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Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: Shri S. S. Godara & Shri Manish Borad
आदेश/ORDER PER : S.S. GODARA, JUDICIAL MEMBER:-
The assessee and Revenue have filed the instant cross appeals for A.Y. 2010-11 against the CIT(A)-I, Vadodara’s order dated 28-11-2014 in appeal no. CAB-I/281/2013-14, in proceedings under section 143(3) r.w.s. 144C(3) of the Income Tax Act, 1961; in short “the Act”.
I.T.A Nos. 275 & 281/Ahd/2015 A.Y. 2010-11 Page No 2 Banco Products (India) Ltd. vs. DCIT
We come to assessee’s appeal ITA 275/Ahd/2015. Its first substantive ground challenges both the lower authorities action disallowing an amount of Rs. 341149/- comprising of proportionate interest expenditure and administrative expenses amounting to Rs. 187755/- and Rs. 153667/-;respectively u/s. 14A r.w. Rule 8D(2)(ii)(iii) of the Income Tax Rules. Case file reveals at the outset that the assessee’s exempt income in the impugned assessment year from dividends reads an amount of Rs. 2854033/- arising from investment of Rs. 5.12 lacs in equity shares and Rs. 164.60 lacs in mutual funds. Its share capital along with reserves and surplus on the other hand read an amount of Rs. 23106.66 lacs as on 31-03-2010 i.e. much more than tax free investment. We find in these circumstances that a co-ordinate bench in assessee’s case itself ITA No. 75/Ahd/2012 decided on 06-04-2017 has deleted similar proportionate interest amount. The Revenue fails to rebut this factual position. We therefore delete former component of proportionate disallowance amounting to Rs. 187755/-. It has further come on record that the said co-ordinate bench has upheld administrative expenditure disallowance. We therefore follow consistency to uphold the remaining disallowance sum of Rs. 153667/- under challenge. This first substantive ground is partly accepted.
The assessee’s latter substantive ground challenges both the lower authorities action disallowing its section 80IA(4) deduction claim of Rs. 2274353/- thereby re-computing its profit by adjusting its sale value of the power produced and supplied. We notice herein as
I.T.A Nos. 275 & 281/Ahd/2015 A.Y. 2010-11 Page No 3 Banco Products (India) Ltd. vs. DCIT
well that the above co-ordinate bench has accepted assessee’s similar claim challenging identical disallowance. This clinching fact goes un-rebutted from Revenue’s end. We therefore delete the impugned disallowance regarding adjustment in sale value of power produced and sold. The assessee’s appeal ITA 275/Ahd/2015 is partly accepted
This leaves us Revenue’s appeal ITA 281/Ahd/2015 raising the following substantive grounds:- “1(i). On the facts and in the circumstances of the case and in law, Ld. CU(Appeals) has erred in holding that the assessee is eligible for deduction u/s 80IA (4)(iv) of the Act in respect of COGEN Units without appreciating that the assessee had captive power generation plant and therefore, the claim u/s 80 IA (4) of the Act was not allowable as held by the Hon'ble ITAT Bench-A, Chennai in the case of Chettinand Cement Corporation Ltd. in ITA No. 1026(Mds)/2005. 1(ii) On the facts and in the circumstances of the case and in law, Ld. CIT(Appeals) has erred in holding that earlier years losses of COGEN units are not required to be set off against income of the current year before allowing deduction u/s 80IA of the Act.”
The assessee submits at the outset that a co-ordinate bench decision in its case decided on 30-06-2017 has already adjudicated both these issues as under: “25. Ground No.3(i) concerns disallowance of deduction u/s 80IA(4) on the premises that the undertakings of the assessee are captive power generation plant not eligible for the benefit. 26. As pointed out on behalf of the assessee, the aforesaid issue is covered in favour of the assessee by the order of the ITAT for Asst. Year 2007-08 in the case of assessee in ITA No.1106/Ahd/2010. 27. The relevant extract of the order of the Co-ordinate Bench of Tribunal is reproduced hereunder for ready reference :-
I.T.A Nos. 275 & 281/Ahd/2015 A.Y. 2010-11 Page No 4 Banco Products (India) Ltd. vs. DCIT
Next ground is against the allowing the deduction u/s 80IA of the Act as claimed by the assessee. Ld. Sr. D.R. submitted that the deduction was not available to the assessee in view of decision of the Hon'ble ITAT Chennai Bench rendered in the case of M/s Chettinad Cement Corporation Ltd vs. ACIT ITA No. 1029(Mad)2005 for the assessment year 2001-02 Ld. DR has also given a written submission on this issue which is reproduced as under:- The First of the Second issue is that the Assessing Officer has adopted rate of Rs. 2,36/- per unit, considering the average price charged by power generating companies to GUVNL, for the determination of deduction u/s 80IA(4) for COGEN I & II. The AO considered that the profit worked out by the assessee was not acceptable as genuine. The assessee has applied charges levied by Gujarat Electricity Board as the "market rate" of electricity generated by the assessee for its captive consumption. As per the agreement, the assessee is bound not to self the electricity generated by it without the express permission of GEB. This itself brings in a tremendous constraint on the assessee as it looses the freedom not only to choose its market but also its market price. The CIT (A) has directed the AO to allow deduction u/s 80IA(4) at the market rate of Rs. 4.86/- per unit relying on the price of electricity supplied by the Gujarat Electricity Board. The assessee's claim that the market value for electricity generated by it should be equivalent of what the GEB charges to the retail consumers would be abnitio incongruous. Since the entire general of electricity is used for captive utilization and consumption; there is no additional cost to electricity unit generated by the assessee in terms of marketing the electricity. Moreover, the GEB is providing an assured supply of electricity. Therefore, it cannot equate the assessee with GEB for the purpose of fixing its market price of electricity units. The second issue involved is that the Assessing Officer has disallowed the deduction of Rs. 24,63,968/- u/s 80IA of the I T Act, 1961 relying on the decision of the Hon'ble ITAT Chennai in the case of M/s Chettinad Cement Corporation Ltd. Vs ACIT in ITA No. 1029 (Mads) 2005 in respect of power generating plants used for captive consumption and also there is no income in respect of COGEN-I and II. The Hon'ble ITAT, Chennai has held that the deduction u/s 80-IA is not available in respect of captive power plant to meet in house requirement and (ii) rate of supply. The ITAT further held that "The plain reading of this section shows that where gross total income of the assessee includes any profit and gains derived by an undertaking of an enterprise from business of eligible undertaking only are to be considered for the purpose of allowing deduction. The CIT(A) has allowed deduction u/s 80-IA relying on the Mumbai Bench of ITAT in the case of West Coast Paper Mills vs ACIT (103 ITD 19). In view of the Hon'ble ITAT, Chennai's decision in the case of M/s Chettinad Cement: Corporation Pvt Ltd, the Hon'ble ITAT may kindly be restored the disallowance u/s 80-IA made by the Assessing Officer."
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We have heard the Ld. Sr. D.R. and perused the material available on record. Ld. CIT(A) has decided this issue as under: "6. Ground No. 4 relates to the denial of the claim of deduction u/s 80IA(4) amounting to Rs.24.83,968/- on COGEN - 1 Unit and COGEN - II Unit. The assessee manufactures aluminum extrusion sections from aluminum ingots. It also generates captive power at its 250 KVA - I and 250 KVA - II power plants being COGEN Unit -I and COGBN Unit - II respectively. The energy generated in the said captive power plants was used by the assessee for its own consumption. The AO objected to the claim of deduction u/s 80IA(4) on the ground that (a) the deduction was eligible only where separate business undertaking is put up for generation/distribution of power. Since the assessee had set up the plants mainly for captive use, the deduction u/s 80lA(4)(iv) would not be available, (b) the assessee has not worked out the profit of the eligible undertakings as per section 801A(5) of the Act. In view of the AO, the assessee is required to set off previous year's brought forward losses of the said units first, and (c) even if the assessee were eligible for deduction, the quantum of deduction was to be worked out with reference to "market rates" of electricity generated by the assessee and not at the rate claimed. The assessee had claimed deduction amounting to Rs.24,83,968/- on the basis of purchase price of power from GEB, i.e. Rs. 4.86 per unit. The AO reduced the deduction, without prejudice to his earlier objection that no deduction at all was available. The reduced quantum of deduction was worked out at Rs. Nil/- based on the rate of Rs. 2.36 per unit of power, being the average rate at which GEB purchased power from different companies. The details of the working of this average rate of Rs. 2.36 per unit and the deduction of Rs. Nil lacs have been stated at pages 11 & 12 of the assessment order. 6.1 Regarding the issue as to eligibility of the assessee for claiming the deduction in respect of captive power plant as opposed to a separate line of business of generation of power, the ld.AR relied on the decision of the ITAT, Mumbai Bench in West Coast Paper Mills v ACIT (103 ITD 19) wherein it was held that so far as the issue of allowance of deduction u/s 801A is concerned, the claim of the assesses could not be denied simply on the ground that it manufactured power only for the captive consumption of the assessee. Further, reliance was placed on the decision of the Gujarat High Court in CIT v Ahmedabad Manufacturing and Calico Priming Co. Ltd., (162 ITR 760) wherein it was held that the assessee would be entitled to deduction u/s 801 irrespective of the fact whether its product was sold in open market or was used for captive consumption. 6.2 With respect to the allegation of the AO that the appellant has not computed the profits of the eligible unit as per section 801A(5), it was submitted by the Ld. AR that in the view of the AO, initial assessment year is the year in which the eligible unit starts generation of power. However, it was contended that the initial assessment year is the first year in which the appellant opts to claim deduction u/s, 801A for any period of 10 years from amongst the 15 year period. In view of the AO the unabsorbed losses as well as unabsorbed depreciation beginning from the year of manufacture should be set off for the purpose of computing deduction u/s 8OIA. In the case of the appellant, C0GEN Unit - I started
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generating power from 26-6-2001 (AY 2002-03), therefore the notional unabsorbed losses of the said unit from AY 2002-03 should be considered for the purpose of computing the profits eligible for deduction u/s. 801A. Similarly the COGEN Unit - II started generation of power from 25-2-2005 (AY 2005-06), therefore the notional unabsorbed losses of the said unit from AY 2005-06 should be considered for the purpose of computing the profits eligible for deduction u/s, 801A. It was submitted that since the appellant has started claiming deduction u/s. 801A from AY 2007- 08 being the first year in which the Appellant opted to claim such deduction, unabsorbed losses depreciation subsequent lo the said initial assessment year can only be considered and not prior to that. 6,3 So tar as the third aspect regarding the computation of the deduction is concerned, relying on the decision of 1TAT, Ahmedabad Bench in ITA 3594/Ahd/2007 for AY 2003-04 in the case of Alembic Ltd, it was submitted by the Id. AR that the Tribunal has held that the purchase price of power by the assesses from the electricity company would constitute the market price and not the price at which power was purchased by the electricity company. The appellant also relied on another decision of Ahmedabad Tribunal in the case of Pragati Glass Pvt. Ltd v. ACIT in ITA No. H09/A/2007 for AY 2003-04. 6.4 I have considered the submissions of the Id. AR and the facts of the case. On the issue regarding allow ability of deduction U/s. 80IA to the captive power plant set up to meet in-house requirements on the ground that it cannot be considered as separate undertaking, the Mumbai Bench of 1TAT (in West Coast Paper Mills} has clearly held that in case of generation of power for captive consumption, the claim of deduction u/s 8OIA would be available. It is also true that the power generating plant has independent building, independent plant and machineries, completely different products, separate set of employees working on the plant and distinct existence. In view of the judgment of the Mumbai Tribunal (supra) deduction u/s. 801A cannot be disallowed on this ground. 6.5 Regarding the computation of profits in conformity with the provisions of section 801A(5), it is seen that the controversy in question is covered by the decision of the Chennai Bench of the Tribunal in the case of Mohan Breweries & Distilleries Ltd. v. ACIT, 114 TTJ 532. In this case the Tribunal has very categorically held that initial assessment year is the year in which the assesse first opts to be governed by the deduction provisions and not necessarily the year of commencement of manufacturing activity. In the context of initial assessment year the Tribunal observes as under: "Adverting to the facts of the case the initial assessment year in this case starts from 2004-05. Since the assessee has opted to claim this deduction only in this assessment year, the initial assessment year cannot be the year in -which the undertaking commenced its operations and in this case the initial assessment year is the assessment year in which assessee has chosen to claim deduction under s. 80-1A. Hence the provisions of s. 80-IA(5) treating undertaking as a separate sole source of income cannot be applied to a year prior to the year in which assesses opted to claim relief under section 80-IA for the first time. Depreciation and carry forward loss relief to the unit which claims deduction
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under s. 80-IA, cannot he notionally carried forward and set off against the income from the year in which the assessee started claiming deduction under 80- IA. At the cost of repetition, we make it clear that the case law relied on by the Departmental Representative are delivered before the amendment to section by Finance Act. 1999. Before the amendment the initial assessment year way defined in the Act but after the amendment there is no definition for initial assessment year in the Act and there is option to the assessee in selecting the year of claiming relief under section 80IA. In view of this, we are of the opinion that there is no question of setting off notionally carried forward unabsorbed depreciation or loss against the profits of the units and assesses is entitled to claim deduction under s. 80-IA on current assessment year on the current year profit. Accordingly we allow the claim of the assessee. " 6.6 Regarding the third issue, the decision of the ITAT Ahmedabad Bench in the case of Alembic Ltd (supra) and the ITAT Delhi Bench in the case of Addl. CIT v Jindal Steel and Power Lid (16 SOT 509) are squarely applicable on the facts of the present case. In Jindal Steel & Power Ltd., the Tribunal has held that the market value shall be the price at which the assessee purchases electricity from the electricity board and not the one which is fixed by the legislative mandate. In the instant case the assessee is prevented by the legislative mandate from selling power to any person other than GEB. On the other hand, the GEB sold power to the assessee @ Rs. 4.86 per unit. Since the facts of the instant case are squarely covered by the decisions of die ITAT as above, it is clear the AO was not justified in denying the claim u/s 80IA. Accordingly, the AO is directed to allow the deduction u/s 8OIA as claimed, based on market rate of Rs, 4.86 per unit of power." 8. We do not find any infirmity into the order of Ld. CIT(A) as he has considered all aspects of the matter and has rightly followed the decisions of the Hon'ble Co- ordinate Bench of Delhi rendered in the cases of Addl.CIT vs. Jindal Steel and Power Ltd 16 SOT 509. In this view of the matter this ground of the Revenue's appeal is also dismissed. 28. The issue having been already adjudicated in favour of the assessee in earlier year on similar facts, we find no reason to depart from the aforesaid view. 29. In the result Ground no.3(i) of Revenue’s appeal is dismissed. 30. Ground no.3(ii) concerns the order of the Commissioner of Income Tax(A) wherein earlier losses of “COGEN” units of the assessee were allowed to be set off against the income of the current year after allowing deduction u/s 80IA of the Act. 31. As pointed out on behalf of the assessee, the controversy revolves in a narrow campus. As per the Assessing Officer, the initial Asst. Year is the year in which the unit starts generating power. As per the assessee, it is the year in which the assessee first opts to claim deduction u/s 80IA and not the year in which the unit starts generation of power. As further pointed out on behalf of the assessee, we observe that the CBDT has clarified by Circular No./16 dated
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15.2.2016 that an assessee who is eligible to claim deduction u/s 80IA as option to choose the initial Asst. Year. In view of the CBDT Circular the issue is required to be decided in favour of the assessee. We are thus of the opinion that Commissioner of Income Tax(A) was right in holding that losses, if any, of eligible undertaking for years prior to initial Asst. Year are not to be set off against current years profit of eligible undertaking for the purpose of computing deduction u/s 80IA. Thus we find no merit in the aforesaid ground of Revenue for the reasons noted above. 32. In the result ground no.3(ii) of the Revenue’s appeal is dismissed.”
The Revenue is fair enough in not pointing out any distinction on law as well as facts therein. We therefore uphold the CIT(A)’s findings regarding both these two issues. Revenue’s appeal ITA 281/Ahd/2015 fails.
Assessee’s appeal ITA 275/Ahd/2015 is partly accepted whereas revenue’s appeal ITA 281/Ahd/2015 is dismissed. Order pronounced in the open court on 30-10-2017 Sd/- Sd/- (MANISH BORAD) (S.S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 30/10/2017 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद