2015 (1) TMI 1409 - AT - Income Tax

Tribunal Upholds Deduction for Captive Power Consumption under Section 80IA

DCIT –Central Circle-44, Mumbai Versus M/s. Deepak Fertilizers & Petrochemicals Corporation Ltd., M/s. Deepak Nitrite

The Tribunal dismissed both appeals by the revenue, upholding the CIT(A)'s orders. It affirmed that captive consumption of power qualifies for deduction ... Deduction u/s 80IA for Captive Power Plant - whether no profit derived from the Power Plant as the power was not sold but stood consumed in manufacturing units of the assessee company - expression derived of - Held that:- The expression “derived” used in the said section 80- IA(1) in the beginning as well as in the last part of sub-section (4) makes it abundantly clear that such profit or gain could be obtained by one’s own consumption of the outcome of any such undertaking or business enterprise as referred to in sub-section ( 4) of section 80-IA. The dictionary meaning of the expression ‘derive’ in the New Oxford Dictionary of English states ‘obtaining something from a specified source’. In section 80-IA(1) also no restriction has been imposed as regards the deriving of profit or gain in order to state that such profit or gain derived only through an outside source along would make eligible for the benefits provided in the said section Following the decision of this Tribunal in the case of sister concern of the assessee we do not find any error or illegality in the order of the CIT(A) qua the issue of deduction under section 80IA in respect of captive power plant as well as the valuation of power by applying the tariff charged by the state electricity Board. Accordingly, the ground No. 1 and 2 of the revenue’s appeal are dismissed. Deduction u/s 801A in respect of power generated from steam - whether steam is a by-product of the power generated and hence cannot be considered a power? - Held that:- As noted the decision of the Delhi Tribunal in Sial Sbec's case [2004 (3) TMI 342 - ITAT DELHI-C] and held that steam generated by the Industrial Undertaking comes within the meaning of power as per section 80IA, and would hence qualify for benefit. - Decided against revenue Issues Involved:1. Deduction under Section 80IA for Captive Power Plant when power is consumed internally.2. Rate of tariff for computation of deduction under Section 80IA.3. Deduction under Section 80IA for power generated from steam.Detailed Analysis:1. Deduction under Section 80IA for Captive Power Plant when power is consumed internally:The primary issue is whether the assessee is eligible for deduction under Section 80IA for profits derived from a Captive Power Plant, even when the power is not sold but consumed internally. The Assessing Officer (AO) disallowed the deduction, arguing that the profits were notional and the saving in cost could not be equated with actual profits. The CIT(A) allowed the deduction, following the decision of the Settlement Commission for the assessment year 2009-10, which was upheld by the Tribunal. The Tribunal referenced the case of Deepak Nitrate Ltd., where it was established that captive consumption of power qualifies for deduction under Section 80IA, as the profit derived from internal consumption meets the criteria set out in the section.2. Rate of tariff for computation of deduction under Section 80IA:The second issue concerns the rate at which the electricity generated by the Captive Power Plant should be valued for the purpose of computing the deduction under Section 80IA. The assessee valued the electricity at Rs. 4.68 per unit, similar to the rate charged by the Electricity Board, while the AO proposed an adjustment of 40% in the rate. The CIT(A) accepted the assessee's valuation, which was affirmed by the Tribunal. The Tribunal cited the case of Tamilnadu Petro Products Ltd., where it was held that the rate charged by the Electricity Board could be used for internal consumption valuation, thus supporting the assessee's claim.3. Deduction under Section 80IA for power generated from steam:The third issue is whether steam, a by-product of power generation, qualifies for deduction under Section 80IA. The AO disallowed the deduction, arguing that steam is not equivalent to power/electricity. The CIT(A) allowed the deduction, following the decision of the Settlement Commission for the assessment years 2004-05 to 2009-10, which was upheld by the Tribunal. The Tribunal referenced cases like Sial Sbec Bio Energy Limited and Maharaja Shree Umaid Mills Ltd., where it was established that steam is considered a form of power under Section 80IA.Conclusion:Both appeals by the revenue were dismissed. The Tribunal upheld the CIT(A)'s orders, affirming that:1. Captive consumption of power qualifies for deduction under Section 80IA.2. The rate charged by the Electricity Board can be used for valuation of internally consumed electricity.3. Steam qualifies as a form of power for the purposes of Section 80IA deduction.