TaxTMI 
TaxTMI 
2018 (1) TMI 1667
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 80IA(8) and proviso placed there under." 3). On the facts and in the circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer. 2. The relevant facts as culled out from the materials on record are as under:- In this case, the return of income was filed on 24.09.2011 declaring total income of "Nil". The assessee filed revised return of income on 29.03.2013 declaring total income of "Nil". The return was revised due to change in depreciation rate in respect of Power Plant assets. The change in depreciation rate was retrospectively from A.Y.2004-05 as per the order of the Department." 2.1 The assessee company is engaged in the business of processing, manufacturing and trading of cloths. The A.O. Observed that: (i) "During the course of assessment proceedings it was noticed that the assessee was having captive power plant on which the assessee was claiming deduction u/s. 80IA of the Act. During the year relevant to A.Y. 2011-12 the assesses had claimed deduction of Rs. 4,60,84,940/- u/s.80IA in respect of the Captive Power Plant established by it. From the details of profits generated from Ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ater is heated, turns into steam and spins a turbine, which drives an electrical generator. After it passes through the turbine the steam is condensed in a condenser and is recycled to where it is heated. In this case, the steam leaving the turbine at low pressure was fed into steam pipes for distribution in process house where it is one of the inputs in manufacturing process. Thus, the steam which could have been recirculated and used for generation of electricity was being sent to process house and not re-circulated. The price at which steam was being sold was arbitrarily decided by the assessee." (iii) "Since the assessee cannot purchase steam from outside and steam is one of the raw material for textile process house the assessee purchase coal/lignite from which steam is generated and is used in process house. Similarly in the case of captive power plant also coal/lignite was bought and was used for production of steam which was being sent to process house. Since the steam cannot be purchased from outside market if the assessee has to use steam he has to generate it thus market rate of steam for the purpose of calculating deduction u/s.80IA of the Act has, to be taken ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....condensate and output on the Turbine would reduce and if the process demand is correspondingly the condensate and power output on turbine would increase. From the above submission it is clear that the input steam quantity and sum of outgoing steam quantity and condensate is same. Hence the extraction steam is not a byproduct from Turbine. The contention of your honour that steam is byproduct of the power generator is not correct. It is being operated according to the necessity and need of the textile processing requirement, From the above submission it is clear Mint steam is originate as main product and not the byproduct of power generator and it is main product and its value to be fully recoverable from the user. Further, as pointed out in your show cause notice that by product has nil recoverable value is also not convincing not correct i.e. the steam has got economical commercial value and capable of value adding to the fabric value i.e. your contention is , not sustainable on facts and law and also on commercial consideration. 3. Your Honour has not justifying the provisions of section 80IA of the Income Tax Act, 1961 by differentiating between electricity and stea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ractice and understanding any product or services not supported by the proper infrastructure are non tradable. In the case of fix assessee the steam power is being transmitted through the proper infrastructure of pipelines to Process Division. Assessee can also sold to other undertakings if it has surplus power/steam generation through setting up of proper infrastructure. Further as per section 80IA(i) is the deriving of the profit or gain from the activity to claim the exemption on profit earned Further in the assessee case power is not tradable in open market due to restrictions or ban is put by the government over its trading hence merely non trading of such product or service is not the ground for denial of the exemption. As per the Hon'ble Madras High Court in the case of CIT, Madurai Vs. Thiagarajar Mills Ltd. Kappalur (Tax appeal no. 68 to 70/2010 dt. 07.06.2010) has held as follows:- "In section 80IA(i) 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. Therefore, it is true and correc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... manufacturing of textiles. 5. The basis idea of introduction of section 80IA(IV) is to promote the power generating units for empowerment of national power policy of government. Hence for claiming exemption under section there has to be profit or gain from the generation of any form of power which being used in captive consumption or sold outside is not intention of the legislature. Ami there is no intention from the legislature that gain on out side sale only will be entitled lo claim exemption. The company has derived the profit front sale of steam power by selling at Rs. 1.15 Kg. to Process Division of the company i.e. inter division transaction. The company has maintained the separated sets of books of account for calculation of cost and profit/loss from the activity which is qualify u/s. 80IA(iv) of the Act. As the steam generated by the power unit is not tradable in the state, that does not mean that company cannot earn the reasonable profits from the activity by following cost plus method and the company has added margin of 25% to cost of steam power of Rs. 0.92/- per unit and sale at Rs. 1.15 per Kg. to process division. The selling price per unit of steam is Rs. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch is fair, reasonable, appropriate and justifiable. Your Assessee has charged sale of power to Process Division at price of Rs. 4.05 per unit against the cost of Rs. 5.5 per unit (landing cost of power to the company) which is 26.36% lower than the cost of power at which GEB/Torrent supply/ to the company. The company has followed the principles of the equity, justice and reasonableness while fixing the prices of sale of power in inter unit sales, (ref: HPCL r. DCIT - Bombay high court where as per the facts of the case AO has allowed the valuation of power at the rate at which unit is purchasing it from the APEB) The steam is non tradable commodity because of the restriction of sale by government considering the same., company has not sale the steam to Process Division at higher than Rs. 1.15 per Kg as the historical cost of low pressure steam from the boiler is in range of Rs. 1.16 to Rs. 1.24 per Kg. Hence on ground of reasonableness and appropriateness the Power Plant has sold steam at discounted price as compared to low pressure steam boiler cost. The company has set up the Captive Power Plant only on the basis of saving in Power consumption expenses and if othewise ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Power Plant Division (as per your own admission) has been arrived at after taking into account fuel, maintenance & depreciation of boiler. Thus, it is established beyond doubt that cost of production of steam is Rs. 0.92 per Kg. ii) The assessee has contended that steam is energy and energy has to be considered as power and is thus eligible for deduction u/s. 80IA(4) of the Act. This contention of the assessee has already been accepted and the steam has already been held to be power within the meaning of sec. 80IA(4) of the Act. iii) The assessee has further contended that its Captive Power Plant has been approved by GEB vide letter dated 01.03.2004 and sale of power was restricted to outside parties. As per policy only GEB or other government authorized company or body can sell the power to the consumer." This contention of the assessee is not acceptable in view of the fact that sale of power is not banned by GEB but if the assessee wants to sell power to third party it has to seek permission from GEB to determine that price also. The assessee has further stated that the steam power is being transmitted through proper infrastructure of pipelines to Process Division ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er Kg. to its fertilizer unit. The facts of the case referred to by the assessee are totally distinguishable. In that case the assessee had a fertilizer plant and in the process of manufacturing of fertilizer huge amount of steam is generated which is being used for generation of power. Moreover, the decision of High Court was not on price of steam rather it was on the issue of whether intra unit transfer has to be treated sale/distribution of power within the meaning of provisions of sec. 80IA(4) of the Act Therefore, in view of the detailed reasons mentioned above following facts emerge:- i). Cost of production of steam by Captive Power Plant is Rs. 0.92/Kg. ii). Only method of generating steam is by burning fuel and using boiler which is being done by Captive Power Plant and by Process Division. iii). Even if the Captive Power Plant would not have been there the steam would have been generated by using fuel & boiler only. Captive Power Plant has not used some other cost saving technology for generating steam. iv). Steam is not a tradable commodity. It cannot be purchased from open market. v). Deduction u/s. 80IA in respect of Captive Power Plant undertaking is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t and provision in taxing statute granting incentives for promoting of growth and development should be construed liberally. It referred to a similar view taken in Broach Dist. Co.op. Cotton sales, ginning and processings society Ltd. (1989) 177 ITR 418 (SC), C1T Vs strawboard manufacturing co. Ltd. (1989) 177 ITR 431 (SC) and CBDT Vs Aditya V. Birla (1989) 170 ITR 137 (SC), which the general rule is that the provision relating to deductions, allowances and exemptions are expected to be interpreted rigidly, incentive provisions are to be interpreted differently as, they form an exception to the rule. In is fact on record that this is not the first such claim by appellant and in earlier years on the basis of such valuation, deduction u/s.80IA(4)(iv) of the Act. were allowed from A.Y. 06-07. The appellant is therefore on the principle of consistency, eligible for such deduction. Further as required appellant filed a certificate inform 10CCB from a charted accountant of claim and therefore the reasonableness and valuation of steam is certified through that certificate with eligible deduction. 5.3. The appellant's ground 1 to 3 are interlinked and against disallowance of Rs. 2,70....
X X X X Extracts X X X X
X X X X Extracts X X X X
....expenditure for electricity at Rs. 5.5 per unit will result into Rs. 13,77,28,251 i.e. saving of total expenditure on the sale price of steam." (ii). "(e) The Hon'ble Delhi High Court decision in the case of M/s. Khaitan Chemical & Fertilizers Ltd. (supra) do reflect the use of steam generated in captive power plant used in fertilizer plant at 1.70 per kgs. and eligible for deduction u/s.80IA of the Act but it does not deal with pricing of steam." (iii). Hon'ble Delhi High Court in the case of CIT vs. DCM Shri Ram Consolidated Ltd. as relied on by appellant though the issue was related to computation of book profit u/s.115 JA but it was held that- "Principle of apportionment of profits resting on disintegration of ultimate profits realized by the assessee by sale of final product has to be applied i.e. profit derived by assessee on transfer of energy from its captive power generation plants to its other unit is embedded in the ultimate profit earned on sale of its final products." The Hon'ble High Court held that - "It cannot be said that the assessee is not engaged in the business. As rightly held by the Tribunal, the assessee had been authorised by the State Electrici....
X X X X Extracts X X X X
X X X X Extracts X X X X
....omes, profits or gains of the business and of agricultural income, so that there has to be an apportionment between the two in order to determine the taxable income of an assessee. It is on account of this situation that section 59(2) of the Income-tax Act provides for rules being made for prescribing the manner in which and the procedure by which incomes derived in part from agriculture and in part from business shall be arrived at. . . ," (p. 139)" 6. In earlier years, on the basis of such valuation, deduction u/s. 80IA (4)(iv) of the Act were allowed from A.Y. 06-07. In our considered opinion, assessee is therefore on the principle of consistency, eligible for such deduction. Further as required assessee filed a certificate inform 10CCB from a charted accountant for claim and therefore the reasonableness and valuation of steam is certified through that certificate is eligible deduction. In support of its contention, assessee also filed a rate chart at Page No.13 of Paper Book and same is reproduced as under: VISHAL FABRICS PRIVATE LIMITED STATEMENT OF COMPUTATION OF COST OF STEAM AND POWER SN PARTICULARS 2010-11 2009-10 &....
X X X X Extracts X X X X
X X X X Extracts X X X X
....S Rs. 13569303 Rs. 7530700 Rs. 11263070 8103337 7048532 625896 3 SALARIES & WAGES Rs. 3371517 Rs. 3459680 RS. 3096961 3730681 2906145 1977572 4 INTEREST Rs. 361661 Rs. 859515 Rs. 1495029 2321120 2382390 2845500 5 DEPRECIATION Rs. 11149377 Rs. 11149458 Rs. 11149556 11149446 11107858 11107858 0 TOTAL EXPENSES Rs. 145653944 0.92 Rs. 134243523 0.84 Rs. 152393235 0.99 113446520 0.73 96921049 0.62 75206738 0.51 C COST PER KG OF STEAM Rs. Rs. RS. ....