Tribunal Rulings: Deductions for Power Units Upheld, Expenses Allocated Proportionally

The West Coast Paper Mills Ltd. and others Versus Addl. Commissioner of Income Tax and others

The West Coast Paper Mills Ltd. and others Versus Addl. Commissioner of Income Tax and others - [2014] 33 ITR (Trib) 560 (ITAT [Mum]) Issues Involved:
1. Deduction under section 80IA for power units.
2. Allocation of indirect expenses for computing deduction under section 80IA.
3. Inclusion of certain incomes in total turnover for section 80HHC.
4. Treatment of repair and maintenance expenses.
5. Deduction under section 80JJA for chemical recovery boiler.
6. Calculation of transfer price for power units.
7. Exclusion of certain incomes for section 80HHC.
8. Applicability of Explanation to section 73.
9. Inclusion of sales tax and excise duty in total turnover for section 80HHC.
10. Levy of interest under section 234D.
11. Treatment of incremental wages.
12. Inclusion of MODVAT credit in closing stock under section 145A.
13. Treatment of profits on sale of investments for section 115JB.
14. Deduction under section 80M for dividend income.
15. Netting of interest income for section 80HHC.

Detailed Analysis:

1. Deduction under section 80IA for power units:
The tribunal examined the eligibility of various power units for deduction under section 80IA. It was noted that the assessee had established multiple power units, including captive power units. The tribunal referred to previous decisions in the assessee's own case, which allowed such deductions. The tribunal concluded that the assessee's claim for deduction under section 80IA for units no.2, 3, 4, and 5 was allowable and directed the Assessing Officer to allow the deduction accordingly.

2. Allocation of indirect expenses for computing deduction under section 80IA:
The tribunal upheld the allocation of indirect expenses to the power units for computing the deduction under section 80IA. The allocation was based on the proportion of the total turnover, and this method had been consistently applied in previous years.

3. Inclusion of certain incomes in total turnover for section 80HHC:
The tribunal addressed the inclusion of internal power consumption and scrap sales in the total turnover for computing the deduction under section 80HHC. It was held that internal power consumption should not be included in the total turnover, following previous tribunal decisions. However, scrap sales were to be included in the total turnover, as per the Supreme Court's decision in CIT v/s Punjab Stainless Steel Industries.

4. Treatment of repair and maintenance expenses:
The tribunal examined the nature of repair and maintenance expenses and concluded that such expenses were revenue in nature. The tribunal referred to previous decisions in the assessee's own case, which treated similar expenses as revenue expenditure.

5. Deduction under section 80JJA for chemical recovery boiler:
The tribunal considered the assessee's alternative claim for deduction under section 80JJA for the chemical recovery boiler. However, since the deduction under section 80IA was already allowed for this unit, the claim under section 80JJA was dismissed as infructuous.

6. Calculation of transfer price for power units:
The tribunal addressed the calculation of the transfer price for power units, specifically whether taxes and duties should be excluded. It was held that the transfer price should be based on the market value, including taxes and duties, as these are part of the cost of electricity supplied by the Karnataka Electricity Board.

7. Exclusion of certain incomes for section 80HHC:
The tribunal examined the exclusion of 90% of rental income, interest from banks, and processing income from the profits of the business for computing the deduction under section 80HHC. It was held that 90% of rental income and interest should be excluded, following previous tribunal decisions. However, 90% of processing income should not be excluded, as it was part of the operational income.

8. Applicability of Explanation to section 73:
The tribunal addressed the applicability of Explanation to section 73, which deems certain losses as speculative. The tribunal referred to previous decisions in the assessee's own case, which held that the assessee's main business was not trading in shares, and therefore, the explanation did not apply.

9. Inclusion of sales tax and excise duty in total turnover for section 80HHC:
The tribunal upheld the exclusion of sales tax and excise duty from the total turnover for computing the deduction under section 80HHC, following the Supreme Court's decision in CIT v/s Catapharma India Pvt. Ltd.

10. Levy of interest under section 234D:
The tribunal addressed the levy of interest under section 234D, which was initially decided in favor of the assessee in previous years. However, due to a retrospective amendment, the issue was decided against the assessee.

11. Treatment of incremental wages:
The tribunal examined the treatment of incremental wages arising from a wage revision agreement. It was held that the entire liability for incremental wages, including the period from 1st January 2003 to 31st March 2003, should be allowed in the assessment year 2004-05.

12. Inclusion of MODVAT credit in closing stock under section 145A:
The tribunal addressed the inclusion of unutilized MODVAT credit in the closing stock. It was held that corresponding adjustments should be made in the opening stock, purchases, and sales, resulting in a net effect of nil.

13. Treatment of profits on sale of investments for section 115JB:
The tribunal initially decided in favor of the assessee regarding the exclusion of profits on the sale of investments from the book profit under section 115JB. However, this issue was later covered against the assessee by the Special Bench decision in Rain Commodities Ltd. v/s DCIT.

14. Deduction under section 80M for dividend income:
The tribunal examined the deduction under section 80M for dividend income and concluded that no interest should be disallowed, as the investments were made from surplus funds, following the decision of the Jurisdictional High Court in Reliance Utilities and Power Ltd.

15. Netting of interest income for section 80HHC:
The tribunal addressed the netting of interest income for computing the deduction under section 80HHC. It was held that only 90% of the net interest income should be excluded from the profits of the business, following the Supreme Court's decision in ACG Associated Capsules Pvt. Ltd. v/s CIT.