TaxTMI 
TaxTMI 
TaxTMI 
2009 (3) TMI 237
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....82,673 as income from wind energy generation. The AO applied the provisions of Expln. (baa) to s. 80HHC to this amount for the reasons given in his order as under: "It is seen from the details filed along with the return of income that 90 per cent of income from wind energy generation was not excluded from the business profits for the purpose of calculating deduction under s. 80HHC. The income from wind energy generation during the year 2003-04 was Rs. 14,82,673. The assessee had stated that the electricity generated by the wind energy converter owned by the company, is surrendered to the TNEB, which in turn is set off against the payments to be made to the TNEB. Regarding miscellaneous income also the assessee stated that the income from the sale of wasters scraps must be treated as incidental business income only. The substantive part of s. 80HHC clearly states that the deduction will be in respect of 'profit derived' by the assessee from the export of goods or merchandise. Therefore, inclusion of job receipts, wind energy receipts and other miscellaneous income will distort the eligible deduction. The Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. vs. CIT (2003) 1....
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....g and utilization period will run concurrently for a period of one year-April to March and that the unutilized banked energy could not be carried forward to the next banking period. - that the total electricity charges debited in the P&L a/c was Rs. 1,76,13,033 which included the aforesaid figure of Rs. 14,82,673. - that the windmill was generating less than 10 per cent of the electricity that was required by the assessee for its manufacturing activity. - that the electricity charges was one of the components of manufacturing cost out of which less than 10 per cent was met by installing the windmill. - that the generation of electricity in the windmill was an integral part of the manufacturing activity of the assessee. - that it was for the assessee to decide as to how to arrange the different components of manufacturing cost. - that by installing a windmill the assessee had split the electricity charges of Rs. 1,76,13,033 into two components-one component of Rs. 14,82,673 was provided by its own windmill and the balance was taken from TNEB. - that while making entries in the books of account Rs. 14,82,673 was shown on the credit side as well as on the debit side, as contra ....
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....lied by the 'export turnover'. This gives the profit attributable to export activity. 8.4 There arises one more problem which needs to be tackled. It has to be remembered that the profit from business is equal to 'sale price minus cost', and consequently each component of business profit has an element of turnover, as reduced by the corresponding cost. Therefore, the above formula will break down and will give a distorted result in a case where the gross profit has a component which has no element of turnover, like receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature. This happens because such receipts are credited in the P&L a/c separately, without being included in the turnover. 8.5 The law of proportion, on which the above formula is based, will not apply to such situations because the presumption, that the business profit is directly proportional to the turnover, no more holds good. In order to get over this difficulty, the only logical solution was to keep such receipts away from the operation of the formula. This is precisely what was done by introducing the cl. (baa) in the Explanation to s. 80HHC, which reads as under:....
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....Less: Excise duty 1,67,04,203 ----------------------------------------------------- 11,50,58,459 ----------------------------------------------------- Others 30,62,230 ----------------------------------------------------- Total 11,81,20,689 ----------------------------------------------------- Expenditure: ----------------------------------------------------- Raw materials consumed &....
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.... 1,21,45,850 ----------------------------------------------------- 10.1 It is seen that there are two major items included in the total 'expenditure' shown at Rs. 10,56,92,187-one: under the head raw material shown at Rs. 4,32,06,596, and two: under the head electricity and fuel shown at Rs. 2,96,15,112. It is included in 'other expenses' as appearing in Sch. 17. The expenditure on fuel was of Rs. 37,25,056. The balance of Rs. 1,76,13,033 was incurred on electricity charges, and included a sum of Rs. 14,82,673, representing the value of electrical energy generated by the windmill. A similar amount was included in 'other income' under the head 'Wind energy generation' in Sch. 14. 11. The electrical energy required for the manufacturing process in the factory was supplied by the TNEB. The assessee installed a windmill to meet part of its requirement of electrical energy which was needed for the manufacturing process. The value of electrical energy generated by the windmill, was worked out at Rs. 14,82,673, and it appeared in the P&L a/c on the credit as well as debit sides as 'contra' items. In the subsequent year it was squared up and was not shown separat....
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.... of S.A. Builders Ltd. vs. CIT (A) (2006) 206 CTR (SC) 631 : (2007) 288 ITR 1 (SC), held that the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman, that the IT authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act, that the authorities must not look at the matter from their own viewpoint but that of a prudent businessman. 14. In order to invoke the provisions of Expln. (baa) it is necessary that there should be some 'receipt' which was not included in the 'total turnover'. The Courts have held that mere entries in the books of account do not determine the taxability of a particular item appearing therein. 14.1 Since the electrical energy generated by the windmill was meant to be used in the manufacturing process in the factory, its value represented a reduction in the electricity charges payable to the TNEB. Therefore, the amount of Rs. 14,82,673 does not represent a 'receipt' in the hands of the assessee, within the meaning of Expln. (baa) to s. 80HHC. The decisions relied upon by the learned Departmental Representative are distinguishable on facts and do not help the case of the Department. 14....