is of high pressure which is used to rotate the turbine, further once the turbine is rotated the steam released becomes low pressure. Therefore, there 46

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 is only one steam; before it is put into turbine it is having high pressure and post the turbine stage it is low pressure. Accordingly, the whole attempt to allocate costs to these 2 kinds of steam is fundamentally not correct. We are also convinced with the submissions that once, the assessee has claimed relevant cost of power plant and recognized revenue for generation of power and steam at specific value and AO has not brought any evidences that steam value charged from other unit is not at market value, the AO is not empowered to re-compute profit and loss account of eligible unit. Therefore, considering these facts, there is no need to prepare re- casted Profit & loss account or compute excess LP cost recovered from Paper units as made by AO as well as by Ld. CIT(A). Accordingly we set aside the method of cost re-allocation for HP steam and LP steam initially worked out by AO and further method of allocation of cost made by ld. CIT(A). In the result the grounds of appeal raised by the revenue in AY 2008-09 to 2013-14 are dismissed and the ground No.2 of appeal raised by the assessee in AY 2009-10, 2010-11 and ground No. 1 in AY 2011-12 & 2012-13 and Ground No.1 of assessee’s COfor AY 2013-14 are consequently allowed. 63. As we have accepted the primary submissions of the ld. senior counsel for the assessee therefore the consideration and adjudication on the alternative submissions have become academic.

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 64. Next grounds of appeal relates to not allowing the consequential relief by ld. CIT(A) by not increasing deduction under section 80IA, arising out of cost allocation. Grounds of CO by assessee in AY 2008-09. Considering the fact that we have set aside the method of cost re- allocation for HP steam and LP steam initially worked out by AO and further method of allocation of cost by ld. CIT(A), therefore, the grounds raised in CO by assessee in AY 2008-09 have become infructuous. Resultantly dismissed. 65. Next Ground of appeal relates to disallowance / addition under section 14A(Ground No. 2 in assessee’s appeal for 2011-12 and 2012-13. The learned senior counsel for the assessee submits that the AO while passing assessment order under section 143(3) for both the years held that assessee has diverted interest bearing funds for earning exempt income and made disallowance under section 14A has been worked out at Rs. 1,03,175 in A.Y. 2011-12 and Rs. 55,870/- in A.Y. 2012-13. The Ld. CIT(A) vide his order dated 09.03.2016 confirmed addition made by AO on the ground that the assessee has failed to establish direct nexus of interest free funds with investment made out which exempt income is earned. The ld. Senior counsel submitted that disallowance under section 14A has been erroneously confirmed by the Ld. CIT(A) without appreciating the facts that the assessee owned sufficient interest free funds available with it. The appellant has sufficient interest free funds to 48

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 cover investments which yield exempt income. Out of total interest free fundavailable in A.Y. 2011-12, investment for Rs. 18,72,860/- has been made. Similarly in A.Y. 2012-13, the appellant has made investment of Rs. 18,69,360/-. The assessee total interest free funds as on 31.03.2011 of Rs. 92,35,93,236/- and as on 31/03/2012 of Rs. 90,22,60,154/-. Thus, no interest disallowance is warranted. Further, the assessee is engaged in the business of manufacturing of paper, paper boards and News Prints hence entire expenditure is for earning business income and not for carrying out any investment activity. To buttress his submissions the ld Sr counsel relied on the following decisions;  Hon’ble Gujarat High Court in case of Shreno Ltd. (102 taxmann.com 129),  Bombay High Court in CIT v. Reliance Utilities and Power Ltd. (313 ITR 340),  Gujarat High court in case of CIT v/s UTI Bank Limited [32 taxman.com 370(2013)],  Decision of Ahmedabad ITAT in case of ACIT v/s Sarabhai Holding Pvt. Ltd. [I.T.A. No.2328/Ahd/2012],  Decision of Third Member division of Delhi ITAT in case of Wimco Seedlings Vs. DCIT (109 TTJ 462) and  Decision of Delhi Tribunal in case of Malwa Investments Limited Vs. DICT (3 DTR 455).

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 Baroda and Bank of India. The balance investments yield taxable income which as and when received has been duly offered to tax and hence such investments cannot be considered for working out disallowance under section 14A. Accordingly, addition under section 14A made by Assessing Officer and confirmed by CIT(A) is liable to be deleted. 67. On the other hand the ld. CIT-DR for the revenue submits that he supports the order of the lower authorities. 68. We have considered the rival submissions of the parties and perused the orders of lower authorities. We find that A.O. while passing the assessment order the A.O. noted that the assessee has shown investment for earning exempt income. The A.O. issued show cause notice as to why proportionate interest expenses be not disallowed. The assessee filed its reply. The contents of the reply furnished by the assessee is not discussed by him. He simply held that the reply filed by the assessee is not tenable as the same is nor supported with evidence. From the paper book filed on record, we find that the assessee in its reply dated 24.03.2014, filed before AO, the assessee stated that they have not incurred any expenses for earning exempt income. The investment shown in the balance sheet are the shares taken mainly from cooperative banks, which are mandatory condition for availing credit facilities from cooperative banks. Those investment is made from the tax free profit of Rs. Rs.67 Crore. There is no 50

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 investment from the borrowed funds. The A.O. made disallowance of Rs. 1,03,175/- for A.Y. 2011-12. Similarly in AY the A.O. made disallowance of Rs. 55,870/-. The A.O. made disallowance of interest expenses by taking view that assessee diverted it funds for earning exempt income. 69. Before Ld. CIT(A) the assessee again filed detail written submissions and furnished the statement of interest free funds available with the assessee as on 31.03.2011 and on 31.03.2012 and submits that no interest disallowance can be made. For administrative expenses the assessee explained that no such disallowance can be made as entire expenses are debited to the profit and loss account has been incurred for the purpose of business and not for investing purpose. The assessee in its without prejudice submissions explained that they have received total exempt dividend income on such investment of Rs. 6,09,000/- from shares of bank of Baroda and Bank of India and the balance investment yield taxable income which has been duly offered to tax as and when received. The assessee also relied on various case laws, on the ratio that if reserve and surplus funds are more than the investment, it could be presumed that such investment is made from interest free funds available with the assessee and thus no interest disallowance is warranted under section 14A. We find that the Ld. CIT(A) disregarded the submissions of the assessee by taking view that all case laws are of 51

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 earlier years when Rule 8D was not in force. And that the assessee has not furnished such direct nexus and simply submitted that share capital and reserve are surplus, which cannot be accepted as such share capital and surplus is already utilized in asset other than investment and confirmed the order of AO. Before us the assessee has submitted that the total interest free funds available with the assessee as on 31.03.2011 was of Rs. 92,35,93,236/- and as on 31/03/2012 of Rs. 90,22,60,154/-, which are more than the assessee has made investment in A.Y. 2011-12, of Rs. 18,72,860/-, and in A.Y. 2012-13 of Rs. 18,69,360/- only. 70. Now it is settled law that if reserve and surplus funds are more than the investment, it could be presumed that such investment is made from interest free funds available with the assessee and thus no interest disallowance is warranted under section 14A. Hence, we hold that no interest disallowance under section 14A is warranted.We further find that the A.O. has not made any other disallowance either under Rule 8D(2)(i) or 8D(2)(iii). We also find merit in the submissions of learned Senior Counsel for the assesse that dividend income has been earned on investments amounting to Rs.6,09,000/- from shares of Bank of Baroda and Bank of India. The balance investments yield taxable income which as and when received has been duly offered to tax and hence such investments cannot be considered for working out disallowance under section 52

NR Aggarwal Industries Ltd. Assessment Years: 2007-08 to 2013-14 14A.Therefore, we direct the AO to delete the interest disallowance under section 14A. In the result the ground No. 2 in appeals for AY 2011-12 & 2012-13 are allowed. 71. In the final result all the appeal filed by the assessee are allowed and all the appeal filed by the revenue are dismissed. The CO(s) filed by the assessee in AY 2007-08 is dismissed, in AY 2008-09 is partly allowed and in AY 2013-14 is allowed. Order announced on 5th July 2021 by placing the result on notice board. Sd/- Sd/- (Dr ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 05/07/2021 / Copy to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR 6. Guard File By order / / TRUE COPY / / Assistant Registrar, ITAT, Surat True copy/