ITAT Upholds Deductions for Power Plant & Steam Costs, Adjustments Possible on Tariff Rate

The ITAT upheld the CIT(A)'s decisions, allowing deduction under section 80IA for the power generation plant and the cost of steam sold to the sugar unit, citing precedents. The ITAT upheld the lower tariff rate set by the AO for the power unit's income but permitted adjustments if a higher judicial forum revises the rate. The department's appeal was partially successful.

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Issues Involved:
1. Allowance of deduction under section 80IA for the power generation plant.
2. Deduction claimed by the assessee on the cost of steam sold to the sugar unit.
3. Reduction in power charges.

Issue-wise Detailed Analysis:

1. Allowance of Deduction under Section 80IA for the Power Generation Plant:
The department challenged the allowance of deduction under section 80IA for the assessee's power generation plant, claiming it was not a new unit but a continuation of the earlier business. The assessee, engaged in manufacturing cement and sugar, also generated power using Bagasse as fuel. The AO disallowed the deduction, asserting the power unit was formed by splitting the existing business. The CIT(A) allowed the deduction, referencing ITAT's decisions in the assessee's favor for AYs 2007-08 to 2009-10. The ITAT upheld the CIT(A)'s decision, confirming the power unit as a distinct undertaking, not formed by splitting the old business, and thus eligible for deduction under section 80IA. The ITAT referenced the Supreme Court's principles in the case of Textile Machinery Corporation Ltd. vs. CIT, affirming the unit's distinct and identifiable nature.

2. Deduction Claimed by the Assessee on the Cost of Steam Sold to the Sugar Unit:
The AO denied the deduction under section 80IA for steam sold to the sugar unit, arguing steam is not power and is a by-product, thus not qualifying as business income from power generation. The CIT(A) deleted the addition, referencing ITAT's decisions in the assessee's favor for AYs 2007-08 to 2009-10. The ITAT upheld the CIT(A)'s decision, directing that only the profit from steam (Rs. 11.43 lakhs) be treated as ineligible for deduction under section 80IA, while the balance sale amount of steam to the sugar division qualifies for deduction. The ITAT referenced the case of DCW Ltd. vs. Addl. CIT, supporting the deduction for steam produced by the power plant and used for captive consumption.

3. Reduction in Power Charges:
The AO reduced the income from the power generation unit by adopting a lower tariff rate (Rs. 2.69 per unit) instead of the rate used by the assessee (Rs. 3.48 per unit). The AO based this on the APERC's tariff fixation, which was under judicial review. The CIT(A) directed the AO to adopt the rate finalized by the appellate tribunal of APERC. The ITAT upheld the AO's adoption of Rs. 2.69 per unit, referencing the Tribunal's decision in the assessee's own case for AY 2007-08. However, the ITAT directed that if the tariff rate is revised by a higher judicial forum, the AO should consider the revised rate accordingly.

Conclusion:
The ITAT upheld the CIT(A)'s decisions on the allowance of deduction under section 80IA for the power generation plant and the cost of steam sold to the sugar unit, following precedents from previous AYs. On the issue of power charges, the ITAT upheld the lower tariff rate adopted by the AO but allowed for adjustments if the tariff rate is revised by higher judicial authorities. The department's appeal was partly allowed.

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