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Income Tax Appellate Tribunal, DELHI BENCH “F” NEW DELHI
Before: SHRI I.C. SUDHIR & SHRI L.P. SAHU
ORDER
PER I.C. SUDHIR: JUDICIAL MEMBER The Revenue has questioned First Appellate Order on the following grounds:
1. Whether in the facts and circumstances of the case, the Learned CIT(Appeals) was justified in allowing the deduction of Rs.3,88,42,025 u/s. 80IA ignoring the findings of the A.O. that assessee has not earned any actual profit in the power unit ?
2. Whether in the facts and circumstances of the case, the Learned CIT(Appeals) was justified in accepting the formula of cost in the ratio of energy instead of cost in the ratio of steam pressure as adopted by the A.O.?
3. Whether in the facts and circumstances of the case, the Learned CIT(Appeals) was justified in accepting the efficiency of 85 to 86% instead of further reduction of 15% by the A.O. on the ground that ideal condition rarely exist and even if so it will not be throughout the year?
Heard and considered the arguments advanced by the parties in view of orders of the authorities below, material available on record and the decisions relied upon.
The facts in brief are that during the year the assessee was operating a husk (fuel) based captive power plant which was used by it by generating electricity for its papers manufacturing units. The assessee being eligible for deduction under sec. 80IA of the Act claimed a deduction of Rs.3,88,42,025 from the gross total income. The Assessing Officer did not allow the claimed deduction besides others on the basis of the assessment order for the assessment year 2008-09 wherein a similar disallowance was made. The Assessing Officer also made disallowance on the basis that nobody can earn profit out of oneself as transfer of power from one unit to another unit cannot be said to be sold, power generated by the assessee was primarily to reduce cost of power and fuel expenditure of other unit, profit computed by the assessee for generation of power was not correct, assessee has not submitted project viability report, number of units generated during the year, while computing the profit of the power undertaking is regarding the rate of the electricity etc. Before the Learned CIT(Appeals), the assessee tried to meet these objections of the Assessing Officer and being satisfied therewith, the Learned CIT(Appeals) has accepted the claimed deduction against which Revenue is in appeal before the ITAT on the issues raised in the above grounds.
In support of the grounds, the Learned Senior DR placed reliance on the assessment order. She reiterated the objections raised by the Assessing Officer justifying the rejection of the claimed deduction, which have been discussed hereinabove in brief while discussing the facts of the case. She requested further that the matter may be set aside to the file of the Assessing Officer to ascertain as to whether assessee has maintained accounts of the two units separately and for the purpose of rate of the electricity unit generated by it.
The Learned AR on the other hand tried to justify the First Appellate Order. He submitted that the issues raised in the grounds are fully covered by several decisions cited by the assessee before the Learned CIT(Appeals).
He also placed reliance on those decisions while reiterating the submissions made before the authorities below. He submitted that in the assessment year 2008-09, the issue has been decided in favour of the assessee by the First Appellate Authority.
Considering the above submission, we find that the assessee has tried to meet out the objections raised by the Assessing Officer justifying the rejection of the claimed deduction under sec. 80IA of the Act to the assessee.
On the objection of the Assessing Officer that the transfer from the power unit to another unit cannot be said to be sale which as per him was in disregard of provisions of sec. 80IA(8) of the Act, the reply of the assessee remained that the benefit of deduction under sec. 80IA is available even to a person who generates, as can be seen that there is a word ‘or’ between generates or generates and distributes in the provisions under section 80IA of the Act. It was submitted that the Assessing Officer was not correct in stating that the claimed deduction is available to an enterprise which generates or generates and distribute powers and since assessee is not distributing powers to any third party or to the greed and accordingly the assessee is not covered within the section. It was pointed out that electric turbine set up by the assessee is an undertaking an is generating power and it fulfills all the conditions which have been prescribed in section 80IA of the Act for which there is no dispute in the assessment order. Having gone through the provisions laid down under sec. 80IA of the Act, we concur with the above contentions of the assessee, which is also supported by the decision of Hon'ble Madras High Court in the case of Tamilnadu Petro- products Ltd. Vs. ACIT – 238 CTR (Mad.) 454 holding that the assessee is entitled to deduction under sec. 80IA in respect of notional income from generation of electricity which was captively consumed by itself. In the case of CIT vs. Orissa Cement Ltd. – 254 ITR 412 (Del.), the assessee had carried on mining operations of lime stone for the manufacture of cement.
The first and second appellate authority found that the production of lime stone was done at a stage for the purpose of manufacture of cement and that it was possible, from the audited statement, to compute the profits on the basis of transfer of lime stone to the initial stages at the market price. It was held that the assessee was entitled to benefit of special deduction under sec.
80I in relation to the profits derived from the production of lime stones.
Again in the case of CIT vs. Chitran & Co. Pvt. Ltd. – 191 ITR 96 (Madras), it has been held that in order to claim relief under sec. 80I of the Act, the assessee should be engaged in the production of manufacture or one or more or the items enumerated in Schedule-VI to the Income-tax Act, 1961, in which case the assessee should be regard as engaged in a priority industry.
The emphasis for grant of relief is on the manufacture of one or more of the item enumerated in Schedule VI. Whether the items mentioned in Schedule- VI are manufactured and sold by the assessee as such or utilized by the assessee in the manufacture of other goods for sale will not make any difference for grant of relief under sec. 80I, held the Hon'ble High Court. Following ratios of these decisions and the others as discussed by the Learned CIT(Appeals), we are of the view that the Learned CIT(Appeals) was justified in accepting the claimed deduction with this finding that it does not make difference whether the assessee generates and sells the electricity or utilizes it for its manufacturing of other goods for sale.
The Assessing Officer has also rejected the claim on the basis that profit computed by the assessee for generation of power is not correct. The Assessing Officer thereafter had drawn his own trading account on page No. 5 in para 3.1.3 of the assessment order. The contention of the assessee against this objection remained that the Assessing Officer while drawing this trading account has made various assumptions. He has allocated 9/10th of the total expenditure to the electricity generation with the logic of ratios of pressure of steam, the ratios of the pressure of steam entering the turbine and the pressure of the same coming out. The Assessing Officer also did not agree with the assessee for bifurcating the cost. The assessee contended that the method of cost allocation of the Assessing Officer was not scientific. The assessee had filed before the Assessing Officer the calculation of generation of units. As per this, the total rice husk consumption during the year was 37,204 M.T. Each one tone rice husk produced 3.83 M.T. of steam. The steam so produced was at 46 a.t.a and 420 degree centigrade temperature.
The calorie value of such steam was 79 kcal/kg. Accordingly the total energy so produced from the rice husk of 37,204 MTs comes to 11,10,00,489 kcl/kg. Out of this total energy so produced was used in the paper plant, details of which were furnished by the assessee before the Assessing Officer and the same has also been reproduced by the Learned CIT(Appeals) at page No. 14 of the First Appellate Order. The assessee submitted that the measurement of energy was done in kcal and as such the contention of the Assessing Officer that the formula used by the assessee for the allocation of expenses was not correct. The Assessing Officer had simply used the steam pressure for allocation of the cost which cannot be a basis. It was contended that measurement has to be done in terms of energy which has to be measured in kcl. In absence of any reason given by the Assessing Officer as to why the formula used by the assessee was wrong, we are of the view that Learned CIT(Appeals) has rightly accepted the above contention of the assessee that observation of the Assessing Officer that the assessee had allocated cost in proportion to temperature was not correct.
The third contention of the Assessing Officer was that the assessee had not submitted project viability report. Meeting out this objection, the assessee submitted that it had furnished to the Assessing Officer information about the power plant at Annexure to the letter dated 13.12.2010, a copy of which has been placed at page No. 96 to 100 of the paper book. It was further submitted that the power generation is subject to the government regulations and there is regular inspection by the government department and a report of such inspection was also furnished to the Assessing Officer.
It was pointed out that during the course of such inspection, a date-wise chart was also prepared monitoring the consumption of raw-material and power generation, a copy whereof was produced before the Assessing Officer in the inspection report calculation regarding the average power generation and the rice husk consumption was shown. Regarding the number of units generated during the year as raised by the Assessing Officer and his statement that the assessee had given its own calculation of number of units of electricity generated, the explanation of the assessee remained that such calculations have been reduced by 15% by the Assessing Officer on the ground that idle condition rarely exists and it will not be so throughout the year. Bases on this, the Assessing Officer reduced the number of units of power produced as per the assessee from 1,39,06,143 to 1,18,20,222. Thus, the dispute was regarding the difference of 15%. The Learned CIT(Appeals) at page Nos. 15 and 16 of the First Appellate Order has dealt with the issue and observed that the perusal of the submissions of the assessee shows that it had computed its calculation at 85% of the efficiency itself. The assessee considering the efficiency at 8% to 86% had computed the power transferred to paper unit at 39,06,143 units, clearly demonstrating that the assessee himself had computed the efficiency by reducing the same to 85 to 86% and therefore, the Assessing Officer was not justified in further reducing the same by another 15%. In absence of specific rebuttal of the above facts by the Revenue before the ITAT, we do not find reason to interfere with the findings of the Learned CIT(Appeals) in this regard.
Regarding the objection on the rate of electricity for computing the profit of power undertaking raised by the Assessing Officer, the explanation of the assessee remained that the assessee had taken the rate at 4.50 per unit which has not been disputed by the Assessing Officer but the Assessing Officer had reduced the same to Rs.3 per unit on the basis that when power is sent by the State Electricity Board, it had to incur beyond the generating cost, billing charges and distribution charges. On this basis, the Assessing Officer had that the selling price of the power for the assessee should be 2/3rd of Rs.4.50 i.e. Rs.3 per unit. The assessee submitted that computation done by the Assessing Officer does not have any scientific basis. The Assessing Officer agreed with the view that State Electricity Board, selling price was Rs.4.50 per unit and if that be the case then provisions of sec. 80IC(8) cannot be ignored whereby the profit has to be computed by applying the market rate. The market rate has to be the price at which power is being sold in the open market. If the assessee bought power from UP State Electricity Board, it would be have been required to pay Rs.4.50 per unit. Considering these submissions, the Learned CIT(Appeals) has come to the conclusion that the Assessing Officer was not justified in reducing the per unit price to Rs. 3 per unit as against Rs.4.50 per unit. In this regard, the cl has also taken strength from the decision of Mumbai Bench of the ITAT in the case of DCW Ltd. vs. ACIT (2010) – 132 TTJ (Mumbai) 442. The First Appellate Order is comprehensive and reasoned one we are not inclined to interfere therewith. The same is upheld.
In the preceding paragraphs, we have discussed that the assessee has been able to satisfactorily meet out the objections raised by the Assessing Officer to justify the claimed deduction, on the basis of which the Learned CIT(Appeals) has accepted the claimed deduction under sec. 80IA of the Act at Rs.3,38,97,680. As discussed above, the First Appellate Order on the is comprehensive and reasoned one to which we fully concur with. The same is upheld.