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Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH, AHMEDABAD
Before: SHRI P.M. JAGTAP & Ms. SUCHITRA KAMBLE
PER SUCHITRA KAMBLE, JUDICIAL MEMBER :
This appeal is filed by the assessee against the order dated 13.12.2017 passed by the CIT(A)-2, Vadodara for the Assessment Year 2014-15.
The grounds of appeal raised by the assessee are as under :
“1. The order passed by the Learned Commissioner of Income tax (Appeals) [hereinafter referred to as ‘the Ld. CIT(A)’] in bad in law and on facts.
2. Disallowance of claim of deduction under section 80-IA of Rs.31,59,297/-. 2.1 The Ld. CIT(A) grossly erred in denying deduction under section 80- IA(4)(iv) of Rs.31,59,297/- in respect of profit and gains derived by an undertaking engaged in generation of steam on the alleged ground that the boiler and other assets do not constitute a separate business activity/undertaking and hence cannot be considered as undertaking as per Explanation 1 to section 2(19AA) of the Act.
2.2 The Ld. CIT(A) ought to have appreciated that the new undertaking is a separate, independent and integrated unit set up by making fresh capital investment.
2.3 The Ld. CIT(A) grossly erred in law in denying deduction u/s 80-IA by holding that the deduction is not allowable in respect of notional profits from generation of steam which is used for captive consumption.
2.4 Without prejudice to the above, the Ld. CIT(A) ought to have allowed deduction in respect of profit and gains derived by the undertaking from generation of steam sold to other parties.”
The assessee company is engaged in the manufacture and marketing of speciality chemicals, phosgene gas and phosgene liquid, specialty chemicals/ intermediates required for pesticides, pharmaceuticals, dyes, plastics, perfumes. It is also a dealer, marketing agent and manufacturers representative. The assessee filed return of income for assessment year 2014-15 on 26.09.2014 declaring total income of Rs.11,62,01,093/-. Revised return of income was filed on 14.03.2016 declaring total income of Rs.11,30,41,800/- under normal provisions and Rs.11,80,11,800/- under Section 115JB. Notice under Section 143(2) of the Act was issued on 28.08.2015. Subsequently, notice under Section 142(1) of the Act was issued on 19.01.2016 calling thereby preliminary information documents such as copy of audited balance sheet and tax audit report in form no.3CB & 3CD etc. A detailed questionnaire vide notice under Section 142(1) read with Section 129 of the Act was issued on 13.06.2016. In response to the notices, the ld. A.R. of the assessee Company attended the assessment proceedings and furnished the detail. The Assessing Officer observed in the revised return of income the assessee Company claimed deduction under Section 80IA(iv)(a) of the Act of an amount of Rs.31,59,297/-. The plea taken by the assessee in its revised return of income is that the assessee is engaged in the generation of power in the form of steam. The assessee further stated before the Assessing Office that claim of deduction under Section 80IA(iv)(a) is exercised w.e.f. assessment year 2014-15. The Assessing Officer disallowed the claim of deduction under Section 80IA(iv)(a) of the Act thereby observing that the assessee has already a boiler plant which is expanded in accordance with expansion of manufacturing and production capacity and which is in the nature of reconstruction of business. Thus, the same cannot be regarded as setting up of a separate or new undertaking.
Being aggrieved by the Assessment Order, the assessee field appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee thereby stating that the assessee has installed second boiler adjoining to the earlier boiler already installed. Undisputedly, the assessee has carried out extension of its existing business and accordingly, to cater additional requirement of steam, it has also established additional boiler in assessment year 2008-09 as per the definition of undertaking as defined in Section 2 (19AA) of the Act. The individual assets or any combination thereof not constituting a business activity, cannot be treated as undertaking or enterprise eligible for deduction under Section 80IA(4). The CIT(A) relied upon the decision of jurisdictional High Court in case of CIT vs. Atul Limited (2016) 74 taxmann.com 255 (Gujarat).
The Ld. A.R. submitted that the CIT(A) erred in denying deduction under Section 80IA(iv) of Rs.31,59,297/- in respect of profit & gains derived by an undertaking engaged in generation of steam on the alleged ground that the boiler and other assets do not constitute a separate business activity/undertaking and hence cannot be considered as undertaking as per Explanation 1 to Section 2(19AA) of the Act. The ld. A.R. submitted that the new undertaking is a separate, independent and integrated unit set up by making fresh capital investment. The ld. A.R. further submitted that the CIT(A) erred in law in denying deduction under Section 80IA by holding that the deduction is only allowable in respect of notional profits from generation of steam which is used for captive consumption. The ld. A.R. submitted that deduction under Section 80IA is available to assessee whose gross total income includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) and which fulfilled all the conditions laid down in this behalf in sub-section (3) of Section 80IA. The primary purpose of Section 80IA is to grant relief to new industrial undertaking which has a separate physical existence and that which can operate independently. It should not be formed by reconstruction or transfer of asset from old undertaking to new undertaking. The Assessing Officer without considering the facts and submissions made by assessee had alleged that the assessee had replaced new boiler with old boiler and hence new undertaking has been formed by reconstruction of business. The ld. A.R. submitted that the assessee made significant additions to plant & machinery for manufacturing speciality
Page 4 of 7 chemicals. The additions are quit large percentage as compared to entire net block of plant & machinery and to cater to this additional capacity the assessee has set up a separate steam/power generation undertaking at same location. The said steam/power generation undertaking supplies steam to the newly added manufacturing capacity for speciality chemicals. The Assessing Officer has disregarded the aforesaid facts and has without basis/evidence alleged that the newly installed boiler (one of the key plant & machinery for generating steam) has replaced the existing boiler. The ld. A.R. submitted that the observation of the Assessing Officer that the new undertaking has been formed by reconstruction of existing business has been levied only for disallowing deduction under Section 80IA of the Act are not correct. The Ld. AR submitted that the assessee submitted all evidence to show that the said undertaking is a new undertaking and it has not replaced existing boiler or formed by way of reconstruction of existing business. The ld. A.R. pointed out the details of fixed asset schedule for financial year 2007-08, the year in which the said undertaking was set up, to evidence that there is no deletion to plant & machinery. If the new boiler had replaced exiting boiler then the discarding of the old boiler would be reflected in fixed asset schedule. There is deletion/adjustments column in fixed asset schedule of annual account. The ld. A.R. relied upon the decision of Hon’ble Supreme Court in the case of CIT vs. Indian Aluminium Company Limited, 108 ITR 367 (SC) as well as the decision of Hon’ble Jurisdictional High Court in the case of Principal Commissioner of Income Tax-2 vs. Jay Chemical Industries Limited (R/Tax Appeal No.62 of 2020, order dated 17.02.2020). The ld. A.R. submitted that paragraph 20 of the decision of jurisdictional High Court has categorically mentioned the decision of CIT vs. Atul Limited (supra) and has distinguished the same. The ld. A.R. submitted that the decision of Atul Limited is still pending in Hon’ble High Court. The ld. A.R. submitted that the jurisdictional High Court in the case of Jay Chemical Industries Limited has held that the word “Power” should be understood in common parlance as “Energy”. 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. The ld. A.R. further submitted that the explanation 1 to section 2(19AA) will not be applicable in the present assessee’s case. The Ld. AR relied upon the following decisions: * Atul Ltd. vs. DCIT (Tax Appeal No. 333 of 2011 order dated 16.04.2012 Gujarat High Court)
Page 5 of 7 * CIT vs. Atul Ltd. (2016) 74 taxmann.com 255 (Guj. HC) * CIT vs. Associated Cement Companies Ltd. (1979) 118 ITR 406 (Bom. HC) * Textile Machinery Corporation Ltd. vs. CIT (1977) 107 ITR 195 (SC) * Gujarat Alkalies & Chemicals Ltd. vs. CIT (2013) 350 ITR 94 (Guj. HC) * CIT vs. Gedore Tools India (P.) Ltd. (1980) 126 ITR 673 (Del. HC) * Tamilnadu Petro Products Ltd. vs. ACIT (2011) 338 ITR 643 (Mad. HC) * CIT vs. Ahmedabad Mfg. & Calico Printing Co. Ltd.(1986) 162 ITR 760 (Gujarat High Court) * CIT vs. Cethar Ltd. (2014) 51 taxmann.com 183 (Mad. HC) * CIT vs. Alembic Ltd. (Tax Appeal No. 1249 of 2014 order dated 20.07.2016 Gujarat High Court) Thus, the ld. A.R. submitted that the appeal of the assessee be allowed and the Assessment Order be set aside.
The ld. D.R. submitted that the Assessing Officer as well as the CIT(A) has rightly observed that the assessee has installed boiler in assessment year 2008-09, but the same was never claimed as separate undertaking or enterprise eligible for deduction under Section 80IA(4) of the Act in any of the earlier years. Even in the year under consideration, no such claim was made in the original return of income. Admittedly, no separate sales of steam are ever reflected in the Profit & Loss Account. In fact, column 28 of Form No.10CCB reflects no transaction with the related parties, yet the assessee has claimed that it has sold steam to the related concern. Thus, it emerges that the claim of deduction under Section 80IA(4) is based on hypothetical turnover and consequential profit not supported by any documentary evidence. The assessee has installed the second boiler adjoining to the earlier boiler already installed. Thus, the boiler and other connected assets not constituted any separate business activity and, therefore, cannot be considered as undertaking or enterprise eligible for deduction under Section 80IA(4) of the Act.
We have heard both the parties and perused all the relevant materials available on record. It is pertinent to note that the basic requirement of claiming deduction under Section 80IA of the Income Tax Act, 1961 is that the new industrial undertaking should have independent operation and all together new physical existence from the earlier industrial undertaking and integrated unit set up by making fresh capital
Page 6 of 7 investment. The Ld. AR submitted that new boiler is not a replacement of old boiler but it is new undertaking itself which was formed by reconstruction of business. As per Ld. AR’s submissions, the assessee made significant additions to plant and machinery for manufacturing speciality chemicals. The additions are made to set up a separate steam/ power generation undertaking at same location which supplies steam to the newly added manufacturing capacity for speciality chemicals. From the perusal of records, it can be seen that the solid fuel fired boiler with 2.5 TPH capacity was purchased in Financial Year 2007-08 and R.O. Plant for Boiler was purchased in Financial Year 2009-10. Besides this the assesse has given details in Column No. 28 of Form No. 10CCB that no transaction took place by the undertaking to a related concern of the assesse, or another undertaking of the assesse, or the co-owner of the undertaking, or another undertaking of the co-owner. The notes to Form 10CCB mentions that the part of power generated from the undertaking has been transferred to the other business of the assessee and the balance power has been sold to related part as mentioned in Sr. No. 28 of Form No. 10CCB. As relates to the part power generated from the undertaking transferred to other business of the assesse no details were pointed out by the Ld. AR during the course of hearing. Thus, the claim needs to be verified at the factual matrix. The R.O. plant for boiler was purchased in Financial Year 2009-10 so whether the power generation started prior to that with the old boiler’s R.O. Plant or not is not on record before us and the Ld. AR did not demonstrate about the same before us. Merely going by the argument that the second boiler should be treated as new undertaking and relying on the judgment of Hon’ble Jurisdiction High Court in case of Atul Ltd. (supra) will not grant the benefit of Section 80IA (4) of the Act. Firstly, the factual matrix has to be looked into which the assesse failed to explain before the Assessing Officer as well as before the CIT(A). This needs verification. Therefore, we are remanding back the issue to the file of the Assessing Officer to specifically verify these aspects mentioned in this para hereinabove and accordingly pass the order as per law. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Appeal of the assessee is partly allowed for statistical purpose.
Page 7 of 7 8. In result, appeal of the assessee is partly allowed for statistical purpose.
Order pronounced in the open Court on this 23rd day of March, 2022.