Tribunal decision: Mixed outcome on tax appeals for multiple assessment years

Shah Alloys Limited Versus The Additional Commissioner of Income tax

Shah Alloys Limited Versus The Additional Commissioner of Income tax - TMI Issues Involved:
1. Deduction under Section 80IA for Captive Power Plant (CPP).
2. Interest income on margin money deposits.
3. Deduction of loss in the general unit from the income derived by CPP.
4. Computation of the amount of deduction under Section 80IA for CPP.
5. Adjustment of electricity price charged by CPP Unit from the General Unit.

Issue-wise Detailed Analysis:

1. Deduction under Section 80IA for Captive Power Plant (CPP)
The assessee argued that the computation of the deduction under Section 80IA for the CPP should be separate from the general unit. The CIT(A) had deducted the loss in the general unit from the income derived by the CPP, which the assessee contested. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in Synco Industries Ltd. vs. Assessing Officer, which mandates that the gross total income must include all inter-head and intra-head adjustments, including losses from other units. Thus, the Tribunal rejected the assessee's claim for a separate computation of the deduction.

2. Interest Income on Margin Money Deposits
The assessee claimed a deduction under Section 80IA for interest income earned on margin money deposits for obtaining Letters of Credit (LCs). The AO and CIT(A) denied this deduction, citing the Supreme Court's decision in Pandian Chemicals Ltd. vs. CIT, which held that such interest income is not derived from the industrial undertaking. However, the Tribunal reversed this decision, following its earlier ruling in favor of the assessee for Assessment Year 2001-02. The Tribunal referenced the Supreme Court's decision in CIT vs. Karnal Co-operative Sugar Mills Ltd., which allowed interest earned on deposits for LCs as incidental to the acquisition of assets. Thus, the Tribunal allowed the assessee's claim for deduction under Section 80IA for interest income on margin money deposits.

3. Deduction of Loss in the General Unit from the Income Derived by CPP
The AO had reduced the loss incurred in the general unit from the income earned by the CPP unit, thereby reducing the available deduction under Section 80IA. The CIT(A) upheld this decision, referencing Section 80AB, which requires the deduction to be available on net income after adjusting losses. The Tribunal upheld the CIT(A)'s decision, citing the Supreme Court's ruling in Synco Industries Ltd. vs. Assessing Officer, which mandates that the gross total income must include all adjustments, including losses from other units. Thus, the Tribunal rejected the assessee's claim.

4. Computation of the Amount of Deduction under Section 80IA for CPP
The assessee argued that the computation of the deduction under Section 80IA for the CPP should not include the loss from the general unit, as the CPP was entitled to a 100% deduction while the general unit was entitled to only 30%. The Tribunal rejected this argument, following its earlier ruling for Assessment Year 2001-02, which upheld the AO's and CIT(A)'s decisions to include the loss from the general unit in the computation of the deduction for the CPP.

5. Adjustment of Electricity Price Charged by CPP Unit from the General Unit
The AO had restricted the rate at which the CPP unit charged the general unit for electricity to Rs. 5.32 per unit, instead of the Rs. 5.40 per unit charged by the CPP unit. The CIT(A) upheld this adjustment, stating that the rate should exclude the electricity duty of 8 paise per unit. The Tribunal reversed this decision, following its earlier ruling in favor of the assessee for Assessment Year 2002-03 and the ITAT Delhi Bench's decision in ACIT vs. Jindal Steel & Power Ltd. The Tribunal held that the market value for electricity should be the rate at which the Gujarat Electricity Board (GEB) supplies electricity, inclusive of duty. Thus, the Tribunal allowed the assessee's claim for the higher rate of Rs. 5.40 per unit.

Conclusion:
- For Assessment Year 2002-03, the appeal is partly allowed.
- For Assessment Years 2003-04 and 2004-05, the appeals are partly allowed and partly allowed for statistical purposes.

The Tribunal's order was pronounced in the open court on 08-01-2010.