TaxTMI 
TaxTMI 
TaxTMI 
2015 (3) TMI 794
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee itself for earlier years and for subsequent y ear and in this respect, our attention was invited to paper book pages 2-22where a copy of Tribunal order for Assessment Year 2006-07 to 2009-10 were placed. 3. Ld. D.R. fairly conceded that the issue was covered in favour of assessee. 4. We have hard rival parties and have gone through the material placed on record. We find that Ld. CIT(A) has allowed relief to the assessee following the order of ITAT in earlier years. Ld. CIT(A) has reproduced the findings for Assessment Year 2007-08. Ground nO.1 of appeal is similar to ground No.2 in Assessment Year 2007-08 which has been allowed by the Commissioner by holding as under: "2.1 Ground No.2 is against addition of Rs. 9,93,41,508 being the sale value of steam supplied to SSL worked out by the AO @ 236 per ton. The appellant had shown sale proceeds in respect of supply of power to UPSEB and SSL aggregating to Rs. 11,59,51,575. However no sale proceeds in respect of exhaust steam supplied to SSL work shown in the accounts. The AO 'noted that in the earlier years the appellant had sold exhaust steam to SSL @ Rs. 236 & Rs. 75 per ton for varying periods. During this year howe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ments. f) No material has been placed by the revenue to hold that this agreement of revision was not genuine and was prospective and not retrospective. Thus the fact that the rate of steam was Rs. 75 per metric ton as per second arrangement letter dated 20/6/01 was accepted and not subject matter of dispute. In AY 00-01 the department has never' doubted the genuineness of this agreement. The only dispute was regarding retrospective applicability of this arrangement since the arrangement was entered after the close of the previous year vide letter dated 20/6/01. In this regard we would like to bring to your notice that question sought to be referred by the department to the Hon. Delhi High court in AY 2000-01 reads as under: "Because retrospective proviso of arrangement by which rates per unit were revised by subsequent letter dated 20/6/01 cannot exempt the income already accrued upto 31/3/00. " Further as submitted in our letter dated 3/2/06 only real income could be taxed. SSL has stopped paying for charges of exhaust steam with effect from Oct. 2001. 'Thus no receipt should be estimated and. taxed on account of steam in the present assessment year. The proposed estim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ompany and sugar factory of SSL are located at the same place side by side. SSL supplies bagasse (sugarcane remains after extraction of juice) and water to the appellant company free of cost. The bagasse is used as fuel and burnt to produce steam from water. The steam is used to produce electricity using steam turbines by appellant company. The electricity generated is supplied to SSL and surplus, if any, to UPSEB. The exhaust steam after running the turbines is also supplied to 55L initially it was agreed between the two companies that the appellant company would receive conversion charges from SSL to converting bagasse and water into electric power and exhaust steam which will be supplied to SSL. For this purpose a Conversion Contract dated 10/12/98 was executed. According to this Conversion Contract following payments were to be received by the appellant from SSL as conversion charges:- a) A fixed fee of Rs. 19.75 million per month during the production season. b) Variable charges in proportion to the quantities of electricity and steam supplied: Rs. 0.52/per unit of electrical energy, ie electricity Rs. 40 per tonne of thermal energy, ie steam 2.4 The fixed fee of Rs. 19.75 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... water free of any charge to SI-AL. Without these SI-AL cannot generate power. In addition water and steam condensate are also supplied free of any charge. The steam that is supplied is exhaust steam, which has no value and cannot otherwise be used or sold. On the other hand, the baggase supplied to SI-AL free of any charge is easily saleable by SSL for which it does not get any compensation. No reduction/adjustments are also on that account in the charges for electric power that are being paid by SSL. 2.6 In view of this SSL stopped paying anything for exhaust steam from Oct. 2001. Since there- was a lot of uncertainty regarding realization of any amount for steam supplied from Oct. 01, the appellant did not raise any invoice to recognize revenue for the same. The appellant relied on Accounting Standard 9 (AS 9) issued by ICAI on revenue recognition. It is now mandatory to follow such standards as accounting practice. The relevant clause is 10 to 12 of AS 9 were reproduced in the submissions (They have been reproduced by AO also on page 3 of assessment order as part of appellant's reply). It was therefore, stated that the appellant was fully justified in not recognizing any ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the issue is covered in favour of appellant by order of ITAT in AY 00-01. Hence the only issue to be decided is whether the appellant was right. in not showing any revenue at all from supply of steam to SSL. It is to be noted that transaction of purchase/sale is in the form of a contract between the two parties. Sale price is the income of seller & liability being purchase price to the purchaser. It can be treated as income accrued in the hands of seller (and liability crystallized in the hands of purchaser) only if the relevant contract is accepted by both the parties to contract. There is no doubt that the steam was supplied by the SSL as it was done in earlier years. However, earlier the income (being sale value of steam) was credited in the accounts at the rate agreed and confirmed by the SSL. In fact the rate was retrospectively rendered & such reduction was agreed to by both the parties. On this basis itself the ITA T in A Y 2000-01 allowed reduction of income from sale of steam. The point to be noted is that the income from any contract (sale) can be said to accrue as per agreed terms of such contract. If there is any dispute by either party the accrual of income (of expe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....steam would be claimed from them wef 1/10/01. On asking a copy of said letter dated 9/1/06 was filed. 2.10 In view of the clarification as above there does not remain any doubt that both the parties to contract have agreed that no payment in respect of supply of steam was to be made to appellant by SSL. Therefore there cannot be said to be any accrual of income for supply of steam. The basis for this arrangement is also clear since it is a kind of barter system where bagasse and water is supplied by SSL to appellant company free of charge while the appellant supplies electricity and steam to SSL. The appellant's income is from sale of surplus power to UPSEB. Even if theoretically the price of steam is computed at Rs. 236 per ton (which however was never agreed and acted upon between the two parties) it is almost equivalent to the cost of bagasse worked out at the market price. Therefore in this kind of transaction there is no profit or loss in money terms to any of the company. However transaction of exchange of bagasse & water for power & steam is for mutual benefit and convenience. 2.11 Even if we look at things from a different perspective, the income of one company will b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....acquire the entire share capital the JV company and make it its wholly owned subsidiary unless of course it* then decided to amalgamate the JV company with this company and bring the power project also directly into the ownership of SSL (Emphasis supplied). 2.12 From the above, it can be seen that the entire project of sugar production plant of SSL as well as the power generation unit of the appellant was in fact part of some project owned by one company. The power generation unit was separated to get investment from French company Air-Liquide, which agreed to join as JV (joint venture) partner. Therefore the transaction of exchange of bagasse & water with power & steam is in fact between two limbs of same project. If the whole project was owned by one company (as in fact it was initially) only the net profit of the entire project would have been taxable. As can be seen in the last paragraph reproduced above from he letter of SSL, the appellant company proposed to be made a subsidiary of SSL (and in fact has already become so). Looked from this angle, the transaction is between the holding and subsidiary company. Therefore in my opinion action of the appellant company in not charg....