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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH
Before: SHRI MAHAVIR PRASAD & SHRI WASEEM AHMED
PER MAHAVIR PRASAD, JUDICIAL MEMBER
These four appeals have been filed by the Assessee and the Revenue against each other. Therefore for the sake of convenience, we would like to dispose of these appeals by way of a common order. First of all, we would take up in A.Y. 2012-13 (Assessee’s appeal). Assessee has taken following grounds of appeal:
1. The learned C.I.T.(Appeals) has erred in confirming the disallowance of Rs. 11,81,25,616/- in respect of deduction claimed u/s. 80IA of the Act on generation of power. It is submitted that on the facts and circumstances of the case and based on the materials and evidences filed the appellant is entitled to deduction of income generated from new Industrial Undertaking by way of generating and distributing power, i.e. by way of Electricity and the same be allowed now. 1.1 The learned C.I.T. (Appeals) has erred in incorrectly and illegally working out the total cost of Steam for generation of power at Rs. 52,09,45,079/- by applying his own formula, which is contrary to the standard formula and tables published by authorities.' It is submitted that while working out the profit u/s. 80IA, the cost of steam for power generation as worked out by the appellant at Rs. 49,24,49,173/- be accepted and the revised working of the C.I.T.(Appeals), which is without any basis or sound material be replaced or substituted. 1.2 The learned C.I.T. (Appeals) has erred in reducing the selling price of the power i.e. electricity worked out for deriving the profit from Industrial Undertaking by reducing the surcharge and taxes at Rs.2.99 per Unit instead of the correct average selling price of the power being charged by the Power & 17/Ahd/16 3 . A.Y. 2012-13-2013-14 Generating Units / UGVCL at Rs. 5.43 Per Unit ( Avg. Price ) for this year. It is submitted that based on various decisions and on fact, the cost of power supplied to appellant's Paper Plant must be taken at the selling price of UGVCL / Selling price at which other Power Generating Plants sell the power. It is submitted that the selling price for working out the Profit u/s. 80IA as adopted and worked out by the appellant be accepted and not Rs.2.99 per Unit as incorrectly worked out by the learned C.I.T. (Appeals).
2. The learned C.I.T. (Appeals) has erred in holding that while working out the profit u/s. 80IA for eligible Unit the earlier years' carried forward loss must be set off before granting deduction. It is submitted that power generating Unit is an independent Unit and there are no carried forward losses claimed or set off by the appellant. It is therefore submitted that the finding and decision of the C.I.T.(Appeals) being incorrect and illegal be set aside; as it was not arising out of Assessment Order and also factually Appellant has no carried forward loss of this Unit.
2. Ground no.1 with regard to that ld. CIT(A) has erred in confirming the disallowance of Rs. 11,81,25,616/- by not granting deduction u/s. 80IA of Rs. 11,81,25,616 as claimed by the appellant on generation of power and ground no. 1.1 is that ld. CIT(A) has erred in incorrectly and illegally working out the total cost of steam for generation of power at Rs. 52,09,45,079/- by applying his own formula. Since both the grounds are interconnected and for the sake of brevity, we would like to dispose of together.
The assessee has claimed deduction u/s.80-IA (4)( iv) of the Act amounting to Rs.ll,81,25,616/-in respect of sale of power and sale of steam of its 5MW and initial assessment Year for 10 MW power plant. The assessee is claiming the deduction u/s. 80-IA on both the Power Plants for the generation of power and sale of steam during the year.
Assessee stated that about 48 % of the steam is used for power generation segment and remaining 52% of the steam is used for consumption in the & 17/Ahd/16 4 . A.Y. 2012-13-2013-14 assessee's own paper plant for drying the papers. It was also confirmed that the calculation submitted by the assessee was based on absoiute^andr^ctual correct consumption of coal, all inputs, exact cubic meter of steam produced (calculated on the basis of meter reading), steam used for paper plant, steam not used in paper plant but killed by way of transferring into water by way of transferring into cooling tower/ condenser and again regenerated in boiler and further used for power.
The assessee also contended that it is eligible for deduction U/s 80IA on sale of Steam generated during the process of power generation because steam is also a form of energy. And it is another form of power and therefore, it would qualify for the deduction under section 80-IA. For this contention, the assessee relied on the decision of HonTDle ITAT in the case of Sial SBEC Bio energy Ltd v/s Dy. Commissioner, (Delhi)(2004) 4 SOT 730( Delhi). But ld. A.O. was not agree with the contention of the assessee and made addition of Rs. 11,81,25,616.
Against the said order, assessee preferred first statutory appeal before the ld. CIT(A) who confirmed the action of the ld. A.O.
Now appellant has come before us and has filed its second statutory appeal . Assessee cited an order of our Bench wherein matter was partly decided in favour of the appellant in its own case in to 103/Ahd/2013 for A.Ys. 2008-09 to 2010-11 dated 11.07.2017 with following observation:
14.4. Adverting to the issue concerning cost of power as noted earlier, the AO has allocated the total cost incurred between cost of steam and cost of power at Rs.1,20,38,775/- and Rs.17,84,94,630/- respectively. The CIT(A) has reallocated the aforesaid cost at Rs.7,36,75,904/- and Rs.11,68,57,552/- respectively having & 17/Ahd/16 5 . A.Y. 2012-13-2013-14 regard to the pressure difference as well as energy needed to produce power and steam. The cost of power is attributable to the deemed sale value of power. In this regard, we observe that the CIT(A) has made scientific analysis as per para-9 of its order (reproduced in the preceding paras) and came to the conclusion that ratio of energy(heat) usable with corresponding pressure would be 105 : 66.2 instead of 810 : 705. We notice that the assessee had failed to allocate the total cost of steam towards eligible business (power generation) and non-eligible business (drying process in paper unit) in a fair manner while determining the eligible profit under s.80IA(4) of the Act at the time of return. The AO modified the cost of steam attributable to power at a higher amount on the basis of use of steam for power generation claimed in the ratio of 48 (power) 52 (steam) and thereafter made further adjustments in the cost of steam on account of pressure factor (5/42) attributable to use of residual steam for the purpose of drying paper as processed steam. In first appeal, the CIT(A) has further taken into account the energy ratio as well while readjusting the total cost in generating steam and power and thus granted partial relief. Before us, the assessee has disputed the energy ratio adopted by CIT(A) for which we do not find any objective reasons in its support. Notably, in the working filed in by paper-book also, the assessee was broadly accepted the cost allocation by CIT(A). The revenue has also not been able to rebut the cost allocation of steam carried on by CIT(A). Thus, we adopt the reasonings given by the CIT(A) in arriving at its conclusion towards cost allocation and decline to interfere therewith.
Since in above said appeals, similar issue has been decided in favour of the assessee for the A.Ys. 2008-09 to 2010-11. Therefore, in parity with the above said ITAT order, we allow both the grounds in favour of the assessee.
Now we come to ground no. 1.2 that ld. CIT(A) has erred in reducing the selling price of the power at Rs. 2.99 per unit instead of the correct average selling price of the power being charged by power generating unit/UGVCL at Rs. 5.43 per unit.
ITA Nos. 3408/Ahd/15 & 17/Ahd/16 6 . A.Y. 2012-13-2013-14 10. In support of its contention, ld. A.R. cited an order of our Bench in to 103/Ahd/2013 for A.Ys. 2008-09 to 2010-11 in Para no. 16 to 16.4 on Page 35 to 36 with following observation:
We now seek to dwell on other aspect of controversy i.e. includibility for otherwise of ‘surcharge’ in the deemed selling price. The controversy concerns as to whether ‘surcharge’ and ‘duty’ levied by the power generation and distribution companies to its consumer will form part of selling price or not for the determination of market value under s.80IA(8) for calculation of eligible profits under s.80IA(4) of the Act.
16.1. In this regard, we refer to the Electricity Act, 2003 and note that surcharge is applied with an object of meeting the requirement of current level cross subsidy. The aforesaid Act clearly provides that surcharge shall not be leviable in case open access is provided to a person who had established a captive generating plant for hiring electricity to the destination of his own use. In parity, the captive power generating plant is not entitled to recover surcharge while transferring the power for captive use by operation of law. This being so, the deeming selling price should also not include the component of surcharge which is not chargeable at the first place in the facts of the case.
16.2. The decision in the case of Pragati Glass (supra) also provides exclusion of excise duty for the purposes of determination of market value of electricity generated. The ‘duty’ being excluded, surcharge meant for specific purposes cannot form part of profits of the eligible business. We also take note of similar observations have been made by the Coordinate Bench of the Tribunal in West Coast Paper Mills Ltd. vs. ACIT 103 ITD 19 (Mum.) referred to and relied upon by the revenue to support our view.
16.3. In parity, we hold that both ‘surcharge’ and ‘duty’ shall not form part of the deemed sale price being extraneous charges for determination of ‘market value’ in terms of s.80IA(8) of the Act.
16.4. Thus, we are of the view that while averaging of selling price as per prices of various distribution companies is not warranted, the average standard sale price charged by Electricity Board excluding surcharge, duty and taxes etc. is & 17/Ahd/16 7 . A.Y. 2012-13-2013-14 reliable benchmark for computation deemed sale price and market value of goods/services supplied.
Thus, in parity with the above said order, we allow this ground of appeal of the assessee.
12. Now we come to next ground that ld. CIT(A) has erred in holding that while working out the profit u/s. 80IA for eligible unit the earlier year’s carried forward loss must to be set off before granting deduction.
13. At the outset, ld. A.R. cited an order of this bench wherein assessee’s own case in to 103/Ahd/2013 for A.Ys. 2008-09 to 2010-11 Para No. 19 on Page no. 37 of the order wherein on similar ground, relief was granted to the assessee with following observation: 19. Apart from the quantum of profit eligible for deduction under s.80IA(4)(iv), the assessee has also challenged the action of the CIT(A) that while working out the eligible profits under s.80IA(4), the earlier years carried forward loss must be set off before granting deduction. The assessee claims that no losses of the earlier years are pending for set off. We do not have any factual data to appreciate the facts on the issue raised. We therefore consider it expedient that the issue of set off towards carried forward losses against the eligible profit, if any, shall be decided de novo by the AO in accordance with law having regard to the decision of the Hon’ble Rajasthan High Court in the case of Eastman Exports(supra) and ITAT decision in Hamailton Houseware (supra) and also having regard to the CBDT Circular No.1/2016 dated 15/02/2016.
Thus, in parity with the ITAT order, we allow this ground of appeal of the assessee.
In the result, appeal filed by the Assessee is allowed.
ITA Nos. 3408/Ahd/15 & 17/Ahd/16 8 . A.Y. 2012-13-2013-14 16. Now we come to Revenue’s appeal in for A.Y. 2012- 13. Revenue has taken following grounds of appeal:
1. The Ld. CIT(A) has erred in law and on facts in allowing the appeal of the assessee with regard to proportionate depreciation of Rs.10,59,719/- following the last year's order of CIT(A) for AY 2011-12.
The CIT(A) has erred in law and on facts in directing the AO to adopt cost of steam for power generation at Rs.52,09,45,079/-instead of Rs.84,93,88,548/-. 3. On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer. 4. It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored.
At the outset, ld. A.R. cited an order of this Bench in assessee’s own case in to 769/Ahd/2013 for A.Y. 2008-09 to 2010-11 in Para no. 23 and 31 on Page no. 40 & 46 of the order and with the following observation: 23. Revenue has raised the following grounds in its cross-appeal.
1. The Ld.CIT(A) erred in law and on facts in directing to allow depreciation on the Measurex Quality Machine purchased and installed during the A.Y. 2009- 10.
2. The Ld.CIT(A) erred in law and on facts in allowing depreciation on the Honey well Measurex Equipment considering the value of machine at Rs.1,07,33,188/-.
3. The Ld.CIT(A) erred in law and on facts in working out the cost of steam for power generation at Rs.11,20,59,887/- instead of Rs.18,27,10,978/- as worked out by the A.O.
4. It is, therefore, prayed that the order of the CIT(A) be set aside and that of the A.O. be restored to the above extent.
In this context, we note that the party namely Contech Software Ltd. has transferred its Honey well Measures machine which was shown at written down value of Rs.1,07,33,188/- in its books. Placing reliance upon the written down value shown in the books of the seller, the cost was assigned at Rs.1,07,33,188/- as on 31/03/2008. The CIT(A) also & 17/Ahd/16 9 . A.Y. 2012-13-2013-14 relied upon the fact that after using the aforesaid machine so acquired for a short period, the assessee has sold it to one Kalra Overseas Pvt.Ltd. for a sum of Rs.73,53,000/-. The CIT(A) accordingly felt that in a situation where the seller is showing the written down value at Rs.1.07 cores and the assessee resold the said computer at Rs.73.53 lacs in a short interval, the cost of acquisition should be assigned at Rs.1.07 crores only. We note that the reasons assigned by the CIT(A) for replacement of purchase cost is tenuous and does not have legally sound basis. While upholding the purchase as per the findings noted (supra), the CIT(A) has doubted the genuineness of the price/value. We find that market value of machine on the date of sale to the assessee determined at Rs.1.07 crores is based on observations as noted above which are in the realm of conjectures and surmises and not sustainable in law. Having admitted the fact of purchase the cost thereof could not have been replaced by the CIT(A) without any sound basis. Thus, we find merit in the claim of the assessee. Therefore, ground No.1 of Assessee’s appeal is allowed, while ground Nos.1 & 2 of Revenue’s appeal are dismissed.
Thus, in parity with the ITAT order, we dismiss this ground of appeal of the Revenue.
19. Now we come to ground no. 2 that ld. CIT(A) has erred in law and facts in directing that adopt cost of steam for power generation at Rs. 52,09,45,079/- instead of Rs. 84,93,88,548/-.
At the outset, ld. A.R. cited an order of our own Bench is assessee’s own case in to 769/Ahd/2013 for A.Y. 2008-09 to 2010-11in Para No. 25 on Page no. 40 of the order with the following observation:
Both the sides consented that identical issues are involved in these two appeals too. Thus, for parity of reasons noted above, our view in No.101/Ahd/2013 for AY 2008-09 above shall apply mutatis mutandis to both the grounds captioned above. As a result, Ground No.2 of assessee’s appeal is partly allowed and Ground No.3 of Revenue’s appeal is dismissed.
& 17/Ahd/16 10 . A.Y. 2012-13-2013-14
Thus, in parity with the above said ITAT order, we dismiss this ground of appeal of the Revenue.
In the appeal, appeal filed by the Revenue is dismissed.
Now we come to for Assessee’s appeal in A.Y. 2013- 14. The assessee has taken following grounds of appeal:
1. The learned C.I.T.(Appeals) has erred in confirming the disallowance of Rs. 15,55,55,213/- in respect of deduction claimed u/s. 80IA of the Act on generation of power. It is submitted that on the facts and circumstances of the case and based on the materials and evidences filed the appellant is entitled to deduction of income generated from new Industrial Undertaking by way of generating and distributing power, i.e. by way of Electricity and the same be allowed now. 1.1 The learned C.I.T. (Appeals) has erred in incorrectly and illegally working out the total cost of Steam for generation of power at Rs. 55,96,72,0717- by applying his own formula, which is contrary to the standard formula and tables published by authorities.' It is submitted that while working out the profit u/s. 80IA, the cost of steam for power generation as worked out by the appellant at Rs. 51,67,00,1887- be accepted and the revised working of the C.I.T.(Appeals), which is without any basis or sound material be replaced or substituted. 1.2 The learned C.I.T. (Appeals) has erred in reducing the selling price of the power i.e. electricity worked out for deriving the profit from Industrial Undertaking by reducing the surcharge and taxes at Rs.2.99 per Unit instead of the correct average selling price of the power being charged by the Power Generating Units / UGVCL at Rs. 5.43 Per Unit ( Avg. Price ) for this year. It is submitted that based on various decisions and on fact, the cost of power supplied to appellant's Paper Plant must be taken at the selling price of UGVCL / Selling price at which other Power Generating Plants sell the power. It is submitted that the selling price for working out the Profit u/s. 80IA as adopted and worked out by the appellant be accepted and not Rs.2.99 per Unit as incorrectly worked out by the learned C.I.T. (Appeals).
2. The learned C.I.T. (Appeals) has erred in holding that while working out the profit u/s. 80IA for eligible Unit the earlier years' carried forward loss must be set off before granting deduction. It is submitted that power generating Unit is an ITA Nos. 3408/Ahd/15 & 17/Ahd/16 11 . A.Y. 2012-13-2013-14 independent Unit and there are no carried forward losses claimed or set off by the appellant. It is therefore submitted that the finding and decision of the C.I.T.(Appeals) being incorrect and illegal be set aside; as it was not arising out of Assessment Order and also factually Appellant has no carried forward loss of this Unit.
24. Since facts of the case have been discussed in connected appeal No. 3408/Ahd/2015. Ground no. 1 is that ld. CIT(A) has erred in confirming the disallowance of Rs. 15,55,55,213/- by not granting deduction u/s. 80IA of Rs. 15,55,55,213/- as claimed by the appellant on generation of power.
25. At the outset, ld. A.R. cited an order of ITAT in assessee’s own case in to 103/Ahd/2013 for A.Ys. 2008-09 to 2010-11 wherein Para No. 14 on Page 29 with the following observation. 14. The profit on generation of power from captive power plant is eligible for deduction under s.80IA(4)(iv) read with section 80IA(8) of the Act. Section 80IA(4)(iv) provides that Undertaking of an assessee engaged in the generation and distribution of power is qualified for claim of deduction. In this background, the assessee claimed deduction under s.80IA(4) amounting to Rs.3,51,13,522/- in the original return which amount was revised to Rs.3,51,17,060/- in the return filed under s.153A pursuant to search. The claim under s.80IA(4) was made both on account of (i) profits on deemed sale of electricity to its manufacturing unit as well as (ii) profit on sale of residual steam (to manufacturing unit) towards drying process. However, in the course of appellate proceedings before CIT(A), the claim of deduction towards profit on sale of steam was withdrawn. Thus, the controversy is confined to quantum of deduction under s.80IA(4) from profit arising in captive power unit only. The AO while examining the claim of aforesaid deduction recalculated the cost of steam (which is out of major components for generation of power) on the basis of pressure and thus re-bifurcated the consolidated cost of Rs.19,05,33,456/- ITA Nos. 3408/Ahd/15 & 17/Ahd/16 12 . A.Y. 2012-13-2013-14 between steam and power cost at Rs.1,20,38,775 and Rs.17,84,94,680/- respectively. Simultaneously, the sale price of power was also calculated without duty and surcharge at Rs.13,12,72,088/-. The sale price of steam was calculated at Rs.1,32,42,654/- by applying 10% mark-up to the cost of steam). As a result of these adjustments, the AO found that there is a loss of Rs.4,60,18,714/- in the Undertaking generating power which is further subject to allocation of other indirect expenses and depreciation etc. Thus, in the absence of any eligible profit per se the claim under s.80IA(4)(iv) of the Act was denied.
The profit of generation of power from captive power plant is eligible for deduction u/s. 80IA(4)(iv) read with section 80IA(8) of the Income Tax Act.
Thus, in parity with the aforesaid order, we allow this ground of appeal of the assessee.
28. Now we come to next ground is that ld. CIT(A) has erred in incorrectly and illegally working out the total cost of steam for generation of power at Rs. 55,96,72,071/- by applying his own formula.
This ground of appeal is connected with ground no. 2 of the Department’s appeal in (ITA No. 3201/Ahd/2013) for the year. The appellant relies on the detailed submission filed before Hon’ble CIT(A), which is reproduced on page 11 to 13, para 4.1 of CIT(A) order. However, the issue is decided against the appellant in its own case by the ITAT vide its order dated 11.07.2017 in to 103/Ahd/2013 for A.Ys. 2008-09 to 2010-11 wherein in Para No. 14 on Page 32, it is held that “Notabley, in the working accepted the cost allocation by CIT(A). The Revenue has also not been able to rebut the cost ITA Nos. 3408/Ahd/15 & 17/Ahd/16 13 . A.Y. 2012-13-2013-14 allocationof steam carried on arriving at its conclusion towards cost allocation and decline to interfere herewith.”.
Thus, in parity with the above said order, this ground of appeal is dismissed.
31. Now we come to next ground that ld. CIT(A) has erred in reducing the selling price of the power at Rs. 2.99 per unit instead of the correct average selling price of the power being charged by power generating unit/UGVCL at Rs. 5.43 per unit.
Since in connected appeal in , we have allowed this ground of appeal in favour of the assessee. Thus, in parity with the above said order, we allow this ground of appeal of the Assessee.
33. Now we come to next ground is that ld. CIT(A) has erred in holding that while working out the profit u/s. 80IA for eligible unit the earlier year’s carried forward loss must to be set off before granting deduction.
In connected appeal , we have granted relief to the assessee. On the basis of ITAT earlier orders in assessee’s own case in to 103/Ahd/2013 for A.Ys. 2008-09 to 2010-11. Thus in parity with the connected appeal, we allow this ground of appeal of the Assessee as well.
In the result, appeal filed by the Assessee is allowed.
Now we come to for Revenue’s appeal in A.Y. 2013- 14. The revenue has taken following grounds of appeal: & 17/Ahd/16 14 . A.Y. 2012-13-2013-14
1. The Ld. CIT(A) has erred in law and on facts in directing to allow the depreciation 14,88,61,711/- as per claim made by the assessee and not appreciating that the Quality Control Machinery was installed in the second quarter without which this machine also could not have been put to use.
2. The CIT(A) has erred in law and on facts in directing that adopt cost of steam for power generation at, Rs.55,96,72,071/- instead of Rs,91,25,31,986/-.
3. On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer,
4. It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored.
Since facts of the case have been narrated in connected appeal in for the sake of brevity, we do not want to repeat here.
At the outset, ld. A.R. cited an order of Co-ordinate Bench in assessee’s own case in to 769/Ahd/2013 for A.Y. 2008-09 to 2010-11 order dated 11.07.2017 in Para No. 23 -31 on Page no. 40-46 of the order. This ground raised by the Revenue has already been dismissed in assessee’s own case. Thus, in parity with the above said Co-ordinate Bench order, we dismiss this ground of appeal of the Revenue.
39. Now we come to next ground that ld. CIT(A) has erred in law and facts in directing that adopt cost of steam for power generation at Rs. 55,96,72,071/- instead of Rs.91,25,31,986/-.
At the outset, ld. A.R. cited an order of Co-ordinate Bench in assessee’s own case in to 769/Ahd/2013 for A.Y. 2008-09 to 2010-11 in Para no. 25 on Page no. 40 where similar ground raised by the Revenue has already ITA Nos. 3408/Ahd/15 & 17/Ahd/16 15 . A.Y. 2012-13-2013-14 been dismissed in assessee’s own case. Thus, in parity with the above said order, we dismiss this ground of appeal of the Revenue.
In the result, appeal filed by the Revenue is dismissed.
Order pronounced in Open Court on 28- 06- 2019