TaxTMI 
TaxTMI 
2011 (12) TMI 604
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....bmissions were filed before learned CIT(A) which have been recorded in paras 4 to 6 of his order and as under : "4. During the course of appellate proceedings the learned Authorised Representative submitted as under : 'That the appellant had filed its return of income on 30th Nov., 2006 declaring total income of Rs. 34,37,748 and claimed deduction under s. 80-IA of IT Act, 1961 on captive power plant at Rs. 1,72,31,805. That during the assessment proceeding as desired by the learned AO the appellant filed audit report in Form 10CCB for claiming deduction under s. 80-IA on captive power plant as the return was filed electronically and no papers or enclosures were allowed/possible. That the appellant during the assessment proceedings vide its letter dt. 30th Dec., 2008 revised the claim of deduction under s. 80-IA on the captive power plant (CPP). The claim was required to be revised because deduction under s. 80-IA was wrongly calculated by applying wrong rate of depreciation @ 25 per cent (on plant and machinery) whereas during the year under appeal the correct rate of depreciation was 15 per cent (in accordance with IT Rules, 1962). The claim was revised only....
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....illegal but also inequitable for the AO to correct the depreciation claim if it is beneficial to the Revenue, and not to correct it when it is beneficial to the assessee. This approach does not fit into the quasi-judicial status granted to the AO and the assessment proceedings. Under the above facts and circumstances it is prayed that the revised claim of deduction under s. 80-IA may kindly be accepted and allowed." Thereafter the learned CIT(A) allowed the issue in favour of the assessee by giving his finding in para 7 of his order as under : "I have considered the facts of the case and submission of the learned Authorised Representative and found that the appellant originally claimed deduction under s. 80-IA of the Act at Rs. 1,72,31,805 in the return of income filed on 30th Nov., 2006, but later on during the course of assessment proceedings the appellant revised the claim under s. 80-IA to Rs. 2,46,75,216 on the ground that the appellant wrongly claimed depreciation @ 25 per cent on plant and machinery of captive power plant instead of 15 per cent allowable as per Act. Thus the eligible profit for claim under s. 80-IA of the Act raised to Rs. 2,46,75,216 (after redu....
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.... 7. Remaining issue is against deleting the addition of Rs. 34,36,058 made by AO on account of apportionment of common expenses as per s. 80-IC. 8. The brief facts in this respect are that during the year the assessee has claimed deduction under s. 80-IA of Rs. 1,72,31,805 on captive power plant at Panoli (Gujarat) for generating electricity which was used in the process of manufacturing of agro chemicals and polymers unit at Panoli. In the power generation plant the gas was purchased from the Gujarat Gas Ltd. from which electricity is generated and used in various plants. From the perusal of balance sheet, P&L a/c and depreciation chart furnished by the assessee it was noticed that many expenses of common nature were not apportioned among the unit claiming deduction and the principal unit. The AO asked the assessee to explain as to why the expenses should not the apportioned on the basis of turnover between the captive power plant and principal unit. The assessee furnished explanation vide letter dt. 31st Dec., 2008 and extracted in the order on pp. 3 to 7. 9. The AO further observed that the basis on which the assessee was asked for the apportionment of expenses was as p....
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....rder to arrive at the assumption that profit has to be calculated as if the captive power plant unit was an independent industrial undertaking. The assessee cannot literally ignore the explicit provision of s. 80-IA units as discussed above. Hence on the basis of above discussion the common expenses were being apportioned between the captive power plant unit and the principal unit. The apportionment of expenses was being done on the basis of turnover ratio. The turnover of both the units was Rs. 33,779 lacs (Rs. 32,679.13 + Rs. 1,100.86). The share of principal unit in the turnover was Rs. 32,679.13 lacs and that of captive power plant unit was Rs. 1,100.86 lacs. Thus the turnover of the two units came out in the ratio of 97:3. thus the expenses would also be apportioned in the same ratio i.e. 97:3 among principal unit and captive power plant unit as under : Pre-apportionment Post-apportionment Particulars Total expenses P. Unit CPP Unit P. Unit CPP Unit Rent 2,28,98,209 2,28,96,209 2,000 2,22,11,263 6,86,946 Travelling and conveyance 4,46,47,424 4,46,47,424 4,33,08,001 13,39,....
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....n under s. 80-IA(2). During the assessment proceeding, the appellant filed letter dt. 30th Dec., 2008 (copy enclosed) explaining the 'business process' of the captive power plant and involvement/role of the other manufacturing unit the same. The captive power plant was set up and commissioned by the appellant in the preceding assessment year, i.e. asst. yr. 2005-06 but the appellant had exercised the option under s. 80-IA(2) for deduction for ten years starting from the asst. yr. 2006-07. The captive power plant is a gas based power plant and utilizes natural gas which it purchases from Gujarat Gas Ltd. and generates the electricity which is supplied to and used at other plant of the appellant situated at Panoli itself. The operations of the captive power plant are simple, as it does not require elaborate infrastructure to run a traditional manufacturing facility/or coal/furnace oil based captive power plant. The gas is supplied by pipeline to the plant directly which is measured by a meter installed at the supply line. The appellant does not store any gas as such and therefore there are no hassles of storage and inventory management etc. Traditio....
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....ns taken for the captive power plant, all the running and maintenance expenses of the plant as also salary/wages and statutory dues of the manpower deployed in running and maintaining it. Moreover, the appellant already allocated an amount of Rs. 1,00,000 towards any missed expenses which inadvertently might not have been booked as expenses in the accounts of the captive power plant. The head office of the appellant looks after many plants and businesses of the appellant. Such businesses have variety of business models and needs like business and marketing development, brand building as also expansion of business. None of such activity is needed for captive power plant. The learned AO issued notice under s. 142(1) of the IT Act, 1961, dt. 30th Dec., 2008 vide which he had proposed to allocate certain expenses in the ratio of 97:3 (being turnover ratio of the manufacturing unit and the captive power plant), Pre-apportionment Post-apportionment Particulars Total expenses P. Unit CPP Unit P. Unit CPP Unit Rent 2,28,98,209 2,28,96,209 2,000 2,22,11,263 6,86,946 Travelling and conveyan....
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....ng activity is involved nor does it require any brand building or other business expenses which a conventional manufacturing unit would have required. (ii) Travelling and conveyance : Your Goodself had proposed to allocate Rs. 13.39 lacs to captive power plant, out of the total expense of Rs. 4.46 crores. In this regard we wish to submit that the company have a number of depots/branches in various States/cities, where it has separate staff for sales and marketing of pesticides/polymer business. Due to the very nature of pesticides business, the marketing team has to do extensive travelling in their region and these expenses of Rs. 4.46 crores relate to such travelling of the staff, and the consultants engaged for various legal matters of the business. The running expenses of the motor cars and various other vehicles and lease rental of vehicles all relating to the pesticides, polymer division of the company and these expenses are incurred by the field staff operating at various branches/depots across the country. No travelling activity is involved with reference to power generation undertaking as stated in our earlier submission due to peculiar facts and ....
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....e/obsolete inventory and therefore the communication channel with various branches and depots need to be very efficient. The very nature of business of captive power plant and with single source for raw material and its output supply at one place, does not require any communication. In any case this would be a miniscule and insignificant amount, which can very well be taken care by the amount of Rs. 1 lac which was allocated to the captive power plant by us ourselves. (v) Audit fees : Your Goodself had proposed to allocate Rs. 15,000 to captive power plant, out of Rs. 5.02 lacs incurred by the company. As mentioned earlier, captive power plant has not much operations and the audit fees is normally decided based on the time spent by the auditors. Looking to the nature of business, the time spent by the auditors for captive power plant is negligible not warranting any apportionment, unlike the pesticides division of the company, where the auditors have to visit the various branches/depots of the company. It will be appreciated that the number of vouchers for the unit are very few in comparison to the number of vouchers for the entire company. In, fact, the number of....
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....lant was not using any of these assets for its business operations nor was it needed. Moreover, captive power plant can run its plant efficiently and effectively without these assets and therefore, the apportionment is not required, as these assets have no nexus with captive power plant operations. As mentioned above, we of our own, have allocated a sum of Rs. 1 lac to captive power plant, which covers expenses under all the accounting heads mentioned above and under which your Goodself wishes to apportion the expenses. The learned AO without considering the above submissions apportioned the above expenditures and depreciation pertaining to other business units to the captive power plant unit in 'total turnover-ratio' which is illegal, unwarranted and bad in law and same deserves to be allowed. Further the above issue is fully covered by your Honour's decision dt. 8th Jan., 2008 in the Appeal No. 561/IT/Udr/2006-07 of Hindustan Zinc Ltd., Udaipur, for the asst. yr. 2004-05 and your Honour's decision in Appeal No. 399/IT/Udr/2006-07 for the asst. yr. 2004-05 in the case of Secure Meters Ltd., Udaipur. The copies of decisions are enclosed he....
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....he deduction under s. 80-IA by an amount of Rs. 34,36,058 on account of the following : Pre-apportionment Post-apportionment Particulars Total expenses P. Unit CPP Unit P. Unit CPP Unit Rent 2,28,98,209 2,28,96,209 2,000 2,22,11,263 6,86,946 Travelling and conveyance 4,46,47,424 4,46,47,424 4,33,08,001 13,39,423 Legal and professional 86,91,873 86,91,873 84,31,117 2,60,756 Communication 1,22,21,140 1,22,21,140 1,18,54,506 3,66,634 Audit fee 5,02,281 5,02,281 4,87,213 15,068 Insurance-vehicle 7,52,360 7,52,360 7,29,789 22,571 Managerial remuneration 85,49,398 85,49,398 82,92,916 2,56,482 Employees welfare 1,06,84,918 1,06,78,918 6,000 1,03,64,370 3,20,548 Depreciation Building 22,11,449 22,11,449 21,45,106 66,343 Vehicle 2,79,954 27,99,548 27,15,562 83,986 Furniture and fixture 8,43,331 8,43,331 8,18,031 25,300 ....
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....und." 13. The learned Departmental Representative placed strong reliance on the order of the AO. Pages 9 to 11 of the order of AO were read also. Provisions of s. 80-IA(8) were also relied upon. 14. On the other hand, the learned counsel of the assessee placed reliance on the order of learned CIT(A). Brief written note was also filed. Reliance was placed on various case laws mentioned in the brief note. It was also submitted that in respect to deduction under s. 80-IA on captive power plant unit, separate books of account have been maintained by assessee. Whatever the expenses have been claimed on this account, it has been recorded in P&L a/c prepared separately. Even to cover up certain leakage, assessee has further apportioned Rs. 1,00,000 of other unit in this unit. 15. We have heard rival submissions and considered them carefully. After considering the submissions and perusing the material on record, we find no infirmity in the finding of learned CIT(A). The learned CIT(A) has held that the apportionment made by AO of the expenditure and depreciation of other business assets to captive power plant in ratio of the turnover was not correct. Assessee had claimed deduction....