SRI LUXMI TULASI AGRO PAPERS PVT LTD,RAJAHMUNDRY vs. JOINT COMMISSIONER OF INCOME TAX, RAJAHMUNDRY RANGE, RAJAHMUNDRY

Both these appeals are filed by the assessee against different orders of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter in short “Ld.CIT(A)”] for the A.Y.2010-11 & 196/VIZ/2023 Sri Luxmi Tulasi Agro Papers (P.) Ltd., & 2012-13. Since the grounds raised by the assessee for both these appeals are identical in nature, these appeals are being clubbed and a consolidated order being passed. We now take up the appeal in for the A.Y.2010-11 as a lead appeal.

This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter in short “Ld.CIT(A)”] vide DIN & Order No. ITBA/NFAC/S/250/2023-24/1052801702(1) dated 12.05.2023 for the A.Y.2010-11 arising out of order passed under section 143(3) of the Income Tax Act, 1961 (in short ‘Act’) dated 28.03.2013.

Brief facts of the case are that, assessee is a Company engaged in the manufacture of paper besides running a captive power plant and filed its return of income for the A.Y. 2010-11 on 29.09.2010, admitting a total income of Rs.2,36,06,210/- besides agricultural income of Rs. 11,41,647/-. The return of income was summarily processed under section 143(1) of the Act accepting the returned income. Subsequently, the case was selected for scrutiny under CASS and statutory notices under section 143(2) and 142(1) of the Act were issued and served on the assessee. In response, assessee filed information as called for from time to time. After considering the submissions made by the assessee,

The learned Commissioner of Income Tax (Appeals) is not justified in sustaining the addition of Rs.16,83,960 made by the assessing officer towards disallowance of expenditure incurred for repairs of plant and machinery.

Any other grounds may be urged at the time of hearing.”

Ground Nos. 1 & 5 are general in nature and needs no adjudication.

Ground Nos. 3 & 4 relate to section 40A(7) of the Act and disallowances of expenditure for repairs of plant and machinery were not pressed by the assessee and hence the same are dismissed as not pressed.

The only issue common to both the appeals are with respect to disallowances of the deduction claimed under section 80IA of the Act. In this connection, Ld. Authorised Representative [hereinafter “Ld.AR”] submitted that the assessee has two units one for manufacturing of paper and another for generation of power. Ld.AR further explained that steam is essentially required in the paper unit to dry the paper and therefore the turbine were installed and steam required for paper plant is taken from the same turbine. He further submitted that the value of the steam as calculated was explained as the basis of the average cost of the raw materials for generating one unit of steam. Ld.AR further explained that the paper manufacturing activity requires medium and Page No. 4 & 196/VIZ/2023 Sri Luxmi Tulasi Agro Papers (P.) Ltd., low-pressure steam for manufacture of paper and therefore assessee installed boilers wherein high-pressure steam is converted into the boiler and sent to the turbine for generation of electricity and in this process high pressure steam is converted into low pressure steam which is being sent to the paper unit for drying of the paper. He further explained that therefore the cost of steam is being valued on the basis of average cost of fuel for the generation of such steam and accordingly arrived at Rs. 3,19,33,875/-. The Assessing Officer required the assessee to submit the cost of husk, chipper dust, fire wood, saw dust and coal which was used as the raw material for the generation of steam which was produced before the Assessing Officer. Ld.AR further submitted that Assessing Officer being not satisfactory with the vouchers, proceeded to arrive at the steam cost based on the Directors Report annexed to the financial statements for the impugned assessment year. He therefore arrived at the average cost of fuel at Rs. 1200/- and arrived at the consumption of steam production at Rs. 2,55,47,100/- thereby disallowing a sum of Rs. 61,19,772/-. Ld.AR further contended that Assessing Officer has taken only the basic raw material cost whereas the cost of stores and spares consumption which is required along with raw material to generate the steam was not considered by the Assessing Officer. He therefore submitted in the Directors Report the basic cost of raw material only is disclosed and does not include the cost of stores and spares consumed in the process. He further contended that allocation made to Page No. 5 & 196/VIZ/2023 Sri Luxmi Tulasi Agro Papers (P.) Ltd., the paper unit by the assessee for the impugned assessment year is 49% of the total cost of fuel whereas the Assessing Officer has allocated 39% of the total cost of fuel. Ld.AR further submitted that Assessing Officer failed to recognize cost of stores and spares which accounted for approximately 8 to 10% of the total fuel cost. He therefore pleaded that the disallowances made by the Assessing Officer be deleted.

Per contra, Ld. Departmental Representative [hereinafter in short “Ld.DR”] submitted that Assessing Officer has rightly worked out the cost of fuel consumption based on the Directors Report duly endorsed by the Managing Director of the Company. He therefore pleaded that the basis of valuation adopted by the Assessing Officer is on the basis of published reports and not made on assumption. He therefore pleaded that addition may be sustained.

We have heard both the sides and perused the material available on record. The case of the Assessing Officer is that the assessee has claimed deduction under section 80IA of the Act with respect to the steam cost supplied to the paper unit by considering it as income in the books of the account of the assessee, thereby enhancing the profit of the power plant which is eligible for deduction under section 80IA of the Act and claiming the same as cost in the hands of the Paper unit. However, the only contention of the Ld.AR is with respect to the valuation of the steam adopted by the assessee. The Assessing

In the result, appeal filed by the assessee is partly allowed.

Coming to the appeal relating to A.Y. 2012-13, since the issues and facts in this case are identical, the decision taken in assessee’s case for the A.Y.2010-11 as in preceding paras shall mutatis mutandis, applicable to ITA No.196/VIZ/2023. Accordingly, appeal filed by the assessee is partly allowed.

To sum-up, both the appeals filed by the assessee are partly allowed.