TaxTMI 
TaxTMI 
2018 (1) TMI 1667
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....e set aside to examine the selling price as per section 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 Pow....
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....t be determined. In a thermal power plant the prime mover is steam driven. Water 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 r....
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....ion between steam and power demands. As an engineering principle, when extraction steam demand is higher for process operations, the 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. ....
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....restricted to outside parties. As per policy only GEB or other government authorized company or body can sell the power to the consumer. Further as per common accepted practice 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 ....
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....ued the sale of power steam to Process Division is below the cost of the Process Division. Considering the above if the company had not installed the CPP the company could have incurred the cost of Rs. 14.12 Cr. for 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 profi....
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....n that date." It is very clear from the provisions that the profit to be derived us per market value and not at cost as emphasized by your honour in show cause notice. With the above submission we request your honour the sale price of steam be accepted at Rs. 1.15 per Kg which 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.....
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.... Rs. 0.92/Kg. The Captive Power Plant has in no way helped in reducing the cost of generation of steam. The assessee's contention that the production cost of steam from low pressure steam boiler is ranging between Rs. 1.16 to Rs. Rs. 1.24 per Kg. is not at all acceptable in view of the fact that the only things required for generation of steam are Fuel & Boiler. The cost of generation of steam has been worked out by Captive 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 gover....
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....on of steam the assessee cannot generate profits because in any case it has to produce steam in its factory for use in its process house. v) The assessee has relied on the decision of Hon'ble Delhi High Court in the case of M/s. Khaitan Chemicals & Fertilizers Ltd., wherein the court has allowed the claim u/s. 80IA where the company has produced steam in the captive power plant located in the state of MP and transfer the steam at the rate of Rs. 1.7 per 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 ....
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....en the same has to be accepted. This further reaffirms as held by me earlier that such profit is also reflected by the saving cost in ultimate production of final product through such captive consumption. As far as legal proposition is concerned, Hon'ble Supreme Court has consistently held that incentive provisions, which confer concession, should be interpreted in a liberal manner, so as to sub-serve the purpose for which they are intended. In Bajaj tempo Ltd. Vs CIT(1992) 196 ITR188, the supreme court held that 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 su....
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....cost plus method. (a) In the case of M/s. Khaitan Chemicals and Fertilizers Hon'ble MP High Court allowed transfer of steam at Rs. 1.70 per kg. (b) Torrent Power Ltd., a biggest power generator company in the Ahmedabad region has posted PBT margin of 21.86% in A.Y.2011-12. (c) As per accepted Engg. Standard 4.7 kgs. of steam is equivalent to 1 unit of electricity. On this basis the sale price of 117695051 kgs. of steam @ 1.15/kgs. gives total sale consideration of Rs. 13,53,49,309 while if conversion factor of 4.7 kg. steam per unit of electricity then total 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....
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....n respect of the profits resulting from distinct activities at earlier stages is illustrated by the provisions of the Indian Income-tax Act itself. Thus, in the case of, say, a sugar mill, which grows its own cane, in the absence of any exemption for the income derived from agriculture, i.e., from the production of the cane, the entire profit of the mills from the sale of the sugar would have to be included in the taxable profits under section 10 of the Income-tax Act. But section 4(3)(viii) exempts agricultural income as defined in section 2(1). The result, therefore, is that there is a disintegration or dichotomy of the 'incomes, 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 allo....
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....p; - 0 TOTAL POWER GENERATED UNI TS 14023208 UNITS 15220300 UNIT S 14708800 14889700 14890900 14060310 POWE PLANT CONSUMPTION UNI TS 3011739 UNITS 3035967 UNIT S 2960203 3032648 3047536 2952422 POWER TO PROCESS UNI TS 11011469 UNITS 12184333 UNIT S 11748597 11857052 11843364 11107888 B EXPENSES INCURRED &nbs....
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.... 96921049 0.62 75206738 0.51 C COST PER KG OF STEAM Rs. Rs. RS. 0.73 0.62 0.51 D STEAM USED IN PROCESS KGS 117695051 KGS 114333615 KGS 109171082 107678291 110573541 106190960 ....