DCIT, CIR-10(1), KOLKATA, KOLKATA vs. M/S KANORIA CHEMICALS AND INDUSTRIES LTD., KOLKATA

This appeal is preferred by the revenue against the order of Ld. CIT(Appeals) – 10, Kolkata dated 26.02.2016 and the same is being disposed of along with the cross-objection filed by the assessee being C.O. No. 38/K/2016.

The solitary issue involved in the appeal of the revenue relates to the deletion of the Ld. CIT(A) of the addition of Rs. 2,13,47,159/- C.O. No. 38/Kol/2016 Assessment Year: 2006-07 Kanoria Chemicals & Industries Ltd. made by the A.O. by disallowing the assessee’s claim for deduction under section 80IA to that extent. 3. The assessee in the present case is a company which is engaged in the business of manufacturing of chemicals and power. The return of income for the year under consideration was filed by it on 15.11.2006 declaring a total income of Rs. 4,12,68,356/- under the normal provisions of the Act and book profit of Rs. 28,64,85,205/- under section 115JB of the Act. In the said return, deduction of Rs. 24,12,85,863/- was claimed by the assessee company under section 80IA in respect of profit derived from its power generation unit. In the assessment originally completed under section 143(3) vide an order dated 24.10.2010, the claim of the assessee company for deduction under section 80IA was fully allowed by the A.O. Subsequently, he noted from the auditor’s report filed by the assessee company in Form No. 10CCB that it had sold power to UPPCL @ Rs. 38,85,416/- per MW/MU while the rate charged for inter unit transfer of power was Rs. 40,37,835/- per MW/MU. According to the A.O., the assessee company thus had inflated its income of the eligible unit by Rs. 2,13,47,159/- and the deduction under section 80IA to that extent was wrongly allowed to it in the assessment completed under section 143(3) leading to escapement of income. He, therefore, reopened the assessment by issuing notice under section 148 on 31.03.2010 after recording the reasons. The assessee company raised objection to the initiation of reassessment proceedings by the A.O., but overruling the same, the Assessing Officer proceeded to complete the assessment under section 147/143(3) of the Act vide an order dated 28.12.2010. In the assessment so completed, he disallowed the claim of the C.O. No. 38/Kol/2016 Assessment Year: 2006-07 Kanoria Chemicals & Industries Ltd. assessee for deduction under section 80IA to the extent of Rs. 2,13,47,159/- by relying on the provisions of section 80IA(8) and determined the total income of the assessee at Rs. 6,31,22,705/-.

Against the order passed by the A.O. under section 143(3), an appeal was preferred by the assessee before the Ld. CIT(A) challenging the validity of the said assessment as well as disputing the addition made therein by the A.O. on account of disallowance of deduction under section 80IA to the extent of Rs. 2,13,47,159/-. The Ld. CIT(A) did not find merit in the preliminary issue raised by the assessee challenging the validity of the assessment made by the A.O. under section 147/143(3) and upholding the validity of the said assessment, he decided this issue against the assessee. As regards the issue of disallowance made by the A.O. under section 80IA, the Ld. CIT(A) found that a similar issue was decided by ITAT in favour of the assessee for A.Y. 2007-08 vide an order dated 31.08.2012 passed in ITA No. 334/K/2011. He accordingly followed the said order of the ITAT and deleted the addition of Rs. 2,13,47,159/- made by the A.O. on account of disallowance of deduction under section 80IA. Aggrieved by this relief allowed by the Ld. CIT(A) to the assessee, revenue has preferred this appeal before the Tribunal while the assessee company has also filed a cross-objection raising the issue relating to the validity of assessment made by the A.O. under section 147/143(3) of the Act.

We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that a similar issue as involved in this appeal of the revenue relating to C.O. No. 38/Kol/2016 Assessment Year: 2006-07 Kanoria Chemicals & Industries Ltd. disallowance of deduction under section 80IA had come up for consideration before this Tribunal in assessee’s own case for A.Y. 2007-08 and vide its order dated 31.08.2012 (supra), the same was decided by the Tribunal vide paragraph no 8 of its order which reads as under: “8. Hence, we are of the view that the market value for the purpose of sub- section 8 of section 80IA of the Act is a price arrived at between buyer and seller in the open market where transaction takes place in normal course of business in contrast to a situation where price is fixed between a buyer and a seller negotiation done under legislative mandate. The claim of deduction u/s 80IA of the Act in respect of its captive power under taking engaged in the business of generation of electric power and power generated by assessee unused in its own consumption as well as sale to State Electricity Board, the price at which power was supplied by assessee to Board was determined entirely in term of statutory regulation and such a price cannot be equated as market value appearing in explanation appended to section 80IA(8) of the Act and for the purposes of computation of deduction under this section excluding the duties, cess, taxes etc. Even otherwise, in this issue is now covered by the decision of Hon’ble Jurisdictional High Court in the case of CIT vs Graphite India G.A. No. 3114 of 2008, of 2008 dated 10.012.2008. This issue of assessee’s appeal is allowed in principle but subject to re-computation of deduction u/s 80IA of the Act excluding the electricity duty, taxes etc. by the A.O.”

As submitted by the learned counsel for the assessee, the decision of the Tribunal giving relief to the assessee on the similar issue for A.Y. 2007-08 has already been upheld by the Hon’ble Kolkata High Court vide its judgment delivered on 8th May, 2013 in ITAT No. 58 of 2013. The issue involved in this appeal of the revenue thus is squarely covered in favour of the assessee by the decision of the Hon’ble Jurisdictional High Court in assessee’s own case for A.Y. 2007-08 and even the learned DR has not disputed this position. The ground raised by the revenue in its appeal also makes it clear that this