TaxTMI 
TaxTMI 
2017 (11) TMI 1480
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....ation of steam power and generation of cooling power and the revenue also raised the identical issue that the CIT(A) erred in deleting the disallowance of deduction u/s 80IA of the Act without considering the facts, that generation of steam is not a form of power eligible for deduction, no separate undertaking was set up for production of Instant Dry Yeast, and it is manufactured in an undertaking which already existed prior to 1st October, 1994, which amounts to that the undertaking is established by splitting of the old existing business for the purposes of section 80IA of the Act. For this, the assessee raised the following grounds: - "1. The CIT(A) erred in restricting the deduction u/s 80IA for generation of steam power. 2. The CIT(A) erred in restricting the deduction u/s 80IA for generation of cooling power." The revenue raised the following grounds: - "1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the disallowance made u/s 80IA, without appreciating the fact that generation of steam is not a form of power eligible for deduction u/s 80IA of the I.T. Act. 2. On the facts and in the circumstances of the case and in l....
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....allowed the deduction vide assessment order u/s 143(3) r.w.s. 147 of the Act dated 30.01.2006. The assessee filed appeal before CIT(A), who allowed deduction for both power generation undertakings at Sandila and Chiplun but he restricted the quantum as under: - a) For generation of cooling power he restricted the claim of of rate of conversion of 1 Tonne of refrigeration equal to 3.52KW of electric power to 1.02 KW of electric power. b) For generation of steam power he directed an ad-hoc reduction of 25% of the notion receipts from the sale of steam power. Aggrieved, assessee as well as department filed appeal before Tribunal and Tribunal decided the issue on jurisdiction and quashed the reassessment. It means the merits were not tested. 5. Similarly for AY 2004-05, the AO framed the assessment u/s 143(3) of the Act vide order dated 27.12.2006, despite the fact that search and seizure action u/s 132 of the Act was conducted on the assessee on 30.11.2006. AO u/s 143(3) of the Act passed assessment order and inter alia disallowed deduction u/s 80IA of the Act. The assessee preferred appeal before CIT(A), who reduced the quantum of deduction. Aggrieved, assessee preferred appe....
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....age cutting down of trees as burning of wood produces heat energy and assessee could claim the deduction on the ground that he is engaged in the generation of power. Such cannot be the intention of the legislature. 8. The CIT(A) allowed the claim of the assessee by observing that Sub-section 4 (iv) of section 80 IA of the Act provides that an undertaking for generation of power is eligible for deduction and for this he followed the order of AY 2003-04. According to CIT(A) the term 'Power' has not been defined to mean electrical power to the exclusion of other forms of power and the term has to be understood in its natural meaning. Regarding the AO's observation that at each stage of production some form of energy is produced, the assessee argued that the AO has completely misdirected himself. The legislature has clearly provided a benefit of a deduction u/s 80IA of the Act for generation of any form of power generated by an undertaking. At each stage of production there is no undertaking that is generating power. This is where the AO has gone wrong. Further the CIT(A) also referred to the relevant observation's of the AO's in Remand Report dated 24.12.2012 which reads as under: - ....
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....er for doing work. There are various forms of energy such as, electrical energy, wind energy, tidal energy, steam etc. In fact a Ministry has been formed to develop alternative sources of energy, which are referred to as Non-conventional Energy Sources. This department of the Government encourages development of sources of energy other than conventional sources such as, electricity, fuel or nuclear power by a system of incentives. 'Power' in clause (iv) of sub-section 4 of section, 80-IA of the Act, therefore, cannot be restricted only to electrical power in the absence of any specific exclusion. Accordingly, he was of the view that deduction has been given to encourage generation of power which would augment the total power generation or save consumption of electric power and so long as these forms of power are generated and used for doing work in the production process, the activity would be an eligible business. 11. At the outset learned Counsel for the assessee took us through the provision of section80IA of the Act and the relevant reads as under: Sub-section 1 of Section 80-IA reads as follows: "(1) Where the gross total income of an assessee includes any profits and gain....
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......................... 13. In view of the above provision, he argued that the Parliament has recognised electricity to be one of the forms of power. This interpretation is supported by judgments in the cases of SIAL SBEC Bioenergy Ltd vs DCIT 83 TTJ 866 (Del) and further in West Coast Paper Mills Ltd vs ACIT (2014) 33 ITR (AT) 560 (Mumbai). Even Hon'ble Madras High Court in the case of Tanfac Industries Ltd (Tax Case (A) No 1773 of 2008 and Tamilnadu Petro Products Ltd 238 CTR 454, which was upheld by Hon'ble Supreme Court (2010) 319 (ST) 8 that even the steam power is treated as one of the forms of power. So far as Section 80IA(4)(iv) of the Act is concerned, the term used is power and it is not restricted to electricity. He further explained that the Rules of Interpretation of Statutes by using principles of internal aid, the provisions of Section 32A can be used to explain the term power as used in Section 80IA(4)(iv) of the Act. Therefore, it is clear that the term power used in Section 80IA(4)(iv) of the Act is not only restricted to generation of electricity but for generation of any form of power. For the use of internal aid, the assessee also relied on the order of ITAT in....
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....ar. Therefore, steam produced/extracted from turbine has a capacity of producing thermal energy which evaporates water from sugarcane juices to produce sugar, and 'can definitely be qualified as power', and therefore, definitely be eligible for the benefit available under s. 80-IA(iv)." (emphasis supplied) At Para 29 of the order, the Tribunal observed as follows: "When we apply the principles of interpretation of statutes to the present case, we find that the word 'power' has to be given a meaning which is in common parlance and in common parlance the word 'power' shall mean the energy only. The energy can be of any form, be it mechanical, be it electrical, be it wind or be it thermal. The steam produced by the assessee on the principle of interpretation of statute shall only be termed as power and shall qualify for the benefits available under s. 80-IA(iv)." (emphasis supplied) 15. The aforesaid pronouncement by the Delhi Bench of the ITAT on the issue of the meaning of the word 'power' was followed by Jaipur Bench of Hon'ble ITAT in the case of DCIT vs. Maharaja Shree Umaid Mills Ltd. (2009) 120 TTJ (JP) 711, wherein it was held that just like electricity steam is also a....
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....ac Industries Ltd (Supra) and held in Para 18.9 that steam produced by the assessee is eligible unit and income from sale of steam is the income derived from industrial undertaking, therefore, deduction under section 80-IA is allowable. The Hon'ble Madras High Court in the case of CIT vs TANFAC Industries Ltd in Tax Case No. 1773 of 2008 held that steam sold to its sister concern is eligible for deduction u/s 80IA of the Act. This judgement was upheld by Hon'ble Supreme Court (2010) 319 ITR (St) 8. 16. The learned Counsel also referred to a book of Advanced Physics written by author Keith Gibbs, Cambridge University Press has described the meaning of Power under the chapter Energy and Power. A copy of the Chapter on Energy and Power is at Pages No. 84 to 89 of assessee Paper Book No III, the relevant is being reproduced below a part of the chapter on Energy and Power: "The rate at which work is done, or the rate at which energy is converted from one form to another form to another is Power. Energy is never created or destroyed but only changes from one form to another. Energy is available from number of sources such as: Coal, Oil, Gas, Other forms:, Wind, Waves, Hydro Elec....
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....a form of energy. v) Magnetic Energy (power): Energy is stored in permanent magnets because a magnet can move a piece of iron-thus doing work on it. vi) Nuclear Energy (power): The heat and light of the Sun is produced when hydrogen atoms join together to form helium. The atoms store energy in their nucleus. The nuclear energy released when atoms split up is used in power stations to generate electricity. Nuclear energy is also when an atom bomb explodes. vii) Potential Energy and Kinetic Energy (power): Potential energy is the energy possessed by a body due to its position or change in shape. Kinetic energy is the energy possessed by a body on account of its motion. Both potential energy and kinetic energy are forms of Mechanical Energy (power). viii) Alternative Sources of Energy (power): India has today among the worlds largest programmes for renewable energy. The spectrum of Renewable and non-conventional energy covers Solar Energy (power), Wind Energy (power), Biomass (power), Tidal (Ocean) Energy (power) and Geothermal Energy (power). ix) Wind Energy (power): The flow of air is called wind. Wind possesses kinetic energy by virtue of its motion. The kinetic ener....
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....e Act, in respect of profits/gains derived from the generation of the Cooling Power. The assessee filed details of generation of power for the A.Y. 2005-06, 2006-07, 2007-08 & 2008-09 at its Cooling Power generation undertaking at Chiplun including its value and also of Cooling Power at its Cooling Power generation undertaking at Sandila. It was explained that Production of Cooling Power began at the Cooling Power generation undertaking at Chiplun on 2.8.2002 and at its Cooling Power generation undertaking at Sandila on 22.3.1997. 21. The assessee also relied on an International Patent Number W02004094928 on Cooling Power titled Absorption Chiller For The Production Of Cooling Power from Low Temperature Hot Water (Copy enclosed at Page No 96 to 137 of the Continuation No 2 of Paper Book No III) granted under International Application Number PCT/GR2004/000025 bearing International Patent Classification F35B17/08. This Patent is valid in 96 countries of the world including India. This confirms the existence, generation and utilization of Cooling Power. The relevant portion of this patent is as under: "The transformation of thermal energy into cooling power is a technology known an....
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.... is no oxygen and it is pumped into Anaerobic biogas digesters. The assessee's produces biogas in a methane digester where complex microbial mixtures are required to produce methane gas from the effluent. The numbers and type of bacteria in the anaerobic digester depend upon the composition of the effluent and the operating conditions of the digester. Methane gas is produced by a chemical reaction from the effluent by a process of anaerobic digestion which is used as a raw material to fuel specialized boilers in order to produce steam which again is a form of Power. In the boiler water is added and the boiler is heated through biogas to produce Steam Power. The Steam Power generated is sold to yeast manufacturing unit where it is captively consumed. The biogas so produced contains hydrogen sulphide which is removed by passing it through a scrubber in a sulphur removal plant which includes a reactor. Biogas is then transported through pipe lines to boilers where biogas is fired in the boiler to produce steam power. Steam power is then sold and transported through insulated pipelines to the yeast factory. The generation of steam power at the assessee's Steam Power generation undertak....
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....ified by the AO. The production of steam power at assessee's Steam Power generation undertaking at Sandila began on 31.01. 2000 and at Chiplun began on 01.03. 2001. 26. The assessee relied on Patent No: JP2005152851 on Power Generation method using Biogas and Biogas Power Generation system, (Copy enclosed at Page No 143 to 157 of the Continuation No 2 of Paper Book No III), wherein the biogas generating system and method of power generation using biogas has been described. This patent is very much relevant and supports the assessee's contention that biogas is a source of power which is used for the generation of steam power. The assessee relied on United States America Patent No. 5423247 on Environmental Steam Energy Storage. A part of the invention is reproduced below: "This invention relates to an environmental Steam Energy storage method and device which is able to transfer heat originating in heated water in a container for use for many purposes e.g. to transfer such heat to food products in the water or to beverages dissolved in the water, in an efficient manner and at atmospheric pressure. This invention also relates to such a method and device which is able to transfer he....
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....ein, while applying Section 80IA of the Income-tax Act, the Hon'ble Supreme Court took a view that the value of steam used for captive consumption by the assessee was entitled to be deducted under Section 80 IA of the Act. On behalf of the Revenue, reliance was placed upon the circular of the Central Board of Direct Taxes dated October 3, 2001, and contended that the assessee was not entitled for the deduction. After making a detailed reference to the contents of the said circular, the Division Bench has stated as under in paragraph 13 of the judgment: "13. A perusal of the above said circular would clearly show that it is also in favour of the assessee. The said circular is very specific that in a case of captive power unit the provision of law is also the same as in the case of the undertaking which generates and distributes the power to any other concern. Further, it is a well-established principle of law that a circular can only be made in consonance with the provisions of the enactment and the same cannot be derogatory to the purport sought to be achieved. Hence, we are of the opinion that the circular relied upon by the learned counsel for the Revenue is in fact in fav....
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....f merit in the claim of the 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. 10. Hence the contention of the learned counsel for the Revenue has no legal basis. It is a well settled principal of law that court while interpreting the provision will have to see the object of the enactment and its provisions. Hence, we are of the opinion that the interpretation sought to be made by the Revenue would be fact frustrate the vary purpose for which for which the benefit is provided in the said provision and therefore the same cannot be countenanced. 11.In this context, we find that a decision of the Hon'ble the Supreme Court in CIT v. TANFAC INDUSTRIES LTD. S.L.P. (C) No.18537 OF 2009 reported in 319 ITR (Statutes),8, fully support the stand of the assessee. That was also a case where while applying Section 80-IA of the Income Tax Act, the Hon'ble the Supreme Court took the view that the value of steam used for captive consumption by the assessee was entitled to be deducted under Section 80-IA of the....
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....ms the benefit of deduction under Section 80-IA, the industrial user undertaking will not be eligible for claiming similar deduction in respect of the aforesaid power generating plant. Further, the user undertaking should also not debit the expenditure incurred by the captive power generating undertaking in its own profit and loss a/c." 13. A perusal of the above said Circular would clearly show that it is also in favour of the assessee. The said Circular is very specific that in a case of Captive power unit the provision of law is also the same as in the case of the undertaking which generates and distribute the power to any other concern. Further, it is a well established principle of law that a Circular can only be made in consonance with the provisions of the enactment and the same cannot be derogatory to the purport sought to be achieved. Hence we are of the opinion that the Circular relied upon by the learned counsel for the Revenue is in fact in favour the assessee and therefore the said contention also cannot be accepted." (emphasis supplied) In the case of Prabhu Spinning Mills Pvt. Ltd. vs. DCIT (2012) 31 CCH 277 the ITAT held that: "18. In so far as the second i....
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.... from its own power plant would enable the respondent/ assessee to drive profit and gains by working out the cost of such consumption of power inasmuch as the assessee is able to save to that extent which would certainly be covered by section 80-IA(1). When such will be the outcome out of own consumption of the power generated and gained by the assessee by setting up its own power plant, we do not find any lack of merit in the claim of the 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 profit and gains for the relevant assessment years." West Coast Paper Mills Ltd. vs ACIT [2014] 33 ITR (T) 560 (Mumbai - Trib.) - wherein ITAT, Mumbai held as under: "The assessee's claim under section 80-IA, with regard to unit No. 6 is that it has installed a power unit in the form of chemical recovery boiler for the generation of steam. This steam is used firstly, to rotate the turbine which generates electrical power for the assessee which is used in the paper manufacturing process and secondly, for drying of the pulp. For the first use, the steam so g....
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.... consumption) can be said to be for generation of power. 30. Cooling Power Produced by Ammonia Absorption Refrigeration Plant (AARP). The assessee claimed that the production of Cooling Power from Ammonia Absorption Refrigeration Plant at the assessee's undertaking at Sandila began on 28.02.2002. The assessee produced 3,37,631 Tonnes of Refrigeration of Cooling Power from AARP valued at Rs. 53,04,183 at its undertaking at Sandila. The cooling power generation from Ammonia Absorption Refrigeration Plant at the assessee's undertaking at Sandila is a standalone unit and it is in no way connected with the yeast manufacturing factory. This power generation undertaking has separate plant and machinery and it uses separate labour. Even the AO has not negative any of the contentions of the assessee regarding the claim of deduction on this activity u/s 80IA of the Act. Even this is supported by learned Counsel by relying on Patent No. WO 2004094928 issued by World Intellectual Property Organization on Absorption Chiller for Production of Cooling Power from Low Temperature Hot Water wherein the invention relating to production of cooling power from low temperature hot water has been patente....
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....arate undertaking was set up by the assessee for generation of power as: (a) Name in Form 10CCB was Saf Yeast Company Pvt Ltd which is the name of assessee company and it is engaged in production of yeast (b) Address mentioned is the same as that of assessee for producing yeast. (c) No separate permission obtained from Central Government or State Government or local authority for carrying on the eligible business as stated in Rule 18BBB. (d) No mention about business of power generation in Form 3CD and Schedule N of statutory report of auditor. (e) No separate segmental reporting for power generation business as per AS 17. (f) No books of accounts maintained for power generation undertaking (g) No purchase or sales in name of undertaking. HO does not even have a contra entry against power plant. (h) Power generation is not the main business of the assessee. (i) No claim for depreciation at special rates for assets claimed by assessee as allowed under section 32(1)(i) for undertaking engaged in generation and distribution of power. The CIT(A) replied each of the objection of the AO as under: - (a) There is no need or statutory obligation to have a dif....
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.... and it was established by the assessee that actual production started after 01.04.1958. The said decision relied on by the AO is inapplicable. 34. The assessee submitted Factory Inspector's Certificate in respect of Cooling Power and Steam Power undertakings at Sandila and of Cooling Power generation and Steam Power generation undertakings at Chiplun and that these power generation undertakings are separate and distinct from the yeast manufacturing unit. The power produced in these power generation undertakings are used for captive consumption in the yeast manufacturing unit. The assessee has separate plant and machinery for its Steam Power generation undertaking and Cooling Power generation undertakings which is distinct and separate from the yeast manufacturing unit. In this regard the assessee relied on Factory Inspector's certificates dated 08.11.2006, a copy of which is enclosed. Further this fact has also been appreciated by the AO who in the last few paras of the remand report stated as under: "The Assessee has submitted the copy of factory inspector's certificate in respect of cooling power plant and biogas power plant. The certificate revels that the cooling power plan....
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....ogy and the mechanism of production. In CIT vs. Chanda Diesels 216 ITR 639 (BOM), Hon'ble Bombay High Court examined the meaning of 'Industrial Undertaking' in the context of a claim of section 80HH of the Act and held that if a new industrial unit is established as a part of an existing industrial establishment and if the newly established unit is itself an integrated independent unit in which new plant and machinery is put up and that by these is capable of production of goods independently, the said unit could be classified as a newly established industrial undertaking for the purpose of deduction under Section 80HH. Hon'ble Madras High Court in another case CWT vs P. Devasahayam 236 ITR 885, interpreted an industrial undertaking as an undertaking engaged in the business of generation or distribution of electricity or any other form of power. 37. The AO has taken an objection that the power generation unit is a part of a larger undertaking and assessee's power generation undertakings are not independent unit with a distinct name, address or product and that in various documents filed before various Government authorities, the name and address of the factory is that of "Saf Yeas....
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....ons. In fact the AO not been able to state what permission was necessary because in fact no such permission was required for undertakings generating steam power and cooling power. The assessee relied on a judgement of Hon'ble Allahabad High Court in the case of CIT vs Hanuman Rice Mills (275 ITR 79), wherein it was held that "Following the decision in CIT v. Sultan and Sons Rice Mill [2005] 272 ITR 181 (All.), it was to be held in the instant case that the Tribunal was legally correct in allowing the assessee's claim under sections 80J and 80HH. These provisions do not require that the industrial undertaking should be registered under the Factories Act, 1948 to qualify for the deductions under the said provisions." 39. The assessee's contention that the AO erred in taking the recourse to accounting standards (AS) for segment reporting. There is no requirement in the entire Section of 80-IA of the Act for reporting of a separate segment in the Accounts. Accounting Standards are prescribed under the Companies Act. Income tax authorities cannot derive adverse inference merely since the assessee took a view that segment reporting is only required for the manufacture of yeast. Furt....
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....rnished by each undertaking or enterprise of the assessee claiming deduction under Section 80-IA of the Act and the same shall be accompanied by a P/L Account and Balance Sheet of the undertaking or enterprise as if the undertaking or the enterprise were a distinct entity. The assessee has duly submitted the report in prescribed form along with separate a Profit and Loss Statement for each power generation undertaking which are at page no 195 to 473 of assessee's Paper book. The AO cannot deny deduction merely on the ground that the business of power generation namely cooling power generation undertakings and steam power generation undertakings were not mentioned in Form 3CD audit report. Further, that there is no requirement mentioned in Section 80IA of the Act to the effect that the business of power generation should be mentioned in the Form 3CD audit report nor is there any rule under the Act to that effect. 41. The AO also disallowed on the ground that no claim for depreciation at special rates for assets claimed by assessee as allowed under Section 32(1)(i) of the Act for undertaking engaged in generation and distribution of power. The AO noted that the assessee has charged ....
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....s Section 32A(2) of the Act clause b(i) is concerned, the wording of said provision is as under: "(2) The ship or aircraft or machinery or plant referred to in sub-section (1) shall be the following, namely :- (c) a new ship or new aircraft acquired after the 31st day of.............; (d) any new machinery or plant installed after the 31st day of March, 1976,- (iv) for the purposes of business of generation or distribution of electricity or any other form of power ; or (v) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing ; or (vi) in any other industrial undertaking for the purposes of .......................... [Provided that nothing contained in clauses (a) and (b) shall apply in relation to,-" 43. In view of the above, it was explained that it is clear from the said provision that generation of the electricity or any other form of power, it should be for the purpose of doing the business and there is no concept for using the power for captive generation. Another distinguishing feature is that so far as the plant and machinery installed in a theatre is concerned, the mandatory condition....
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....yeast manufacturing activity of the assessee is incorrect. In the case of Sirpur Paper Mills Ltd.(supra), a similar objection was raised by the Revenue as in that case the steam generated was used in the paper making process. Ground No 6 of the Revenue's Appeal in the Sirpur Paper Mills case was that the steam is directly used in the paper making process and hence the steam producing facility cannot be treated as a separate or independent undertaking. It was held by the Hon'ble Hyderabad Bench of the Tribunal that, "Ultimately the determinative factor would be whether the undertaking is producing a different article or thing or not whether for sale to outsiders or for captive consumption. The steam generated by the two units may be useful in the paper manufacturing process. But even then the question to be asked is whether it is a product which is capable of being sold to outsiders. The answer to this question has to be in the affirmative. The assessee itself may not have sold it to any outsider but the same is capable of being sold to any State Electricity Board or for that matter to any electricity generating unit. In fact, we see no reason why the same cannot be sold to anyone....
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....commencing in the AY in which the power generation activity begins. In this regard the assessee relied on Hon'ble Delhi High Court the case of Praveen Soni vs CIT (2011) 241 CTR 542. Cooling Power generation undertaking at Sandila commenced in AY 1997-98 and assessee exercised its option and claimed deduction u/s 80IA of the Act from AY 2003-04 onwards. Similarly, the Cooling Power generation undertaking at Chiplun commenced in AY 2003-04 and the assessee exercised its option and claimed deduction u/s 80IA from AY 2004-05 onwards. At the assessee's Steam Power generation undertaking at Sandila was set up in FY 1999-2000 at a cost of Rs. 84 Lacs and commencement of production of steam power was 31.01.2000 with percentage of new assets at 98.38% and therefore was well above the 80% statutory limit. Similarly, the assessee's Steam Power generation undertaking at Chiplun was set up in FY 2000-01 at a cost of Rs. 59.25 Lacs and commencement of production of steam power was 01.03.2001. The percentage of new assets was 96.39% and therefore was well above the 80% statutory limit. 46. The next objection of the AO was that unlike electric power, refrigeration power and steam power cannot be....
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....lause (b ) transmission and distribution lines are mentioned which could be of electricity only. However, the submission of the assessee in this regard was appropriate that sub-clauses (a), (b) and (c ) of section 80-IA(4)(iv) provide for deduction in the cases of three types of undertakings, viz., the first which is engaged in generation or generation and distribution of power; the second, which starts transmission or distribution lines; and the third, which undertakes substantial renovation and modernization of the existing network of transmission or distribution lines. All these three clauses deal with the three different categories of the undertakings. These three types of undertakings referred to in the said sub-clauses (a), (b) and (c ) are different and independent of each other. Thus, while dealing with one sub-clause, inference need not and cannot be drawn from the other sub-clause. On a perusal of those provisions, the plea of the assessee was correct that its case fell in sub-clause (a) itself and the legislative intent inferred by the Assessing Officer with reference to sub-clause (b) was superfluous, just like there are transmission or distribution lines for electricit....
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....s judgment was upheld by the Hon'ble Supreme Court as reported in (2010) 319 ITR (St) 8. ii) In the case of West Coast Paper Mills Ltd. vs. ACIT (2014) 52 Taxmann.com 268the ITAT held that: "As the Assessing Officer put it if the assessee has not realized any revenue by selling the power to outsiders, can the assessee be held to be entitled for deduction under section 80IA of the Act? the Assessing Officer was of the view that it is only an inter-division transfer and there was no revenue realized by it and consequently there was no derivation of profit or income in the business of industrial undertaking. The questions raised by the Assessing Officer have all been answered by the Supreme Court in the case of Orient Paper Mills Ltd., 176 ITR 110 SC ITAT allowed deduction u/s 80IA for power generated and consumed captively. III) CIT vs. Thiagarajar Mills Ltd. Tax Case (Appeal) Nos. 68 to 70 of 2010 Madras High Court held: "9.Therefore, there is no difficulty in holding that captive consumption of the power generated by the assessee from its own power plant would enable the respondent/assessee to derived profit and gains by working out the cost of such consumption of po....
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.... would require examination at the level of Assessing Officer to ensure that they are at arms' length and that the provisions sub-section (8) of Section 80-IA are not attracted adversely. iii)Any grant of deduction under Section 80-IA of the Income Tax Act, 1961 should not be taken to legitimate something not permissible under the provisions of the Electricity Supply Act and related laws of various states and union. Where an undertaking generating captive power for the exclusive use of another industrial undertaking claims the benefit of deduction under Section 80-IA, the industrial user undertaking will not be eligible for claiming similar deduction in respect of the aforesaid power generating plant. Further, the user undertaking should also not debit the expenditure incurred by the captive power generating undertaking in its own profit and loss a/c." A perusal of the above said Circular would clearly show that it is also in favour of the assessee. The said Circular is very specific that in a case of Captive power unit the provision of law is also the same as in the case of the undertaking which generates and distribute the power to any other concern. Further, it is a well....
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.... Ltd. vs. DCIT reported in (2012) 31 CCH 277 the ITAT held that: "18. In so far as the second issue regarding captive consumption is concerned, it is, admittedly, covered by the decision of the Hon'ble Madras High Court rendered in the case of CIT vs Thiagarajar Mills Ltd in Tax Case (Appeal) Nos. 68 to 70 of 2010, in favour of the assesse. Paragraphs 8 to 11 of the decision are reproduced herein below: 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 profit or gains derived by the assessee as mentioned in Section 80-IA(1) of the Income-tax Act, has been rejected by the Tribunal in the order impugned. In our considered view, the Tribunal was well justified in having rejected such a stand of the tax Act, we are also convinced that what are all to be satisfied in order to be eligible for the deduction as provided under sub-section (1) of section 80-IA the assessee should have set up and an undertaking or an enterprise and from and out of such an undertaking or an enterprise set up, any profit or gain is derived, falling under sub-section covered by sub-section(....
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.... claimed that copies of Form 10CCB for AY 2005-06 to AY 2008-09 along with Profit and Loss and Balance sheet of each eligible undertaking is enclosed as part of assessee Paper book No I at Pages no 195 to 473 as follows: AY Cooling Power Chiplun Steam Power Chiplun Cooling Power Sandila Ammonia Absorption Recovery Plant Sandila (Refrigeration power) Steam Power Sandila 2005-06 Pg 195 to 201 Pg 202 to 208 Pg 209 to 215 Pg 216 to 222 Pg 223 to 229 2006-07 Pg 288 to 294 Pg 295 to 301 Pg 302 to 308 Pg 309 to 315 Pg 316 to 322 2007-08 Pg 376 to 382 Pg 390 to 396 Pg 383 to 389 - Pg 397 to 403 2008-09 Pg 446 to 451 Pg 459 to 466 Pg 452 to 458 - Pg 467 to 473 51. The assessee explained the brief facts relating to Deduction Claimed For Generation of Cooling Power that the cost of generating cooling power has been arrived at based on actual cost records maintained and duly audited. Further for office and administrative expenses, these are based on the salary of one administrative staff each for its Cooling power generation undertakings at Chiplun and Sandila. The cost of each undertaking is recorded location wise in the audited financial statement enclose....
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....2 kW). The Appellant has enclosed RapidTables.com at Page Nos 349 to 352 of Continuation No. 2 of Paper Book No. III which evidences the fact that 1 Tonne of Refrigeration [1TR] = 3.517 kilowatts (kW) of electric power. 53. Thereafter, the assessee applied the rate of Rs. 8.17, Rs. 8.17, Rs. 8.17, Rs. 8.99 respectively per TR for the A.Y. 2005-06, 2006-07, 2007-08, 2008-09 which was lower than rate of electricity as per electricity bill for the Cooling Power generation undertaking at Sandila and the rate of Rs. 4.92, Rs. 8.17, Rs. 8.17, Rs. 8.99 respectively per TR for the A.Y. 2005-06, 2006-07, 2007-08, 2008-09 which was also lower than rate of electricity as per electricity bill for the Cooling Power generation undertaking at Chiplun. The same are as under:- Cooling Power Generation Undertaking at Sandila AY Price Per Unit of Kw as per U.P. Electricity Board Rate per TR at conversion rate of 1 TR = 3.517 Kw Rate per TR adopted by the Appellant in the computation of deduction Section 80IA in the return 2005-06 Rs.3.61 3.61X 3.517=Rs.12.69 Rs.8.17 2006-07 Rs.3.62 3.62X3.517=Rs.12.73 Rs.8.93 2007-08 Rs.3.92 3.92X3.517=Rs.13.78 Rs.8.17 2008-09 Rs.....
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....conversion of 1 Tonne of Refrigeration equal to 3.52 kW of electricity as adopted by the assessee is much on the higher side and instead the rate of 1 Tonne of Refrigeration equal to 1.02 kW of electricity being rate applicable for modern chilling plant as per an article by one Henry Manczyk, which has been relied by CIT(A). The CIT(A) followed AY 2003-04 and held the conversion value of 1 Tonne of Refrigeration (TR) at 3.52 kW of electric power is on the higher side which has ultimately resulted in higher figure of profit. He referred to an article "Refrigeration Chiller Performance Analysis at Various loads" by Henry Manczyk, Director of Facilities Management, Lau Chester, NY dated April 2003, wherein he stated as per this analysis a modern chilling plant could produce 1 tonne of refrigeration for an average of 1.02 KW of electrical energy. The CIT(A) by adopting 1.02 KW as the rate of conversion rate instead of 3.52 kW adopted by the assessee, converted the tonnage of refrigeration power to electric power in kilowatts (KW) and thereafter applied a rate of Rs. 4.63 per KW (being the state Electricity Board's price of electricity at the relevant time) and he computed the profit of....
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.... Cooling Power Generation Undertakings At Chiplun AY Price Per Unit of Kw as per Maharashtra State Electricity Board Rate per TR at conversion rate of 1 TR = 3.517 Kw Rate per TR adopted by the Appellant in the computation of deduction under Section 80IA in the return 2005-06 Rs.3.61 3.61X3.517=12.69 Rs.8.17 2006-07 Rs.3.62 3.62X3.517=12.73 Rs.8.17 2007-08 Rs.4.49 4.49X3.517=15.79 Rs.8.17 2008-09 Rs.4.52 4.52X3.517=15.89 Rs.8.99 57. The assessee also placed reliance on the order in the case of Sirpur Paper Mills Ltd. ITA Nos. 425/Hyd/01, 547/Hyd/06, 545/Hyd/06, 963/Hyd/06 vide order dated 18.05.2007, wherein it was held that each unit of steam should be valued at the same price at which the Andhra Pradesh State Electricity Board sold electricity and that the State Electricity Board rates are the true representative of the market rate. 58. The next Deduction claimed for Cooling Power Produced from Ammonia Absorption Recovery Plant (AARP) undertaking at Sandila for the first time in AY 2004-05 and thereafter for AY 2005-06 and AY 2006-07. CIT(A) in Para 32 of appellate order for AY 2004-05 allowed the claim of deduction of the assessee un....
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....nsideration, 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. Since Steam which is generated at Chiplun and Sandila by the assessee at its Steam Power generation undertakings is captively consumed by the yeast manufacturing factories, the assessee in order to arrive at the market value of such goods taken the electricity rates of Maharashtra State Electricity Board and U.P. State Electricity Board as a base and has assigned the notional value of sales as under. For a few years the notional sales value was lower than price of electricity from state electricity boards as shown below. Further 1 Kg of steam is equivalent to 1 KW of electric power and computed as under:-. Steam Power Generation Undertaking At Sandila AY Price Per Unit of Kw as per UP Electricity Board Rate per Unit adopted by the Appellant in the computa....
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....steam power generating undertaking at Sandila as follows: Sales receipt - Rs. 87,67,180 Less 25% = Rs. 65,75,385 Expenses - Rs. 29,64,619 Profit - Rs. 36,10,766 Deduction u/s 80 IA - Rs. 36,10,766/- Aggrieved, assessee preferred appeal before Tribunal. 64. The assessee claimed that they have valued each unit (kg) of steam power produced at their undertaking at Sandila at Rs. 2.21, Rs. 2.11, Rs. 5.71, Rs. 5.71 for the AYs 2005-06, 2006-07, 2007-08, 2008-09 respectively and valued each unit (kg) of Steam Power produced at their undertaking at Chiplun Rs. 0.82, Rs. 1.08, Rs. 4.34, Rs. 5.71 for the AYs 2005-06, 2006-07, 2007-08, 2008-09 respectively. It was argued that a similar objection was taken in the case of Sirpur Paper Mills Ltd. ITA Nos. 425/Hyd/01, 547/Hyd/06, 545/Hyd/06, 963/Hyd/06 vide order dated 18.05.2007 in which case that assessee was also generating steam which was captively consumed in its paper manufacturing factory. Tribunal's Hyderabad Bench in Para Nos 20 to 26 which is on Page 244 to 247 of the Paper book held that the true representative of the market price can only be the price of A.P. State Electricity Board (APSEB) because they are the major p....
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....ssessee]." Further, Hon'ble Supreme Court in the case of Thiru Arooran Sugars Ltd vs. CIT (227 ITR 432) held: "Section 2(1A) of the Income-tax Act, 1961, read with rule 7(2) of the Income-tax Rules, 1962 - Agricultural income - Assessment years 1962-63 to 1967-68 - Whether formula contained in clause (b) of rule 7(2) will apply only in cases where agricultural produce is not ordinarily sold in market in its raw state or after any process applied to it to make it marketable - Held, yes - Whether in order to apply rule 7(2)(a), existence of an open market where buyers and sellers come together to do business is an essential pre-requisite - Held, no -Whether where there is no such open market an estimate of market price will have to be done on a hypothetical basis - Held, yes - Assessee-sugar manufacturer cultivated sugarcane and also purchased sugarcane from other individual cultivators presumably from door steps of cultivators -Whether, on facts clause (a) to Rule 7(2) applied and price paid by assessee to cultivators should be taken as market price and non-agricultural income had to be arrived at accordingly - Held, yes" 66. Further, assessee also relied on the following judi....
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....this Court, held that there is no difficulty in holding that captive consumption of the power generated by the assessee from its own power plant would enable the assessee to derive profits and gains by working out the cost of such consumption of power inasmuch as the assessee is able to save to that extent which would certainly be covered by section 80-IA(1). When such will be the outcome out of own consumption of the power generated and gained by the assessee by setting up its own power plant, there is no lack of merit in the claim of the assessee when it claimed by relying upon section 80-IA(1) 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. [Para 4]" 67. We have heard rival contentions and gone through facts and circumstances of the case. We find that in the assessment orders the AO has stated that the assessee has reported net profit rates for the Assessment Years 2005-06, 2006-07, 2007-08, 2008-09 respectively for manufacturing of yeast @2.75%, 14.97%, 23.13%, 26.41% and that this should be the basis for calculating profits of power generation undertakings. The net profit rates o....
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....ssion and facts of the case, case laws cited of courts, we finally held as under: - (i) That the assessee has generated steam power from bio-gas, (ii) Generation of cooling power from cooling towers and (ii) Cooling Power from Ammonia Absorption Refrigeration Plant These are entitled for deduction under section 80IA of the Act at their plants at Sandila and Chiplun for the AY 2005-06 to 2008-09. We agree with the findings of CIT(A) on the above reasoning recorded. Even, the assessee's power unit is established as part of existing industrial establishment and the newly established unit itself is an integrated independent unit in which new plant and machinery is put up and that why these is capable of production are classified as newly established undertaking in the given facts and circumstances of the case. 70. In regard to quantum of deduction, the assessee has to take the electricity rate of Maharashtra State Electricity Board and U.P. State Electricity Board as a base for computing the rates. The notional sale value is to be converted from TR to KW, the conversion of the Tons of Refrigeration to Kilowatts being the unit of measurement for electric power, it should be take....