TaxTMI 
TaxTMI 
2004 (5) TMI 244
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.... the year under consideration. In the course of assessment proceedings, it was noticed by the Assessing Officer that some units had not shown any fuel cost while the other units had shown expenditure worth crores of rupees as fuel cost. Units where no fuel cost was shown are unit No. 4 and Unit Nos. 3 & 6 each at Auriya, Kawas and Dadri. The assessee was asked to explain the reasons for not showing any fuel cost for these units. 3. The explanation of the assessee vide letter dated 10-1-2001 was as under: "NTPC has set up Gas Power Station at Anta, Auraiya, Kawas, Dadri, Jhanor, Gandhar and Faridabad as combined cycle gas power stations. These stations have number of gas turbines, which independently generate power, by separately feeding fuel in the form of natural gas/HSD or Naptha. The natural gas after mixing with the air is burnt in the gas combustion chamber to produce gases at a very high temperature. These gases are used to run gas turbines for generation of electricity. The Gas Turbine exhaust hot air gases, which otherwise have no commercial value, are then released into atmosphere. With the advancement in technology the waste heat recovery boilers have been inv....
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....l is required to be used for generation of power by the waste heat recovery boiler (WHRB). In other words, the steam turbine uses only the waste exhausted heat of such gases in WHRB for generation of power." It appears that assessee was asked to furnish details of quantity and cost of hot gases used in the waste heat recovery boiler. The assessee vide letter dated 27th February, 2001 stated as under: "You have desired us to furnish quantity and cost of exhausted hot gases used in waste heat recovery boiler. On this point we wish to submit that it is not possible to work out actual quantity of exhaust hot gases consumed in WHRB. Depending on grid conditions flow of gases in the waste heat recovery boiler varies from time to time on continuous basis. At times on account of technical reasons the gas station is run in an open cycle and therefore, waste hot gases are being discharged into atmosphere. In view of above the flow of waste hot gases in waste heat recovery boilers is neither practicable nor being measured on actual basis. We reiterate that since no fuel is being consumed in waste heat recovery boiler there is no fuel cost that can be allocated to generati....
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....ence, the cost of such gas should be taken into consideration for determining the profits of steam units. Since the gas units had not charged any price for the fuel supplied to steam unit, the cost of such gas proportionate to its use should be taken into consideration while determining the profits of steam unit. Similarly, reliance was placed on sub-section (9) of section 80-I, which provides that where any valuable item is transferred from one unit to another unit then its market value, should be taken into consideration. On the basis of the above information, the Assessing Officer proceeded to estimate the value of hot gas used in the steam unit. After examining the relevant cost, he came to the conclusion that the cost per mega watt was Rs. 47.29 lacs. Since the steam unit had the capacity to generate 153.25 Mega watt of power, he determined the cost of fuel at Rs. 7245.44 lacs. Considering these figures, the profits of the steam units were reduced accordingly and resultantly the claim of the assessee under section 80-I/80-I(A) was reduced in respect of steam units. 5. The matter was carried in appeal before the CIT(A) before whom the assessee has reiterated its stand tak....
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....pute the true and fair cost of the production so as to determine the true and fair profit of the said units to the industrial undertaking appears to be correct. The Assessing Officer had in this context called for relevant information from the appellant, to work out the eligible profits in view of the provisions of section 80-I(6). In view of the facts mentioned by the Assessing Officer in the impugned order, I find merit in his conclusion that if the appellant's version were to be accepted a commodity, rich in energy used to produce electricity without any other fuel and earning substantial sale receipts to the appellant would have to be considered as having no value at all. This would lead to absurd conclusions. Keeping in view the provisions of sections 80-I(6) and 80-IA(7) as also the facts and circumstances of the case, discussed in detail in the assessment order, I find no infirmity in the Assessing Officer's action as per the impugned order to make the disallowance calculated as per Annexure 'D' of the said order. The ld. AR has pointed out certain case laws to show that for articles to be goods, these must be known in the market as such and be capab....
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....s of eligible business or goods must be held for the purposes of any other business; (ii) There must be transfer of goods either by eligible business to another business or by the other business to the eligible business. (iii) The consideration for the transfer as recorded in the accounts does not correspond to the market value of such goods on the date of transfer. Proceeding further, it was submitted that the word "goods" if not defined mean something which can ordinarily come to the market to be bought and sold and is known to the market as held by the Hon'ble Supreme Court in the case of South Bihar Sugar Mills Ltd. v. UOI [1978] (2) ELT J-336. He also referred to the judgment of Supreme Court in the case of CCE v. Amba Lal Sarabhai Enterprises [1989] 43 ELT 214 (SC) wherein it was held "even transient items of articles can be goods, provided they were known in the market as distinct and separate articles having separate uses; there would still become goods if they are capable of being marketed even during said short period. Thus, goods with the unstable character can be theoretically marketable if there was a market of such transient type of articles b....
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....unit, such hot gas would have to be exposed to the open atmosphere. There is no evidence that such hot gas can be sold in the open market. It is only because of the advanced technology that such hot gas, which otherwise goes waste, can be utilized for generating electricity. But that requires massive investment. What would happen if the assessee, in the national interest, allows a third party to use such gas free of any charges? Would the department reduce the profits of steam unit by notional expenditure? In our opinion, the answer would be clearly in the negative as no deduction can be allowed unless any expenditure is incurred. Therefore, in our humble opinion, no portion of the expenditure incurred by the gas units can be allocated to the steam unit. 9. Heavy reliance has been placed by the lower authorities on the provisions of sub-section (6) of section 80-I, which for the benefit of this order is being reproduced as under: "Section 80-I(6): Notwithstanding anything contained in any other provisions of this Act, the profits and gains of an industrial undertaking or a ship or the business of a hotel or the business of repairs to oceangoing vessels or other powered ....
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....held for the purposes of any other business carried on by the assessee are transferred to the business of the industrial undertaking or the hotel or the operation of the ship or the business of repairs to ocean-going vessels or other powered craft and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the business of the industrial undertaking or the hotel or the operation of the ship or the business of repairs to oceangoing vessels or other powered craft does not correspond to the market value of such goods as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of the industrial undertaking or the business of the hotel or the operation of the ship or the business of repairs to ocean-going vessels or other powered craft shall be computed as if the transfer, in either case, had been made at the market value of such goods as on that date: Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the industrial undertaking or the business of the hotel or the operation of the ship or the business of repairs to ocean-going vessels ....
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.... sub-section (9) of section 80-IA, the market value has to be seen as on the date of transfer. Since there is no evidence of any market for sale of such waste hot gas, we are unable to accept the stand of the revenue. 11. In view of the above discussion, it is held that the course adopted by the Assessing Officer for shifting a portion of expenses incurred by gas unit to the steam unit was not permissible in law and, therefore, cannot be approved. Consequently, the order of the CIT(A) confirming the above action of the Assessing Officer is set aside and the Assessing Officer is directed to allow deductions under sections 80-I and 80-IA without allocating any expenditure of gas unit to steam unit. 12. The next question for our consideration is whether the following receipts can be considered as profits derived from an industrial undertaking for the purpose of claiming deductions under sections 80-I and 80-IA: 1. Hire charges received from various contractors against equipments and machineries given to them on hire for repair, maintenance and operation of the assessee's projects. 2. Interest from banks on deposits to meet out the expenditure incurred on sa....
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....tion 80HH. Their Lordships held that for application of the words "derived from", a direct nexus between the profits and gains and industrial undertaking must be there. It was further held that in that case, the nexus was not direct but only incidental and, therefore, the same could not fall within the expression "profits derived from an industrial undertaking". The third judgment is in the case of Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278. In that case, the assessee had earned interest on deposits made with the Electricity Board. The question arose whether such interest could be said to be profits derived from the industrial undertaking for the purpose of claiming deduction under section 80HH. Their Lordships, following the judgment of Privy Council in the case of CIT v. Raja Bahadur Kamakhya Narain Singh [1948] 16 ITR 325 and the judgment of Supreme Court in the case of Mrs. Bacha F. Gujdar v. CIT [1955] 27 ITR 1, held that such interest could not be considered as profits derived from the industrial undertaking as the immediate source of earning was the deposits with the Electricity Board and not the industrial undertaking. In view of these decisions, the receipts of the a....