TaxTMI 
TaxTMI 
2017 (11) TMI 1480
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....the deduction u/s 80IA of the Act for generation 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. ....
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....power and steam power for Sandila for the first year in AY 2003-04. The AO disallowed 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 ....
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....ny other form of power. If the assessee's argument is accepted, these provisions would also encourage 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 ....
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....ld be force multiplied by distance divided by time or force multiplied by velocity. Any form of energy can be converted to produce power 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 u....
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....mall-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing ; or (iii) in any other industrial undertaking for the purposes of .......................... 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 Sec....
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....f say and as admitted by the Departmental Representative that energy is capacity to do work. In this case, the steam definitely produces thermal energy, which evaporates water from cane juices to produce sugar. 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 ....
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....rical Power' instead of the connotation as 'Power' which is omnibus. Similarly, the Mumbai Bench of ITAT in the case of DCW Ltd vs ACIT (37 SOT 322) relied on the decision of Hon'ble Madras High Court in the case of Tanfac 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....
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....r due to energy of the sound. Hence, sound is a form of energy. iv) Electrical Energy (power): When you switch on the radio or music system, electric current passes into it and produces sound. The set also gets heated up. Electricity can produce heat, light and sound energy. Hence it is 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....
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....er Book No III (Sr No 10 to 14) at Sr No 14A after page 763) 20. The Ld Counsel explained the facts of the present case that Cooling Power generated at the assessee's Cooling Power generation undertakings is put to captive use in the manufacture of yeast. The assessee claimed that it is entitled to claim deduction under Section 80-IA of the 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 ....
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.... distinct from the assessee's yeast manufacturing factory. In this regard the assessee relied on Factory Inspector's certificate dated 08.11.2006. 24. The learned Counsel also explained the Generation of Steam Power from Biogas by stating that the effluent (thick black liquid) generated in the process of manufacturing yeast is collected in lagoons where there 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 passin....
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....as is fired in boilers to produce steam power. Steam power is then sold and transported through insulated pipelines to the yeast factory where it is captively consumed. For the AYs 2005-06, 2006-07, 2007-08 & 2008-09, Steam Power generation undertaking at Chiplun and Sandila produced steam power valued, the details of which are given by the assessee and can be verified 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 environment....
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.... the assessee entitled to claim a deduction under Section 80-IA of the Act. The Hon'ble Madras High Court in case of Tamilnadu Petro Products Ltd. vs. ACIT (2011) 238 CTR 454 held that: "5. The Division Bench also relied upon the decision of the Hon'ble Supreme Court in CIT v. Tanfac Industries Ltd., S.L.P. (C) No. 18537 of 2009 reported in [2009] 319 ITR (St.) 8 wherein, 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 undertaki....
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....own power plant would enable the respondent/assessee to derived profit and gains by working out the cost of such consumption of power in as much 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 of 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 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 dec....
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....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. iv) 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." 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 ....
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....pression 'derive' in the New Oxford Dictionary of English states "obtaining something from a specified source." In section 80-IA(1) also no restriction has been imposed as regards the deriving of profit or gain in order to state that such profit or gain derived only through an outside source alone would make eligible for the benefits provided in the said section. 19. 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 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 ....
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....ricted to generation of electricity alone, is too narrow a view. The term "power" encompasses a whole range of energy generated in various forms to run machines, devices, etc." 29. The Mumbai Bench of the Tribunal relying on the decisions in the case of SIAL SBEC Bioenergy Ltd. vs. DCIT (2004) 83 TTJ (Del) 866 held that generation/ production of steam is also a form of power and the unit of the assessee which is an undertaking set-up for generation of steam for its manufacturing process (i.e. for captive 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 ....
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....wer cost during the year in Sandila unit of Rs. 5.32 and therefore reduced the claim from Rs. 23,31,945 to a loss of Rs. 10,44,728. He therefore held that since net result is negative figure or a loss no deduction would be available to the assessee. 32. The AO also of the view that no "undertakings' was set up and for this he relied on decision of Hon'ble Madras High Court in the case of Madras Machine Tools Manufacturers Ltd vs CIT (1975) 98 ITR 119 for the meaning of the word undertaking. He further held that no separate 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....
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....ovisions of Section 80IA(4)(iv) of the Act, there is no requirement that assessee should have an independent undertaking for the generation of power alone. More over in this case, the issue before Hon'ble Madras High Court was in the context of whether that assessee was engaged in the manufacture of lathes, grinders and other heavy machinery and that there was no manufacturing or production of articles or things before 31.5.1958 and hence whether a benefit would be available under Section 84 of the Act. It was held that the benefit of erstwhile Section 84 of the Act could be claimed as from the material available on record 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 man....
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....arning of profits clearly attributable to the said new undertaking, and 5. Above all, a separate and distinct identity of the industrial unit set up. 36. Similarly, Hon'ble Gujarat High Court in the case of Gujarat Alkalies & Chemicals Ltd vs CIT (350 ITR 94) while relying on the judgement of Textile Machinery Corpn. Ltd. vs. CIT [1977] 107 ITR 195 further held that so far as the fifth test is concerned i.e. a separate and distinct identity, only because to a certain extent the new undertaking is dependent on the existing unit, will not deprive the new undertaking the status of a separate and distinct identity. It all depends on the nature of the technology 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 clas....
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....any permission from Central Government. Further though sub-clause (4) of Rule 18BBB of the Income Tax Rules, 1962 prescribes submission of copy of the agreement, approval or permission, as the case may be, to carry on the activity signed by the Central Government or the State Government or the local authority for carrying on the eligible business, this rule mandates that certificate has to be furnished only where permission should be necessary. The assessee argued that there is no specific approval required for carrying on business of generation of steam power and cooling power and hence it is incorrect for the AO to contend that it did not obtain the requisite permissions. 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 c....
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....torily obliged the assessee to maintain its accounts unit-wise and that it was open to maintain its accounts in a consolidated form and that unit-wise net profits could be prepared by the Auditors from the Consolidated Books of Accounts and on that basis compute deduction under Section 80HH / 80I of the Act. The judgement squarely applies to the assessee's case. 40. The AO has also sought to deny the deduction u/s 80IA of the Act by stating that there is no mention about business of power generation in Form 3CD and Schedule N of statutory report of the auditor. The assessee stated that Section 80IA of the Act only mandates that a separate report in Form 10CCB is to be furnished 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....
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....sure of exercise of option by an assessee." 42. Further, the assessee explained that the AO relied on a decision of P & H High Court in the case of CIT vs Suraj Theatre (274 ITR 558) to support his erroneous contention that captive generation of the electricity is not eligible for investment allowance u/s 32A of the Act. The assessee, in that case was engaged in the business of exhibition of motion pictures and a generator was installed for running a cinema hall and issue before High Court was whether a theatre is an industrial undertaking and whether a generator installed in a theatre is for the purpose of business of generation of electricity or any other form of power. As far as 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 ; o....
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.... the assessee's own case in the assessment year 2002-03 in I. T. A. Nos. 429/Coch/2006 and 377/Coch/2009 and decided the same in favour of the assessee. 29. We notice that the Tribunal has considered an identical issue in the assessee's own case in its order referred supra in paragraphs 89 to 93 and has held that the assessee-company is entitled to deduction under section 80-IA of the Act in respect of the new DG power generation units. Since the decision rendered by the learned Commissioner of Income-tax (Appeals) is in accordance with the decision of the Tribunal, we do not find any reason to interfere with the same." 44. Insofar as the findings of the AO that the Cooling Power and Steam Power undertakings are part of the 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 undertaki....
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.... the new undertaking. A new cooling tower was installed in FY 1996-97 at the assessee's Cooling Power generation undertaking at Sandila for Rs. 11,66,810. The percentage of new assets in this undertaking is 96% which is much more than the statutorily prescribed limit of 80%. This undertaking commenced production on 22.3.1997. A new cooling tower was installed in FY 2002-03 at the assessee's Cooling Power generation undertaking at Chiplun for Rs. 9,77,640. The percentage of new assets in this undertaking is 97.11% which is much more than the statutorily prescribed limit of 80%. This undertaking commenced production on 2.8.2002. A perusal of Section 80IA of the Act would show that deduction can be claimed for any 10 consecutive years out of 15 years 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....
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.... scientifically in general parlance, 'production of steam', and 'generation of steam' or for that matter, 'production of electricity' and 'generation of electricity', shall have the same meaning whichever of the two be the item under consideration. In this regard, the assessee had also referred to the definition of word 'generate' under section 2(29) of the Electricity Act, 2003 as per which 'generate' means to produce electricity from a generating station for the purpose of giving supply to any premises or enabling a supplier to be so given. The Assessing Officer had tried to point out the intention of the Legislature by referring to section 80-IA(4)(iv)(b ) to infer that its intention is to provide benefit to the generation of electricity only, since in the sub-clause (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 di....
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....; used in section 80-IA(8) means value determined by market forces - Held, yes - Whether, in instant case, market forces would come into picture only when assessee bought power from State Electricity Board like any other consumer - Held, yes - Whether since price paid by assessee was Rs. 3.50 per unit, it had to be taken into account while computing amount of eligible profit available for deduction under section 80-IA - Held, Yes" 49. The assessee relied on following decisions wherein it was held that Captive consumption power generated is eligible for deduction u/s 80-IA ; i) CIT vs. TANFAC Industries Limited Tax Case No.1773 of 2008 wherein it was held by Hon'ble Madras High Court that Steam generated and consumed captively would be eligible for deduction u/s 80IA. This 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? t....
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....element of commercial profit and gains by the power generating undertaking from the Industrial user, the provisions of the Act with reference to the benefit of deduction under Section 80-IA to such said undertaking, would be available, within the frame work of law and subject to the following:- i) The tax holiday provisions under Section 80-IA came into effect from the date such an undertaking begins to generate power. In a captive power plant, the date of generation may require determination by the Assessing Officer with reference to initial date on which such captive power plant starts generation. ii) Where a captive power plant is merely hived off as a separate entity and not sold to a third party, owing to the close connection between the power generating undertaking and its industrial user undertaking, the transactions 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 provis....
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....ee's claim on said ground - Held, yes - Whether as regards second ground, incomes and expenditures which were not directly relatable to industrial unit had to be ignored and, therefore, Commissioner (Appeals) was not justified in allocating indirect expenses not directly relatable to industrial unit of assessee for purpose of computation of its income for deduction under section 80-IA - Held, yes - Whether as regards third ground, sale of sludge did not amount to income derived from industrial undertaking and, therefore, it was not eligible for deduction under section 80-IA - Held, yes - Whether, however, in view of fact that steam produced by assessee from eligible unit was a bye-product and income from sale of steam was income derived from industrial undertaking, it was eligible for deduction under section 80-IA - Held, Yes" In the case of Prabhu Spinning Mills Pvt. 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....
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.... 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." 50. The next issue in the appeals of assessee is as regards to the quantum of deduction claimed by assessee and restricted by the CIT(A). The assessee explained that it has submitted certificates from a Chartered Accountant in Form 10CCB as required under sub-section 7 of 80IA for Cooling Power generation and Steam Power generation undertakings at Chiplun and Sandila respectively along with the return of income. It was 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 A....
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....nd U.P. State Electricity Board as a base and has assigned the notional value of sales. The notional sales value which was lower than rate of electricity as per electricity bill when converted from TR to kw of electricity as shown as under: - Power is a measure of the Work done divided by the Time taken to do the Work. Thus, when a 'Joule' is the unit of Work, and an 'Hour' is the unit of Time, the unit of Power is Joule/ Hour or Watt. Power = Work/Time = Joule/Hour = Watt One Ton of Refrigeration (TR) is equal to 11376 Kilo Joules/hour, which is equal to 3025 Kilocalories/hour, which is equal to 3.516 Kilo Watts of Power. This is a standard rate of conversion of TR to Kw and the same can also be observed from the various research sites as submitted in Annexure 3 Refrigeration Tonnes to kilowatts (kW) conversion calculator from RapidTables.com, where it clearly show that 1 Refrigeration Tonne = 3.5168525 kW (rounded off to 3.52 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 po....
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....0-IA of the Act for generation of cooling power be allowed. But the AO did not allow the claim for deduction under Section 80IA of the Act and he has in Paras 7.25 to 7.29 of assessment order for AY 2005-06 held without prejudice, that if at any appellate stage the assessee is entitled to deduction u/s 80IA of the Act, deduction should be computed by adopting the net profit rate of consolidated business. The AO did not accept the computation prepared by the assessee on the basis of notional sale and by allocating certain expenses from the accounts and held that profit from production of such energy should be computed at best at net profit rate of consolidated business (including manufacture of yeast) which was 2.75%, 14.97%, 23.13%, 26.41% in AY 2005-06, 2006-07, 2007-08, 2008-09 respectively. Aggrieved, assessee preferred appeal before CIT(A). 55. The CIT(A) in appeal accepted the claim of the assessee and allowed the deduction u/s 80IA for Cooling Power generation undertaking at Sandila. However CIT(A) reduced the quantum of deduction on the ground that in his opinion the rate of conversion of 1 Tonne of Refrigeration equal to 3.52 kW of electricity as adopted by the assessee ....
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....es of websites wherein the conversion formula 1 Refrigeration Tonne = 3.5168525 kW is affirmed is enclosed as Annexure 3 to the note filed during the course of hearing before us. Further, assessee contended that reliance placed by CIT(A) on the article "Refrigeration Chiller Performance Analysis at Various loads" by Henry Manczyk is not available in public domain and hence it cannot be relied on. Further as can be observed from the table below at the conversion rate as per standard rate of 1 TR = 3.516 Kw the rate per TR as arrived at by the assessee is lower than the price at which the State Electricity Boards have sold electricity: Cooling Power Generation Undertakings At Sandila AY Price Per Unit of Kw as per UP 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.8.93 2007-08 Rs.3.92 3.92X3.517=13.78 Rs.8.17 2008-09 Rs.3.76 3.76X3.517=13.22 Rs.8.99 Cooling Power Generation Undertakings At Chiplun ....
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....r AY 2005-06 and AY 2006-07 respectively being lower than the price claimed by the assessee of Rs. 15.71 per TR. 60. The next claim of deduction is for generation of Steam Power and for this it was claimed that the cost of generating steam power has been arrived at based on actual cost records maintained and which were duly audited. For office and administrative expenses, the assessee allocated this based on the salary of one administrative staff at each of its steam power generation undertakings at Sandila and Chiplun. The cost of each undertaking is recorded in the location wise in the audited financial statement enclosed along with Form 10CCB. As regards the quantum of units produced, that is based on the meter recording the assessee records the Kilograms of steam generated in the logbook, disputed neither by the AO nor the CIT(A). As per Section 80IA(8) of the Act, where any goods or services held 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 consid....
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....he computation prepared by the Appellant on the basis of notional sale and by allocating certain expenses from considered accounts, some by process of identification as relating to the undertakings and some on an estimate basis. No scientific basis has been provided for these estimates. (ii) Profit from production of such energy should be computed at best at net profit rate of consolidated business (including manufacture of yeast) was 2.75%, 14.97%, 23.13%, 26.41% in AY 2005-06, 2006-07, 2007-08, 2008-09. 63. The CIT(A) followed AY 2003-04 in respect of profits from eligible business being generation of steam power adopting cost of producing steam by conventional boiler. He further held that the assessee has adopted new method of producing steam by using biogas and thereby achieved significant savings by way of cost and that the cost of steam by using a conventional boiler would not seem justified. Thereafter, he held that there is no data furnished either by AO or assessee for the price of steam produced by alternate methods. CIT(A) held that the notional receipts from steam in the profit and loss account should be reduced by 25% to make it appropriate and in AY 2003-0....
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.... section 80-IA - Electricity generated by windmill was collected by State Electricity Board from generation point of assessee and later on it was released to assessee whenever required - State Electricity Board took over electricity generated by assessee at rate of Rs. 2.70 per unit - On other hand, State Electricity Board charged a rate of Rs. 3.50 per unit when power was supplied to industrial units including assessee - Assessee-company claimed deduction under section 80-IA adopting market rate of energy produced at rate of Rs. 3.50 per unit - Assessing Officer took a view that assessee had delivered power to State Electricity Board at rate of Rs. 2.70 per unit, therefore, same should be taken as market price generated by assessee - To that extent quantum of eligible profit of assessee had come down - Whether expression 'market value' used in section 80-IA(8) means value determined by market forces - Held, yes - Whether, in instant case, market forces would come into picture only when assessee bought power from State Electricity Board like any other consumer - Held, yes - Whether since price paid by assessee was Rs. 3.50 per unit, it had to be taken into account while com....
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....uction under section 80-IA market value of supply of electricity by power unit of assessee to paper division of assessee had to be taken at same price at which paper unit had to purchase electricity directly from State Electricity Board - Held, yes - Whether if taxes and duties were part of price at which power/electricity was supplied by State Electricity Board to paper division, then same price was indicator of market value which was fetchable in open market and there was no reason to exclude element of tax and duty from market price of electricity - Held, yes [Para 32] [In favour of assessee] (ii) Judgement of Hon'ble High Court of Chhattisgarh in the case of CIT vs. Godawari Power & Ispat Ltd (223 Taxman 234) wherein it was held that: Where assessee had established a Captive Power Plant in State of Chhattisgarh to supply electricity to its steel division, for the purpose of Section 80-IA deduction market value of power supplied by assessee to steel division should be computed considering rate of power charged by Chhattisgarh State Electricity Board for supply of electricity to industrial consumers (iii) Judgement of Hon'ble Madras High Court in the ca....
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....usiness to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made." 68. Perusal of the above provision shows that for purposes of calculating the deduction under Section 80-IA of the Act, the profits of the eligible business must be worked out as it were the only source of an assessee's income. Therefore, the the AO by applying the net profit percentage of the assessee's yeast manufacturing business for arriving at profits u/s 80-IA in respect of Cooling Power and Steam Power generation undertakings is contrary to Section 80IA(5) of the Act and is therefore baseless and deserves to be set aside. When the assessee has submitted the audited statements duly supported by various records of the power generation undertakings, the ....
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....d because no incriminating material was found during the search." 72. At the outset, the learned Counsel for the assessee stated that the quantum of expenditure incurred by assessee is very high and going by the disallowance restricted by the AO and confirmed by CIT(A) is very small amount and due to smallness of amount, the assessee is not interested in prosecuting this issue for all the years. However, the learned Counsel stated that this should not be taken as precedent for any other year and this concession cannot be used against assessee in any other proceedings. On this the learned CIT DR has not objected. 73. As the learned counsel conceded the position, as recorded above, we dismiss this common issue of assessee's appeal. 74. In the result, the appeals of Revenue are dismissed and the appeals of assessee are partly allowed. Order pronounced in the open court on 24-11-2017. ============= Document 1 AY Cooling Cooling Ammonia Steam Steam Power Power Absorption Power Power Total deduction u/s deduction Total Total deduction allowed Chiplun Sandila Recovery 801A claimed allowed Chiplun Sandila by CIT(A) Plan....