SAF YEAST COMPANY P.LTD,MUMBAI vs. DCIT CEN CIR 40, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND SRI N.K. PRADHAN, AM ITA No. 1634/Mum/2014 (A.Y. 2005-06) ITA No. 1635/Mum/2014 (A.Y. 2006-07) ITA No. 1636/Mum/2014 (A.Y. 2007-08) ITA No. 1637/Mum/2014 (A.Y. 2008-09) Saf Yeast Company Private Deputy Commissioner of Limited, 419, Swastik Income Tax, Central Circle- Vs. Chambers, Chembur, 40, Mumbai Mumbai-400 071 Appellant .. Respondent PAN No. AADCS9080J ITA No. 1777/Mum/2014 (A.Y. 2005-06) ITA No. 1778/Mum/2014 (A.Y. 2006-07) ITA No. 1779/Mum/2014 (A.Y. 2007-08) ITA No. 1780/Mum/2014 (A.Y. 2008-09) Deputy Commissioner of Saf Yeast Company Private Income Tax, Central Circle- Limited, 419, Swastik Vs. 40, Mumbai Chambers, Chembur, Mumbai-400 071 Appellant .. Respondent

Assessee by : J.P. Bairagra, AR Revenue by : B.C.S. Naik, CIT-DR

Date of hearing: 20-09-2017 Date of pronouncement : 24-11-2017

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) O R D E R PER MAHAVIR SINGH, JM:

These cross appeals are arising out of the common order of Commissioner of Income Tax-38, Mumbai, [‘CIT(A)] in appeal No. CIT(A)- 38/IT-84,85 & 86,119/2009-10 & 2010-11 vide order dated 31-12-2013. The assessments were farmed by Deputy Commissioner of Income Tax, CC-40, Mumbai, (‘DCIT) for the AYs 2005-06, 2006-07,2007-08 & 2008- 09 vide orders dated 20-03-2015 ,27-11-2008,29-10-2010 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).

“1. The CIT(A) erred in restricting the deduction u/s 80IA for generation of steam power.

The revenue raised the following grounds: -

“1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the disallowance made u/s 80IA, without appreciating

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) the fact that generation of steam is not a form of power eligible for deduction u/s 80IA of the I.T. Act.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) requires both heat and cooling power. For this purpose, the assessee also generates Steam Power from Biogas Boilers and Cooling Power from Cooling Towers set up at its power generation undertakings at Sandila and Chiplun. Assessee claimed commencement of production of Steam Power, Cooling Power from Cooling Tower and Cooling power from Ammonia Absorption Refrigeration plant at Sandila as on 31.01.2000, 22.03.1997 and 28.02.2002 respectively. Similarly, commencement of production was claimed of Steam Power and Cooling Power from Cooling Towers as on 01.03.2001 and 02.08.2002 respectively.

a) For generation of cooling power he restricted the claim of of rate of conversion of 1 Tonne of refrigeration equal to 3.52KW of electric power to 1.02 KW of electric power.

b) For generation of steam power he directed an ad- hoc reduction of 25% of the notion receipts from the sale of steam power.

Aggrieved, assessee as well as department filed appeal before Tribunal and Tribunal decided the issue on jurisdiction and quashed the reassessment. It means the merits were not tested.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) order and inter alia disallowed deduction u/s 80IA of the Act. The assessee preferred appeal before CIT(A), who reduced the quantum of deduction. Aggrieved, assessee preferred appeal before Tribunal. The Tribunal vide order dated 03.10.2012 held that the assessment for AY 2004-05 had abated on the date of search by virtue of second proviso to section153 A of the Act and assessment completed u/s 143(3) of the Act during the pendency of assessment u/s 153A of the Act is nullity and without jurisdiction. Accordingly, even for AY 2004-05 was not tested on merits.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) Aggrieved, assessee and revenue preferred these cross appeals for these four assessment years.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) power and the term has to be understood in its natural meaning. Regarding the AO’s observation that at each stage of production some form of energy is produced, the assessee argued that the AO has completely misdirected himself. The legislature has clearly provided a benefit of a deduction u/s 80IA of the Act for generation of any form of power generated by an undertaking. At each stage of production there is no undertaking that is generating power. This is where the AO has gone wrong. Further the CIT(A) also referred to the relevant observation’s of the AO’s in Remand Report dated 24.12.2012 which reads as under: -

“In the additional evidence the assessee has relied upon the judicial interpretation of the term power apart from various textbook definitions of the terms power and energy. The terms power has been interpreted in following cases;

Sial SBEC Bioenergy Ltd. ITA No.5461/Del/2003 decided on 26.3.2004.

West Coast Paper Mills Ltd. ITA No. 5403/Bom/1999 & 382/Mum/2001 decided on 21.6.2005.

West Coast Paper Mills Ltd. ITA No.3187/Mum/2003 decided on 3.4.2006 wherein it is held as under:-

One aspect which emerges from the above judicial interpretation is that understanding the definition of power and concept of generation of power is inextricably link with concept of energy. Power means energy in any form available for application to work. Judicially it has been held that steam is a form of power. Energy can only be transformed from one from to another. Energy can neither be created nor can it be destroyed. The assessee it appears in light of the above judicial pronouncement trying to

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) justify that they are producing power.” (emphasis supplied)

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) to encourage generation of power which would augment the total power generation or save consumption of electric power and so long as these forms of power are generated and used for doing work in the production process, the activity would be an eligible business.

Sub-section 1 of Section 80-IA reads as follows:

“(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years.”

Sub-section 4 refers to the categories of business which an undertaking must carry on to be entitled to the deduction referred to above. Clause (iv) (a) of Sub-section 4 is relevant and reads as under: -

“(iv) an [undertaking] which, -

Is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, [2006];”

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) profits and gains derived by it from such generation or generation and distribution of power. For A.Y. 2003-04 and 2004-05 it was held by the CIT(A) that Cooling Power and Steam Power generated by the assessee are eligible for deduction u/s 80IA of the Act. These orders also followed by CIT(A) for AY 2005-06 to AY 2008-09. He specifically argued that the term Power is not defined in the Act, however, u/s 32A of the Act an Investment Allowance was allowed in respect of the plant and machinery newly installed after 1.4.1976, if the same is used for the purposes of business of generation or distribution of electricity or any other form of power. As far as, Section 32A(2) clause b(i) is concerned, the wording of said provision is as under:

“(2) The ship or aircraft or machinery or plant referred to in sub-section (1) shall be the following, namely

(a) a new ship or new aircraft acquired after the 31st day of………….; (b) any new machinery or plant installed after the 31st day of March, 1976,— (i) for the purposes of business of generation or distribution of electricity or any other form of power ; or (ii) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing ; or (iii) in any other industrial undertaking for the purposes of ……………………..

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) Tamilnadu Petro Products Ltd 238 CTR 454, which was upheld by Hon’ble Supreme Court (2010) 319 (ST) 8 that even the steam power is treated as one of the forms of power. So far as Section 80IA(4)(iv) of the Act is concerned, the term used is power and it is not restricted to electricity. He further explained that the Rules of Interpretation of Statutes by using principles of internal aid, the provisions of Section 32A can be used to explain the term power as used in Section 80IA(4)(iv) of the Act. Therefore, it is clear that the term power used in Section 80IA(4)(iv) of the Act is not only restricted to generation of electricity but for generation of any form of power. For the use of internal aid, the assessee also relied on the order of ITAT in the case of Vandana Properties vs ACIT (2010) 128 TTJ 89 (Mumbai).

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) pressure exhaust steam to the juices. The ITAT noticing that the term has not been defined, relied on the dictionary meaning of the word Power. Power, it was held, has been defined to mean “mechanical or electrical energy or any form of energy or force available for application to work (as that of gravitation, running water, wind, steam, electricity).” The ITAT held that both steam and electricity were capable of doing the same work, and that the assessee had chosen to use thermal energy instead of electrical energy. It was held that since, in the facts of the said case, steam had actually produced results by doing work, it came within the meaning of the word ‘power’ as used in Section 80-IA of the Act. At Para 25 of the order, the Tribunal observed as follows:

“We must here itself say and as admitted by the Departmental Representative that energy is capacity to do work. In this case, the steam definitely produces thermal energy, which evaporates water from cane juices to produce sugar. Therefore, steam produced/extracted from turbine has a capacity of producing thermal energy which evaporates water from sugarcane juices to produce sugar, and ‘can definitely be qualified as power’, and therefore, definitely be eligible for the benefit available under s. 80-IA(iv).” (emphasis supplied)

At Para 29 of the order, the Tribunal observed as follows:

“When we apply the principles of interpretation of statutes to the present case, we find that the word ‘power’ has to be given a meaning which is in common parlance and in common parlance the word ‘power’ shall mean the energy only. The energy can be of any form, be it mechanical, be it electrical, be it wind or be it thermal. The steam produced by the assessee on the principle of

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) interpretation of statute shall only be termed as power and shall qualify for the benefits available under s. 80-IA(iv).” (emphasis supplied)

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) clauses (a),(b),(c) are different and independent of each other. It was also held that terms ‘Power’ and ‘Energy’ are synonymous and they can be in several forms, steam, mechanical, electrical, wind etc. Accordingly, in the present case also it was claimed that if the legislature only wanted to confer the benefit of deduction under Section 80IA of the Act only for generation of electricity, it would have been specifically mentioned by using the term ‘Electrical Power’ instead of the connotation as ‘Power’ which is omnibus. Similarly, the Mumbai Bench of ITAT in the case of DCW Ltd vs ACIT (37 SOT 322) relied on the decision of Hon’ble Madras High Court in the case of Tanfac Industries Ltd (Supra) and held in Para 18.9 that steam produced by the assessee is eligible unit and income from sale of steam is the income derived from industrial undertaking, therefore, deduction under section 80-IA is allowable. The Hon’ble Madras High Court in the case of CIT vs TANFAC Industries Ltd in Tax Case No. 1773 of 2008 held that steam sold to its sister concern is eligible for deduction u/s 80IA of the Act. This judgement was upheld by Hon’ble Supreme Court (2010) 319 ITR (St) 8.

“The rate at which work is done, or the rate at which energy is converted from one form to another form to another is Power. Energy is never created or destroyed but only changes from one form to another. Energy is available from number of sources such as:

Coal , Oil, Gas,

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) Other forms:, Wind, Waves, Hydro Electricity, Heat, Geothermal, Solar Energy, Biochemical Energy, Tides, Nuclear Fission and Fusion, Wood,

Energy exists in the following forms:

Mechanical (Potential & kinetic), Chemical ,Heat, Light ,Nuclear, Magnetic, Electrical

Almost everything that happens in the world is a result of a change of energy from one form to another”.

“Energy is the ability of a body to do work. Energy can be transformed from one form to another. There is energy in the Wind that blows and in the water that flows. There is energy in the fuel that we burn and in the food that we eat. Most of the energy can be harnessed for doing useful work.

Heat Energy (power): When water is boiled, the water changes to steam. The steam used to do work such as turn turbines and railways engines.

i) Light Energy (power): Green plants in the presence of sunlight make food. Light is used to start chemical reactions within the leaves of the plant. Chemical reactions take place when light falls on photographic plates. Light causes chemical changes, hence it is a form of energy.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) ii) Chemical Energy (power): Foods made by plants store energy in the form of chemicals. Humans and animals use the food to release energy, some of which is stored in our muscles. This muscular energy is used for doing work. A piece of coal, a log of wood or a drum of oil also contains stored chemical energy. When ignited these produce energy in the form of heat and often light. iii) Sound Energy (power): If you place your fingertips against your throat when you speak you can feel the vibrations or movement produced by the sound. The vibrations occur due to energy of the sound. Hence, sound is a form of energy. iv) Electrical Energy (power): When you switch on the radio or music system, electric current passes into it and produces sound. The set also gets heated up. Electricity can produce heat, light and sound energy. Hence it is a form of energy. v) Magnetic Energy (power): Energy is stored in permanent magnets because a magnet can move a piece of iron-thus doing work on it. vi) Nuclear Energy (power): The heat and light of the Sun is produced when hydrogen atoms join together to form helium. The atoms store energy in their nucleus. The nuclear energy released when atoms split up is used in power stations to generate electricity. Nuclear energy is also when an atom bomb explodes. vii) Potential Energy and Kinetic Energy (power): Potential energy is the energy possessed by a body due to its position or change in shape. Kinetic energy is the energy possessed by a body on account of its motion. Both potential energy and

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) kinetic energy are forms of Mechanical Energy (power). viii) Alternative Sources of Energy (power): India has today among the worlds largest programmes for renewable energy. The spectrum of Renewable and non-conventional energy covers Solar Energy (power), Wind Energy (power), Biomass (power), Tidal (Ocean) Energy (power) and Geothermal Energy (power).

ix) Wind Energy (power): The flow of air is called wind. Wind possesses kinetic energy by virtue of its motion. The kinetic energy of the moving air (wind) is called wind energy.”

Similarly, the learned Counsel explained GENERATION OF 18. COOLING POWER FROM COOLING TOWER in the case of assessee. In the case of assessee, the UNDERTAKING concerned is generating “Cooling Power”. The power generated by the Cooling Tower is known as Refrigeration Power or Cooling Power. Cooling or Refrigeration Power, as the name suggests, is used in reducing the temperature of an object, whether solid, liquid or gaseous. The assessee generates Cooling Power at its undertakings at Sandila and Chiplun. The temperature of the water is reduced by passing air through the apparatus, i.e. the ‘Cooling Tower’ in sufficient volumes, at a temperature cooler than that of the incoming hot water such that the particles of water are enveloped by the air and there is a transfer of heat from the water to the air. The air then exits the chamber at a temperature higher than its temperature at the point of entry and the water exits the apparatus at a temperature lower than its original temperature. In other words, air (which is 1/1000th the density of water) acts as the refrigerant to cool the temperature of water.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09)

Power = Work/Time = Joule/Hour = Watt One TR is equal to 11376 KiloJoules/hour, which is equal to 3025 Kilocalories/hour, which is equal to 3.516 Kilo Watts of Power. (Assessee Paper Book No III (Sr No 10 to 14) at Sr No 14A after page 763)

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) 20. The Ld Counsel explained the facts of the present case that Cooling Power generated at the assessee’s Cooling Power generation undertakings is put to captive use in the manufacture of yeast. The assessee claimed that it is entitled to claim deduction under Section 80- IA of the Act, in respect of profits/gains derived from the generation of the Cooling Power. The assessee filed details of generation of power for the A.Y. 2005-06, 2006-07, 2007-08 & 2008-09 at its Cooling Power generation undertaking at Chiplun including its value and also of Cooling Power at its Cooling Power generation undertaking at Sandila. It was explained that Production of Cooling Power began at the Cooling Power generation undertaking at Chiplun on 2.8.2002 and at its Cooling Power generation undertaking at Sandila on 22.3.1997.

“The transformation of thermal energy into cooling power is a technology known and applied for decades, especially with the combustion of propane and other fuel or with the use of steam, in adsorption chillers, where the working medium was ammonia or lithium bromide etc. However there exists many applications where it is desirable for the production of cooling power, but the available heat source is water with low temperature for example 50 C till 90 C from rejected heat from cooling of internal

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) combustion engines or district heating or solar collectors.”

“The invention relates to a method of producing cooling power for one or more buildings by means of hot district heating water and an absorption aggregate obtaining energy from the district heating network.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) 24. The learned Counsel also explained the Generation of Steam Power from Biogas by stating that the effluent (thick black liquid) generated in the process of manufacturing yeast is collected in lagoons where there is no oxygen and it is pumped into Anaerobic biogas digesters. The assessee’s produces biogas in a methane digester where complex microbial mixtures are required to produce methane gas from the effluent. The numbers and type of bacteria in the anaerobic digester depend upon the composition of the effluent and the operating conditions of the digester. Methane gas is produced by a chemical reaction from the effluent by a process of anaerobic digestion which is used as a raw material to fuel specialized boilers in order to produce steam which again is a form of Power. In the boiler water is added and the boiler is heated through biogas to produce Steam Power. The Steam Power generated is sold to yeast manufacturing unit where it is captively consumed. The biogas so produced contains hydrogen sulphide which is removed by passing it through a scrubber in a sulphur removal plant which includes a reactor. Biogas is then transported through pipe lines to boilers where biogas is fired in the boiler to produce steam power. Steam power is then sold and transported through insulated pipelines to the yeast factory. The generation of steam power at the assessee’s Steam Power generation undertaking at Sandila began on 31.01. 2000 and the generation of steam power at the assessee’s Steam Power generation undertaking at Chiplun began on 01.03.2001.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) undertaking at Sandila was AY 2003-04 and the initial year of claim for the assessee’s Steam Power generation undertaking at Chiplun was AY 2004-05. He also relied on Government of India, Ministry of Non- Conventional Energy Sources, vide Notification No: F No: 2/1/2005-UICA dated 25.07.2005 encouraged entrepreneurs by providing financial assistance to set up plant for energy/power generation from industrial and commercial waste and effluent. One of the objects of this notification is that production of biogas (source of renewable energy) from industrial waste and also power generation from biogas. By this notification, Government of India has clarified that biogas is a source of power and hence the contention of AO is totally wrong and without any scientific basis. Biogas is indeed a source of power. Therefore, the assessee is producing steam power from biogas and has rightly claimed deduction u/s 80IA of the Act. A copy of Government of India’s Notification F.No.2/2/2005-UICA dated 25th July, 2005 is enclosed at Pages No 138 to 142 of the Continuation No 2 of assessee Paper Book No III. The biogas so produced contains hydrogen sulphide which is removed by passing it through a scrubber in a sulphur removal plant which includes a reactor and then transported through pipe lines to the boiler plant where biogas is fired in boilers to produce steam power. Steam power is then sold and transported through insulated pipelines to the yeast factory where it is captively consumed. For the AYs 2005-06, 2006-07, 2007-08 & 2008-09, Steam Power generation undertaking at Chiplun and Sandila produced steam power valued, the details of which are given by the assessee and can be verified by the AO. The production of steam power at assessee’s Steam Power generation undertaking at Sandila began on 31.01. 2000 and at Chiplun began on 01.03. 2001.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) generation using biogas has been described. This patent is very much relevant and supports the assessee’s contention that biogas is a source of power which is used for the generation of steam power. The assessee relied on United States America Patent No. 5423247 on Environmental Steam Energy Storage. A part of the invention is reproduced below:

“This invention relates to an environmental Steam Energy storage method and device which is able to transfer heat originating in heated water in a container for use for many purposes e.g. to transfer such heat to food products in the water or to beverages dissolved in the water, in an efficient manner and at atmospheric pressure. This invention also relates to such a method and device which is able to transfer heat originating in an empty container directly to a water containing food products, in a highly efficient manner and at atmospheric pressure. The present invention further relates to methods and devices to provide an environmental steam energy storage zone to transfer hot steam either firstly, into a heated container containing water or food, including dried vegetables or beverages dissolved in water; or, secondly, into a heated container containing vegetables or animal products, which contain molecular water therein.” (Copy enclosed at Page No 158 to 169 of the Continuation No 2 of Paper Book No III)

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) can be given for generation of steam power which is used for captive consumption. Further, the Mumbai Bench of the ITAT in the case of West Coast Paper Mills Ltd. vs. Jt. CIT (2006) 100 TTJ 833 held that the deduction provided in Section 80-IA are available to an assessee who generates power and consumes the power itself. The only condition that needs to be satisfied for the provisions of Section 80-IA of the Act to be attracted is that the undertaking must generate power. In that case the assessee generated power using two Diesel Generator Sets and it was held that the assessing authority was bound to grant a deduction to the assessee on the profits attributable to the generation of power from the two Diesel Generator Sets. Relying on judgements of the Apex Court and the Bombay High Court, as well as looking to the intention of the legislature (as construed from the memorandum explain the provisions of the Finance Bill, 1993) to encourage and incentive the generation of power, the ITAT has held that generation of power for captive consumption makes the assessee entitled to claim a deduction under Section 80-IA of the Act. The Hon’ble Madras High Court in case of Tamilnadu Petro Products Ltd. vs. ACIT (2011) 238 CTR 454 held that:

“5. The Division Bench also relied upon the decision of the Hon'ble Supreme Court in CIT v. Tanfac Industries Ltd., S.L.P. (C) No. 18537 of 2009 reported in [2009] 319 ITR (St.) 8 wherein, while applying Section 80IA of the Income-tax 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. On behalf of the Revenue, reliance was placed upon the circular of the Central Board of Direct Taxes dated October 3, 2001, and contended that the assessee was not entitled for the deduction. After making a detailed reference to the contents of

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) the said circular, the Division Bench has stated as under in paragraph 13 of the judgment:

"13. A perusal of the above said circular would clearly show that it is also in favour of the assessee. The said circular is very specific that in a case of captive power unit the provision of law is also the same as in the case of the undertaking which generates and distributes the power to any other concern. Further, it is a well-established principle of law that a circular can only be made in consonance with the provisions of the enactment and the same cannot be derogatory to the purport sought to be achieved. Hence, we are of the opinion that the circular relied upon by the learned counsel for the Revenue is in fact in favour of the assessee and, therefore, the said contention also cannot be accepted.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) provides for the benefit even in respect of electricity generation plant established by the assessee and the income derived from such enterprise of the assessee, it will have to be held that the assessee fully complied with the requirements prescribed under S. 80-IA in order to avail of the benefits provided therein. Therefore, the contention based on the interpretation of the expression "derived from" can have no application to the case where the provisions of S. 80-IA get attracted.” (emphasis supplied)

“9. Therefore, there is no difficulty in holding that captive consumption of the power generated by the assessee from its own power plant would enable the respondent/assessee to derived profit and gains by working out the cost of such consumption of power in as much as the assessee is able to save to that extent which would certainly be covered by Section 80-IA(1). When such will be the outcome out of own consumption of the power generated and gained by the assessee by setting of its own power plant, we do not find any lack of merit in the claim of the respondent/Assessee when it claimed by relying upon Section 80-IA(1) of the Income Tax Act by way of deduction of the value of such units of power consumed by its own plant by way of profits and gains for the relevant assessment years.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) 10. Hence the contention of the learned counsel for the Revenue has no legal basis. It is a well settled principal of law that court while interpreting the provision will have to see the object of the enactment and its provisions. Hence, we are of the opinion that the interpretation sought to be made by the Revenue would be fact frustrate the vary purpose for which for which the benefit is provided in the said provision and therefore the same cannot be countenanced.

11.In this context, we find that a decision of the Hon’ble the Supreme Court in CIT v. TANFAC INDUSTRIES LTD. S.L.P. (C) No.18537 OF 2009 reported in 319 ITR (Statutes),8, fully support the stand of the assessee. That was also a case where while applying Section 80-IA of the Income Tax Act, the Hon’ble the Supreme Court took the 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.

“2. I am directed to say that the Board examined the above matter and are of the view that if an undertaking, which is set up in any part of India for the generation or generation and distribution of power, begins to generate power at any time during the period beginning on the 1st day of April, 1993

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) and ending on the 31st day of March, 2006, will be eligible for the benefit of deduction u/s 80-IA. In case of a captive power unit, the provisions of law is also the same.

13.There may be a case where a captive power plant is set up by an undertaking which is different from the undertaking making use of the power generated. As long as the two undertakings are distinct and separate and there is an element of commercial profit and gains by the power generating undertaking from the Industrial user, the provisions of the Act with reference to the benefit of deduction under Section 80-IA to such said undertaking, would be available, within the frame work of law and subject to the following:-

i) The tax holiday provisions under Section 80-IA came into effect from the date such an undertaking begins to generate power. In a captive power plant, the date of generation may require determination by the Assessing Officer with reference to initial date on which such captive power plant starts generation.

ii) Where a captive power plant is merely hived off as a separate entity and not sold to a third party, owing to the close connection between the power generating undertaking and its industrial user undertaking, the transactions would require examination at the level of Assessing Officer to ensure that they are at arms’ length and that the provisions sub-section (8) of Section 80-IA are not attracted adversely.

iii) Any grant of deduction under Section 80-IA of the Income Tax Act, 1961 should not be taken to

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) legitimate something not permissible under the provisions of the Electricity Supply Act and related laws of various states and union.

iv) Where an undertaking generating captive power for the exclusive use of another industrial undertaking claims the benefit of deduction under Section 80-IA, the industrial user undertaking will not be eligible for claiming similar deduction in respect of the aforesaid power generating plant. Further, the user undertaking should also not debit the expenditure incurred by the captive power generating undertaking in its own profit and loss a/c.”

In the case of Prabhu Spinning Mills Pvt. Ltd. vs. DCIT (2012) 31 CCH 277 the ITAT held that:

“18. In so far as the second issue regarding captive consumption is concerned, it is, admittedly, covered

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) by the decision of the Hon'ble Madras High Court rendered in the case of CIT vs Thiagarajar Mills Ltd in Tax Case (Appeal) Nos. 68 to 70 of 2010, in favour of the assesse. Paragraphs 8 to 11 of the decision are reproduced herein below: The contention that only whatever power generated from the sale to an outsider or the Electricity Board and the profit or gain derived by such sale alone can be taken as profit or gains derived by the assessee as mentioned in Section 80-IA(1) of the Income-tax Act, has been rejected by the Tribunal in the order impugned. In our considered view, the Tribunal was well justified in having rejected such a stand of the tax Act, we are also convinced that what are all to be satisfied in order to be eligible for the deduction as provided under sub-section (1) of section 80-IA the assessee should have set up and an undertaking or an enterprise and from and out of such an undertaking or an enterprise set up, any profit or gain is derived, falling under sub-section covered by sub-section(4) of section 80-IA of the Income-tax Act such profit or gain derived by the assessee can be deducted in its entirety for a period of 10 years starting from the date of functioning of the set up. The contention that profit or gain can be claimed by the assessee only if such profit or gain is derived by the sale of its product or power generated to an outsider cannot be the manner in which the provisions contained in section 80-IA91 can be interpreted. The expression ‘derived’ used in the said section 80-IA in the beginning as well as in the last part of sub-section(4) makes it abundantly clear that such profit or gain could be obtained by one’s own consumption of the outcome of any such

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) undertaking or business enterprise as referred to in sub-section(4) of section 80-IA. The dictionary meaning of the expression ‘derive’ in the New Oxford Dictionary of English states “obtaining something from a specified source.” In section 80- IA(1) also no restriction has been imposed as regards the deriving of profit or gain in order to state that such profit or gain derived only through an outside source alone would make eligible for the benefits provided in the said section.

West Coast Paper Mills Ltd. vs ACIT [2014] 33 ITR (T) 560 (Mumbai - Trib.) - wherein ITAT, Mumbai held as under:

“The assessee's claim under section 80-IA, with regard to unit No. 6 is that it has installed a power unit in the form of chemical recovery boiler for the generation of steam. This steam is used firstly, to

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) rotate the turbine which generates electrical power for the assessee which is used in the paper manufacturing process and secondly, for drying of the pulp. For the first use, the steam so generated by the chemical recovery boiler has a high temperature and pressure which is then transferred through the inlet to run the turbines. This transforms to electrical energy which is supplied to paper division for running of the machines. The second use of steam is independently using it for evaporating the moisture from the paper product or for drying pulp by the assessee. On these facts, whether it can be held that the said undertaking on a standalone basis has been set-up for generation of power or not within the meaning of section 80- IA(4)(iv). The relevant clause (iv)(a) of section 80- IA(4), reads as under :

"(a) is set up in any part of India for the generation and distribution of power if it begins to generate power at any time during the period beginning on the first day of April 1993 and ending on 31st day of March 2006."

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) 1961, does not define the word "power". The New Oxford Dictionary of English defines the word "power" as "energy" that is produced by mechanical, electrical or other means which is used for operating device. Otherwise also, generation of steam is a kind of energy which can be converted into mechanical or electrical energy from which power is generated. To say that the generation of power is only restricted to generation of electricity alone, is too narrow a view. The term "power" encompasses a whole range of energy generated in various forms to run machines, devices, etc.”

The Mumbai Bench of the Tribunal relying on the decisions in the 29. case of SIAL SBEC Bioenergy Ltd. vs. DCIT (2004) 83 TTJ (Del) 866 held that generation/ production of steam is also a form of power and the unit of the assessee which is an undertaking set-up for generation of steam for its manufacturing process (i.e. for captive consumption) can be said to be for generation of power.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) for Production of Cooling Power from Low Temperature Hot Water wherein the invention relating to production of cooling power from low temperature hot water has been patented. (Copy of the Patent is at Pages No 259 to 264 of the assessee Paper Book No III, Sr. No 10 to 14 after Page 763). This Patent is valid in 96 countries of world including India. The relevant portion of the Patent is as under:

“The transformation of thermal energy into cooling power is a technology known and applied for decades, especially with the combustion of propane and other fuel or with the use of steam, in adsorption chillers, where the working medium was ammonia or lithium bromide etc. However there exists many applications where it is desirable for the production of cooling power, but the available heat source is water with low temperature for example 50 C till 90 C from rejected heat from cooling of internal combustion engines or district heating or solar collectors.”

This patent supports the assessee’s claim that ammonia absorption plant (AARP) generates cooling power/refrigeration power.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) be restricted to average power cost during the year in Sandila unit of Rs.5.32 and therefore reduced the claim from Rs.23,31,945 to a loss of Rs.10,44,728. He therefore held that since net result is negative figure or a loss no deduction would be available to the assessee.

(a) Name in Form 10CCB was Saf Yeast Company Pvt Ltd which is the name of assessee company and it is engaged in production of yeast (b) Address mentioned is the same as that of assessee for producing yeast. (c) No separate permission obtained from Central Government or State Government or local authority for carrying on the eligible business as stated in Rule 18BBB. (d) No mention about business of power generation in Form 3CD and Schedule N of statutory report of auditor. (e) No separate segmental reporting for power generation business as per AS 17. (f) No books of accounts maintained for power generation undertaking (g) No purchase or sales in name of undertaking. HO does not even have a contra entry against power plant. (h) Power generation is not the main business of the assessee.

(i) No claim for depreciation at special rates for assets claimed by assessee as allowed under

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) section 32(1)(i) for undertaking engaged in generation and distribution of power.

The CIT(A) replied each of the objection of the AO as under: -

(a) There is no need or statutory obligation to have a different name for the power generation undertaking. The address has to be the same as it is situated in the same premises as the yeast producing factory.

(b) In IAC vs Dalmiya Cement 37 ITD 335, the Tribunal held that the manufacture of clinkers by a new plant which is used as raw material for production of cement was a separate industrial unit although both cement and clinker units were located at same place.

(c) As long as unit and activity is independent and identifiable it can be treated as separate industrial unit. CIT(A) relied on Hon’ble Bombay High Court’s judgement in Commissioner of Wealth Tax vs. P. Devashayam 236 ITR 885, Kharwar (J.B.) & Sons 163 ITR 394 and Nazeer Cashew Industries 166 ITR 804.

(d) In the assessee’s case, the three elements of systematic activity, employment of labour and equipment and production of goods are present and therefore the enterprise could be termed as an undertaking or an industrial undertaking.

(e) There is no fetter against using of power generated for self consumption - Mumbai ITAT in case of West Coast Paper Mills 100 TTJ 833.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) (f) Sub-section 7 of s. 80IA simply says that accounts of eligible undertaking should be audited which has been done for the assessee’s power generation undertakings. The audit report is required to be furnished and the assessee has complied with the same. No specific condition for maintaining separate books. CIT(A) relied on judgements of ITAT, Mumbai Bench in IAC vs Fulford India Ltd 34 TTJ 285 and ITAT Delhi Bench in Hindustan Computers Ltd 38 TTJ 222.

(g) On the issue of whether the receipts from the supply of steam would be eligible for benefit under section 80IA. CIT(A) relied on order of ITAT in the case of SIAL SBEC Bio Energy Ltd.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) power generation undertakings are used for captive consumption in the yeast manufacturing unit. The assessee has separate plant and machinery for its Steam Power generation undertaking and Cooling Power generation undertakings which is distinct and separate from the yeast manufacturing unit. In this regard the assessee relied on Factory Inspector’s certificates dated 08.11.2006, a copy of which is enclosed. Further this fact has also been appreciated by the AO who in the last few paras of the remand report stated as under:

“The Assessee has submitted the copy of factory inspector’s certificate in respect of cooling power plant and biogas power plant. The certificate revels that the cooling power plant and biogas power plant is separate from Fresh Baker Yeast and Instant Dry Yeast.”

The assessee submitted separate and duly audited Profit and Loss accounts giving the revenues and expenses from such power generation undertakings at Sandila and Chiplun and also furnished Balance Sheets which give details of assets and liabilities of each power generation undertaking. These details are available at pages no 195 to 473 of the assessee Paper book No I. It has been held that if new a industrial unit is established as a part of an existing industrial establishment and if the newly established unit is itself an integrated independent unit in which new plant and machinery is put up and that by these is capable of production of goods independently, the said unit could be classified as newly established undertaking.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) assessee’s case. Hon’ble Supreme Court in the case of Textile Machinery Corpn. Ltd. vs. CIT [1977] 107 ITR 195 held that in order to be entitled to the benefit under Section 15C of the Act, the following facts have to be established by the assessee, subject always to time-schedule in the Section:

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) undertaking engaged in the business of generation or distribution of electricity or any other form of power.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) for power generation undertakings to obtain any permission from Central Government. Further though sub-clause (4) of Rule 18BBB of the Income Tax Rules, 1962 prescribes submission of copy of the agreement, approval or permission, as the case may be, to carry on the activity signed by the Central Government or the State Government or the local authority for carrying on the eligible business, this rule mandates that certificate has to be furnished only where permission should be necessary. The assessee argued that there is no specific approval required for carrying on business of generation of steam power and cooling power and hence it is incorrect for the AO to contend that it did not obtain the requisite permissions. In fact the AO not been able to state what permission was necessary because in fact no such permission was required for undertakings generating steam power and cooling power. The assessee relied on a judgement of Hon’ble Allahabad High Court in the case of CIT vs Hanuman Rice Mills (275 ITR 79), wherein it was held that “Following the decision in CIT v. Sultan and Sons Rice Mill [2005] 272 ITR 181 (All.), it was to be held in the instant case that the Tribunal was legally correct in allowing the assessee's claim under sections 80J and 80HH. These provisions do not require that the industrial undertaking should be registered under the Factories Act, 1948 to qualify for the deductions under the said provisions.”

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) separate P/ L account and B/S is to be prepared and report from a Chartered Accountant as per Form No 10CCB is also required to be filed and same have been duly filed. The assessee relied on the judgement of the Hon’ble Supreme Court in the case of CIT vs Bongaigaon Refinery and Petrochemical Ltd (349 ITR 352). In this case the AO while framing assessment, under Section 143(3) allowed deduction u/s 80HH and 80I of the Act after examining and being satisfied with the unit-wise profit & loss statement filed by that Assessee. The CIT u/s 263 passed an order holding that the assessee was statutorily obliged to maintain Segregated Accounts for each of the three units unit-wise for claiming deduction under Sections 80HH and 80I of the Act, whereas the assessee had maintained Consolidated Accounts. Against the order of CIT, the matter came by way of appeal to the ITAT, which came to the conclusion that there was no statutory requirement under Section 80HH(5) / 80I(7) of the Act to maintain unit-wise accounts. However, the Tribunal observed that, to put an end to litigation, Bongaigaon Refinery and Petrochemicals Ltd should submit unit-wise audited accounts and claim deduction under Sections 80HH and 80I of the Act. Against the said decision that assessee appealed to the High Court which set aside the order of the Tribunal. An appeal was filed by the department before the Supreme Court. The Supreme Court held that neither Section 80HH nor Section 80I of the Act statutorily obliged the assessee to maintain its accounts unit-wise and that it was open to maintain its accounts in a consolidated form and that unit-wise net profits could be prepared by the Auditors from the Consolidated Books of Accounts and on that basis compute deduction under Section 80HH / 80I of the Act. The judgement squarely applies to the assessee’s case.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) separate report in Form 10CCB is to be furnished by each undertaking or enterprise of the assessee claiming deduction under Section 80-IA of the Act and the same shall be accompanied by a P/L Account and Balance Sheet of the undertaking or enterprise as if the undertaking or the enterprise were a distinct entity. The assessee has duly submitted the report in prescribed form along with separate a Profit and Loss Statement for each power generation undertaking which are at page no 195 to 473 of assessee’s Paper book. The AO cannot deny deduction merely on the ground that the business of power generation namely cooling power generation undertakings and steam power generation undertakings were not mentioned in Form 3CD audit report. Further, that there is no requirement mentioned in Section 80IA of the Act to the effect that the business of power generation should be mentioned in the Form 3CD audit report nor is there any rule under the Act to that effect.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) charging depreciation while computing the eligible profits under Section 80IA. In the absence of any such specific form of exercising option, the method adopted by the assessee for charging depreciation while computing the eligible profits is justified. The reliance placed by the assessee on the case of Jindal Steel and Power Ltd vs. ACIT (2007) 106 TTJ 943, wherein it was held that:

“As per second proviso to rule 5(1A), the assessee may instead of the depreciation specified in Appendix 1A on his option be allowed depreciation under sub-rule (1) r/w Appendix I, i.e. on WDV basis if such option was exercised by the assessee before the due date for furnishing the return of income under s. 139(1). It is seen that no particular format or procedure has been laid down in second proviso in relation to disclosure of exercise of option by an assessee.”

“(2) The ship or aircraft or machinery or plant referred to in sub-section (1) shall be the following, namely :—

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) (c) a new ship or new aircraft acquired after the 31st day of………….;

(d) any new machinery or plant installed after the 31st day of March, 1976,—

(iv) for the purposes of business of generation or distribution of electricity or any other form of power ; or

(v) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing ; or

(vi) in any other industrial undertaking for the purposes of ……………………..

[Provided that nothing contained in clauses (a) and (b) shall apply in relation to,—“

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) of Section 80IA of the Act. The relevant portion of the judgement as under:

“27. We shall now take up the appeal numbered as I. T. A. 378/Coch/09. The only issue urged in this appeal by the Revenue is whether the learned Commissioner of Income-tax (Appeals) is justified in holding that the DG power generation units I and II installed by the assessee-company for captive power consumption constituted an "undertaking" in terms of sub-section (4)(iv) of section 80-IA of the Act.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) Income-tax (Appeals) is in accordance with the decision of the Tribunal, we do not find any reason to interfere with the same.”

“Ultimately the determinative factor would be whether the undertaking is producing a different article or thing or not whether for sale to outsiders or for captive consumption. The steam generated by the two units may be useful in the paper manufacturing process. But even then the question to be asked is whether it is a product which is capable of being sold to outsiders. The answer to this question has to be in the affirmative. The assessee itself may not have sold it to any outsider but the same is capable of being sold to any State Electricity Board or for that matter to any electricity generating unit. In fact, we see no reason why the same cannot be sold to anyone, though the assessee itself may have sold it to an outsider. It has used the entire steam generated either in the papermaking process or has transferred it to the turbine unit to generate electricity. If electricity used for captive consumption can be eligible for

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) deduction, we see no reasons as to why steam which is also a form of power cannot be eligible for such deduction. Thus there is absolutely not force in the contention of the Revenue merely on the basis of its own appreciation about the maintenance of books of account that no separate undertaking exists. The aforesaid discussion rules out objection No 5 as well as Objection No 6 raised by the Revenue.”

From the above facts and discussion, it is clear that the very scheme of 80-IA of the Act as also referred and discussed in a catena of judgments was to encourage captively generation of power. There is no bar in the Section on an assessee to produce power at his power division and sell it to its his own manufacturing unit i.e. captive consumption.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) prescribed limit of 80%. This undertaking commenced production on 2.8.2002. A perusal of Section 80IA of the Act would show that deduction can be claimed for any 10 consecutive years out of 15 years commencing in the AY in which the power generation activity begins. In this regard the assessee relied on Hon’ble Delhi High Court the case of Praveen Soni vs CIT (2011) 241 CTR 542. Cooling Power generation undertaking at Sandila commenced in AY 1997-98 and assessee exercised its option and claimed deduction u/s 80IA of the Act from AY 2003-04 onwards. Similarly, the Cooling Power generation undertaking at Chiplun commenced in AY 2003-04 and the assessee exercised its option and claimed deduction u/s 80IA from AY 2004-05 onwards. At the assessee’s Steam Power generation undertaking at Sandila was set up in FY 1999- 2000 at a cost of Rs.84 Lacs and commencement of production of steam power was 31.01.2000 with percentage of new assets at 98.38% and therefore was well above the 80% statutory limit. Similarly, the assessee’s Steam Power generation undertaking at Chiplun was set up in FY 2000-01 at a cost of Rs. 59.25 Lacs and commencement of production of steam power was 01.03.2001. The percentage of new assets was 96.39% and therefore was well above the 80% statutory limit.

“an undertaking which is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2017.”

“There is little room for any doubt that scientifically in general parlance, ‘production of steam’, and ‘generation of steam’ or for that matter, ‘production of electricity’ and ‘generation of electricity’, shall have the same meaning whichever of the two be the item under consideration. In this regard, the assessee had also referred to the definition of word ‘generate’ under section 2(29) of the Electricity Act, 2003 as per which ‘generate’ means to produce electricity from a generating station for the purpose of giving supply to any premises or enabling a supplier to be so given. The Assessing Officer had tried to point out the intention of the Legislature by referring to section 80-IA(4)(iv)(b ) to infer that its intention is to provide benefit to the generation of electricity only, since in the sub-clause (b ) transmission and distribution lines are mentioned which could be of electricity only. However, the submission of the assessee in this regard was

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) appropriate that sub-clauses (a), (b) and (c ) of section 80-IA(4)(iv) provide for deduction in the cases of three types of undertakings, viz., the first which is engaged in generation or generation and distribution of power; the second, which starts transmission or distribution lines; and the third, which undertakes substantial renovation and modernization of the existing network of transmission or distribution lines. All these three clauses deal with the three different categories of the undertakings. These three types of undertakings referred to in the said sub-clauses (a), (b) and (c ) are different and independent of each other. Thus, while dealing with one sub-clause, inference need not and cannot be drawn from the other sub-clause. On a perusal of those provisions, the plea of the assessee was correct that its case fell in sub-clause (a) itself and the legislative intent inferred by the Assessing Officer with reference to sub-clause (b) was superfluous, just like there are transmission or distribution lines for electricity there are transmission and distribution lines for steam too. Therefore, there was no basis whatsoever for drawing distinction between the two or a room for any confusion between the two propositions. ‘Power’ and ‘energy’ are synonymous, which can be in several types and forms, be it heat, which is steam or mechanical or electrical, wind or be it thermal. If the intent of the Legislature remains to restore the application of the benefit of deduction under section 80-IA to generation of electricity only, it would have been specifically so worded by using the connotation ‘electrical power’ only rather than the connotation ‘power’ omnibus. Thus, there is no doubt that like

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) electricity, steam is also a form of power. In the aforesaid circumstances, the decision arrived at by the Commissioner (Appeals) that the assessee was in the business of generation of power and that the steam so generated by the industrial undertaking and receipt from the business of industrial undertaking was within the meaning of section 80-IA was correct.

In the result, the revenue’s appeal was to be dismissed.”

Whether expression 'market value' used in section 80-IA(8) means value determined by market forces - Held, yes - Whether, in instant case, market forces would come into picture only when assessee bought power from State Electricity Board like any other consumer - Held, yes - Whether since price paid by assessee was Rs. 3.50 per unit, it had to be taken into account while computing amount of eligible profit available for deduction under section 80-IA - Held, Yes”

i) CIT vs. TANFAC Industries Limited Tax Case No.1773 of 2008 wherein it was held by Hon’ble

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) Madras High Court that Steam generated and consumed captively would be eligible for deduction u/s 80IA. This judgment was upheld by the Hon’ble Supreme Court as reported in (2010) 319 ITR (St) 8.

ii) In the case of West Coast Paper Mills Ltd. vs. ACIT (2014) 52 Taxmann.com 268the ITAT held that:

“As the Assessing Officer put it if the assessee has not realized any revenue by selling the power to outsiders, can the assessee be held to be entitled for deduction under section 80IA of the Act? the Assessing Officer was of the view that it is only an inter-division transfer and there was no revenue realized by it and consequently there was no derivation of profit or income in the business of industrial undertaking. The questions raised by the Assessing Officer have all been answered by the Supreme Court in the case of Orient Paper Mills Ltd., 176 ITR 110 SC

ITAT allowed deduction u/s 80IA for power generated and consumed captively.

III) CIT vs. Thiagarajar Mills Ltd. Tax Case (Appeal) Nos. 68 to 70 of 2010 Madras High Court held:

“9.Therefore, there is no difficulty in holding that captive consumption of the power generated by the assessee from its own power plant would enable the respondent/assessee to derived profit and gains by working out the cost of such consumption of power in as much as the assessee is able to save to that extent which would certainly be covered by Section

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) 80-IA(1). When such will be the outcome out of own consumption of the power generated and gained by the assessee by setting of its own power plant, we do not find any lack of merit in the claim of the respondent/Assessee when it claimed by relying upon Section 80-IA(1) of the Income Tax Act by way of deduction of the value of such units of power consumed by its own plant by way of profits and gains for the relevant assessment years.

“2. I am directed to say that the Board examined the above matter and are of the view that if an undertaking, which is set up in any part of India for the generation or generation and distribution of power, begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2006, will be eligible for the benefit of deduction u/s 80-IA. In case of a captive power unit, the provisions of law is also the same.

3.There may be a case where a captive power plant is set up by an undertaking which is different from the undertaking making use of the power generated. As long as the two undertakings are distinct and separate and there is an element of commercial profit and gains by the power generating undertaking from the Industrial user, the provisions

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) of the Act with reference to the benefit of deduction under Section 80-IA to such said undertaking, would be available, within the frame work of law and subject to the following:-

i) The tax holiday provisions under Section 80-IA came into effect from the date such an undertaking begins to generate power. In a captive power plant, the date of generation may require determination by the Assessing Officer with reference to initial date on which such captive power plant starts generation.

ii) Where a captive power plant is merely hived off as a separate entity and not sold to a third party, owing to the close connection between the power generating undertaking and its industrial user undertaking, the transactions would require examination at the level of Assessing Officer to ensure that they are at arms’ length and that the provisions sub-section (8) of Section 80-IA are not attracted adversely.

iii)Any grant of deduction under Section 80-IA of the Income Tax Act, 1961 should not be taken to legitimate something not permissible under the provisions of the Electricity Supply Act and related laws of various states and union.

Where an undertaking generating captive power for the exclusive use of another industrial undertaking claims the benefit of deduction under Section 80-IA, the industrial user undertaking will not be eligible for claiming similar deduction in respect of the aforesaid power generating plant. Further, the user undertaking should also not debit the expenditure

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) incurred by the captive power generating undertaking in its own profit and loss a/c.”

A perusal of the above said Circular would clearly show that it is also in favour of the assessee. The said Circular is very specific that in a case of Captive power unit the provision of law is also the same as in the case of the undertaking which generates and distribute the power to any other concern. Further, it is a well established principle of law that a Circular can only be made in consonance with the provisions of the enactment and the same cannot be derogatory to the purport sought to be achieved. Hence we are of the opinion that the Circular relied upon by the learned counsel for the Revenue is in fact in favour the assessee and therefore the said contention also cannot be accepted.”

In case of DCW Ltd. vs. ACIT (2010) 132 TTJ (Mumbai) 442 - it was held that:

“Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings - Assessment year 2003-04 - Assessee claimed deduction under section 80-IA from its captive power plant unit - Assessing Officer allowed assessee’s claim - On appeal, Commissioner (Appeals) reduced amount of deduction for following reasons: firstly, assessee had taken into account electricity tax levied by State Government while working out market price of electricity for purpose of section 80-IA(8), secondly, certain amount of indirect expenses was to be allocated to C.P.P. unit for calculating eligible profit under section 80-IA and, thirdly, income from sale of

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) sludge and sale of steam was not eligible for deduction under section 80-IA - Whether price charged by assessee while transferring manufactured electricity from C.P.P. unit to its other unit including electricity tax levied by State Electricity Board was price ordinarily prevailing in open market, and, therefore, Commissioner (Appeals) was not justified in disallowing assessee’s claim on said ground - Held, yes - Whether as regards second ground, incomes and expenditures which were not directly relatable to industrial unit had to be ignored and, therefore, Commissioner (Appeals) was not justified in allocating indirect expenses not directly relatable to industrial unit of assessee for purpose of computation of its income for deduction under section 80-IA - Held, yes - Whether as regards third ground, sale of sludge did not amount to income derived from industrial undertaking and, therefore, it was not eligible for deduction under section 80-IA - Held, yes - Whether, however, in view of fact that steam produced by assessee from eligible unit was a bye- product and income from sale of steam was income derived from industrial undertaking, it was eligible for deduction under section 80-IA - Held, Yes”

In the case of Prabhu Spinning Mills Pvt. Ltd. vs. DCIT reported in (2012) 31 CCH 277 the ITAT held that: “18. In so far as the second issue regarding captive consumption is concerned, it is, admittedly, covered by the decision of the Hon'ble Madras High Court rendered in the case of CIT vs Thiagarajar Mills Ltd in Tax Case (Appeal) Nos. 68 to 70 of

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) 2010, in favour of the assesse. Paragraphs 8 to 11 of the decision are reproduced herein below: The contention that only whatever power generated from the sale to an outsider or the Electricity Board and the profit or gain derived by such sale alone can be taken as profit or gains derived by the assessee as mentioned in Section 80-IA(1) of the Income-tax Act, has been rejected by the Tribunal in the order impugned. In our considered view, the Tribunal was well justified in having rejected such a stand of the tax Act, we are also convinced that what are all to be satisfied in order to be eligible for the deduction as provided under sub-section (1) of section 80-IA the assessee should have set up and an undertaking or an enterprise and from and out of such an undertaking or an enterprise set up, any profit or gain is derived, falling under sub-section covered by sub-section(4) of section 80-IA of the Income-tax Act such profit or gain derived by the assessee can be deducted in its entirety for a period of 10 years starting from the date of functioning of the set up. The contention that profit or gain can be claimed by the assessee only if such profit or gain is derived by the sale of its product or power generated to an outsider cannot be the manner in which the provisions contained in section 80-IA91 can be interpreted. The expression ‘derived’ used in the said section 80-IA in the beginning as well as in the last part of sub-section(4) makes it abundantly clear that such profit or gain could be obtained by one’s own consumption of the outcome of any such undertaking or business enterprise as referred to in sub-section(4) of section 80-IA. The dictionary meaning of the expression ‘derive’ in the New

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) Oxford Dictionary of English states “obtaining something from a specified source.” In section 80- IA(1) also no restriction has been imposed as regards the deriving of profit or gain in order to state that such profit or gain derived only through an outside source alone would make eligible for the benefits provided in the said section.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) undertaking is enclosed as part of assessee Paper book No I at Pages no 195 to 473 as follows: AY Cooling Power Steam Power Cooling Power Ammonia Steam Power Absorption Chiplun Chiplun Sandila Sandila Recovery Plant Sandila (Refrigeration power) 2005-06 Pg 195 to 201 Pg 202 to 208 Pg 209 to 215 Pg 216 to 222 Pg 223 to 229 2006-07 Pg 288 to 294 Pg 295 to 301 Pg 302 to 308 Pg 309 to 315 Pg 316 to 322 2007-08 Pg 376 to 382 Pg 390 to 396 Pg 383 to 389 - Pg 397 to 403 2008-09 Pg 446 to 451 Pg 459 to 466 Pg 452 to 458 - Pg 467 to 473

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date. Since Cooling Power which is generated by the assessee at its undertakings Chiplun and Sandila is captively consumed by the yeast manufacturing factories and is not sold to any outsider, the assessee in order to arrive at the market value of such goods taken the electricity rate of Maharashtra State Electricity Board and U.P. State Electricity Board as a base and has assigned the notional value of sales. The notional sales value which was lower than rate of electricity as per electricity bill when converted from TR to kw of electricity as shown as under: -

Power is a measure of the Work done divided by the Time taken to do the Work. Thus, when a ‘Joule’ is the unit of Work, and an ‘Hour’ is the unit of Time, the unit of Power is Joule/ Hour or Watt.

Power = Work/Time = Joule/Hour = Watt

One Ton of Refrigeration (TR) is equal to 11376 Kilo Joules/hour, which is equal to 3025 Kilocalories/hour, which is equal to 3.516 Kilo Watts of Power.

This is a standard rate of conversion of TR to Kw and the same can also be observed from the various research sites as submitted in Annexure 3

Refrigeration Tonnes to kilowatts (kW) conversion calculator from RapidTables.com, where it clearly show that 1 Refrigeration Tonne = 3.5168525 kW (rounded off to 3.52 kW). The Appellant has

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) enclosed RapidTables.com at Page Nos 349 to 352 of Continuation No. 2 of Paper Book No. III which evidences the fact that 1 Tonne of Refrigeration [1TR] = 3.517 kilowatts (kW) of electric power.

Thereafter, the assessee applied the rate of Rs.8.17, Rs.8.17, 53. Rs.8.17, Rs. 8.99 respectively per TR for the A.Y. 2005-06, 2006-07, 2007-08, 2008-09 which was lower than rate of electricity as per electricity bill for the Cooling Power generation undertaking at Sandila and the rate of Rs.4.92, Rs.8.17, Rs.8.17, Rs. 8.99 respectively per TR for the A.Y. 2005-06, 2006-07, 2007-08, 2008-09 which was also lower than rate of electricity as per electricity bill for the Cooling Power generation undertaking at Chiplun. The same are as under:-

Cooling Power Generation Undertaking at Sandila

AY Price Per Rate per TR at Rate per TR Unit of Kw conversion rate of 1 adopted by the as per U.P. TR = 3.517 Kw Appellant in the Electricity computation of Board deduction Section 80IA in the return 2005-06 Rs.3.61 3.61X 3.517=Rs.12.69 Rs.8.17 2006-07 Rs.3.62 3.62X3.517=Rs.12.73 Rs.8.93 2007-08 Rs.3.92 3.92X3.517=Rs.13.78 Rs.8.17 2008-09 Rs.3.76 3.76X3.517=Rs.13.22 Rs.8.99

Cooling Power Generation Undertaking at Chiplun

AY Price Per Rate per TR at Rate per TR Unit of Kw conversion rate of 1 adopted by the as per TR = 3.517 Kw Appellant in the Maharashtra computation of State deduction Section Electricity 80IA in the return Board

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) 2005-06 Rs.3.61 3.61X3.517=Rs.12.69 Rs.8.17 2006-07 Rs.3.62 3.62X3.517=Rs.12.73 Rs.8.17 2007-08 Rs.4.49 4.49X3.517=Rs.15.79 Rs.8.17 2008-09 Rs.4.52 4.52X3.517=Rs.15.89 Rs.8.99

AY Cooling Power Cooling Power Ammonia Absorption Recovery Plant Chiplun Sandila Sandila (Refrigeration power)

2005-06 Rs.2,03,91,161 Rs.9,46,24,471 Rs.18,17,877 2006-07 Rs.4,43,61,550 Rs.9,39,65,151 Rs.16,47,348 2007-08 Rs.3,84,19,573 Rs.9,74,90,930 - 2008-09 Rs.4,54,17,690 Rs.12,42,10,859 -

The assessee claimed that valuation per TR done by them is less than the State Electricity Board prices. Therefore, the deduction claimed by assessee u/s 80-IA of the Act for generation of cooling power be allowed. But the AO did not allow the claim for deduction under Section 80IA of the Act and he has in Paras 7.25 to 7.29 of assessment order for AY 2005-06 held without prejudice, that if at any appellate stage the assessee is entitled to deduction u/s 80IA of the Act, deduction should be computed by adopting the net profit rate of consolidated business. The AO did not accept the computation prepared by the assessee on the basis of notional sale and by allocating certain expenses from the accounts and held that profit from production of such energy should be

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) computed at best at net profit rate of consolidated business (including manufacture of yeast) which was 2.75%, 14.97%, 23.13%, 26.41% in AY 2005-06, 2006-07, 2007-08, 2008-09 respectively. Aggrieved, assessee preferred appeal before CIT(A).

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) case, the refrigerant is air. Conversion Calculator from Rapid Tables.com is applicable, where it clearly show that 1 Tonne of Refrigeration [TR] = 3.5168525 kW (rounded off to 3.52 kW). This is Standard formula for converting 1 TR to KW. Therefore the comparison and reliance on the data in the said article by CIT(A) is totally misplaced. Further the conversion rate of 1 Refrigeration Tonne = 3.5168525 kW is a standard conversion of refrigeration tonnes and is universally recognized as such. This is also evident from report obtained by the assessee from M/s Engineering Services. copy enclosed at Page Nos 73 to 79 of the Continuation No 2 of Paper Book No III. The mathematical derivation of the formula for converting 1 Tonne of Refrigeration i.e. 1 TR = 3.5168525 KW is at Page No 79 of the Continuation No 2 of Paper Book No III. Further copies of websites wherein the conversion formula 1 Refrigeration Tonne = 3.5168525 kW is affirmed is enclosed as Annexure 3 to the note filed during the course of hearing before us. Further, assessee contended that reliance placed by CIT(A) on the article “Refrigeration Chiller Performance Analysis at Various loads” by Henry Manczyk is not available in public domain and hence it cannot be relied on. Further as can be observed from the table below at the conversion rate as per standard rate of 1 TR = 3.516 Kw the rate per TR as arrived at by the assessee is lower than the price at which the State Electricity Boards have sold electricity:

Cooling Power Generation Undertakings At Sandila

AY Price Per Rate per TR at Rate per TR adopted by Unit of Kw conversion rate of the Appellant in the as per UP 1 TR = 3.517 Kw computation of Electricity deduction under Section Board 80IA in the return 2005-06 Rs.3.61 3.61X3.517=12.69 Rs.8.17 2006-07 Rs.3.62 3.62X3.517=12.73 Rs.8.93 2007-08 Rs.3.92 3.92X3.517=13.78 Rs.8.17

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) 2008-09 Rs.3.76 3.76X3.517=13.22 Rs.8.99

Cooling Power Generation Undertakings At Chiplun

AY Price Per Rate per TR at Rate per TR adopted by Unit of Kw conversion rate of the Appellant in the as per 1 TR = 3.517 Kw computation of Maharashtra deduction under Section State 80IA in the return Electricity Board 2005-06 Rs.3.61 3.61X3.517=12.69 Rs.8.17 2006-07 Rs.3.62 3.62X3.517=12.73 Rs.8.17 2007-08 Rs.4.49 4.49X3.517=15.79 Rs.8.17 2008-09 Rs.4.52 4.52X3.517=15.89 Rs.8.99

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) 59. The assessee before us claimed that for the AARP unit the CIT(A) has considered the conversion rate of 1 TR = 1.02kw by relying on article “Refrigeration Chiller Performance Analysis at Various loads” by Henry Manczyk . The assessee claimed that as the rate claimed of Rs.15.71 is higher than the price at which the U.P. State Electricity Boards have sold electricity which is based on conversion rate of 1TR = 3.517 Kw which comes to Rs.12.69 and Rs.12.73 per Tonne of Refrigeration respectively for AY 2005-06 and AY 2006-07 respectively. Hence, the claim be restricted per TR based on Electricity Board’s rate which comes to Rs Rs.12.69 and Rs.12.73 per Tonne of Refrigeration at the conversion rate of 1 Tonne of refrigeration – 3.516 Kw for AY 2005-06 and AY 2006-07 respectively being lower than the price claimed by the assessee of Rs 15.71 per TR.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date. Since Steam which is generated at Chiplun and Sandila by the assessee at its Steam Power generation undertakings is captively consumed by the yeast manufacturing factories, the assessee in order to arrive at the market value of such goods taken the electricity rates of Maharashtra State Electricity Board and U.P. State Electricity Board as a base and has assigned the notional value of sales as under. For a few years the notional sales value was lower than price of electricity from state electricity boards as shown below. Further 1 Kg of steam is equivalent to 1 KW of electric power and computed as under:-.

Steam Power Generation Undertaking At Sandila

AY Price Per Unit of Rate per Unit Kw as per UP adopted by the Electricity Board Appellant in the computation of deduction under Section 80IA in the return 2005-06 Rs.3.61 Rs.2.11 2006-07 Rs.3.62 Rs.2.11 2007-08 Rs.3.92 Rs.5.71 2008-09 Rs.3.76 Rs.5.71

Steam Power Generation Undertaking At Chiplun Unit

AY Price Per Unit of Rate per Unit adopted Kw as per by the Appellant in Maharashtra the computation of State Electricity deduction under Board Section 80IA in the return

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) 2005-06 Rs.3.61 Rs.0.82 2006-07 Rs.3.62 Rs.1.08 2007-08 Rs.4.49 Rs.4.34 2008-09 Rs.4.52 Rs.5.71

AY Steam Power Steam Power Chiplun Sandila 2005-06 14,58,745 1,15,90,174 2006-07 47,21,189 1,55,35,607 2007-08 33,54,683 3,57,59,313 2008-09 67,90,153 77,70,175

(i) The computation prepared by the Appellant on the basis of notional sale and by allocating certain expenses from considered accounts, some by process of identification as relating to the undertakings and some on an estimate basis. No scientific basis has been provided for these estimates.

(ii) Profit from production of such energy should be computed at best at net profit rate of consolidated business (including manufacture of yeast) was 2.75%, 14.97%, 23.13%, 26.41% in AY 2005-06, 2006-07, 2007-08, 2008-09.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) 63. The CIT(A) followed AY 2003-04 in respect of profits from eligible business being generation of steam power adopting cost of producing steam by conventional boiler. He further held that the assessee has adopted new method of producing steam by using biogas and thereby achieved significant savings by way of cost and that the cost of steam by using a conventional boiler would not seem justified. Thereafter, he held that there is no data furnished either by AO or assessee for the price of steam produced by alternate methods. CIT(A) held that the notional receipts from steam in the profit and loss account should be reduced by 25% to make it appropriate and in AY 2003-04 the CIT(A) computed the deduction under Section 80IA for the steam power generating undertaking at Sandila as follows: Sales receipt – Rs 87,67,180 Less 25% = Rs 65,75,385 Expenses – Rs 29,64,619 Profit – Rs 36,10,766 Deduction u/s 80 IA – Rs 36,10,766/- Aggrieved, assessee preferred appeal before Tribunal.

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) of the above, the assessee argued that that at the most the claim of the assessee can be restricted to the rates at which the State Electricity Board sold electricity to the assessee but the arbitrary reduction of 25% of the sales revenue without pointing out any discrepancy or defect in audited profit & loss account and without stating why the electricity rate as per State Electricity Board cannot be considered is not appropriate and that too when for a few years the assessee has adopted a price less than the State Electricity Board prices.

“Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings - Assessment year 2007-08 - Assessee was a textile manufacturing company - It was having an independent windmill undertaking eligible for deduction under section 80-IA - Electricity generated by windmill was collected by State Electricity Board from generation point of assessee and later on it was released to assessee whenever required - State Electricity Board took over electricity generated by assessee at rate of Rs. 2.70 per unit - On other hand, State Electricity Board charged a rate of Rs. 3.50 per unit when power was supplied to industrial units including assessee - Assessee-company claimed deduction under section 80-IA adopting market rate of energy produced at rate of Rs. 3.50 per unit - Assessing Officer took a view that assessee had delivered power to State Electricity Board at rate of Rs. 2.70 per unit, therefore, same should be taken as market price generated by assessee - To that extent

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) quantum of eligible profit of assessee had come down - Whether expression 'market value' used in section 80-IA(8) means value determined by market forces - Held, yes - Whether, in instant case, market forces would come into picture only when assessee bought power from State Electricity Board like any other consumer - Held, yes - Whether since price paid by assessee was Rs. 3.50 per unit, it had to be taken into account while computing amount of eligible profit available for deduction under section 80-IA - Held, yes [In favour of assessee].”

Further, Hon’ble Supreme Court in the case of Thiru Arooran Sugars Ltd vs. CIT (227 ITR 432) held:

“Section 2(1A) of the Income-tax Act, 1961, read with rule 7(2) of the Income-tax Rules, 1962 - Agricultural income - Assessment years 1962-63 to 1967-68 - Whether formula contained in clause (b) of rule 7(2) will apply only in cases where agricultural produce is not ordinarily sold in market in its raw state or after any process applied to it to make it marketable - Held, yes - Whether in order to apply rule 7(2)(a), existence of an open market where buyers and sellers come together to do business is an essential pre-requisite - Held, no - Whether where there is no such open market an estimate of market price will have to be done on a hypothetical basis - Held, yes - Assessee-sugar manufacturer cultivated sugarcane and also purchased sugarcane from other individual cultivators presumably from door steps of cultivators -Whether, on facts clause (a) to Rule 7(2) applied and price paid by assessee to cultivators should be

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) taken as market price and non-agricultural income had to be arrived at accordingly - Held, yes”

Further, assessee also relied on the following judicial decisions 66. wherein it was held that each unit of power should be valued at the same price at which the State Electricity Board sold electricity:

(i) West Coast Paper Mills Ltd. vs. ACIT 33 ITR (T) 560 (Mumbai - Trib.).

Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings (Eligible activity/Steam generation) - Assessment year 2005-06 - Whether generation of steam is also a form of power and assessee would be eligible to claim deduction under section 80-IA with regard to its unit set up for generation of steam for its manufacturing process - Held, yes [Para 23] [In favour of assessee]

Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings (Computation of deduction) - Assessment years 2002-03 to 2005-06 - Whether transfer of price as contemplated in section 80-IA(8) has to be seen having regard to arm's length condition, i.e., what would be price under uncontrolled transactions in open market - Held, yes - Whether while computing deduction under section 80-IA market value of supply of electricity by power unit of assessee to paper division of assessee had to be taken at same price at which paper unit had to purchase electricity directly from State Electricity Board - Held, yes - Whether if taxes and duties were part of price at which power/electricity was supplied by State Electricity Board to paper division, then

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) same price was indicator of market value which was fetchable in open market and there was no reason to exclude element of tax and duty from market price of electricity - Held, yes [Para 32] [In favour of assessee]

(ii) Judgement of Hon’ble High Court of Chhattisgarh in the case of CIT vs. Godawari Power & Ispat Ltd (223 Taxman 234) wherein it was held that:

Where assessee had established a Captive Power Plant in State of Chhattisgarh to supply electricity to its steel division, for the purpose of Section 80-IA deduction market value of power supplied by assessee to steel division should be computed considering rate of power charged by Chhattisgarh State Electricity Board for supply of electricity to industrial consumers

(iii) Judgement of Hon’ble Madras High Court in the case of CIT vs Cethar Ltd (228 Taxman 139), wherein it is held as under:-

“In Thiagrarajar Mills Ltd. T.C. (A) Nos. 68 to 70 of 2013, dated 7-6-2010, this Court, held that there is no difficulty in holding that captive consumption of the power generated by the assessee from its own power plant would enable the assessee to derive profits and gains by working out the cost of such consumption of power inasmuch as the assessee is able to save to that extent which would certainly be covered by section 80-IA(1). When such will be the outcome out of own consumption of the power generated and gained by the assessee by setting up its own power plant, there is no lack of merit in the

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) claim of the assessee when it claimed by relying upon section 80-IA(1) by way of deduction of the value of such units of power consumed by its own plant by way of profits and gains for the relevant assessment years. [Para 4]”

We have heard rival contentions and gone through facts and 67. circumstances of the case. We find that in the assessment orders the AO has stated that the assessee has reported net profit rates for the Assessment Years 2005-06, 2006-07, 2007-08, 2008-09 respectively for manufacturing of yeast @2.75%, 14.97%, 23.13%, 26.41% and that this should be the basis for calculating profits of power generation undertakings. The net profit rates of the assessee’s yeast manufacturing business includes the manufacture and sale of yeast and inter-alia, has all expenses such as excise duty, labour, other direct expenses such as cost of raw materials etc. included in it. There is no basis for including all these expenses and the sales revenue on sale of yeast for working out the net profit ratio for power generation undertakings are distinctly different from yeast manufacturing factories. The scheme of Section 80- IA of the Act itself provides for working out the profit on power generation undertaking as a separate industrial undertaking as a stand-alone business dehors any other business. Therefore, there is absolutely no logic in applying the Net Profit rate of the assessee’s yeast manufacturing business to the business of generating cooling power and steam power. We have gone through the provision of Section 80IA(5) of the Act, which reads as under:-

“(5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub- section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made.”

(i) That the assessee has generated steam power from bio-gas,

(ii) Generation of cooling power from cooling towers and

(ii) Cooling Power from Ammonia Absorption Refrigeration Plant

These are entitled for deduction under section 80IA of the Act at their plants at Sandila and Chiplun for the AY 2005-06 to 2008-09. We agree with the findings of CIT(A) on the above reasoning recorded. Even, the assessee’s power unit is established as part of existing industrial

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) establishment and the newly established unit itself is an integrated independent unit in which new plant and machinery is put up and that why these is capable of production are classified as newly established undertaking in the given facts and circumstances of the case.

“3. The CIT(A) erred in confirming the disallowance of distribution expenses amounting to ₹ 25,05,196/- on an ad-hoc basis ignoring the fact that that these expenses are incurred wholly and exclusively for the purpose of business. Further, this disallowance is bad in law and must be quashed because no incriminating material was found during the search.”

ITA Nos. 1634-1637&1777-1780/Mum/2016 Saf Yeast Company Private Limited (A.Y. 05-06 to 08-09) the disallowance restricted by the AO and confirmed by CIT(A) is very small amount and due to smallness of amount, the assessee is not interested in prosecuting this issue for all the years. However, the learned Counsel stated that this should not be taken as precedent for any other year and this concession cannot be used against assessee in any other proceedings. On this the learned CIT DR has not objected.

Order pronounced in the open court on 24-11-2017.

Sd/- Sd/- (N.K. PRADHAN) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 24-11-2017 Sudip Sarkar /Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT (A), Mumbai. 4. CIT BY ORDER, 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// Assistant Registrar ITAT, MUMBAI