TaxTMI 
TaxTMI 
2014 (8) TMI 558
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....that ITA No. 991/2010 relating to assessment year 2004-05, may be treated as the lead case. 3. The respondent-assessee, a company, was engaged in the business of manufacturing of fused Aluminium Oxide Grains, Calcined products, Monolithics, Refractories, Bonded Abrasives, Ceramic Paper and trading of Monolithic and Refractories. 4. The respondent-assessee had an Abrasives Grains Division at Porbandar, Gujarat that manufactured fused Aluminium Oxide grains etc. The respondent-assessee had setup a power plant at Porbandar, Gujarat for captive supply to the Aluminium Oxide gains unit. Profit earned from the power plant unit, it was claimed, was eligible for deduction under Section 80 IA of the Income Tax Act, 1961 (Act, for short), as an undertaking engaged in generation of electricity. The respondent-assessee had, along with return of income, filed Form No.10CCB as mandated by Rule 18BBB of the Income Tax Rules, 1962 computing deduction under Section 80 IA. In the course of the assessment proceedings, respondent-assessee had filed a technical note explaining the features of the power plant established by them to generate electricity. 4. The Assessing Officer denied benefit o....
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....ld for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date: Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation.-For the purposes of this sub-section, "market value", in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the ope....
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....etween the profits declared by the eligible undertaking and the total income declared by the assessee, the proprietor/owner of the eligible undertaking. 9. The position becomes clear and obvious when we examine sub-sections (8) and (10). Sub-section (8) stipulates (i) where goods and services held for the purpose of eligible business were transferred to any other business carried on by the assessee, or (ii) where any goods or services held for the purpose of any other business carried on by the assessee were transferred to the eligible business; the consideration, if any, for such transfer as recorded in the accounts of the eligible business should correspond to the market value of such goods or services as on the date of the transfer. Where the consideration so recorded, does not correspond to the market value, the profits and gains of such eligible shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date. Thus in such cases, value/consideration disclosed would not be accepted. The aforesaid sub-section accepts and endorses that the eligible undertaking could have transacted or had business transactions wi....
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....ons, rejected the similar submission of the revenue after quoting the following paragraph from the judgment in Tata Iron and Steel Co. Ltd. (supra):- "That even in cases where the profit resulting from an ultimate activity is brought to tax there could be an apportionment if there were an exemption in respect of the profits resulting from distinct activities at earlier stages is illustrated by the provisions of the Indian Income Tax Act itself. Thus, in the case of, say, a sugar mill, which grows its own cane, in the absence of any exemption for the income derived from agriculture, i.e., from the production of the cane, the entire profit of the mills from the sale of the sugar would have to be included in the taxable profits under Section 10 of the Income Tax Act. But Section 4(3)(vii) exempts agricultural income as defined in Section 2(1). The result, Therefore, is that there is a. disintegration or dichotomy of the 'incomes, profits or gains' of the business and of agricultural income, so that there has to be an apportionment between the two in order to determine the taxable income of an assessed. It is on account of this situation that Section 59(2) of the Income Tax ....
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....hat the profit from each item which results in that total is a notional and not an actual or real profit. In the interests of clarity, we should add that the principle would be the same when the sale of the end product yields no profit, but results in a loss, only in such a case, the relevant component, viz, the disintegrated profit or loss resulting from the mining operation would diminish the loss if that were a profit, or add to the loss if that were also a loss. No doubt, there was a further contention urged that you cannot dissect that final profit in order to ascertain its components, but it is quite a different one from that now under consideration and we shall deal with it in its proper place. But what we are now concerned to point out is that if it is capable of dismemberment or disintegration into its components, it would not be correct use of language to designate the profit so apportioned and ascertained as attributable to each line of activity any the less real than the aggregate profit realised from all the ventures. In the way in which we have approached the problem there could be no question involved of any departure from the principle that a man cannot trade with h....
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....en the sales/transactions were made to a related party or to the same assessee, but in such cases, the profits have to be computed in the manner stipulated in sub-sections (10) and (8) to Section 80-IA. 13. Madras High Court in Tamilnadu Petro Products Ltd. Vs. Assistant Commissioner of Income Tax, [2011] 338 ITR 643, had an occasion to deal with Section 80 IA in a case where the assessee had a electricity generation unit, which was supplying electricity to the same assessee and not to third parties, observing that profits from captive consumption would be eligible, Division Bench in paragraph 4 referred to an earlier decision of the same Court dated 7th June, 2010 in Tax Case (Appeal) Nos.68 to 70 of 2010, CIT Vs. Jhiagarjar Mills Ltd. and quoted the relevant portion and observed:- "4. After considering the issue, the statutory requirement as prescribed under section 80-IA(1) has been stated in paras 8 and 9 of the abovesaid judgment which reads thus "8. The contention that only whatever power generated from the sale to an outsider or the Electricity Board, and the profit or gain derived by such sale alone can be taken as profits or gains derived by the assessee as mentio....
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....e respondent/assessee when it claimed by relying upon section 80-IA(1) of the Income-tax Act by way of deduction of the value of such units of power consumed by its own plant by way of profits and gains for the relevant assessment years." 14. At this stage, it would be appropriate to also notice judgment of the Delhi High Court in CIT Vs. DCM Sriram Consolidated Ltd., [2010] 322 ITR 486 (Delhi) , wherein explanation clause (iv) to Section 115JA of the Act had come up for interpretation. The clause provided for exclusion of profits derived by an industrial undertaking from the business of generation or generation and distribution of power. Revenue had raised the contention one cannot earn profit by indulging in the business with oneself and thus captive consumption would not be covered by explanation clause (iv) to Section 115JA. Rejecting the contention and relying upon decision in the case of Tata Iron and Steel Co. Ltd. (supra), it was observed:- "Based on the ratio of the Supreme Court in Tata Iron and Steel Ltd it is clear that in arriving at an amount that is to be deducted from book profits 'which is really to the benefit of the assessee as it reduces the amount of ....