THE ACIT, CIRCLE - 1,, RAJAHMUNDRY vs. THE ANDHRA PRADESH PAPER MILLS LTD.,, HYDERABAD

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM

BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HON’BLE ACCOUNTANT MEMBER

ITA Nos. 04 to 06/VIZ/2014 (Asst. Year : 2007-08 to 2009-10) ACIT, Circle-1, vs. International Paper APPM Rajahmundry. Ltd. (Formerly known as The Andhra Pradesh Paper Mills Ltd.), Krishe Sapphire Building, 8th Floor, 1-89/3/ B40 to 42/KS/801, Hi-Tech City Main Road, Madhapur, Hyderabad. PAN No. AAACT 8849 D (Appellant) (Respondent)

C.O.Nos. 13 to 15/VIZ/2016 (Arising out of ITA Nos. 04 to 06/VIZ/2014) (Asst. Year : 2007-08 to 2009-10) The Andhra Pradesh Paper Mills vs. ACIT, Circle-1, Ltd., Krishe Sapphire Building, Rajahmundry. 8th Floor, 1-89/3/ B40 to 42/KS/801, Hi Tech City Main Road, Madhapur, Hyderabad. PAN No. AAACT 8849 D (Applicant) (Respondent)

Assessee by : Shri T.M. Shiv Kumar – Adv. Department By : Shri T.S.N. Murthy – CIT DR

Date of hearing : 27/09/2019. Date of pronouncement : 30/10/2019.

2 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER:

These appeals by the Revenue and the cross objections by the assessee are directed against the separate orders of Commissioner of Income Tax (Appeals)-III, Hyderabad, all dated 08/10/2013 for the Assessment Years 2007-08 to 2009-10. Since facts and issues are common, all the appeals are clubbed and heard together and disposed of by way of this consolidated order. 2. The Revenue has raised 13 grounds of appeal in Form No. 36. Since the grounds raised by the Revenue are lengthy and argumentative, the Revenue has filed revised grounds of appeal vide petition dated 13/02/2019 and the ld.DR requested to take up the revised grounds for adjudication which are 6 in number. Accordingly, the revised grounds are taken up for adjudication. 3. For the sake of convenience, facts are taken from A.Y. 2007-08 which are common in all the pending appeals. 4. Ground Nos. 1 & 6 are general in nature, which do not require any specific adjudication, therefore same are dismissed. 5. Ground No.2 is related to the depreciation on goodwill. The same issue involved for other assessment years i.e. A.Y. 2008-09 & 2009-10. During the course of assessment proceedings, the

3 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) Assessing Officer found that the assessee claimed the depreciation on goodwill of Rs. 1,14,73,486/- which was included in the total depreciation claimed in the computation of income. The Assessing Officer called for explanation from the assessee as to why the depreciation on goodwill should not be disallowed and in response to which the assessee filed the explanation. The assessee in its reply stated that the assessee company had acquired the shares of Coastal Papers Private Ltd. (CPL), consequently CPL lost its identify and merged with the assessee company. The excess consideration paid was considered as good will and amortised over a period of time. Though the facts were identical to the earlier assessment years, the Assessing Officer (AO) not being convinced with the explanation, disallowed the depreciation holding that the difference between the assets and liabilities takes the character of accumulated losses, thus, disallowed the depreciation and addition was made to the returned income. The same addition was made in the A.Y. 2008-and A.Y. 2009-10 09 for a sum Rs.86,05,115/- and Rs.64,53,836/- respectively. 6. Against the order of the Assessing Officer, the assessee went on appeal before the CIT(A) and the ld. CIT(A) allowed the appeal of the assessee following the order of this Tribunal in assessee’s own case. For the sake of clarity and convenience, we extract the

4 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) relevant part of the order of the ld. CIT(A) which is made available in paragraphs 5.2 & 5.3 at page Nos. 6 to 10 and reads as under:-

“5.2 I have seen carefully the facts and evidence and I have also gone through the order of the honourable ITAT referred to supra. I find that the honourable ITAT has gone into great details of the amalgamation and the claim of amortisation. It has been held by the honourable ITAT that due to the acquisition of CPL, the appellant company obtained various benefits including know-how, patents, copyright, licenses and other commercial and business advantages. These rights were similar to those which were mentioned in section 32 of the Income Tax Act. Therefore, what was seen collectively as "goodwill" consisted of all the aforementioned rights and advantages which were mentioned in section 32 of the Income Tax Act. Accordingly, it was held by the honourable ITAT that amortisation on goodwill had been rightly allowed by the assessing officer and that the CIT was not justified in invoking jurisdiction under section 263 of the Income Tax Act. Following is the operative part of the order of the honourable ITAT Hyderabad in this regard:- "12 In the present case, APPM had acquired 42,60,000 shares and transfer took place on 13/12/2000 and 14.12.2000 respectively. The transfer date of scheme of amalgamation was 1st October, 2000 and as on the date, APPM does not hold any shares on 1st October, 2000. When the final accounts for the year ended 31.3.2002 were drawn up, the amalgamation was completed in all respects though numbers as on 31.3.2001 which is the previous year relevant to the assessment year. For income tax purpose, a strict technical compliance is contemplated and the conditions stated above were not fulfilled, the amalgamation has to be considered under purchase method. To meet the conditions prescribed for pooling interest method, share holder representing 54,00,000 shares (90% of 60 lacs) would have been offered in APPM i.e. 18,00,000 shares of APPM could have been issued to, erstwhile shareholders of CPL in the ratio of 3: 1. However, only 5,80,000 shares were issued. Therefore, the condition prescribed under pooling of interest method was not complied with the condition laid down in clause 29 (ii) of Accounting Standard (AS-14) as such, clause '30 of the AS-14 is applicable. Therefore, in our opinion, amalgamation will be under purchase method and the excess consideration of Rs.

5 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) 1933.97 lacs to be treated as goodwill and should be amortized over the period of useful life. Now the contentions of the assessee is that he wrongly followed the 'pooling method' instead of 'purchase method' and entry in the books of account not conclusive and the department was not entitled to take the book keeping entries as evidence. For that purpose he relied on the judgment of Supreme Court in the case of CIT Vs. Mugneeram Bangur & Corn. (Land Department) (57 ITR 299 ) (SC). Further contention is that substance of the situation to be seen rather than form. For this purpose, reliance was placed on the following judgment: Kedarnath Jute Mfg. Co. Ltd. v, CIT, 82 ITR 363 (SC), wherein it was held whether the assessee is entitled to a particular deduction or not will depend upon the provisions of law relating thereto and not on the view which the assessee might take of his rights, nor can the existence or absence of entry in his books of account be decisive or conclusive in the matter.” Sutlez Cotton Mills Ltd. v. CIT 116 ITR 1 (SC), it was held as follows: "It is now well settled that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the 'assessee has earned any' profit or suffered any loss. The assessee may, by making entries which are not-in conformity with the proper principles of accountancy, conceal profit or show loss and the entries made by him cannot, therefore, be regarded as conclusive one way or the other. What is necessary to be considered is the true nature of the 'transaction and whether in fact it has resulted in profit or loss to the assessee. 13. In our opinion, in view of the above judgment the concept of materiality (substance) is threshold for recognition of transaction in accounting process. 14. The contentions of the department is that there is no good will in this case. Goodwill basically is reputation. There can be no sale of a goodwill without the business associated with that goodwill or the name. From that point of view, goodwill has no separate existence apart from business. One cannot sell the goodwill and retain the business that the goodwill represented, nor can one sell the business and

6 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) retain the goodwill. Good will has no independent existence. It cannot subsist by itself. It must be attached to business. Reliance is placed on judgment of Calcutta High Court in the case of CIT Vs. Chunnilal Prabhudas & Company (76 ITR 566). (Calcutta HC). In the case of CIT Vs.B.C. Srinivasa Setty(128 ITR 294) (SC)it was held that: "Goodwill denotes the benefit arising from connection and reputation. The original definition by Lotd Eldon in Crullwell V. Lye (1810) 17 Ves.335 that goodwill was nothing more than the probability that the old customers would resort to the old places was expanded by Wood V.C. in Churton V. Douglas (1859) John 174 to encompass every positive advantage "that has been acquired by the old firm in carrying on its business, whether connected with the premises in which the business was previously carried on or with the name of the old firm, or with any other matter carrying with it the benefit of the business. In Trego v. Hunt (1896) AC 7 (HL) Lord Herschell described goodwill as a connection which tended to become permanent because of habit or otherwise. The benefit to the business varies with the nature of the business and also from one business to another. No business commenced for the first time possesses goodwill from the start. It is generated as the business is carried on and may be augmented with the passage of time. Lawson in his introduction to the law of Property describes it as property of a highly peculiar kind. In CITVs. Chunnial Prabhudas & Co. (1970) 76 ITR 566the Calcutta High Court reviewed the different approaches to the concept. It has been horticultural and botanically viewed as a seed sprouting' or an corn growing into the mighty oak of goodwill. It has been geographically described by locality. It has been historically explained as growing and crystallizing traditions in the business. It has been described in terms of a magnet as the 'attracting force'. In terms of comparative dynamics goodwill has been described as the 'differential return of profit'. Philosophically it has been held to be intangible. Though immaterial, it is materially valued. Physically and psychologically it is a habit and sociologically it is a 'custom'. Biologically, it has been described by Lord Macna ghten in Trego V.Hunt (1896) AC 7 (HL) as the „sap and life' of the business. Architecturally, it has been described as the 'cement' binding together the business and its assets as whole and a going and developing concern".

7 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) 15. In the present case, consequent upon amalgamation, of CPL with APPM, the market share of Assessee Company has increased substantially, as submitted by the assessee counsel it was increased from a level of 98500metric tons to 174000 MT per annum i.e. an increase of 75,500 MT. Further, the brands of the CPL Viz.., (1) Azurwovel Azurlaid (2) Color Printing (3) Newsprint (4) Manilla Board (5) Kraft have become the brands of the assessee company. Further, on amalgamation Unit APPM had commissioned a single street state of art technology Pulp Mill of 550 MT per day in the year 2006. The Pulp mill was operating at capacity of 425 tons per day. Before amalgamation after meeting the captive consumption of about 290TM per day in Unit APPM, the surplus is transferred to Unit CP to manufacture value added papers and to elevate the status of the Mill from a B grade to A grade one. Further, as an environmentally sound measure to dispose off black liquor generated in the Unit CP in the Rice Straw Pulping process, the assessee transferring the concentrated black liquor to unit APPM for firing in the Chemical Recovery Boiler, Since Unit APPM has the infrastructure to fire the black liquor to the boiler, the spent chemical are recovered back and steel is also generated as byproduct to meet the demand of process steam at Unit APPM. By this process, any pollution generated at the pulp in process is eliminated in unit CP. Further, the assessee got the Loyal Domestic customers like Sakal Papers (P) Ltd., Shree Krishna Newsprint(East Media), Bhubaneswar, Indo Global Commercial (P) Ltd., Nagpur, Ambica Papers (P) Ltd, Mumbai, SK Impex, Kolkata and Export Customers viz., Assudamal & Sons HK Ltd., Vital Solutions, Hind Exports, Kunicka Holdings, Dinowic Pte Ltd. 15.1. Further assessee got various licenses on account of amalgamation like Factory License, Boiler Operating License, Pollution disposal permission, VAT Registration, Excise Registration, Export License and also got advantages due to proximity of location. Further, Unit CPL is located at a distance of 18 kms from Unit APPM and because of that the various advantages accrue to the assessee. 15.2. Further, the assessee got various infrastructural advantages like CPL has almost all infrastructure capability like captive power plant of 5.74 mw, coal fired boiler, DM plant, Effluent Treatment Plant, and also benefit of sales tax deferment loan for 14 years upto 30-6-2013. Further, the assesee acquired on operating mill, no gestation/

8 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) stabilization period was required when compared to new green field or brown field venture. 15.3. From the above advantages accrued by the assessee is nothing but various intangible assets and business advantages, this is nothing but an intangible asset as enumerated in S.32 of the IT Act as per this definition, it includes know-how, patents, copyrights, trademarks, licenses, franchises, etc., any other business or commercial rights of similar nature. Therefore, all the rights are similar to the rights mentioned in section 32 of the IT Act is acquired by the assessee in this case. Thus goodwill is a business or commercial rights of similar nature and the assessee is benefited by amalgamation by acquiring that commercial value being intangible assets which the assessee has paid on amalgamation i.e excess consideration over and above the excess of assets over liabilities is a goodwill which is an asset entitled for depreciation u/s 32 of IT Act. As such, assessing officer is justified in granting the depreciation on goodwill while completing the assessment u/s 143 (3) of the IT Act and CIT is not justified in invoking of provisions of S.263 on this issue." 5.3 From the above discussions it is clear that the appellant has claimed the same amortisation which had been claimed in the aforementioned order and the facts are identical. Therefore, respectfully following the order of the honourable ITAT I hold that the amortisation claimed by the appellant on the "goodwill" relating to the acquisition of CPL is allowable under section 32 of the Income Tax Act as depreciation on intangible assets. This issue is decided in favour of appellant.”

9 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) 2002-03 to 2006-07. Respectfully following the view taken by this Tribunal, we dismiss the appeal of the Revenue on this ground. 10. Ground No.3 is related to the excess claim of depreciation on printer and scanner holding that same constitutes integral part of computer system for granting higher rate of depreciation. The identical issue is involved in the A.Ys. 2008-09 & 2009-10 also. The Assessing Officer during the course of assessment proceedings found that the assessee has claimed the depreciation @ 60% on printers, UPS and other computer peripherals like network equipment/ installation treating the same in the block of computers. The assessee filed explanation stating that the front- end data entry units and the servers are the data processing units at the back end. There has to be a complete integration between the front end and the back end for any computerized system to work effectively and the same is achieved with the help of LAN, the other output devices like the printers, the high quality optical fibre cables and cards. Hence, argued that the total integration system i.e. inclusive computers and its front end data entry units are eligible for depreciation @ 60%. However, the Assessing Officer did not agree with the submission of the assessee and disallowed the excess depreciation amounting to Rs. 1,14,088/-

10 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) and added back to the income. The similar disallowance was made in the subsequent years i.e. A.Ys. 2008-09 & 2009-10 also. 11. Against the order of the Assessing Officer, the assessee went on appeal before the CIT(A) and the ld. CIT(A) allowed the appeal of the assessee holding that computer is an integrated processing machine and cannot be seen as only a CPU. The ld. CIT(A) followed the decision of ITAT Hyderabad Bench in assessee’s own case and also the decision of the ITAT, Kolkata Bench in the case of ITO Vs. Samiran Majumdar [(2006) 98 ITD 119 (Kol.)]. 12 We have heard both the sides, perused the material placed on record. 13 The ld. CIT(A) allowed the appeal of the assessee following the order of the ITAT, Hyderabad Bench in assessee’s own case and also the decision of the ITAT, Kolkatta Bench in the case of Samiran Majumdar (supra). For the sake of clarity and convenience, we extract paragraphs 6.1 & 6.2 of the ld. CIT(A)’s order which reads as under:- “6.1 During appeal proceedings the appellant contended that computer cannot be seen in isolation as a CPU and has to be seen as an integrated computer system. It was also stated that the honourable ITAT Hyderabad in the case of the appellant had allowed 60% depreciation on all the aforementioned articles as one computer system. Further the hohourable ITAT, the bench had also allowed the same vide their order (2006) 98 ITD 119 (kol) in the case of Income tax officer vs Samiran Majumdar.

11 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) 6.2 I have seen carefully the facts and evidence and I find that there is no doubt about the fact that computer is an integrated processing machine and cannot be seen as only a CPU. In fact a solitary CPU is not usable equipment. Computer consists of input devices, connecting wires, the CPU assembly along with memory and various data processing cards and output devices. It is not logical to treat one part of the computer for 60% depreciation and another part as plant and machinery. Respectfully following the orders of the honourable ITAT referred to supra, I hold that the assessing officer is incorrect in denying proper depreciation on computer systems and he is directed to allow the same. The issue is decided in favour of the appellant.” Since the case is squarely covered by the decisions cited (supra), respectfully following the view taken by the Tribunal in assessee’s own case in the earlier assessment years, we uphold the order of the ld. CIT(A) and dismiss the appeal of the Revenue on this ground. 14 Ground No.4 is related to the claim made by the assessee u/sec. 80IA for the steam generated out of steam and used for captive consumption. The assessee claimed that the power generated using the steam is also eligible for deduction u/sec. 80IA of the act. During the course of assessment proceedings, the Assessing Officer found that the assessee has claimed the deduction u/sec. 80IA in respect of captive steam plant and captive power plant. Since the return of income did not result into positive income, the assessee did not claim the deduction but made the claim subject to its right to claim deduction u/sec. 80IA

12 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) in the coming years subject to taxable income, the Assessing Officer called for explanation as to why the deduction u/sec. 80IA should not be disallowed and the assessee filed explanation stating that the captive power plant installed with turbine power is a separate unit generating power and eligible for deduction u/sec. 80IA of the Act. The Assessing Officer did not find favour with the explanation of the assessee and viewed that the assessee is in the business of manufacture of paper and paper boards. As a part of paper manufacturing activity, it was having boilers which manufacture steam and turbines which generate electricity. All these boilers and turbines installed for internal work management are clubbed together and called as power section and the assessee’s claim for deduction section 80IA in respect of manufacture of steam was disallowed by the Assessing Officer, accordingly, made the addition. Similar addition was made in the A.Ys. 2008-09 & 2009-10 also. 15 Against the order of the Assessing Officer, the assessee went on appeal to the ld. CIT(A) and the ld. CIT(A) allowed the appeal of the assessee following the order of the ITAT, Hyderabad Bench in assessee’s own case. However, the Assessing Officer was directed to allow the deduction subject to determination of arm’s length price quantifying the value of steam. For the sake of clarity

13 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) and convenience, we extract the relevant part of the order of the ld. CIT(A)’s order from para 7.1 to 7.17 at page 21 & 22 which reads as under:- “7.1 During appeal proceedings, the appellant stated that there were various judgments of courts whereby it had been held that even if power is generated and is utilised captively, the aforementioned deduction would be available because the section does not deal with the utilisation of power generated, rather it deals with the generation of power. The appellant also took the plea that steam which was generated from the boilers was also a form of power because steam was capable of generating electricity. Therefore, on both the counts the aforementioned deduction was allowable. The appellant also referred to the order of the honourable ITAT Hyderabad in the case of the appellant itself vide ITA number 311/HYD/09 and stated that the honourable ITAT had categorically held that deduction u/s 801A is to be provided both on the captive production and consumption of electricity as well as on steam. The appellant also referred to the order of the honourable ITAT Hyderabad in the case of Sirpur paper Mills with ITA 81/HYD/2011. 7.2 I have seen carefully the facts and evidence and I have also gone through all the aforementioned orders referred to by the appellant. With regard to generation of power in the form of electricity, which was directly used for captive consumption and in fact which replaced the power purchased by the appellant from the state Electricity Board, the various judgments are very clear on the issue. In the case of West Coast Paper Mills Ltd versus ACIT, the ITAT Mumbai bench vide their order(2006) 103 ITD 19 (Mum) has held that the assessee in question i.e. West Coast paper Mills was engaged in the manufacture and sale of paper and paper boards, etcetera. The assessee had four power generation units. However, all the power generated by these units was consumed captively, and was not sold outside, even though it was ready for sale. It was held that in view of the various decisions of the honourable apex court as well as the High Court, the claim of the assessee could not be denied only on the grounds that the power generation set, generated power which was used for captive consumption of the assessee. It was further stated that the provisions of section 80IA(8) stated that where any goods or service of the eligible business are transferred to any other business carried on by the assessee

14 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) and the consideration if any w.r.t. such transfer recorded in the accounts of the eligible business does not correspond to the market value of such goods or services then for the purposes of deduction under that section, the profit and gain for such transfer business shall be computed as if the transfer has been made at market value as on that date. It was held that the provisions of section 80 IA provide an answer and give a solution where there is a captive consumption of the finished goods, i.e., the power of the eligible units of electricity. Therefore, it was held that the assessee was, eligible for the aforementioned deduction. However, it was held that the power generation units had to be in the form of a new industrial undertaking involved in the business of generation of power. In the case of CIT versus Orient Paper Mills Ltd one, 76 ITR 110, the honourable Supreme Court of India had held on similar facts that the aforementioned deduction was allowable. 7.3 Further, the courts have held that there is no statutory requirement that the power so generated by a new industrial undertaking should be sold to an outsider in order for eligibility of deduction u/s 801A. The power produced could be consumed by the assessees existing units. 7.4 Finally, in the case of the decision of the honourable ITAT Hyderabad relied upon by the appellant referred to supra i.e. ITAT 11/HYD/09 in the appellant's own case, the honourable ITAT has held as follows:- “3 At the time of hearing both the parties fairly conceded that this issue is squarely covered by the order of the Tribunal Mumbai "I" Bench in the case of West Coast Paper Mills Ltd., vs. ACIT (103 ITD 19) (Mum) wherein it was held that the claim for deduction u/s 801A should be granted where there is a captive consumption of power generated by the assessee and transfer price has to be worked out on the basis of average price paid by the assessee during the year to the state Electricity Board minus extraneous charges such as electricity duty etc. However, in our opinion,, deduction u/s 801A under the Income Tax Act has to be computed after deduction of notional brought forward losses and depreciation of eligible business, even though they have been allowed to be set off against the other income in earlier years in view of the specific provisions of section 801A(5), as laid down by the Special Bench, Ahmadabad in the case of ACIT Vs. Mines Shares & Finance Pvt. Ltd, (113 ITD 209). Hence, we direct the assessing officer to compute the

15 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) deduction u/s 801A as laid down by provisions of the Income Tax Act, 1961.” 7.5 From the aforementioned facts and evidence and also referring to the direct order of the honourable ITAT in the case of the appellant above, it is clear that the electricity generated by the appellant and consumed captively is eligible for deduction u/s 801A of the Income Tax Act. However, as held by the honourable ITAT the transfer price has to be worked out on the basis of average price paid by the appellant during the year to the state Electricity Board minus extraneous charges such as electricity duty etcetera. The aforementioned deduction has to be computed after deduction of notional brought forward losses and depreciation of eligible business even though they have been allowed to be set off against other income in the earlier years. In view of the specific provisions of section 801A(5), as laid down by the special bench of ITAT Ahmedabad in the case of Gold Minds Shares and Financed by the limited 113 ITD 209. The appellant will get relief according to the aforementioned calculations. 7.6 However, with regard to the production of steam, contrary to what the appellant has stated, the aforementioned order of the ITAT is silent and does not even speak about steam generation. During the course of appeal proceedings, the appellant was specifically asked to produce a direct order of the honourable ITAT in the case of the appellant itself as had been claimed, where the issue of steam generation in the case of the appellant was eligible for the aforementioned deduction. 7.7 The appellant relied heavily on the order of the honourable ITAT Chennai in ITA number 328/MDS/2011 in the case of M/s Tamil Nadu Newsprint and papers Ltd versus ACIT. In this order, the honourable ITAT has stated that even where steam was produced and that steam was used for the production of electricity mentioned deduction was to be allowed. The relevant portion of that order is reproduced below:- “Hon'ble jurisdictional High Court in the case of Tanfac Industries Ltd (supra) had held that power produced using steam which was generated in the course of the main production activity of the assessee would still be eligible for claim of deduction under section 80 IA of the Act. If we have a look at para 8 of the order of Hon'ble jurisdictional High Court in the case of Thiagarajar Mills Ltd (supra) reproduced by us at para 7 above, their Lordship has held that an assessee should have set up an undertaking or an enterprise and from and out of

16 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) which electricity should have been generated whether for captive use or otherwise for being eligible for 80IA deduction. No doubt, here, it is not coming out of the orders of the authorities below whether the turbo generators where powered by diesel or powered by steam or powered by any other by-products produced by the assessee in the course of its main activity of producing paper. But, nevertheless this would not by itself be sufficient to hold that the turbo generators were not an undertaking by itself eligible for claiming deduction under section 801A of the Act in respect of power generated there from used for captive consumption. Especially so, since steam based generating units, where steam was only an incidental output of main manufacturing activity, was held by the hon'ble jurisdictional High Court in the case of Tan fac Industries Ltd (supra) to be eligible for 801A deduction in respect of power generated and captively used. We are therefore of the opinion that the assessee is bound to succeed in these appeals. Its claim for deduction under section 80 IA of the Act has to be allowed in respect of its power generated from TG-3 Boiler 4 and TG-4 Boiler 5 units as well." 7.8 I have seen carefully the facts and evidence. Section 80IA permits tax holiday to an undertaking set up for the generation or generation and distribution of power. The question posed is whether the residual low pressure steam generated by the assessee, after use in generating electricity and taken out for use in other processes, is a form of power eligible for deduction under the aforementioned section. 7.9 The dispute is whether the phrase generation of power pertains to only generation of electricity, or it pertains to generation of any form of energy, be it electrical, thermal, wind or steam, as was the stand of the assessee, so as to qualify for tax holiday under section 80IA. 7.10 In the case of DCIT Vs M/s SIAL SBEC BIOENERGY LTD 2008-TIOL-80-ITAT-DEL the assessee was engaged in the business of generation of power. The process involved was to burn baggage in the boiler to raise steam at high temperature and pressure. The steam, so generated, was transferred to the inlet of turbines through pipes, for rotating them. Rotation of turbines, rotated the alternator, consequently generating the electricity. The low pressure exhaust steam was drawn from the turbines and used to heat sugar juices for evaporation of water

17 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) from the juices. According to the assessee, the evaporation of water from the juices took place, by transfer of thermal heat energy from steam to the juices. The dispute between the revenue and the assessee arose whether the receipts from generation and supply of steam was eligible for relief under section 801A and according to the revenue, the steam was not the power, which was eligible for tax holiday under section 801A. 7.11The word power is not defined in the Act. The settled position, in such situations, according to the Tribunal, was to refer to the meaning of the word, in the cognate statutes and the dictionaries. The apex court in the cases reported in 1991 Vol II (SC)(1) and 1997(6) SCC 420, referred to the definition of the word steam, under the Factories and Municipal Corporation Acts, where the steam was held to be a form of power. Similar finding was given by Kerala-High court in the case reported in 47 STC 68 and that in AIR 1962 SC 29. 7.12 In Websters dictionary, steam is defined as energy. Websters Abridged Dictionary defined it as power or energy. Oxford English Dictionary went a step further in defining steam as mechanical or electrical energy or any form Of energy or force available for application to work (as that of gravitation, running, wind, steam, electricity). Energy was also defined as ability of a matter to do work. 7.13 Comparing the work done by the steam with that of electrical energy, the Tribunal observed that both of them were capable of producing same end results. In the case of the assessee, a sugar manufacture, the assessee, instead of using the electric energy, used the thermal energy, the steam. Thus, both, electricity and steam were different forms of power. Before the Tribunal the assessee has also referred to the provisions in other parts of the Income- tax Act. Section 80E, before its deletion by the Finance Act, 1967, allowed tax holiday to certain specified industries, including those engaged in generation or distribution of electricity or any other form of power. Some other sections, where similar phrase was used were: 10(23f), 33B, 72A(7)(a)(3), 10(6), 10(5)(b), 32A and section 8ORRA. Tribunal agreed with the argument of the assessee that idea of not mentioning the word electricity in section 80IA(4)(iv) was only for the purpose that the legislature wanted to give the word power a wider meaning. Once the Legislature has not used the word electricity in the section, the Courts cannot put in this word. 7.14 The honourable ITAT concluded that the word power has to be given a meaning which in common parlance means energy. The energy can be of any form, be it mechanical, be it

18 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) electrical, be it wind or be it thermal. Thus, in conclusion, the Tribunal held that the steam produced by the assessee shall be termed as power and shall qualify for the benefits available under section 80IA(4)(iv). 7.15 However, it was noticed that the assessee had supplied electricity for its internal use as well as to UPSEB. For calculating tax holiday profits from generation and distribution of electricity for internal use, the rate charged for supply to UPSEB was applied. [n regard to supply of steam a rate of Rs 75 per metric ton was applied. The honourable ITAT stated that Section 80IA(10) ordains that if between the eligible undertaking and the assessee, the course of business is so arranged that the business transacted between them produces to the assessee in the eligible business more than the ordinary profits, which might be expected to arise in such eligible business for the purpose of deduction under section 8OIA, the assessing officer would be entitled to work out arms length profits. 7.16 The Hon'ble Supreme Court in CIT v. Tanfac Industries Ltd., SLP (C) No. 18537 of 2009 wherein while applying section 80-IA of the IT Act, the Hon'ble Supreme Court took a view that the value of steam used for captive consumption by the assessee was entitled to be deducted under section 80-IA of the Act. 7.17 Applying the aforementioned principles, and decisions to the case of the appellant, I find that the steam generated by the appellant and used for captive consumption in various processes is also entitled for the aforementioned deduction. The assessing officer is however directed to quantify the value of steam at an arm's length price as has to be done in the case of electricity generation and as discussed in the various judgments supra. I'm also fortified in my view by the decision of the Hon'ble ITAT, Jaipur "B" Bench in DCIT vs. Maharaja Shree Umaid Mills (295 SOT 278) (JP) (2009) subject to the aforementioned calculations. In the case of electricity generation and also about and also subject to the direction of carry forward losses etcetera as discussed supra, deduction u/s 8OIA is allowed to the appellant with respect to steam generation.” 16 We have heard both the sides and perused the material placed on record.

19 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) 17 An identical issue has come up before this Tribunal in the first year of claim i.e. 2004-05 and the ITAT allowed the appeal of the assessee in ITA Nos.311 to 313/Hyd/2009 for the A.Ys. 2004-05 to 2006-07. In addition to the above, ld.AR relied on the decision of the ITAT, Bombay Bench in the case of ACIT-15(2)(1) Vs. M/s Krystal Colloids Pvt. Ltd. in ITA No.3170 & 3172/Mum/16, dated 31/07/2018. Ld.AR also relied on the following decisions on the issue of captive consumption:- a) West Coast Paper Mills Ltd., Vs. ACIT [(2006) 103 ITR 19 (Mum.) (ITAT)] b) Tamilnadu Petro Products Ltd. Vs. ACIT [(2011) 338 ITR 643 (Mad. – HC)] c) CIT Vs. Orissa Cement Ltd., [(2002) 254 ITR 412 (Delhi – HC)] 18 Since the issue is squarely covered by the decision of the coordinate bench of the Hyderabad tribunal in assessee’s own case and the ld.DR did not bring any other case-law of jurisdictional High Court or Apex Court to controvert the submission of the assessee, respectfully following the view taken by this Tribunal in assessee’s own case, we uphold the order of the ld. CIT(A) and dismiss the Revenue’s appeals on this issue. 19 Ground No.5 for the A.Y. 2007-08 is related to foreign exchange liability and application of section 43A of the Act.

20 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) 20 During the course of assessment proceedings, the Assessing Officer found that the assessee-company has reduced the foreign exchange fluctuation gain from the interest charges instead of reducing the cost of the assets. The total foreign exchange gain derived by the assessee was Rs. 702.23 lakhs out of which Rs.602.00 lakhs represent the gain derived from import of plant and machinery and the balance represent the gain on working capital loan. As per section 43A of the act, where an assessee has acquired any asset in any previous year from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange during any previous year after the acquisition of such asset, there is an increase or reduction in the liability of the assessee as expressed in Indian currency (as compared to the liability existing at the time of acquisition of the asset) at the time of making payment towards the whole or a part of the cost of the asset. Accordingly, the Assessing Officer reduced the gain derived by the assessee due to exchange fluctuations from the cost of the assets and accordingly reduced the depreciation. 21 Against the order of the Assessing Officer, the assessee went on appeal before the ld. CIT(A) and the ld. CIT(A) after considering the provisions of section 43A and also the decision of

21 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) the Hon'ble Supreme Court in the case of CIT Vs. Woodward Governor India Pvt. Ltd. [(2009) 312 ITR 254)] held that any positive or negative effect on the cost of the asset purchased has to be adjusted only at the time of making actual payment. Therefore, directed the Assessing Officer to verify the dates of payments and then apply section 43A. 22 Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before this Tribunal. 23 We have heard both the parties and also gone through the following case laws relied on by the assessee:- a) DCIT Vs. Andhra Petrochemicals Ltd. [(2010) 123 ITD 89 (Visakhapatnam – ITAT) b) Lanco Kondapalli Power Ltd., Vs. JCIT [(2014) 50 taxmann.com 442 (Hyderabad – ITAT) c) K.L. Hitech Secure Print Ltd., Vs. JCIT [(2015) 61 taxmann.com 449 (Hyderabad – ITAT) d) Honda Siel Power Products Ltd. Vs. JCIT [(2007) 165 Taxman 307 (SC)] e) MFAR Hotels & Resorts Ltd., Vs. ACIT [(2019) 105 taxmann.com 335 (Cochin – ITAT) f) Svitzer Hazira (P) Ltd. Vs. DCIT [(2017) 85 taxmann.com 91 (Mumbai – ITAT) g) SCM Garments (P) Ltd., Vs. DCIT [(2015) 59 taxmann.com 395 (Chennai – ITAT)

22 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) The coordinate Bench of ITAT, Chennai in the case of SCM Garments (P) Ltd.,(supra) considered the identical issue and held that any loss or gain arising out of foreign currency fluctuation during any previous year shall be deducted or added from the actual cost of the asset of asset on actual payment or repayment of loan. The ITAT, Visakhapatnam Bench in the case of Andhra Petrochemicals Ltd., (supra) expressed the view that the amended provisions of section 43A are not clarificatory in nature and applicable from 01/04;2003. Thus it clear that as per section 43A of the act, the increase or decrease in foreign exchange fluctuation with regard to purchase of asset required to be considered on actual payment basis. In the instant case, the Assessing Officer proposed to make the adjustments as at the end of the year as per the system of account followed by the assessee instead of making the adjustment at the time of actual payment. Case law relied on by the ld.AR supports the decision of the ld.CIT(A). No other case law was brought on record by the Revenue to controvert the case-law relied on by the ld.AR. Therefore, we do not find any infirmity in the order of the ld.CIT(A) and the same is uphold. 24 Ground No.5 for the A.Y. 2009-10 is related to disallowance u/sec. 14A r.w.r. 8D of the I.T. Rules, 1962.

23 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) 25 During the course of assessment proceedings, the Assessing Officer found that the assessee has made the investment to the tune of Rs. 16.00 crores in investments and called for assessee’s explanation as to why the disallowance should not be made u/sec. 14A r.w.r.8D of I.T. Rules. The assessee explained that the assessee has made the investments out of the interest free funds, therefore argued that there is no disallowance is called for on account of expenditure relatable to the income earned u/sec. 14A of the act. Alternately, the assessee pleaded that in case it is necessary to make the addition, the salary of one of the employees amounting to Rs. 3.60 lakhs may be considered for addition. The explanation of the assessee did not convince the Assessing Officer, hence, disallowed 5% of the average investment of 16.64 cores under Rule 8D(2)(iii) of Income tax Rules amounting to Rs. 8,32,000/-. 26 Against the order of the Assessing Officer, the assessee went on appeal before the CIT(A) and the ld. CIT(A) restricted the addition to the sum of Rs. 8.00 lakhs u/sec. 14A of the Act. For the sake of clarity and convenience, we extract the relevant part of the order of the Ld.CIT(A) at para 8.2 in page No.18 which reads as under:-

24 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) “8.2 I have seen carefully the facts and evidence and I find that the employee in question may have been monitoring the investments by spending time, but he was not the one who would decide where to invest, at what time and also would not be in charge of the portfolio. For that, senior level people would be involved in terms of their time spent an effort made to manage the portfolio. There would be other employees from accounts etc who have to be involved in this exercise. Therefore, keeping in view all the circumstances, it would be appropriate to disallow Rs 8 lakhs out of the expenses claimed under section 14A of the Income Tax Act. This ground stands partly allowed.”

25 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) 30 Ground No.1 is related to computation of income as per normal provision after making the necessary adjustments of mark to market gains in respect of fluctuation for foreign exchange on acquisition of capital assets. 30.1 In revenues appeal we, have upheld the order of the Ld.CIT(A) for making adjustments of the cost of asset on actual payment of loan. Accordingly we, direct AO to make necessary adjustments to the cost of the asset on actual payment basis and recompute the income after allowing the correct depreciation under the normal provisions. Thus, this ground of cross objection of the assessee is allowed. 31. Ground No.2 is related to the carry forward of unabsorbed depreciation consequent to making adjustments to the cost of assets as a consequence to making adjustments under section 43A of the Act. The Assessing Officer is directed to determine the correct unabsorbed depreciation and allow the same to be carried forward for the subsequent years. Accordingly, this ground of cross objection is allowed. C.O.No. 14/VIZ/2016 A.Y.2008-09 32. Ground No.1 is related to not considering the revised computation of income submitted by the company at the time of assessment proceedings.

26 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) 33. In the instant case, the assessee has filed original return of income for the A.Y. 2008-09 on 13/09/2009 declaring gross total income (loss) of Rs. 5,82,80,040/-. Subsequently, the assessee filed revised return of income on 26/09/2009 revising the total income (loss) to Rs. 23,83,95,220/-. The assessee further revised the return of income by filing revised return of income at the fag end of the assessment year which was not considered by the Assessing Officer. As per second revised return of income loss was revised to Rs. 24,27,14,762/- which was not accepted by the Assessing Officer. 33.1. The assessee did not chose to file appeal before the ld.CIT(A) with regard to non-acceptance of second revised return of income. As per the provisions of Income-tax Act, the assessee required to file the revised return of income as provided u/sec. 139(4) of the Act within one year from the end of the relevant assessment year. There is no provision in the Income-tax Act to file the revised computation of income reducing the income returned by the assessee during the pendency of income tax proceedings after expiry of the time limit allowed under the act. The second revised return was filed beyond the time limit allowed under the act as observed from the assessment order. Therefore the Assessing Officer did not consider the revised computation of

27 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) income which was beyond the limitation allowed under the Act. The said ground was not raised before the ld.CIT(A) and the assessee did not file any petition for admission of additional ground, therefore, this ground raised by the assessee in this cross objection is not maintainable, hence, dismissed. 34. Ground No.2 of cross objection is related to the computation of normal income after giving effect to the foreign exchange gain or loss after making necessary adjustments u/sec. 43A of the Act. The assessee requested for making necessary adjustments in depreciation schedule and to compute the normal income after determining the correct amount of depreciation as per the normal provisions of Income-tax Act. In the instant case, the Assessing Officer proposed to make adjustment in respect of depreciation after giving effect to the provisions of section 43A of the Act. The ld.CIT(A) has directed the Assessing Officer to make necessary adjustments of foreign exchange gain or loss on actual payment basis which we have upheld. Therefore, we direct the Assessing Officer to make necessary adjustments and recompute the income as per the normal provisions after allowing the correct Depreciation and make necessary rectifications. This ground of CO of the assessee is allowed.

28 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) 35. Ground No.3 in cross objection for the A.Y. 2008-09 is allowing correct amount of carry forward losses after giving effect to the orders of ld. CIT(A) or ITAT. Similar ground is involved in A.Y. 2009-10 also. The ground raised by the assessee is genuine, therefore we direct the Assessing Officer to determine the correct amount of depreciation loss and allow the same to be carried forward for the subsequent years. This ground of CO of the assessee stands allowed. 36. Ground No.4 is related to the granting of short credit of tax deducted at source while determining the balance income tax payable or refundable to the assessee. It is the obligation of the Assessing Officer or the Income Tax Authorities to determine the correct amount of tax and allow due credit for taxes paid or tax deducted/collected at source. The assessee should not be forced to knock the doors of courts for their legitimate rights. Therefore, we, direct the Assessing Officer to allow the credit for the taxes paid/ TDS made while determining the tax liability. Accordingly, this ground of cross objection raised by the assessee is allowed. 37. Ground No.5 is related to the charging of interest u/sec. 234C and section 244 of the Act. The similar issue is involved in the A.Y. 2009-10 also. Charging correct interest on taxes payable and refund due is the statutory obligation of the Income-tax

29 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) Authorities, therefore we direct the Assessing Officer to charge the interest correctly u/sec. 234C and allow the due interest against the amounts due to the assessee. Accordingly, the CO of the assessee is allowed on this ground. In the result the CO of the assessee for the 2008-09 is partly allowed. C.O.No. 15/VIZ/2016 A.Y.2009-10 38. Ground No.1 is related to exemption of income under the normal provisions in respect of dividend income received by the assessee. The assessee contended that the Assessing Officer did not allow exemption u/sec. 10(34) of the Act. On verification, it is found that this was due to not claiming the dividend income as exempt while filing the revised return of income by the assessee. The Assessing Officer is directed to verify the claim of the assessee with regard to dividend income received and allow exemption u/sec. 10(34) of the Act after considering the disallowance u/s 14A of the act. Thus, this ground of cross objection raised by the assessee is allowed for statistical purpose. 39. Ground No.2 is related to not providing depreciation on assets capitalised vide assessment order dated2008-09. The Assessing Officer disallowed the sum of Rs. 1,27,47,572/- which was claimed as revenue expenditure by the assessee. However as

30 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) per the computation of income, it is seen that the Assessing Officer had allowed the depreciation Rs. 9,56,068/- on the purchases capitalized by the assessee. Ld.AR did not bring any error in the order of the Assessing Officer at the time of presenting the appeal, no such ground was raised by the assessee before the ld. CIT(A). The assessee also did not file any petition for admission of additional ground, therefore, we do not find any reason to interfere with the order of the ld. CIT(A) and hold that the ground raised by the assessee is not maintainable and is dismissed accordingly. 40. Ground No.4 is related to the non adjustment of exempt income u/sec. 10(34) of the Act while computing the income u/sec. 115JB. This ground was not raised before the ld. CIT(A) and no petition for admission of additional evidence is filed, therefore this ground raised by the assessee is not maintainable and hence dismissed. 41. Ground No.5 is MAT liability for the A.Y. 2009-10 consequent to the adjustments made. This ground was not raised before the ld. CIT(A). Since the issue is factual issue and consequential in nature, we direct the Assessing Officer to verify the same and decide the issue afresh on merits. This ground stands allowed for statistical purpose.

31 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) 42. Ground Nos. 6 & 7 are related to the short credit of tax deducted at source and not allowing the credit for the advance tax paid. The Assessing Officer is directed to verify the taxes paid by the assessee or taxes deducted at source and allow the due credit for the taxes paid/deducted/collected while giving effect to the order of this tribunal. Accordingly, cross objection on this ground is remitted back to the file of the Assessing Officer for limited purpose of verification of taxes paid/deducted/collected and allow the credit. These grounds of cross objection filed by the assessee are allowed for statistical purposes. 43. In the result, appeals filed by the Revenue are partly allowed and the cross objections filed by the assessee are partly allowed. Order Pronounced in open Court on this 30th day of Oct., 2019.

sd/- sd/- (V. DURGA RAO) (D.S. SUNDER SINGH) Judicial Member Accountant Member Dated: 31st October, 2019. vr/-

32 ITA Nos. 4-6/VIZ/2014 C.O.Nos.13-15/VIZ/2016 (The Andhra Pradesh Paper Mills Ltd.) Copy to: 1. The Assessee – The Andhra Pradesh Paper Mills Ltd., Krishe Sapphire Building, 8th Floor, 1-89/3/B40 to 42/KS/801, Hi-Tech City Main Road, Madhapur, Hyderabad. 2. The Revenue – ACIT, Circle-1, Rajahmundry. 3. The CIT-II, Hyderabad. 4. The CIT(A)-III, Hyderabad. 5. The D.R., Visakhapatnam. 6. Guard file. By order

(VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Visakhapatnam.