KESORAM INDUSTRIES LTD.,KOLKATA vs. DCIT, CIR-5, KOLKATA, KOLKATA

Per Shri A.T.Varkey, JM These six appeals, four by the assessee and two by the revenue relate to assessment years 2008-09 and 2009-10. Since the issues involved in these appeals are common and inter-linked the appeals were heard together and are being disposed by this consolidated order for the sake of convenience.

First we will take up for A.Y. 2008-09 (ITA No. 1037/Kol/2012 i.e. assessee’s appeal.

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Particulars Amount (31.03.2008) Amount (31.03.2007) Share Capital 45.75 crores 45.74 crores Reserve 936.17 crores 608.69 crores Own Funds 981.92 crores 654.43 Investments 47.88 crores 28.87 crores

Thus we note that the assessee in fact had own funds to the tune of Rs. 981.92 crores and the investment is only Rs. 47.88 crores. The learned AR placed reliance on the judgment of the Jurisdictional Calcutta High Court in the case of CIT vs Rasoi Ltd. (ITA 109 of 2016 dated 15.02.2017) and Hon’ble Bombay High Court in the case of CIT vs HDFC Bank (383 ITR 529) and Reliance Utilities and Power Ltd. (313 ITR 340).

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“It appears for both the assessment years the Appellate Authority held that there was no finding of direct nexus between the borrowed fund and investment in shares. The assessee's own funds were far in excess of the average total investments. There could not be any presumption of utilization of borrowed funds. Hence disallowance under section 14A read with Rule 8D (2 ) (ii) was deleted while disallowance ofindirect expenses of Rs.1,82,346/ - by application of Rule 8D(2) (iii)upheld with the direction to allow relief of the sum already disallowed by the appellant itself.

On appeal preferred by the Revenue the Tribunal held as follows: -

We have heard rival submissions and gone through facts andcircumstances of the case. We find that now the revenue could not establish that the investments made in shares giving exempted incomeis out of borrowed funds on which interest is paid by assessee.There is no nexus whatsoever. On specific query Ld. Sr. DR could not controvert that the assessee has made in investment in shares giving exempt income out of own funds which is at about 2429 lacs and investment is at Rs.365 lacs only. Once this fact has not been denied and CIT(A) has categorically observed that the assessee has made investment in shares out of its own funds no disallowance can be attributed qua the interest paid on borrowed funds for investing the same in interest free funds. In view of the above, we confirm the order of CIT (A) on the common issue..............." We find that this case has yielded concurrent finding of facts regarding expenditure incurred by the assessee for the purpose of earning the exempt income, by the Appellate Authority and the Tribunal. As such there is no scope for interference with such concurrent findings of facts. We, therefore, are not satisfied that the case involves any substantial question of law. The application and appeal are thus dismissed. 7. Similarly in the case of Reliance Utilities and Power Ltd. (supra) were the Hon’ble Bombay High Court has held as under:

“10. If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-free funds available. In our opinion the Supreme Court in East India Pharmaceutical Works Ltd.'s case (supra) had the occasion to consider the decision of the Calcutta High Court in Woolcombers of India Ltd.'s case (supra) where a similar issue had arisen. Before the Supreme Court it was argued that it should have been presumed that in essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business and in these circumstances the appellant was entitled to claim the deductions. The Supreme Court noted that the argument had considerable force, but considering the fact that the contention had not been advanced 5

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earlier it did not require to be answered. It then noted that in Woolcombers of India Ltd.'s case (supra) the Calcutta High Court had come to the conclusion that the profits were sufficient to meet the advance tax liability and the profits were deposited in the overdraft account of the assessee and in such a case it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. It noted that to raise the presumption, there was sufficient material and the assessee had urged the contention before the High Court. The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT (Appeals) and ITAT. 11. Considering the above, in our opinion, there is no merit in this appeal which is accordingly dismissed.” 8. We also rely on the decision of the Hon’ble Bombay High Court in the case of CIT vs HDFC held as under:

“Keeping the aforesaid position of law in mind, we shall now examine the impugned order of the Tribunal. The issue before the Tribunal as raised by the petitioner was that Section 14A of the act would have no application to disallow interest expenditure on fund borrowed in respect of the tax free returns on the securities, for the following two reasons: (a) The petitioner was possessed of sufficient interest free funds of Rs. 2153 crores as against the investment in tax free securities of Rs. 52.02 crores. Consequently, there is a presumption that the investment which has been made in the tax free securities has come out of the interest free funds available with the petitioner. This is so as it has been held by this court in the petitioner’s own case for an earlier assessment year being HDFC Bank Ltd. (supra). This decision on the above issue has been accepted by the revenue. This is evidences by the fact although an appeal has been filed to the Supreme Court with regard to another issue arising from the order in HDFC Bank Ltd. (supra) namely broken period interest, no appeal on this issue as raised before the Tribunal has been challenged before the Supreme Court, and (b) In any event, the tax free investment in securities were the petitioner’s stock-in-trade. Consequently, there would be no occasion to invoke section 14A of the Act as held by this court in India Advantage Securities Ltd. (supra) wherein the revenue’s appeal from the order of the Tribunal was dismissed, to contend that no disallowance can be made under section 14A of the Act in respect of exempted income arising from stock-in-trade. It is clear that for the first time in the case of HDFC Bank Ltd. (supra) that this Court took a view that the presumption which has been laid down in Reliance Utilities & Power Ltd. (supra) with regard to investment in tax free securities coming out of assessee’s own funds in

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case the same are in excess of the investments made in the securities (notwithstanding the fact that the assessee concerned may also have taken some funds on interest) applies, when applying section 14A of the Act. Thus, the decision of this court in HDFC Bank Ltd. (supra) for the first time on 23rd July, 2014 has settled the issue by holding that the test of presumption as held by this court in Reliance Utilities and Power Ltd. (supra) while considering section 36(1)(iii) of the Act would apply while considering the application of section 14A of the Act. The aforesaid decision of this court in HDFC Bank Ltd. (supra) on the above issue has also been accepted by the Revenue in as much as even though they have filed an appeal to the Supreme Court against the order on the other issue therein viz. broken period interest, no appeal has been preferred by the revenue on the issue of invoking the principles laid down in Reliance Utilities & Power Ltd. (supra) in its application to section 14A of the Act. Therefore, the issue which arose for consideration before the Tribunal had not been decided by this court in Godrej & Boyce Mfg. Co. Ltd. (supra). It arose and was so decided for the first time by this court in HDFC Bank Ltd. (supra). Thus, there is no conflict as sought to be made out by the impugned order. Thus, the impugned order has proceeded on a fundamentally erroneous basis as the presumption canvassed by the petitioner before the Tribunal on the basis of the ratio of the decision of the court in HDFC Bank Ltd. (supra). At the hearing Mr. Suresh Kumar, learned counsel for the revenue urged that on the facts of this case no fault can be found with the order of the Tribunal. It is submitted that the petitioner was not able to establish before the Assessing Officer and the CIT(A) that the amounts invested in the interest free securities came out of interest free funds available with the petitioner. In that view of the matter, it is submitted by him that the order of this court in HDFC Bank Ltd. (supra) would not apply to the facts of the present case. We are unable to understand the above submission. The Assessing Officer passed the Assessment order on 22nd December, 2010 under section 143(3) of the Act. The CIT(A) passed an order on 21st November, 2011 dismissing the petitioner’s appeal. On both the dates when the orders were passed by the Assessing Officer and CIT(A), the authorities did not have the benefit of the order of this court in HDFC Bank Ltd. (supra) rendered on 23rd July, 2014.Once the issue is settled by the decision of this court in HDFC Bank Ltd. (supra), there is now no need for the assessee to establish with evidence that the amounts which has been invested in the tax free securities have come out of interest free funds available with it. This is because once the assessee is possessed of interest free funds sufficient to make the investment in tax free securities, it is presumed that it has been paid for out of the interest free funds. Consequently, we do not find any merit in the above submission made at the hearing on behalf of the revenue.” 9. Following the aforesaid ratio decidendi of the above judgments, we find that the own funds of the assessee are sufficient to make the cost of the investments which yielded exempt income. The A.O. has not brought anything on record which proves that the investment was made out of the borrowed funds. We are, therefore, of the view that the investment made out of the assessee’s own funds and accordingly the addition made by the 7

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A.O. and confirmed by the Ld. CIT(A) under section 14A read with rule 8D(2)(ii) amounting to Rs. 41,66,919/- is to be deleted and we order accordingly.

“(8.1) Thus, not all investments become the subject-matter of consideration when computing disallowance under section 14A read with rule 8D. The disallowance under section 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. Under the circumstances, the computation of the disallowances under section 14A read with rule 8D(2)(iiI0, which is issue in the assessee’s appeal, is restored in the file of the A.O. for recomputation in line with the direction given above. No disallowance under section 14A read with rule 8D(2)(i) and (ii) can be made in this case.” 11. In view of the aforesaid findings and respectively following the decision of the Co- ordinate Bench of this Tribunal, we remand this issue to the file of A.O. with the direction to consider only the investment which yielded dividend income to the assessee for computing the disallowance under section 14A of the Act read with Rule 8D(2)(ii) of the Rules.

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section 14A to Rs. 10,00,000/-. Therefore, grounds raised by assessee’s appeal are partly allowed for statistical purposes.

"8.3 We have heard the rival submissions and perused the materials available on record. We find from the facts of the case that the deposits and advances were given in the ordinary course of business and were lying in the books of the assessee company for quite a long time. The some were considered irrecoverable by the assessee and had written off the same in Asst Year 2005-06 and hence the same is to be considered as a trading loss u/s 28 of the Act. We hold that the Learned CITA) had rightly deleted the addition made in this regard.

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Accordingly, the ground no.1 raised by the revenue is dismissed. " 15. The facts in the year under dispute are analogous to that in the earlier years and since no change in law or facts could be pointed out by the revenue so respectfully following the order of the Tribunal (supra), we find no infirmity in the impugned order of Ld. CIT(A), in this regard. Accordingly Ground No. 1 raised by the Revenue is dismissed.

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A.O. in the assessment order for A.Y. 2008-09 has duly set out the aforesaid background facts but still disallowed the claim of further depreciation to the extent of Rs. 1,15,41,587/- on the premise that the department is in appeal under section 260A before the Hon’ble Calcutta High Court against the earlier orders of the Tribunal in A.Y. 2000-01 to 2005-06. Aggrieved by the disallowance, the assessee preferred appeal before the Ld. CIT(A) to allow the claim for further depreciation who following the appellate order of the earlier years passed by his predecessors and this Tribunal allowed the claim of assessee. Aggrieved the revenue is before us.

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reference to rate at which assessee’s manufacturing undertakings procured the power from SEBs of the respective States. Before the A.O., the assessee-company furnished complete details of the CPPs along with the Form 10 CCB and the separate audited accounts. The manner in which the market rates of the electricity are arrived at, was also explained to the A.O. However, the A.O. did not agree with the manner in which the transfer value of electricity was computed by the assessee. The A.O. was of the view that CPPs were not permitted to sale power independently to any third parties but they were obligated to sale surplus power only to SEBs and that too at the tariff rate at which power was being purchased by the SEBs, from other power generating companies. Based on this understanding the A.O. was of the view that the ‘open market value’ for the purpose of section 80IA(8) should be the rate at which the SEBs procured power from the electricity generating companies because in his opinion, no independent market / sale rate was available. According to AO, the adoption of sale price realized by SEBs from its consumers was not indicative of the ‘open market’ rate of the electricity since it was higher than the price at which SEB was purchasing power from generating companies. The A.O. observed that the per unit selling price of SEB not only included the cost of electricity purchased or generated but also the cost incurred on distribution, storage, transmission loss and its own profit margins and hence rate at which SEBs supplied electricity to its consumers were not reliable measure for establishing ‘open market rate’. Referring to the tariff rate at which Orissa Electricity Board procured power from power generating companies located in the State, the A.O. reworked the profitability of all the four CPPs by substituting the value of electricity adopted by the assessee with which much lower figures. By such substitution, the A.O. determined lower profits eligible for deduction in respect of the four power plants under section 80IA of the Act. Aggrieved, the assessee preferred appeal before the Ld. CIT(A) – VI, Kolkata who principally accepted the assessee’s contention that the rate at which the State Electricity Boards sold the electricity to the assessee represented open market value of the power and which could be adopted as the basis for determining profits

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eligible for deduction under section 80IA of the Act. Further the Ld. CIT(A) held that the tariff rate to be adopted for ascertaining transfer price of power for captive consumption should be the weighted average of the annual consumption of electricity sourced from SEBs but so however that such rate should be reduced by the amount of electricity duty and cess charged by the SEBs. Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us. On the other hand, the assessee supported the order of the Ld. CIT(A) in terms of Rule 27 of the Rules and prayed that even the electricity duty and cess charged by the SEBs should be taken into account while working out weighted average price of electricity.

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which the assessee procured power from SEBs. The learned AR pointed out that the ITC’s case decided by Hon’ble Calcutta High Court and which has been relied upon by Ld. DR, relates to A.Y. 2002-03, when the provisions of Indian Electricity Act, 1910 & Electricity (supply) Act, 1948 were in force. According to the learned AR under the erstwhile regulatory framework, the electricity generating company could only sell or supply power to the State Electricity Boards (SEBs) and that too at the prescribed tariffs / rates fixed by the Regulatory Commission. Taking this specific factual position into account, the Hon’ble Calcutta High Court held that the power generating companies were not permitted to sell electricity to any consumer directly but under the law it was compulsory required to sell the power to the distribution companies and that too at the tariff rate fixed by the Regulatory Commission. In these circumstances, therefore the only market rate available for sale of electricity by CPPs was the tariff rate at which electricity generating company sold power to SEBs and none else. The learned AR submitted that the regulatory framework, underwent sea change after the Electricity Act 2003 was enacted and came into force in 2003 pursuant to which the business of generation, transmission and distribution of power was deregulated and CPPs were permitted to undertake sale of power to third party consumer on the terms mutually agreeable. Power generators were also permitted to purchase and sale power through power exchanges established in the country. In the course of hearing of the appeal, the learned AR was directed to furnish the submission setting forth the relevant regulatory provisions applicable to the CPPs, particularly with reference to the facts of the assessee’s case which would prove that the assessee’s CPPs were not legally obliged to sell electricity only at the rate determined by the State Regulatory Commission. In response the learned AR of the assessee furnished a written note along with a Paper Book to support his contention that the assessee’s CPPs were not obliged to sell power only to any specified distribution company at the rate prescribed by regulatory commission. Rather the appellant was entitled to have ‘open access’ for sale of electricity at the market driven rates. In this

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context we would like to reproduce the submissions of the learned AR contained of the written note as extracted below;

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realized by SEBs were higher than the price at which SEB was purchasing power from generating companies. According to AO the per unit selling price of SEB not only included the cost of electricity purchased or generated but also the cost incurred on distribution, storage, transmission loss and its own profit margins. Based on certain tariff rates available from the website of Orissa Electricity Commission, the AO made some extrapolations and computed the transfer rates for all the four CPPs as follows:

Aggrieved by such appellate orders of the CIT(A), the Revenue is in appeal before the Hon'ble ITAT, Kolkata. 6. In the course of hearing held on earlier occasion, the Honble Bench had extensively heard the arguments of both the sides. Before the Honble Tribunal, the Id. DR appearing on behalf of the Revenue had relied on the judgment of the Calcutta High Court in the case of ITC Limited (236 Taxman 612) to support the Revenue's case that the rate of electricity for the purposes of Section 801A should be the price at which electricity generating companies sell power to the distribution companies at the price fixed by Regulatory Commission. On the other hand, the undersigned appearing on behalf of the appellant had placed reliance on the appellate order of the coordinate bench of ITAT, Kolkata in the case of Dy.CIT Vs Birla Corporation Ltd (ITA Nos. 971/Kol/ 2012 & 298/Kol/2013) dated 25.08.2017 wherein the Hon’ble ITAT, ·Kolkata after considering the judgment of the Calcutta High Court in the case of CIT vs. ITC Ltd. (supra) and the provisions of Electricity Act, 2003 and the decision of Apex Court in the case of Thiru Arooran Sugars Ltd (227 ITR 432) upheld the assessee's 16

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contention that the open market value of electricity for the purposes of Section 80IA should be the price at which the assessee procures power from SEBs. 7. In the course of oral arguments, it was explained that the judgment of the Calcutta High Court proceeded on the premise that the electricity generating companies could only sell or supply power to the State Electricity Boards and that too at the prescribed tariffs rates by the Regulatory Commission. It proceeded on the premise that as per the regulatory framework in force, the power generating companies were not permitted to sell electricity to any consumer directly but the law required the generating companies to compulsorily sell the power to the distribution companies and to none else. Therefore, in absence of any alternate rates, the High Court held that the price at which electricity generating company sold power to SEBs was only available market rate which could be adopted for the purposes of Section 80IA(4) of the Act. In this regard it was explained the relevant year in question in the decision of the Calcutta High Court in the case of CIT Vs ITC Ltd (supra) was Financial Year 2001-02 i.e. prior to the introduction of Electricity Act, 2003. It was submitted that until 2002-03, the electricity generating companies could only sell or supply power to the State Electricity Boards. However subsequent to the enactment of Electricity Act, 2003, the electricity had been de-regulated and it was legally permissible for the electricity generating companies to supply power to other consumers and determined the pricing through competitive bidding process or any other mutually agreed terms. 8. Before the Hon'ble Tribunal it was further explained that the ratio laid by the Calcutta High Court in the decision of CIT Vs ITC Ltd (supra) that electricity could be supplied at the fixed tariff rates in terms of Section 61 & 62 of Electricity Act, 2003 was erroneous. It was explained that in Electricity Act, 2003; which came into force from 2003 and onwards; the Legislature formulated and laid down the open access policy whereby electricity-generating companies could supply to other consumers directly. Appropriate provisions were put in place to ensure that the market value of such electricity supplied under open access was through competitive bidding and at a fair & transparent price. In the circumstances the undersigned had explained that the assumption made by the Calcutta High Court in the decision of CIT Vs ITC Ltd (supra) as well as the AO in the impugned order that electricity could be supplied only at the tariff rates fixed by Regulatory Commission was factually incorrect. In this context, reference was made to the appellate order of the coordinate bench of ITAT, Kolkata in the case of Dy.CIT Vs Birla Corporation Ltd (supra), wherein the Tribunal appreciating the provisions concerning open access policy in Electricity Act, 2003 and the relevant regulations formulated in that regard by the respective State Electricity Commissions held that the ratio laid down in the judgment of Calcutta High Court in the decision of CIT Vs ITC Ltd (supra) was distinguishable and accordingly did not follow the same. On the contrary the Hon'ble Tribunal dismissed the Revenue's appeal against the CIT(A)'s order for AYs 2008-09 & 2009-10 which are the same assessment years now being adjudicated by the Hon'ble Tribunal. It was also pointed out the appeals adjudicated by the coordinate Bench in the case of Dy.CIT Vs Birla Corporation .Ltd (supra) arose from the orders dated 29.03.2012 & 07.12.2012 passed by the CIT(A)-VI, Kolkata for the AYs 2008-09 & 2009-10. The present appeals also arose from the appellate orders dated 27.04.2012 & 09.01.2013 passed by the same CIT(A)-VI, Kolkata for the AYs 2008-09 & 2009-10 respectively. It was submitted that the basic reasoning adopted by the CIT(A) in the case of 17

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Birla Corporation Ltd (supra) and in the case of assessee-company were identical & same because the background facts and the legal issues governing the allowability of deduction u/s 80IA were one and the same. 9. Appreciating the contentions put forth in the course of hearing, the Hon'ble Tribunal had directed the assessee to furnish the relevant extracts of Electricity Act, 2003 and the regulations framed by the respective State Electricity Commissions in order to substantiate that open access was legally permissible. The assessee was also required to establish that apart from SEBs; power could be supplied to other consumers directly and that the rates at which power could be supplied was variable and could be determined at values different from the fixed tariff rates in terms of Section 61 & 62 of the Electricity Act, 2003. In view of the foregoing therefore the assessee-company is placing on record a further paper book comprising of 1-73 pages . 10. It would first be relevant to set out the pertinent provisions of the Electricity Act of 2003 containing the 'open access' policy. The term 'open access' has been defined in clause (47) of Section 2 of the Electricity Act 2003 which reads as follows: “ open access" means the non-discriminatory provision for the use of transmission lines or distribution system or associated facilities with such lines or system by any licensee or consumer or a person engaged in generation in accordance with the regulations specified by the Appropriate Commission;” 10.1 From the above it shall be observed that 'open access' is defined to mean giving non- discriminatory use of the transmission lines & associated facilities by the Regulatory Commission to both the power generator / supplier and the consumer. The relevant provisions concerning the above ‘Open access’ is contained in Section 42 of the Electricity Act, 2003 read as follows: “42.(1) It shall be the duty of a distribution licensee to develop and maintain an efficient,, co- ordinated and economical distribution system in his area of supply and to supply electricity in accordance with the provisions contained in this Act. (2) The State Commission shall introduce open access in such phases and subject to such conditions, (including the cross subsidies, and other operational constraints) as may be specified within one year of the appointed date by it and in specifying the extent of open access in successive phases and in determining the charges for wheeling, it shall have due regard to all relevant factors including such cross subsidies, and other operational constraints: Provided that such open access may be allowed before the cross subsidies are eliminated on payment of a surcharge in addition to the charges for wheeling as may be determined by the State Commission: Provided further that such surcharge shall be utilised to meet the requirements of current level of cross subsidy within the area of supply of the distribution licensee : Provided also that such surcharge and cross subsidies shall be progressively reduced and eliminated in the manner as may be specified by the State Commission: Provided also that such surcharge shall not be leviable in case open access is provided to a person who has established a captive generating plant for carrying the electricity to the destination of his own use.

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(3) Where any person, whose premises are situated within the area of supply of a distribution licensee, (not being a local authority engaged in the business of distribution of electricity before the appointed date) requires a supply of electricity from a generating company or any licensee other than such distribution licensee} such person may by notice, require the distribution licensee for wheeling such electricity in accordance with regulations made by he a e Commission and the duties of the distribution licensee with respect to such supply shall be of a common carrier providing non-discriminatory open access. (4) Where the State Commission permits a consumer or class of consumers to receive supply of electricity from a person other than the distribution licensee of his area of supply, such consumer shall be liable to pay an additional surcharge on the charges of wheeling, as may be specified by the State Commission, to meet the fixed cost of such distribution licensee arising out of his obligation to supply. (5) Every distribution licensee shall, within six months from the appointed date or date of grant of licence, whichever is earlier, establish a forum for redressal of grievances of the consumers in accordance with the guidelines as may be specified by the State Commission. (6) Any consumer, who is aggrieved by non-redressal of his grievances under sub-section (5), may make a representation for the redressal of his grievance to an authority to be known as Ombudsman to be appointed or designated by the State Commission. (7) The Ombudsman shall settle the grievance of the consumer within such time and in such manner as may be specified by the State Commission. (8) The provisions of sub-sections (5),(6) and (7) shall be without prejudice to right which the consumer may have apart from the rights conferred upon him by those sub-sections.” 10.2 From the above provisions it is apparent that the Legislature has specifically directed the State Regulatory Commissions to frame open access policies in successive phases within a period of one year. The Legislature has left it to the discretion of the Regulatory Commission to drawn up the framework of open access of electricity both by generating companies as well as the consumers. In the above provision, it has further been clarified that the Commission shall only determine, levy and collect the" heeling charges" under open access. 10.3 Clause (3) of the above Section 42 of the Act; specifically permits persons to obtain electricity directly from other generating companies under non-discriminatory open access, apart from the distribution licensee of the area in which the person is situated, only by way of giving a notice. On conjoint reading of all the clauses contained in the above provision, it is apparent that the Electricity Act of 2003 had permitted open access of electricity to both consumers as well as generating companies and it was only the charges for wheeling of electricity which left to the Regulatory Commission to determine and charge from the suppliers. 10.4 The above submission is further fortified from the provisions of Section 49 of the Electricity Act of 2003 which reads as follows: 49. Where the Appropriate Commission has allowed open access to certain consumers under section 42, such consumers notwithstanding the provisions contained in clause (d) of sub- section (1) of section 62, may enter into an agreement with any person for supply or purchase of electricity on such terms and conditions (including tariff) as may be agreed upon by them. 10.5 The above provision makes it clear that where open access is permitted in terms of Section 42, then the electricity rates need not be the tariff rates fixed by Regulatory 19

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Commission in terms of Section 61 of the Act but the consumers can enter into independent agreements for purchase of electricity on such terms & conditions as may be mutually agreed upon. In the circumstances, under the provisions of Electricity Act, 2003 not only is open" access permitted but even the rates for supply of electricity under open access is left to the discretion of the contracting parties. 10.6 The above proposition is further fortified from Section 86 of Electricity Act, 2003 which lays down the provisions concerning the State Electricity Commissions. The extracts of the provision is as follows: 86. (1) The State Commission shall discharge the following functions, namely: - (a) determine the tariff for generation, supply, transmission and wheeling of electricity, wholesale, bulk or retail, as the case may be, within the State: Providing that where open access has been permitted to a category of consumers under section 42, the State Commission shall determine only the wheeling charges and surcharge thereon, if any, for the said category of consumers;" 10.7 The proviso to sub-section (1) of Section 86 makes it abundantly clear that the State Electricity Commission does not have the power to regulate the rates for supply of electricity permitted under open access. The State Electricity Commission can only determine & levy the charges for wheeling of the electricity through the State transmission lines by the supplier to the consumer. 11. In view of the above framework laid down in the Electricity Act 2003, the States across India formulated the regulations for open access of Electricity in the respective states, which are on identical lines [Refer Pages 65 to 67 of Paper Book]. Since in the present case the deduction claimed primarily relates to CPPs situated in the State of Karnataka, the assessee has enclosed the regulations framed by the Karnataka Electricity Regulatory Commission ('KERC') for open access of electricity in the year 2004. The copy of the relevant Regulations, are at Pages 24 to 35 of the Paper book. From perusal of the Regulations it shall be observed that pursuant to the provisions of Electricity Act of 2003 de- regulating electricity; the KERC had framed the regulations allowing open access of electricity both to consumers, power generating companies & distributors. In the prescribed regulations, KERC laid down . manner in which both consumers and suppliers could avail of the open access facilities and the usage of transmission lines. Apart from laying down the manner of determination & levy of 'wheeling charges', KERC did not frame any regulation or rule for pricing of electricity under open access which clearly shows that the pricing of electricity was completely de- regulated and the contracting parties were free to ascertain & determine the price of supply of power on mutually agreed terms & conditions. 12. In furtherance to the above and specifically in the context of CPP operated by the assessee-company in the State of Karnataka, the assessee has enclosed a sample order No. D/01/02/2205 dated 27.02.2007 passed by KERC in the matters of CPPs located in the State of Karnataka for the year 2007. In that order KERC laid down the guidelines containing terms & manner in which even CPPs could supply power under open access. This order of 2007 further fortifies that power could be supplied by CPPs to other consumers directly and that the rates at which power could be supplied was left at the discretion of the contracting parties and/ or it was to be determined through competitive bidding process. In view of the foregoing, the assessee-company has also enclosed herewith sample copies of approvals 20

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granted by the KERC in the years 2011 & 2017 to its Thermal Power Plants at Karnataka permitting it to supply power to other consumers directly under open access scheme [Refer Pages 58 to 61 of Paper Book]. 13. The assessee-company has further enclosed the data complied from the official web site of India Energy Exchange ('IEX') in the years 2007 & 2008 to show that the power was being openly traded on recognized platform at prices which were determined through the prevailing market forces and not the tariff rates fixed by Regulatory Commission. From the data enclosed at Pages 62 to 64 of the Paper Book as traded in the market at a price as high as Rs. 7.670 during 2008.

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ignoring the rate of Rs.2.36 per unit, the rate on which power generating company supplied its power to GEB?” 18. From the above it will be observed that the Gujarat High Court specifically decided the issue in favour of the assessee by holding that the deduction under Section 80IA in respect of CPP shall be computed by taking the per unit selling price of electricity equal to the rate at which the assessee purchased the electricity from SEB. 19. In the said judgment the Gujarat High Court also held that for the purposes of adopting market rate of electricity, the component of duty & tax charged by SEB will also be taken into account. The judgment of the Gujarat High Court thus upholds the direction of the Hon'ble I TAT , Kolkata in the case of Dy.CIT Vs Birla Corporation Ltd (supra). Respectfully relying on the said judgment of Gujarat High Court, it is prayed that the relief claimed by the company in application under Rule 27 may kindly be allowed on the same lines [Refer Pages 68 to 73 of Paper Book].

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A.O. proceeded on the premise that the CPP owned by the assessee was not allowed to sell its power to the final consumer but was allowed to sell the same only to grid of the SEB in case of excess production. Save and except such monopoly buyer, the CPP was not permitted to sell power to anyone else. According to the A.O., therefore, the market value which the assessee was likely to fetch by sale of excess power to monopoly buyer like SEB represented the market value. In the AO’s opinion the rates at which the SEBs were selling power to the consumers were much higher than the price at which the power was purchased from the CPPs because in addition to profit margin of the SEB, such price also included the costs towards distribution, storage, transmission losses etc.

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generating companies were free to sell the power to any third party at the prices mutually agreed and in such case, the regulatory commission was required to determine only the ‘wheeling charges’ which the transmission companies / authorities could levy. In this regard, the useful reference may also be made to KERC’s order dated 27.02.2007. In this order, the commission explained the salient features of the National Electricity Policy issued by the Government of India on 12.02.2005 with regard to captive generation. The said order explains that the Electricity Act 2003, put in place highly liberal frame work for power generation wherein there is no requirement of licensing for generation of power. The requirement of techno-economic clearance of CEA for thermal generation was no longer there. Captive generation has been freed from all controls. The said policy further clarified that the captive generating plants were permitted to sell electricity to licensees and consumers when they were allowed ‘open access’ by SERCs under section 42 of the Electricity Act, 2003. The tariff policy issued by Government of India on 06.01.2006 also provided that the sole purpose of freely allowing captive generation was to enable industries to access reliable quality and cost effective power. As per the recommendation made, the SERCs were required to encourage the distribution licensees to procure power from CPPs through competitive bidding on a composite tariff basis. From a conjoint reading of the provisions of the Electricity Act 2003, KERCs ‘open access’ Regulation notified in 2004 and the order of the KERC dated 27.02.2007, it therefore, appears that there was no statutory bar on the CPPs to sell electricity to any third party and that too at the rate mutually agreed by and between the parties. We, therefore, find that the very foundation on which the A.O. held that the assessee had no option but to sell electricity to SEB alone was factually wrong and misplaced and therefore, legally untenable in the changed factual scenario as discussed above.

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was purchased and sold by power producers, distribution companies etc in different regions of the country. From the said chart it appears that the average power unit price of the Eastern Region in the year 2008 was Rs. 7.53/-. Similarly for the Southern Region of Rs. 7.54 per unit. Similar prices prevailed in 2009 as well. The foregoing documents therefore prove that the A.O.’s presumption that the assessee was legally obliged to sell electricity only to the power distribution companies and SEBs and that too at the controlled prices was devoid of any legal or factual foundation. We note that this specific issue was adjudicated by the Co-ordinate Bench of this Tribunal in the case of DCIT vs Birla Corporation Ltd. to which one of us was signatory. In the said decision, the Co-ordinate Bench of this Tribunal, after considering the ratio laid down by the Hon’ble Supreme Court in the case Thiru Arooran Sugar Ltd. held as follows:

“5.6. We have heard the rival submissions and perused the materials available on record including the paper book and the relevant provisions of the Electricity Act, 2003 as detailed supra. We find that the main thrust of order of ld CITA was by placing reliance on the decision of this tribunal in the case of ITC Ltd, which was modified by the Hon’ble Jurisdictional High Court. The ld AR fairly brought to our attention the decision of Hon’ble Jurisdictional High Court in the case of ITC Ltd before us and had duly distinguished the same as not applicable to the facts of the instant case , as admittedly, the Asst Year before Hon’ble Calcutta High Court in ITC Ltd was Asst Year 2002-03. The said decision in ITC Ltd for Asst Year 2002-03 was rendered by taking into account the relevant provisions of Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948. These Acts were repealed and a new Electricity Act 2003 was introduced with effect from 10.6.2003. Hence for the Asst Years 2008-09 and 2009-10 (i.e the years under appeal before us) , the assessee would be governed by the provisions of Electricity Act, 2003.

5.6.1. We have already seen that the ITC’s case in Hon’ble Calcutta High Court, proceeded on the basis that the open market for the captive power plant was only a distribution company or a company engaged both in generation and distribution and that the rate at which electricity could be sold by the captive power plant was the one fixed by the tariff regulatory commission. However, such position has undergone sea change inasmuch as during the relevant previous years it was open to the assessee to sell even to a consumer and the price for sale to a distribution company or to a consumer that could be mutually agreed upon notwithstanding the tariff fixed by the State Regulatory Commission. We find that during the previous year relevant to the Asst Year 2009-10, the assessee infact sold electricity at rates higher than that charged from it by the State Electricity Board. The assessee nevertheless made the computation for the purpose of section 80IA of the Act with reference to the price 25

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charged from it by the State Electricity Board. In such circumstances, we hold that, when it was permissible for the assessee to sell electricity to consumers and distribution licensees at rates higher than that paid by it to the State Electricity Board, the price charged by the State Electricity Board would be a very good indication of the market value of electricity and the assessee did not commit any error in adopting such price for working out the amount eligible for deduction u/s 80IA of the Act.

5.6.2. We find that the reliance placed by the ld AR on the decision of the Hon’ble Supreme Court in the case of Thiru Arooran Sugars Ltd. v CIT, (1997) 227 ITR 432 (SC), wherein at page 441, it was held as under:-

“In view of the aforesaid, it is very difficult to uphold the contention of Mr. Nariman that in order to find out the market price, there has to be an actual market where there will be “a concourse of buyers and sellers”. This argument was specifically rejected by Lord Pearson L. J., in the case of Building and Civil Engineering Holidays Scheme Management Ltd. v. Post Office [1966] 1 QB 247 (CA), in the following words (page 268): “What is meant by ‘market value’ ? It is not reasonable to suppose that for the purposes of this proviso there is no market value unless there is a concourse of buyers and sellers. There is no need to infer that there must be an open market, or that there must be a price fluctuating according to the pressures of supply and demand.” In that case Lord Denning also explained the concept of market value in the following words (page 264): “What is the ‘market value’ of these stamps ? . . . It does not connote a market where buyers and sellers congregate. The ‘market value’ here means the price at which the goods could be expected to be bought and sold as between willing seller and willing buyer, even though there may be only one seller or one buyer, and even though one or both may be hypothetical rather than real.” These are the principles universally applied to find out the price at which the goods are ordinarily sold in the open market. For determination of market value, there is no pre- requisite that an open market where buyers and sellers congregate to buy and sell goods must exist. In the instant case, the assessee-company actually bought sugarcane from a large number of growers year after year in the ordinary course of business. The price at which it buys sugarcane must be taken to be the market price. If the price is controlled by the Sugarcane Control Order, the controlled price will be taken as the market price, because it is at this price that a willing buyer and a willing seller are expected to transact business. As Lord Denning pointed out, it does not make any difference to this position that the assessee was the only buyer in the region where its factory was located.” (emphasis added)

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5.6.3. The ld AR submitted that as held in the aforesaid judgement of the Hon’ble Supreme Court, the price paid by an assessee for purchase of raw material represents the market price of such raw material produced by the assessee. The said judgment was held not to apply in ITC’s case because the Hon’ble Court was of the view that electricity could not be sold to the consumer because of specific prohibition in the erstwhile Electricity Act and as such the price to the consumer could not be taken into account. We find that that is not the position in the instant case. Hence we are in agreement with the arguments of the ld AR.

5.6.4. We find that the method adopted by the assessee viz. to take the average rate charged by the State Electricity Board for the previous month is quite appropriate and reasonable for determining the market value for the month of supply. The annual weighted average adopted by the ld CITA would result in variations occurring during the year at different times being made applicable uniformly for the whole year. In our considered opinion, the assessee’s method is more appropriate as it factors in variations as and when they take place.” 24. We also note that the identical issue of determination of power tariff rate for allowing deduction under section 80IA in respect of profits of CPPs came up for consideration before the Co-ordinate Benches of this Tribunal in the case of Graphite India Ltd. vs ACIT in ITA No. 304-305/Kol/2008 and DIT vs Kanoria Chemicals and Industries Ltd in ITA NO. 944/Kol/2016, a perusal of the said orders reveals that the Co-ordinate Benches held that for the purpose of granting the deduction, the profits of the CPP should be determined with reference to the power tariff/ rate at which the manufacturing undertakings being the captive consumers were provided electricity by the SEBs.

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Alkalis and Chemicals Ltd. (supra) wherein the Hon’ble High Court following the judgment in the case of CIT vs Shah Alloys Ltd. (supra) wherein the Hon’ble High Court has held as follows:

“2. In both the tax appeals though slightly differently worded, the questions concerning the same assessee are identical and concern the issue of deduction under section 80IA of the Income Tax Act granted to the assessee by the Tribunal on captive power generation plant. The second question is with respect to recognising such claim on the basis of purchase price of power from GEB and substituting the rates of 2.47 per unit adopted by the Assessing Officer. 3. Since both the issues are covered by various judgments of this Court, we do not find it necessary to record facts at any length. Division Bench of this Court by judgementdated 22.11.2011 in Tax Appeal No.2092 /2010 insomewhat similar controversy observed as under : "3. With respect to Question [B], the issue pertains to sub-Section (B) of Section 80IA of the Income Tax Act, 1961.The assessee had a CPP Unit generating electricity, which was supplying it to a general unit. The electricity generatedis being supplied to other consumers also. The CPP unit charged Rs.5.40 ps. per unit from the general unit. TheAssessing Officer applying sub-Section (B) of Section 80IArestricted the same to Rs.5.32 ps. per unit and, thereby,restricted the deductions claimed by the assessee under Section 80IA of the Act. This restriction was primarily onthe basis that the rate of Rs.5.4O ps. charged by Gujarat Electricity Board (‘GEB’ for short) was inclusive of 8 paiseper unit of electricity duty. This component of electricityduty the Assessing Officer discarded for the purposes ofascertaining market value of the electricity generated bythe CPP Unit and supplied to its general unit. 4. CIT (Appeals) confirmed the view of the Assessing Officer on the same line of reasoning. The Tribunal, however, onfurther appeal by the assessee, reversed the orders passedby the Revenue authorities referring to and relying uponthe decisions of other Tribunals. The Tribunal was of theopinion that the market value of the electricity supplied bythe CPP Unit to the general unit would be the same beingcharged by GEB from the consumers. 5. Counsel for the Revenue contended that the component of 8 paise per unit was the electricity duty which GEB was not authorized to retain but had to pass on to the Government. In essence, GEB was only collecting B paise per unit as electricity duty for and on behalf of the Government. He submitted that the market value of the electricity should be reckoned on Rs.5.32 ps. per unit as was done by the Revenue authority. 6. Under sub-Section(B) of Section SOIA of the Act, if it is found that where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee or where any goods or services held for the purposes of any other

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business carried on by the assessee are transferred to the eligible business and in either case the consideration for such transfer does not correspond to the market value of such goods as on the date of the transfer, then for the purposes of deduction under Section 80IA in case of the eligible business as if the transfer had been made at the market value of such goods or services. It is in this context that the question of substituting the actual consideration by the market value comes into picture. 7. We may notice that the Tribunal did not accept the contention of the assessee that the electricity is neither goods nor services and that, transfer of electricity, therefore, would not be covered under sub-Section (8) of Section BOIA of the Act. However, in so far as the Tribunal's reasoning to adopt the market value of the goods at Rs.5.40 ps. per unit is concerned, we find no error. Undisputedly, GEB supplied the electricity to its consumers at the same rate. This, therefore, was a market value of the electricity supplied by the CPP Unit to the general unit. The fact that this amount of Rs.5.40 ps. comprises of a component of 8 paise, which was electricity duty, to our mind, would make no difference in so far as the market value is concerned. To a consumer, the pricebeing paid remains 5.40 ps. per unit. The fact that the seller retains only Rs.5.32 ps. out of the said collection and passes on B paise per unit to the Government in the form of electricity duty, to our mind, would make no difference. This question is, therefore, not required to be considered." 4. This was followed in case of Commissioner of Income-tax v. Shah Alloys Limited in Tax Appeal No.2093/2010. Thiswas reiterated in Tax Appeal No. 1646 /2O1O in case of ACITBharuch Circle, Bharuch Through Commissioner v.Pragati Glass Works Pvt Ltd. (order dated 30.1.2OL2), inwhich following observations were made : "7. To our mind, Tribunal has committed no error.Assessing Officer and ClT(Appeals) while adopting Rs.4.51per unit as the value of electricity generated by eligible unitof assessee and supplied through its non eligible unit only worked out cost of such electricity generation. In factClT(Appeals) in terms recorded that Rs.4.51 was computedas the reasonable value of the electricity generated byeligible unit of assessee. This amount included Rs.4. 17 perunit which was the cost of electricity generation and Rs.0.34 per unit which was duty paid by the assessee toGEB for such power generation. Thus the sum of Rs.4.51per unit only represented the cost of electricity generation to the assessee. In Section 80IA(8) of the Act what isrequired to be ascertained is the market value of the goodstransferred by the eligible business, when such transfer isby eligible business to another non eligible business of the same assessee and the consideration recorded in theaccounts of the eligible business does not correspond tomarket value of such goods. Term "Market Value" is furtherexplained in explanation to said sub-section to mean inrelation to any goods or services, price that such goods orservices will ordinarily fetch in the open market. To ourmind sum of Rs.4.51 per unit of electricity onlyrepresented cost of electricity generation to the assessee and not the market value thereof. It is not in dispute that the GEB charged Rs.5 per unit for supplying electricity to other industries including non eligible unit of the assessee itself. Tribunal therefore, while adopting the said base figure and excluding excise duty therefrom to work out Rs.4.90 as the market value of the electricity generated by the assessee, to our mind, committed no error. It 30

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can be easily seen that if the assessee were to supply such electricity or was allowed to do so in the open market, surely it would not fetch Rs. 4.51 per unit but Rs. 5 per unit as was being charged by GEB. Since the excise duty component thereof would not be retained by the assessee, Tribunal reduced the said figure by the nature of excise duty and came to the figure of Rs.4.9O to ascertain the market value of electricity generated by the eligible unit and supplied to non eligible business of the assessee. No error was committed by the Tribunal. No question of law therefore, arises. Tax Appeal is dismissed." 5. Issue once again reached the Division Bench of this Court in case of Commissioner of Income-tax-I v. AlembicLimited in Tax Appeal No.47l /2OOg and connectedappeals. The Division Bench referring to earlier judgmentsof the Court held as under : "11. We have considered the submissions made by thelearned counsel for the parties. We have also consideredthe case laws cited by the learned counsel for the assessee.Taking into consideration the judgments of this court andother High Courts, cited above, we are of the opinion thatthe Tribunal has rightly allowed the claim of the assessee.In that view of the matter, we do not find any infirmity inthe order of the Tribunal. Therefore, we answer question(C) and (D) in favour of the assessee and against therevenue." 6. Issues are thus considered on number of occasions by the court and held against the revenue. Questions are answered against the revenue. Both the tax appeals are therefore, dismissed. 29. We also rely in the decision of the DCIT vs Birla Corporation Ltd. (supra) wherein the Tribunal observed as follows:

5.6.5. Exclusion of Electricity Duty and Cess as directed by ld CITA Now coming to the decision of the ld CITA to exclude electricity duty and cess, we find that the same has been addressed by the Hon’ble Gujarat High court in the case of CIT vs Shah Alloys Ltd in Tax Appeal No. 2092 of 2010 dated 22.11.2011, which approved the view taken by the Ahmedabad Tribunal in ITA Nos.844, 2072 and 2073/Ahd/2006 dated 8.1.2010, that the price charged by the Electricity Board inclusive of the amount of Electricity Duty represented the market value even though the assessee was not required to charge electricity duty.

5.6.6. In view of our aforesaid findings, we direct the ld AO to accordingly modify the earlier years profits also which were modified by him, in the same lines as directed for Asst Years 2008-09 and 2009-10 herein. Accordingly, the grounds raised by the assessee in this regard deserve to be allowed and that of the revenue deserve to be dismissed. 30. Following the judgment of the Hon’ble Gujarat High Court and decision of the Co- ordinate Bench, we direct the A.O. to allow the deduction under section 80IA(4) by

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adopting the weighted average landed cost of electricity at the rates of Rs. 6.35, Rs. 3.72 and Rs. 4.90 in respect of CPPs at Karnataka, Orissa and West Bengal respectively. The A.O. shall compute gross sale / transfer price of CPP, taking into account foregoing rates and accordingly re-work the profitability of each CPP and thereafter allow the deduction under section 80IA of the Act. Before the A.O. works out the deduction permissible, an opportunity of being heard shall be afforded to the assessee. Ground No. 3 of the Revenue’s appeal is dismissed. In the result, revenue’s appeal in ITA No. 1722/Kol/2012 for A.Y. 2008-09 is dismissed and the assessee’s plea under Rule 27 of the ITAT’s Rule is allowed.

Ground No. 1 to 4 in this appeal are against the action of the Ld. CIT(A)-17 { second round} dated 04.03.2016 – Kolkata in confirming the A.O.’s order passed under section 250/143 wherein the A.O. restricted the benefit of deduction under section 80IA only to the extent of amount claimed in the return of income as opposed to the specific directions issued by the Ld. CIT(A) – VI, Kolkata requiring AO to re-compute the eligible profits of CPPs.

CPP Per Unit Karnataka 4.28 Orissa 4.06 West Bengal 4.30

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CPP Per Unit Karnataka 1.92 Orissa 2.02 West Bengal 1.93

Aggrieved by the said action, appeal was preferred by the assessee before the Ld. CIT(A) – VI, { first round }Kolkata. Before the Ld. CIT(A), the assessee took the following grounds:

“4a. That the Assessing Officer erred in facts and in law in disallowing the claim of the appellant u/s 80IA of the Act amounting to Rs. 37,38,67,760/-. b. That the Assessing Officer erred in facts and in law in considering the purchase price of power by the respective SEB to be the ‘market rate’ as per Section 80IA(8), whereas the judicial precedents indicate that the market rate would be the selling price of SEB. c. That on the facts and circumstances of the case, profits of the captive power undertaking should be computed on the basis of the price of the power generated by the appellant at the average annual landed cost of electricity purchased by the assessee from the respective SEBs. d. That on the facts and in circumstances of the case, in the absence of any statutory provision to the contrary, the Ld. CIT(A) is vested with the plenary power to admit and adjudicate claims of the appellant, by placing reliance on the decision of the Apex Court in the case of Jute Corporation of India Ltd. (supra) reported in 187 ITR 688. e. That on the facts and circumstances of the case, the profit for the captive undertakings in Karnataka and Bangalore may be recomputed by considering the price of the power generated by the appellant at the average annual landed cost of electricity purchased by the assessee from the respective SEBs. f. That the Assessing Officer erred in facts and in law in considering an arbitrary estimated rate as the basis for disallowing the claim u/s 80IA of the Act in respect of undertakings in West Bengal and Karnataka.” 33

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“32. The Hon’ble ITAT ‘B’ Bench, Kolkata in the case of DCIT, Cir-8, Kolkata vs M/s. ITC Ltd. Kolkata in ITA No. 18 (Kol) of 2006 decided on 30.06.2006 has approved in the same manner. Therefore, the rates calculated in this manner are held to be fair, reasonable and applicable to the appellant and are given as follows: SL No. Asst. Year CPP in CPP in West CPP in Orissa Karnataka Bengal 1 2008-09 6.04 4.25 3.50

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effect to the appellate order dated 27.04.2012 of the Ld. CIT(A)-VI, the A.O. did not point out any defect or infirmity in the calculations of the assessee. The A.O. however restricted the deduction u/s 80IA to Rs.37,38,67,760/- being the amount claimed in the return filed u/s 139(1) as opposed to the specific rates directed to be adopted by the Ld. CIT(A). No reason or explanation is discernible from the order passed u/s 250/143(3) which explains as to why the AO did not abide by the specific directions given by the Ld. CIT(A).

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entertain a new claim. The Ld. AR also drew our attention to similar decisions rendered by the Hon'ble Madras High Court in the case of CIT Abhinita Foundation (P) Ltd 396 ITR 251 & Hon'ble Bombay High Court in the case of CIT vs Pruthvi Brokers & Shareholders (349 ITR 336).

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10CCB, is not sacrosanct. It is also well settled that there is no rule of estoppel in taxation law. Once the procedural requirement of Section 80AC was satisfied and the return of income was filed within the time limit in Section 139(1), then not only the AO but even the assessee was legally entitled to revise or for that matter re-compute the eligible deduction under Section 80IA so to arrive at the correct sum permissible in law. The sum so re- computed can be a figure higher or lower than the sum claimed in the return of income. Section 80AC therefore had no application in quantification of the deduction permissible under Section 80IA of the Act quantum of which the AO was legally obliged to determine keeping in view applicable legal provisions and decisions of the judicial precedents on the subject.

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authority and thereby not allowing the deduction u/s 80IA in the mode and manner directed by the Ld. CIT(A).

"(5) Had this been the only basis of the Tribunal’s order, we would have considered the matter further. However, in the present case, the central issue is whether the assessee having filed a return of income and disclosed certain income in such return, while giving effect to the Commissioner of Income tax (appeals) order in favour of the assessee, computation of assessed income can go below the returned income or not. In this regard, the decision of our court in the case of Gujarat Gas Co. Ltd. (supra) is amply clear. A Division Bench of this court was of the opinion that the Central Board of Direct Taxe’s Circular which provided that the assessed income of an assessee should not be below the returned income, was invalid.” 42. The Ld. AR also explained the legislative history of the provisions of sub-section (3) to Section 143 of the Income-tax Act, 1961 to buttress his contention that the income finally assessable under Section 143(3) can be at a sum lower than the income returned. We note that the provisions of Section 143(3) as amended by the Taxation Laws (Amendment) Act, 1970 read as follows:

"(3) On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered- a. in a case where no assessment has been made under sub-section (1) the Assessing Officer shall by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of such assessment;

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b. in a case where an assessment has been made under sub-section (1), if either such assessment has been objected to by the assessee by an application under clause (a) of sub- section (2) or the Assessing Officer is of opinion that such assessment is incorrect, inadequate or incomplete in any material respect, the Assessing Officer shall, by an order in writing make a fresh assessment of the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of such assessment.” 43. On perusal of the above, we note that the A.O. was authorized by the Legislature to make assessment of the total income or loss and determine the sum which was ‘payable’ or ‘refundable’ on the basis of the assessment. Meaning thereby, the A.O. was legally empowered in law to make assessment of the total income of the assessee at a lower sum that the returned income, which would result in ‘sum refundable’ to the assessee.

"(3) On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him on the basis of such assessment."

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"(3) On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment." 47. The CBDT in it’s Circular No. 772 dated 23.12.1998 explaining the above substituted provision of Section 143(3) explicitly stated that under the erstwhile provisions, there was no provision to issue refund and the Assessing Officer was only empowered to determine the sum payable by the assessee, but under the amended provisions the A.O. is empowered to provide for determination of sum payable by the assessee as well as the refund of any amount due to him.

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than the sum claimed in the return filed u/s 139(1), and then also the A.O. shall grant such higher deduction. Ground Nos. 1 to 4 raised in this appeal therefore stand allowed.

Ground Nos. 1 to 4involved in the assessee’s appeal for A.Y. 2009-10 relate to the disallowance of Rs.1,99,90,545/- made by the A.O. under section 14A read with Rule 8D. After considering the rival submissions and perusing the relevant material available on record, it is observed that the issue involved in these grounds are similar to the one involved in Ground Nos. 1 to 4 of the assessee’s appeal for AY 2008-09, which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn in AY 2008-09, we confirm the disallowance of direct expenses of Rs.1,30,057/- made by the A.O. in terms of Rule 8D(2)(i). We further direct the A.O. to delete the interest disallowance of Rs.1,85,65,351/- made in terms of Rule 8D(2)(ii). As regards the disallowance made by the A.O. under Rule 8D(2)(iii), we deem it fit and appropriate to remand this issue to the file of the A.O. with the direction to consider only the investments which yielded dividend income to the assessee during the relevant year for computing permissible disallowance u/s 14A of the Act read with Rule 8D(2)(iii) of the Rules..

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Ground no 1 to 2 relates to the disallowance of advance / inventory amounting to Rs. 1,62,997/-. After considering the rival submissions, it is observed that the issue involved in this ground is similar to the Ground No.1 of department appeal in A.Y. 2008-09.Following our conclusion drawn in A.Y. 2008-09, we dismiss these grounds raised by the revenue.

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electricity from the respective State Electricity Boards. After considering the rival submissions and perusing the relevant material available on record, we find that all the material facts relevant to this issue as involved in the year under consideration as well as the arguments raised by both the sides are similar to that of A.Y. 2008-09.We therefore follow our conclusion drawn on this issue in A.Y. 2008-09. The A.O. is accordingly directed to allow the deduction u/s 80IA(4) by adopting the weighted average landed cost of electricity at the rates of Rs.5.83, Rs.3.53& Rs.5.46 for the CPPs at Karnataka, Orissa & West Bengal respectively. The A.O. shall compute the gross sale/transfer price of the CPPs taking into account the foregoing rates and accordingly re-work the profitability of each CPP and thereafter allow the deduction u/s 80IA of the Act. Before the A.O. works out the permissible deduction, an opportunity of being heard shall be afforded to the assessee. Ground No. 3 of the Revenue’s appeal is accordingly dismissed and the plea raised in the Application under Rule 27 is allowed.

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for the period 12th March 2009 to 31st March 2009, on the ground that conditions for claiming deduction for interest paid on borrowed capital, prescribed in Section 36(1)(iii) of the Act were satisfied. In the course of assessment, the A.O. required the assessee to explain the rationale behind both the claims made in the return along with relevant details. The details requisitioned by the A.O. were furnished by the assessee through its letters dtd. 22.12.2011 & 27.12.2011.After examining the submissions of the assessee and the material on record, the A.O. held that since the assessee had not capitalized the cost of clinker plant in it’s books of account and no depreciation was accounted in the books in respect of the said clinker plant it could not be held that the said clinker plant was used for the purpose of assessee’s business during the relevant year and therefore disallowed depreciation in respect of the clinker plant. On appeal, the Ld. CIT(A) deleted the impugned disallowance by observing that the asset had been first used by the assessee for it’s business on 12thMarch 2009 when it conducted trial run and thereby conditions laid down in Section 32 were satisfied. Aggrieved by the order of the Ld. CIT(A), the Revenue is now in appeal before us.

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depreciation on plant & machinery of a cement plant, which was also used only for 1 day during the relevant previous year for conducting trial run.

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present case the assets of the Clinker plant were used to conduct trial run on 12th March 2009. The disclosure of such fact was made in the audited accounts. The assessee also furnished relevant details and documents supporting purchase of the plant and machinery before the A.O. and also substantiated that the said plant was used for conducting trial run on 12th March 2009. The A.O. has not shown any infirmity in the factual matrix. In the A.O.’s opinion however the use of clinker plant for conducting trial run did not satisfy the condition of the “asset being used for business purpose” as provided in S 32 of the Act. We however find that the view canvassed by the A.O. was contrary to the views expressed by Hon’ble jurisdictional Calcutta High Court in the case of CIT Vs Union Carbide (I) Ltd (supra) & Bombay High Court in the case of CIT Vs Larsen & Toubro Ltd (supra). In both these judgments the High Court’s allowed the depreciation claims of the assessee even though the plant and machineries were used during the relevant previous year only for the purpose of conducting trial runs and commercial production had not begun during the relevant previous years. Respectfully following the ratio laid down in these judgments, we uphold the order of the Ld. CIT(A) allowing the depreciation claimed by the assessee in respect of the clinker plant. Ground Nos. 4 & 5 of the Revenue’s appeal are therefore dismissed.

Ground No. 1 to 4 involved in the assessee’s appeal are against the action of the Ld. CIT(A)-17, Kolkata {second round} in confirming the A.O.’s order passed u/s 250/143(3) wherein the A.O. restricted the amount of deduction u/s 80IA to the amount claimed in the return of income filed u/s 139(1) as opposed to the specific directions issued by the Ld. CIT(A)-VI, Kolkata in the First round. After considering the rival submissions and perusing the relevant material available on record, we find that the material facts relevant to 47

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this issue; involved in the year under consideration as well as the arguments raised by both the sides are similar to that of A.Y. 2008-09.We therefore follow the conclusions drawn on this issue in our order in ITA No.1188/Kol/2016 for A.Y. 2008-09.We accordingly hold that the Ld. CIT(A)-17 erred in upholding the order u/s 250/143(3) passed by the A.O. wherein he restricted the claim of deduction u/s 80IA to the extent returned. We direct the A.O. to modify and enhance the deduction claimed u/s 80IA in light of the specific directions contained at Para 48 of our order (supra). Ground Nos. 1 to 4 raised in this appeal therefore stand allowed.

Order is pronounced in the open court on 26.04.2018 Sd/- Sd/- (Dr. A. L. Saini) (Aby. T. Varkey) Accountant Member Judicial Member Dated : 26th April, 2018 Biswajit.(Sr.P.S.)

Copy of the order forwarded to:

Sr. Pvt. Secretary 48