Section 80IA deduction allowed for steam cost at Rs 1500 per ton including overheads beyond basic fuel costs

ITAT Visakhapatnam allowed the assessee's appeal regarding Section 80IA deduction disallowance. The assessee operated two units - paper manufacturing and power generation - claiming deduction on steam cost supplied to the paper unit. The AO computed steam cost at Rs. 1200 per ton based on Director's Report disclosures, disallowing the deduction. ITAT held that AO failed to consider stores, spares, and other overheads beyond basic fuel costs. Finding the assessee's rate of Rs. 1500 per ton reasonable when including all costs, ITAT allowed the Section 80IA deduction as claimed.

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Issues:
Appeal against orders of the Commissioner of Income Tax (Appeals) for A.Y. 2010-11 & 2012-13; Disallowance of deductions under section 80IA of the Income Tax Act, 1961; Disallowance of expenditure under section 40A(7); Valuation of steam cost for paper unit; Allocation of fuel cost; Consideration of stores and spares in cost calculation.

Analysis:
For A.Y. 2010-11, the assessee, a Company engaged in paper manufacturing and power generation, filed an appeal against the CIT(A)'s order disallowing deductions under section 80IA. The Assessing Officer disallowed various expenses including remuneration and capital expenditure. The main issue was the valuation of steam cost supplied to the paper unit. The AR argued that the cost of stores and spares was not considered in the valuation. The AR contended that the disallowances made by the Assessing Officer should be deleted. The Departmental Representative supported the Assessing Officer's valuation based on the Director's Report. The Tribunal found merit in the AR's argument that stores and spares costs were not considered, and the allocation of fuel cost was higher by the assessee. The Tribunal held that the disallowance under section 80IA was not justified, allowing the deduction claimed by the assessee.

In the case for A.Y. 2012-13, the issues and facts were identical to A.Y. 2010-11. The decision taken for the earlier year was applied mutatis mutandis, and the appeal was partly allowed. Both appeals were partly allowed based on the findings and reasoning in the A.Y. 2010-11 case. The Tribunal pronounced the order on 24th October 2024, partly allowing both appeals filed by the assessee.

This judgment primarily focused on the disallowance of deductions under section 80IA of the Income Tax Act, specifically related to the valuation of steam cost for the paper unit. The Tribunal analyzed the arguments presented by the AR and the Departmental Representative, ultimately finding in favor of the assessee due to the failure to consider stores and spares costs in the valuation. The decision for A.Y. 2012-13 mirrored that of A.Y. 2010-11, resulting in both appeals being partly allowed by the Tribunal.

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