2017 (10) TMI 171 - AT - Income Tax

Assessee wins appeal for Section 80IA(4) deduction on Captive Power Generation. Expenditures treated as revenue

M/s. Banco Aluminium Ltd. Versus DCIT, Circle 1 (1), Baroda

The Tribunal allowed the appeal filed by the assessee, granting the deduction under Section 80IA(4) for the Captive Power Generation Plant and treating ... Deduction u/s.80IA(4) - Captive Power Generation Plant (“COGEN”) - assessee company is engaged in the business of Manufacture of aluminium Extruded Section and carrying out job work for others - Held that:- Assessee is eligible for deduction u/s.80IA(4)(iv) of the Act in respect of COGEN Units. Allowable revenue expenditure - Held that:- Assessee has correctly claimed the expenses of dies and tools as revenue in nature. Issues Involved:1. Deduction under Section 80IA(4) for Captive Power Generation Plant (COGEN).2. Treatment of expenditure on dies and tools as revenue or capital expenditure.3. Treatment of expenditure on consumption of spares to machinery as revenue or capital expenditure.4. Charging of interest under Section 234D.5. Initiation of penalty proceedings under Section 271(1)(c).Detailed Analysis:1. Deduction under Section 80IA(4) for Captive Power Generation Plant (COGEN):The assessee claimed a deduction under Section 80IA(4) amounting to Rs. 41,22,107 for its Captive Power Generation Plant. The AO disallowed this claim, questioning the genuineness of the expenses and the market value determination for the power generated. The CIT(A) partly allowed the appeal but upheld the AO's disallowance. The Tribunal, however, found merit in the assessee's arguments, noting that the assessee had fulfilled all necessary conditions for the deduction and had valued the power units at the market price, as defined under Section 80IA(8). The Tribunal referenced previous decisions, including the case of Alembic Ltd., which supported the assessee's method of determining the market value. Consequently, the Tribunal allowed the deduction under Section 80IA(4).2. Treatment of expenditure on dies and tools as revenue or capital expenditure:The department contended that the expenditure of Rs. 92,15,447 on dies and tools should be treated as capital expenditure. The CIT(A) had treated this expenditure as revenue, noting the short life of these items. The Tribunal upheld the CIT(A)'s decision, referencing a similar issue decided in favor of the assessee in a previous assessment year (ITA No.1411/Ahd/2014 for AY 2010-11). The Tribunal agreed that the expenditure on dies and tools was intended to benefit the current operations and thus should be treated as revenue expenditure.3. Treatment of expenditure on consumption of spares to machinery as revenue or capital expenditure:The department argued that the expenditure of Rs. 25,41,611 on spares should be capitalized as it prolonged the life of the machinery. The CIT(A) had treated this expenditure as revenue, and the Tribunal upheld this decision. The Tribunal referenced the decision in ITA No.1411/Ahd/2014 for AY 2010-11, where it was established that such expenditures were for maintaining existing assets and did not create new assets or provide enduring benefits. Therefore, the expenditure was rightly treated as revenue.4. Charging of interest under Section 234D:The ground pertaining to the charging of interest under Section 234D was deemed consequential and did not require adjudication by the Tribunal.5. Initiation of penalty proceedings under Section 271(1)(c):The ground related to the initiation of penalty proceedings under Section 271(1)(c) was considered premature and did not require adjudication by the Tribunal.Conclusion:The Tribunal allowed the appeal filed by the assessee, granting the deduction under Section 80IA(4) and treating the expenditures on dies, tools, and spares as revenue. The department's appeal was dismissed, upholding the CIT(A)'s decisions on these matters.