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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI D. KARUNAKARA RAO & SHRI AMIT SHUKLA
आदेश ORDER
अिमत शु�ला, �या. स.: PER AMIT SHUKLA, JM:
The aforesaid cross appeals have been filed by the assessee as well as by the revenue against impugned order dated 11.02.2011 passed by CIT(A)-2, Mumbai for quantum of assessment passed u/s 143(3) for assessment year 2007-08. We will first take-up assessee’s appeal vide which following grounds have been raised:-
2 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 1. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals' was not justified in holding that electricity duty should be excluded for calculating "Transfer Price of electricity" for the purpose of computation of deduction u/s 80-1A.
That on the facts and in the circumstances of the case the Ld. CIT(Appeals) was not justified in holding that for computing deduction u/s 80-IA, the prorated indirect expenses of the company should be reduced from the profit of the Power Units.
That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) ought to have given directions to allow deduction u/s 801A in respect of integrated Power Unit No. 6 if in the unlikely event the claim for deduction u/s 801A in respect of Power Unit No. 6A & 6B is ultimately not allowed in favour of the company.
B. Disallowance of Employee's Contribution to Provident Fund & ESI Fund. 4. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals was not justified and grossly erred in confirming the disallowance of employee's contribution to Provident Fund and EST Fund amounting to Rs. 43,23,169/- made after the due date.
C. Allocation of notional expenses to income exempt u/s 10(34) & 10(35). 5(a) That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in confirming the disallowance u/s 14A on account of expenditure incurred to earn exempt dividend income, by applying the provision of Rule 8D.
5(b) That on the facts and in the circumstances of the case and without prejudice to the ground 5(a), the Ld. CIT (Appeals) was not justified rather grossly erred in computing the disallowance u/s 14A as per Rule 8D without appreciating the fact that Rule 8D is not applicable in the instant assessment year.
5(c) That on the facts and in the circumstances of the case and without prejudice to the ground 5(a) & 5(b), the Ld. CIT(Appeals) ought to have given directions to consider only
3 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 those investments on which the appellant has earned exempt income in computing disallowance u/s 14A as per Rule 8D.
5(d) That on the facts and in the circumstances of the case, and without prejudice to Ground No. 5(a) & 5(b), the Ld. CIT(Appeals) ought to have given directions to compute average total assets as per Rule 8D without reducing the average of current liabilities appearing in the Balance Sheet.
D. Disallowance of leave encashment claimed on provision basis 6. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in not allowing deduction of leave encashment claimed on provision basis amounting to Rs. 50,65,630/-
E. Disallowance of profit/loss on sale of fixed assets and investment in coming Book Profit u/s 115JB 7. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in confirming the addition of profit on sale of investment and reduction of loss on fixed assets in computing Book Profit u/s 115JB.
F. Disallowance of expenses incurred for earning exempt dividend income in computing Book Profit u/s 115JB 8. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in confirming disallowance of expenses incurred for earning exempt dividend income amounting to Rs. 48,74,295/- computed under Rule 8D in computing Book Profit u/s 115JB of the Act.
G. Short Credit of TDS 9. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in holding that short credit of TDS is not a valid ground of appeal u/s 246A.
At the outset, Ld. Counsel for the assessee submitted that most of the grounds raised by the assessee are covered by the decision of Tribunal in assessee’s own case right from the assessment year 2002-03 to assessment year 2005-06, except for
4 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 issue raised in ground no. 4 relating to disallowance of employees contribution to PF, which is covered by the decision of Hon’ble Bombay High Court.
The Ld. DR has also admitted that most of the grounds raised by the assessee are covered by the order of the Tribunal for the earlier years.
The assessee company is engaged in the business of manufacturing of paper and paper boards, optic cables, Jelly field cables and power generations for captive consumptions. Most of the issues raised in both the appeals have a chequered history, in as much as they stand decided by the Tribunal in earlier years.
So far as the issue raised vide ground no.1, whether electricity duty should be excluded while calculating the transfer price of electricity duty for computing the deduction u/s 80IA.
This issue has been decided in favour of the assessee by the Tribunal vide order dated 30.05.2014 in assessee’s own case for AYs 2002-03 to 2005-06. The relevant conclusion and finding of the Tribunal as given in para 32 and 33 reads as under:- “32. We have heard the rival submissions and also perused the relevant findings of the authorities below and the material available on record. The assessee has worked out the notional sale of power supplied by its power unit to its paper division @ Rs. 5.80 per unit. This was on the basis of average actual grid charges charged by Karnataka Electricity Board for supplying the electricity to the assessee. This was shown from the amount of the bill and the total number of units consumed. From the said bills, the Assessing Officer noted that the assessee is paying fuel excavation charges, taxes, etc., which should be reduced for working out the average price per unit for working out the sale price of the electricity supplied by its
5 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 power unit to the paper division. Besides this, he has also apportioned indirect expenses on the basis of the total turnover for quantifying the deduction under section 80IA claimed by the assessee in respect of power units no.3, 4 and 5. This apportionment of indirect expenses is a separate ground which is ground no.9 and the same shall be discussed subsequently. The basic issue in ground no.8 is what should be the transfer price for the purpose of computing the deduction under section 80IA within the ambit and parameter of sub–section (8) of section 80IA. Section 80IA(8), provides that, where any goods or services held for the purposes of eligible business are transferred to any other business carried on by the assessee, the consideration if any, for transfer, does not correspond to the market value of such goods or services as on the date of transfer, then the Assessing Officer can make adjustments in the profits after determining the market value of such transfer. The said section in other words, empowers the Assessing Officer where the transfer of goods and services as recorded in the accounts of the eligible business does not correspond to the market value, then the profits declared for the eligible business can be adjusted by the Assessing Officer on such basis so as to ensure that the goods and services are transferred to its own unit at the market value of such goods and services. In the Explanation to section 80IA(8), the “market value” has been defined as a price that such goods or services would ordinarily fetch in the open market. Fetching of the price in the open market has to be seen from the factors which are determined through negotiation between the parties and mutual agreement as arrived at a price which is acceptable between the buyer and the seller in the open market conditions i.e., in an unrelated and uncontrolled transactions. Open market conditions refer to the conditions and price available for the public at large. In the
6 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 present case, the market value of supply of electricity by power unit of the assessee to the paper division of the assessee has to be seen from the angle, if the paper unit has to purchase the electricity directly from the Karnataka Electricity Board (as both the power units as well as the paper units are situated in Karnataka), then what is the price which would be paid by the paper unit to the Karnataka Electricity Board. The transfer of the price as contemplated in section 80IA(8) has to be seen having regard to the arm’s length condition i.e., what would be the price under uncontrolled transactions in the open market. If the paper division has been purchasing the electricity from the Karnataka Electricity Board at an average cost of Rs.5.80, which fact is not in dispute, then the same price should be considered as market value for bench marking the price at which power units are supplying the electricity to the paper division. If the taxes and duties are part of the price at which the power / electricity is supplied by the Karnataka Electricity Board to the paper division, then the same price is the indicator of the market value which is fetchable in the open market. We do not find any reason for excluding the element of tax and duty while determining the “market value” of the electricity price per unit supplied by the power unit to the assessee as contemplated in sub–section (8) of section 80IA. 33. Coming to the arguments of the learned Departmental Representative, which is mostly based on the findings of the Assessing Officer in the assessment order for the assessment year 2005–06, the same cannot be accepted for the reason that firstly, the price of electricity per unit supplied by the Tamil Nadu and private parties to the Maharashtra Government, cannot be held to be applicable in Karnataka and, secondly, the rate at which private parties are selling the power to Karnataka Electricity Board cannot be the bench mark for determining the market
7 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 price because the terms and conditions in which the Karnataka Electricity Board is procuring the electricity from such parties is not known. Further the market price has to be seen as a price at which the customers are getting the electricity in the open market. That should be the criteria for bench marking the “market price” under section 80IA(8). As pointed out by the learned counsel that in the earlier years, there are two different opinions and conclusions drawn by the Tribunal. First, in the assessment year 1997– 98 and 1998– 99 which are in favour of the assessee and has attained finality as no further appeal has been filed by the Department and other in the assessment year 1999–2000 and 2000–01. In the subsequent orders, the Tribunal has not taken note of the decision of the earlier orders. Further, the provisions of section 80IA(8) has also not been considered for arriving at a different conclusion. Under these facts and circumstances, we are rendering our decision purely on the basis of our interpretation of statutory provisions, sans going by any earlier year precedence. Thus, in our opinion, we have to follow the provisions as contained in section 80IA(8) for determining the market price, which cannot be arrived by reducing the price by any other factors like taxes, duties, etc., as the same are embedded in the price. Thus, we set aside the impugned order passed by the learned Commissioner (Appeals) on this issue and allow the ground no.8, is treated as allowed”.
Thus, respectfully following the precedence of earlier years, we decide this issue in favour of the assessee.
In ground no. 2, the assessee has challenged the calculation of deduction u/s 80IA for reducing the pro-rated indirect expenses of the company from the profit of the power units.
8 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 9. This issue has been decided against the assessee by the Tribunal in assessee’s own case for the earlier years in the following manner:- 34. Ground no.9 reads as under:– “9. That on the facts and in the circumstances of the case the Ld. CIT(Appeals) was not justified in holding that for computing deduction u/s 80IA, the prorated indirect expenses of the company should be reduced from the profit of the Power Unit.”
After hearing both the parties, we find that the present issue has been decided by the Tribunal against the assessee right from the assessment year 1999–2000 to 2001–02. The Assessing Officer has apportioned indirect expenses which are to be reduced from the profits of the power unit as worked out in detail at Page–20 of the assessment order. This allocation of indirect expenses to arrive at the profit of power unit has been decided by the Tribunal in the earlier years and, therefore, consistent with the view taken therein, we find no reason to disturb the order passed by the learned Commissioner (Appeals) and, accordingly, the same is affirmed on this issue. Thus, the ground no.9, raised by the assessee is dismissed”.
Thus, consistent with the view taken in earlier years, this issue is decided against the assessee.
In ground no. 3, the assessee has challenged the alternative claim of deduction u/s 80IA in respect of integrated power unit in case the claim for deduction for power unit No. 6A & 6B are not allowed.
This issue has been treated as infructuous by the Tribunal in the earlier years on the ground that it is purely an alternative
9 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 claim as the claim for deduction u/s 80IA with regard to unit no. 6 has been allowed, therefore, no separate adjudication is required as admitted by the assessee. Accordingly, in this year also this alternative claim of the assessee is treated as dismissed, being infructuous.
In ground no. 4, the assessee has challenged the disallowance of employees contribution to ESI and Provident fund made after due date.
The brief facts are that the AO on perusal of the tax audit report, noted that employees provident fund, family pension fund ESI were made beyond due dates as prescribed under the relevant statute, therefore same were not allowable. The aggregate of such amount which was not paid beyond the due date was Rs. 43,23,169/-, the details of which are as under :-
Month Amount (Rs) Date of Payment April 30,827 24.05.06 May 30,777 21.06.06 June 29,713 20.07.06 July 28,549 17.08.06 August 28,702 18.09.06 September 28,502 18.10.06 October 28,574 16.11.06 November 26,617 19.12.06 December 39,38,314 16.01.07 December 26,403 18.01.07 January 25,043 20.02.07 February 21,620 17.03.07 March 59,492 16.04.07 March 19,576 18.04.07 Total 43,23,169
The AO accordingly, added the same to the total income of the assessee.
Before the CIT(A), it was clarified that most of the payments were made within the grace period as prescribed in the relevant
10 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 statute and in any case all the payments were made much before the due date of filling of the return of income. The Ld. CIT(A) too confirmed the said disallowance on the ground that such payments are not governed by section 43B.
Before us, the Ld. Counsel submitted that, except for two payments of Rs. 30,827 for the month of April, 2006 and Rs. 30,777/- for the month of May, 2006, the assessee has deposited the entire sum within the grace period, as provided in the relevant statute. So therefore, to the extent of Rs. 42,61,565/- which has been deposited well within the due date, same should not be disallowed. Further, in any case now in view of the decision of Hon’ble Bombay High Court in the case of CIT vs Ghatge Patil Transports Ltd, judgment dated 14.10.2014 passed in ITA No. 1002 of 2012 and 1034 of 2012, the Hon’ble High Court held that both employees and employer’s contributions are covered under the amendment to section 43B and therefore, if the payments have been made before the due date of filling of return of income, the they are to be allowed u/s 43B. While arriving to this proposition the Hon’ble court has followed the decision of Hon’ble Supreme Court in the case of CIT vs Alom Extrusions Ltd, reported in [2009] 319 ITR 306 and also relied upon its own decision in the case of CIT vs Hindustan Organics Chemicals Ltd., judgment and order dated 11.07.2014 passed in ITA 399 of 2012.
On the other hand, Ld. DR strongly relied upon the order of the CIT(A) and also the decision of Gujarat High Court in the case of CIT vs Gujarat Road Transport Corp., (reported in [2014] 41 taxmann.com100), judgment and order dated 26.12.2013.
We have heard the contention of the parties and on perusal of the finding given in the impugned order, we find that out of total payment of Rs. 43,23,169/-, sums aggregating to Rs. 42,61,565/- was paid within the grace period, as prescribed in the relevant
11 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 statute, therefore, there is no question of disallowance of such an amount. Further, these payments have been made/paid much before the due date of furnishing of return of income as per section 139(1), therefore, in view of the decision of Hon’ble jurisdictional High Court, as cited above, we hold that all the impugned payment is to be allowed as the same is covered by the amendment to section 43B. Accordingly, ground no. 4 is treated as allowed.
In ground no. 5, the assessee has challenged the disallowance u/s 14A on account pro-rated indirect expenses. It has been submitted that, said disallowance has been made by the AO and confirmed by the CIT(A) after invoking the formula laid down in 8D, which is not applicable for AY 2007-08. Further, the Tribunal in assessee’s own case for the earlier years has clearly held that Rule 8D is not applicable and for the purpose of allocating indirect expenses, a sum of Rs. 50,000/- was considered to be reasonable disallowance on the facts of the case. The relevant observation of the Tribunal in this regard were as under :-
After carefully considering the rival submissions, we find that insofar as the disallowance of interest is concerned, the same cannot be made under section 14A, on the facts of the present case. The assessee has, admittedly, huge interest free surplus funds, which is evident from the fact that it has its own funds of Rs.149.29 crores. Besides this, it also had sum of Rs.63.20 crores on account of retention of sales tax difference in this year. In view of such huge surplus funds, the investment to the tune of Rs.49 crores that too major portion is coming from the earlier years, it can be said to be made out of the surplus funds only. Thus, according to the principles laid down by the Bombay High Court in Reliance Utilities and Power Pvt. Ltd. (supra), no disallowance on account of interest can be made.
12 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 173. Insofar as the disallowance on account of administrative expenses are concerned, we find that the Assessing Officer has taken all the administrative expenses for apportioning the disallowance on pro–rata basis without even looking to the nature of expenses. For e.g., vehicle maintenance, charity and donation, misc. expenses, etc., cannot be said to have been incurred for the purpose of investment in shares, etc. At the most, directors’ fees and expenses and auditor’s remuneration can be said to be attributable for the purpose of disallowing the administrative expenses for the purpose of earning exempt income on the investments made. From the details mentioned above, it is seen that the directors’ fees and expenses is Rs.13 lakhs whereas, auditor’s remuneration is Rs.5.53 lakhs. If the ratio on which the Assessing Officer has worked out the disallowance on entire expenditure, then on that ratio, the disallowance under the administrative expenses will come down to Rs.33,253. Thus, on a reasonable basis, we hold that the sum of Rs.50,000 is quite reasonable for allocating administrative expenses for the purpose of making the investment on which the assessee has earned exempt income. Consequently, the disallowance is restricted to Rs.50,000. Thus, ground no.4, is treated as partly allowed”.
After considering the relevant finding given in the impugned order and also the reasoning given in the order of the Tribunal, we find that the assessee has earned dividend income of Rs. 48,74,295/-(treated as exempt) as compared to AY 2004-05 which has been dealt by the Tribunal wherein the assessee has earned dividend income of Rs. 7.87 lakhs. The Tribunal has worked out the disallowance on account of administrative expenses after considering the director’s fee and auditor’s remuneration vis-a-vis the earning of dividend income. If we analyze the figures of 2004- 05 and the finding of the Tribunal, then disallowance if at all is required to be made in this year looking to the nature of expenses
13 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 then on reasonable basis it may not be more than 20,000/-. The assessee itself has offered Rs. 8,187/- for disallowance before the AO. Thus, looking into the facts and circumstances, we propose to disallow Rs. 50,000/- for this year also, which will include the disallowance already offered by the assessee at Rs. 8,187/-. Thus, ground no. 5 is treated as partly allowed.
Ground no. 6 has not been pressed, accordingly, same is treated as dismissed.
In ground no. 7, the assessee has challenged the addition of profit on sale of investment and reduction of loss on fixed assets in computing the book profit u/s 115JB.
Admittedly, this issue has been decided against the assessee by the Tribunal in the earlier years in the following manner:
We have heard the rival contentions and perused the relevant findings of the authorities below. We agree in principle that corresponding adjustment has to be made in the opening stock as held by the Jurisdictional High Court in CIT v/s Mahalaxmi Glass Works Pvt. Ltd., [2009] 318 ITR 116 (Bom.). The finding of fact as recorded by the learned Commissioner (Appeals) that after making the adjustments made by the assessee in the opening stock and purchase and sale, the net effect is nil appears to be based on fact. Thus, we do not find any reason to deviate from such findings of fact which has not been rebutted and, hence, the ground no.6(i) and 6(ii) raised by the Revenue stand dismissed.
Ground no.7, reads as under:– “7. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in deleting the addition
14 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 of profits on sale of investments of fixed assets in computing book profit u/s. 115JB.”
After hearing both the parties, we find that this issue was decided in favour of the assessee by the Tribunal in assessee’s own case, however, now this issue stands covered against the assessee by the Special Bench decision of the Tribunal in Rain Commodities Ltd. v/s DCIT, [2010] 131 TTJ 514 (Hyd.). Thus, respectfully following the decision of the Special Bench of the Tribunal, we confirm the addition on account of profit on sale of investment in fixed assets while computing the book profit under section 115JB. Thus, ground no.7, raised by the Revenue is treated as allowed”.
Thus, following the aforesaid ratio, this issue is decided against the assessee. Accordingly, ground no. 7 is treated as dismissed.
Ground no. 8 is with regards to disallowance of expenses incurred for earning of exempt dividend income i.e. disallowance u/s 14A whether to be included while computing the book profit.
This issue would be decided against the assessee in view of the decision of Hon’ble Delhi High Court in the case of Goetze India Ltd. in ITA No. 1179 of 2010, wherein Hon’ble High Court has held that disallowance made u/s 14A would be included while computing the book profit. Since we have already confirmed the disallowance of Rs. 50,000/-, therefore, the same shall also be included in the book profit. Accordingly, ground no. 8 as raised by the assessee is dismissed.
In ground no. 9, the assessee has claimed and stated that there is short credit of TDS. The Ld. AO is directed to grant the credit after verification and in accordance with the law. Thus, the ground raised by the assessee is treated as partly allowed.
15 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011
In the result, appeal of the assessee is partly allowed.
Now, we will take-up revenue’s appeal in ITA No. 3843/Mum/2011 for AY 2007-08, vide which following grounds have been raised :-
Whether on the facts and in circumstances of the case and in law, the CIT(A) Erred in that captive power consumption from generation set would be Eligible for deduction u/s.8O-IA.
1.2 Whether on the facts and in circumstances of the case and in law, The CIT(A) erred in holding that the provision of section 80L4(3)(ii) are satisfied in respect of DG sets.
1.3 Whether on the facts and in circumstances of the case and in law, the CIT(A) erred in holding that the claim for deduction u/s.801A in respect of Power Unit No.6A and 6B as generation steam is not form of power for deduction.
1.4 Whether on the facts and in circumstances of the case and in law, the CIT(A) erred in holding that the rate as per cost Audit report is justified for adoption of higher transfer pricing rate for claiming deduction u/s.801A.
Whether on the facts and in circumstances of the case and in law, The CIT(A) erred in deleting the disallowance of expenses incurred on repairs and maintenance of building amounting to Rs. 18,96,639/-.
Whether on the facts and in circumstances of the case and in law, the CIT(A) erred in deleting the addition of unutilized Modvat credit to The value of closing stock of raw material in view of the provisions of Sec. 145A
Whether on the facts and in circumstances of the case and in law, the CIT(A) erred denying of deduction u/s.8OHHC in computing book profit u/s.8OHHC in computing book profit u/s.115JB” 30. At the outset, both the parties admitted that all the grounds raised by the revenue are also covered by the decision of the Tribunal in assessee’s own case for the earlier years.
16 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 31. Ground no. 1 relates to whether captive power consumption from generation set would be eligible for deduction u/s 80IA.
This issue has been decided by the Tribunal in the earlier years, wherein the Tribunal following the precedence of earlier years and had been consistently deciding this issue in favour of the assessee right from AY 1997-98 onwards. Hence, consistent with the view taken in the earlier years, we decide this issue in favour of the assessee and against the revenue.
Similarly, the issue raised in ground no. 1.2, whether the conditions of provision of section 80IA(3)(ii) are satisfied in respect of DG sets or not.
This issue too has been decided in favour of the assessee right from assessment year 1997-98 onwards up till 2005-06. Thus, consistent with the view taken in the earlier years, this issue too is decided in favour of the assessee and against the revenue.
In Ground no. 1.3, the revenue has challenged whether the generation of steam amounts to formation of power or not so as to be eligible for claim of deduction u/s 80IA for Unit No. 6A and 6B.
The Tribunal in the earlier years has been deciding the impugned issue by observing and holding as under:-
“20. We have heard the rival contentions perused the findings of the authorities below as well as the material available on record. The assessee’s claim under section 80IA, with regard to unit no.6 is that it has installed a power unit in the form of chemical recovery boiler for the generation of steam. This steam is used firstly, to rotate the turbine which generates electrical power for the assessee which is used in the paper manufacturing process and secondly, for drying of the pulp.
17 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 For the first use, the steam so generated by the chemical recovery boiler has a high temperature and pressure which is then transferred through the inlet to run the turbines. This transforms to electrical energy which is supplied to paper division for running of the machines. The second use of steam is independently using it for evaporating the moisture from the paper product or for drying pulp by the assessee. On these facts, whether it can be held that the said undertaking on a standalone basis has been set–up for generation of power or not within the meaning of section 80IA(4)(iv). The relevant clause (iv)(a) of section 80IA(4), reads as under:– “(a) Set up in any part of India for the generation and distribution of power if it begins to generate power at any time during the period beginning on first day of April 1993 and ending on 31st day of March 2006.” 21. Thus, the statute contemplates “generation of power” or “generation and distribution of power”. The moot question before us is, whether the steam generated by the assessee, which rotates the turbine for running of machines used for its manufacturing process and also steam alone, is a form of power or not. The case of the learned Commissioner (Appeals) is that the meaning of power as contemplated in the statute is generation of electricity alone, whereas the case of the learned counsel before us is that the power is a form of energy which can be electrical, mechanical, thermal or any other form of energy. The Income Tax Act, 1961, does not define the word “power”. The new Oxford Dictionary of English defines the word “power” as “energy” that is produced by mechanical, electrical or other means which is used for operating device. Otherwise also, generation of steam is a kind of energy which can be converted into mechanical or electrical energy from which power is generated. To say that the generation of power is only restricted to generation of electricity alone, is too narrow a view. The term “power” encompasses a whole range of
18 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 energy generated in various forms to run machines, devices, etc. This precise issue had also come up for consideration before the Tribunal in several cases cited supra. The Tribunal in Sial SBEC Bio Energy Ltd. (supra), while deciding the issue whether generation of steam amounts to generation of power or not for the purpose of deduction under section 80IA, has referred catena of decisions and also the dictionary meaning on the meaning and term of “power” and thereafter, observed and concluded as under:– “The word 'power' used in s. 80-IA(lV) has not been defined in the statute, then the common parlance meaning as per the dictionary is normally taken into account. The word 'power' has to be given a meaning which is in common parlance and in common parlance the word 'power' shall mean the energy only. The energy can be of any form, be it mechanical, be it electrical, be it wind or be it thermal. The steam produced by the assessee on the principle of interpretation of statute shall only be termed as power and shall quality for the benefits available under s. 80- IA(iv). The assessee is into the business of generation of power. The generation of power takes place when biogas is burnt in a boiler and heat generated is used to heat up the water in the boiler and generates steam. The steam so generated is at high temperature and pressure. This steam is then transferred into an inlet of steam turbine through pipes. The energy available in steam is used to rotate the turbine, the turbine then rotates the alternatar which generates electrical energy. The steam after being used to rotate turbine is drawn from the turbine outlet and then finally used. In this background, the steam so generated is generated by the industrial undertaking and the receipt would be the receipt from the business of the industrial undertaking
19 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 within the meaning of s. 80-IA which would qualify for this benefit. The assessee, therefore, succeeds on this account also. The 'observations of the authorities below that it is only the electrical form of energy which qualifies for deduction under s. 80-IA, with reference to the provisions of Electricity Act, was not correct.”
Similarly, in the decision of DCIT v/s Maharaja Shri Umed Mills Ltd., the Tribunal held that like electricity, steam is also a form of power which is eligible for relief under section 80IA(4). The relevant observation and the conclusion drawn by the Tribunal is reproduced below:– “5. Considering the above submissions, we find substance in the arguments of the learned Authorised Representative that like electricity, steam is also a form of power as per the dictionary meaning reproduced by the learned CIT(A) at pp. 5 and 5 (sic) of the first appellate order. We also concur with the view of the learned Authorised Representative that there is little room for any doubt that scientifically or in general parlance, 'production of steam' and 'generation of steam'; or for that matter, 'production of electricity' and 'generation of electricity', shall have the same meaning whichever of the two be the item under consideration. In this regard the learned Authorised Representative has also referred the definition of word 'generate' under s. 2(29) of the Electricity Act, 2003 as per which 'generate' means to produce electricity from a generating station for the purpose of giving supply to its any premises or enabling a supplier to be so given. The AO has tried to point out the intention of the legislatures by referring to s. 80IA(4)(iv)(b) to infer that intention is to provide benefit to the generation of electricity only, since in the sub-cl. (b) transmission and distribution lines are mentioned which can be of electricity only. Submission of the learned Authorised Representative in this regard to which we also agree
20 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 remained that sub-cls. (a), (b) and (c) of s. 80IA(4)(iv) provide for deduction in the cases of three types of undertaking viz. the one which is engaged in generation or generation and distribution of power; second, which start transmission or distribution lines; and the third, which undertakes substantial renovation and modernization of the existing network of transmission or distribution lines. All these three clauses deal with the three different categories of the undertaking. These three types of undertakings referred to in the said sub-cls. (a), (b) and (c) are different and independent of each other. Thus while dealing (with) one sub-clause, inference need not and cannot be drawn from the other subclause. On perusal of these provisions, we agree with the plea of the learned Authorised Representative that case of the assessee falls in sub-cl. (a) itself and the legislative intent inferred by the AO with reference to sub-cl. (b) is superfluous, just like there is transmission or distribution lines for electricity there are transmission and distribution lines for steam too. Therefore, there is no basis whatsoever for drawing distinction between the two or a room for any confusion between the two propositions. The 'power' and 'energy' are synonymous, which can be in several types and forms, be it heat, which is steam or mechanical or electrical, wind or be it thermal. We also agree with this plea of the learned Authorised Representative that if the intent of the legislature remained to restore the application of the benefit of deduction under s. 80-IA to generation of electricity only, it would have been specifically so worded by using the connotation 'electrical power' only rather than the connotation 'power' omnibus. As per Chambers twentieth century dictionary, steam-power; is a spell of travel by steam power; energy, force, spirit for, using, worked by steam; to rise or pass off in steam or vapour, or smell; to become dimmed with condensed vapour (often with up); to
21 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 move by means of steam. As per the Cambridge International Dictionary of English, the steam is the hot gas that is produced when water boils; steam can be used to provide power, steam turbines of a steam engine/locomotive of the age of steam. Thus there is no doubt, like electricity, steam is also a form of power. The arguments advanced on behalf of the assessee also find support from the decision of Delhi Bench of the Tribunal in the case of Sial SBEC Bioenergy Ltd. vs. Dy. CIT (supra) on an identical issue wherein dealing with the matter in detail, it has been held that the word 'power' has to be given a meaning which is in common parlance and in common parlance the word 'power' shall mean the energy only. The energy can be of any form, be it mechanical, be it electrical, be it wind or be it thermal. The steam produced by the assessee on the principle of interpretation of statute shall only be termed as power and shall qualify for the benefits available under s. 80-IA(iv), held the Tribunal. Under these circumstances, we fully concur with the decision on the issue arrived at by learned CIT(A) that assessee is in the business of generation of power and that the steam so generated by the industrial undertaking and receipt from the business of industrial undertaking is within the meaning of s. 80-IA which would qualify for this benefit. The first appellate order is thus upheld. The ground is thus rejected.”
From the aforesaid decisions, it can be inferred that the generation / production of steam is also a form of power and the Unit– 6 which is an undertaking set–up for generation of steam for its manufacturing process can be said to be for generation of power. The basis on which the learned Commissioner (Appeals) has tried to distinguish the decision of Sial SBEC Bio Energy Ltd. (supra) is very superficial. What needs to be seen is, whether generation of steam can be said
22 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 to be generation of power or not, then, the finding and the conclusion drawn by the Tribunal in the aforesaid decision after referring to the catena of decisions and various other provisions clearly clinches the point. Now coming to the other observation of the learned Commissioner (Appeals) that the assessee has not undertaken the generation of power in this year also, we find that the same is incorrect on facts because the assessee has already filed a certificate from the Karnataka State Boiler Inspection Department that the assessee has generated steam during the period from 3rd May 2001 to 6th May 2002 which mostly falls in this year only and the rate of quantity generated has also been mentioned. This generation of steam has been evaluated at a realisable market value by the assessee in its books of account and the assessee has also debited expenditure incurred for the generation of power. Thus, on these facts itself, it cannot be held that the assessee has not undertaken the generation of power in this year. The section provides that the assessee must begin to generate power during the period defined under the statue and the impugned assessment year definitely falls within that period. Lastly, insofar as the observation and the conclusion of the Assessing Officer, which are based on similar reasons as given for Unit–1 to 5, the same is also not sustainable as the Tribunal has already decided the issue on these reasoning in favour of the assessee. Thus, we set aside the impugned order passed by the learned Commissioner (Appeals) on this score and hold that the assessee is eligible to claim deduction under section 80IA with regard to Unit–6 also as a stand alone power generating undertaking. Ground no.5 raised by the assessee is thus treated as allowed”.
Thus, respectfully following the same, we decided this issue in favour of the assessee and against the revenue.
23 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 38. The next issue raised vide ground no. 1.4, whether the rate as per cost Audit report is justified for adoption of higher transfer pricing rate of electricity for claiming deduction u/s 80IA.
This issue has been decided in favour of the assessee by the Tribunal in the earlier years, which is also similar to ground raised by the assessee. Accordingly, respectfully following the same, we decide this issue in favour of the assessee and against the revenue.
In ground no. 2, the revenue has challenged the allowability of expenses incurred on repair and maintenance of the building.
This issue is again covered by the decision of the Tribunal in the earlier years wherein this issue has been decided in the following manner:-
“40. Ground no.13, reads as under:–
“13. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified in holding that expenditure in respect of Bangalore office taken on lease to the tune of Rs. 50,136/- are capital expenditure.”
The assessee, during the assessment year 1999–2000, had acquired property at Bangalore on lease. For repair and maintenance of the new Bangalore office, it had incurred a sum of ` 2,14,075 during the assessment year 2002–03. The Assessing Officer, after holding it to be capital expenditure, disallowed the said expenditure. 42. The learned Commissioner (Appeals), while deciding the issue, had followed the first appellate order for the assessment year 2001–02 in assessee’s own case and partly affirmed the said findings.
24 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011
Before us, it has been submitted that this issue has been decided in favour of the assessee by the Tribunal in assessee’s own case for the assessment year 2000–01 and 2001–02 in ITA no.8243/Mum./ 2004, etc., order dated 31st January 2007. The relevant observations and findings of the Tribunal in this regard are as under:–
“7. The next dispute relates to the disallowance of expenditure in respect of new Bangalore office taken on lease. The amount so spent for A.Y. 2000–01 is ` 36,68,591 and for A.Y. 2001–02 is ` 4,29,052. We have heard both the sides and have gone through the record. The assessee had taken office on lease and to make it fit for use the aforesaid expenses were incurred on plastering, polishing, false ceiling, electrical fittings, fresh carpets etc. These expenses were incurred on the assets not owned by the assessee. The expenditure in question is to give a better look to the office premises and does not result in acquisition of any asset of enduring nature. Hence, the expenditure so incurred is directed to be allowed as revenue expenditure. We may also mention that depreciation, if any, granted by the department considering the said expenditure as capital expenditure be withdrawn.” 44. In view of the aforesaid findings of the Tribunal in assessee’s own case for the assessment year 2000–01 and 2001–02, we set aside the impugned order passed by the learned Commissioner (Appeals) and allow the ground no.13, raised by the assessee.
Thus, following earlier years precedence this issue is decided in favour of the assessee and against the assessee and against the revenue.
25 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011
In ground no. 3, the revenue has challenged the deletion of addition on account of unutilized Modvat credit to the value of closing stock of raw material in view of provisions of section 145A.
This issue is again has been decided in favour of the assessee in the following manner :- 230. Before us, the learned counsel submitted that the Assessing Officer has held that the unutilised MODVAT credit has to be added in the closing stock in view of the provisions of section 145A. the Assessing Officer has increased the value of closing stock, however, he did not make any corresponding adjustment in the opening stock. Before the learned Commissioner (Appeals), it was submitted that in the computation, the assessee has dully made the adjustment in the opening and closing stock and also the other adjustment in purchases and sale. Based on this factum, the learned Commissioner (Appeals) deleted the said addition as the net effect was “nil”. He also submitted a copy of the Tribunal order in MIRC Ltd., in ITA no.849/Mum./2010, order dated 13th March 2013, in support of his contention. 231. The learned Departmental Representative relied upon the order of the Assessing Officer. 232. We have heard the rival contentions and perused the relevant findings of the authorities below. We agree in principle that corresponding adjustment has to be made in the opening stock as held by the Jurisdictional High Court in CIT v/s Mahalaxmi Glass Works Pvt. Ltd., [2009] 318 ITR 116 (Bom.). The finding of fact as recorded by the learned Commissioner (Appeals) that after making the adjustments made by the assessee in the opening stock and purchase and sale, the net effect is nil appears to be based on fact. Thus, we do not find any reason to deviate from such findings of fact
26 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 which has not been rebutted and, hence, the ground no.6(i) and 6(ii) raised by the Revenue stand dismissed”.
Thus, on similar lines, we uphold the order of the CIT(A) and dismiss the ground raised by the revenue.
In ground no. 4, the revenue has challenged the allowability of deduction u/s 80HHC while computing the book profit u/s 115JB.
Before us, the Ld. Counsel submitted that this issue has been decided against the assessee by the Tribunal in the earlier years, vide which para 236 reads as under :-
“236. After hearing both the parties, we find that this ground is similar too the additional ground raised by the assessee in its appeal in ITA no.3802/Mum./2006, for the assessment year 2002–03. However, this ground now stands covered against the assessee in view of the retrospective amendment brought in statute in section 115JB by the Finance Act, 2011 w.e.f. 1 st April 2005. Since this amendment is applicable from the assessment year 2005–06 only, hence, this issue will also go against the assessee. Consequently, ground no.8, raised by the Revenue is treated as allowed”.
Accordingly, ground no. 4 raised by the revenue is allowed in favour of the Department and against the assessee. Thus departmental appeal is treated as partly allowed.
27 The West Coast Paper Mills Ltd ITA 2993/Mum/2011 ITA 3843/Mum/2011 49. In the result, appeal of the assessee and appeal of the revenue are partly allowed. Order pronounced in the open court on 15th October, 2015.
Sd/- Sd/- (िड. क�नाकर राव) (अिमत शु�ला) लेखा सद�य �याईक सद�य (D. KARUNAKARA RAO) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 15th October, 2015 ��त/Copy to:- 1) अपीलाथ� /The Appellant. 2) ��यथ� /The Respondent. 3) The CIT(A) -2, Mumbai. 4) The CIT–1, Mumbai. 5) िवभागीय �ितिनिध “जी”, आयकर अपीलीय अिधकरण, मुंबई/ The D.R. “G” Bench, Mumbai. 6) गाड� फाईल \ Copy to Guard File. आदेशानुसार/By Order / / True Copy / /
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, मुंबई Dy./Asstt. Registrar I.T.A.T., Mumbai *च�हान व.िन.स *Chavan, Sr.PS