TaxTMI 
TaxTMI 
2022 (3) TMI 539
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....fied in disallowing deduction towards 'power profit' under Section 80-IA (4)(iv) of the Income Tax Act, 1961?" 2. In ITA No.3 of 2015 (for AY 2009-10) the sole question that has been framed for determination is as follows: "Whether the ITAT was justified in disallowing the expenditure incurred by the Assessee on development of periphery of the industry claimed by the Assessee to be wholly and exclusively for the purposes of business?" 3. The relevant facts are that the Assessee is a Government of Odisha enterprise solely engaged in the business of generation of power. The Assessee has set up power plants including Thermal Power Stations and Mini Hydel Projects in Odisha. The power generated by the Assessee's plants is sold exclusively to the Grid Corporation of Odisha Limited (GRIDCO) under a Power Purchase Agreement (PPA). In terms of the said agreement, the Assessee is obliged to sell the entire power produced only to GRIDCO and cannot sell the power to any other entity or agency. 4. In each of the AYs in question, initially a return of income was filed disclosing the total income at NIL. Thereafter, a revised return was filed disclosing the income after claimin....
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....urplus stock and sundry receipts etc. would reduce the revenue expenditure of other related expenditures. Thus, according to Mr. Mohanty, the abovementioned receipts and related expenses are inextricably linked and is having direct and proximate connection/nexus with the Assessee's business of generation and distribution of power. 7. It was submitted that the amount shown under the head 'other income' is nothing but the outcome of the generation and distribution of power by the Assessee since the Assessee does not have any other source of business. Reliance was placed on the decision of the Supreme Court of India in Commissioner of Income Tax v. Meghalaya Steels Ltd. (2016) 6 SCC 747. 8. Countering the above submissions, Mr. Satapathy, learned Senior Standing Counsel for the Department contended that the critical words in Section 80-IA of the IT Act were that the other income must be derived from the business of generation of electricity and not merely 'attributable' to it. In other words, such income should have a direct and active nexus to the main activity. It was contended that the income, profit or gain cannot be said to have been 'derived' from an activity merely becaus....
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....ection 80 IA of the Act and that its net profit is otherwise eligible for deduction under Section 80-IA of the Act. The very object of enacting Section 80-IA was to encourage setting up of an industry involved in the generation and distribution of electricity or any other form of energy and the production, manufacture and construction of articles specified in the 5th Schedule to the Act. The idea was to provide incentives for promoting efficiency in the industry. 12. The Assessee offered an explanation regarding interest income earned by it, from advances given to its employees as well as provision of electricity and water charges collected from water through its employees and contractors for facilities in the township, receipt from transit hostel, sale of scrap, insurance claim etc. The facilities were given to its employees for better conditions of employment. This was to improve the overall efficiency of the undertaking which is devoted to the single purpose of generation of power. The Court, therefore, has no difficulty in accepting the submission of the Assessee that the interest received on advances and loans given to its employees are receipts in normal course of carrying....
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....rofits and gains are derived from the business of the assessee, namely profits arrived at after deducting manufacturing cost and selling costs reimbursed to the assessee by the Government concerned." 15. Extending the same analogy and reasoning to the interpretation of Section 80-IA, this Court is satisfied that on the netting principle, since there is no other activity of the Assessee except power generation, the AO, the CIT(A) and the ITAT, were in error in disallowing the aforementioned sum as deduction under 80-IA of the IT Act. There is merit in the contention of the Assessee that the interest received from the bonds issued by GRIDCO have a direct nexus with its essential business activity and therefore, was income derived from it, thus, making it eligible for such deduction. 16. The question framed by this Court is, therefore, answered in the negative i.e. in favour of the Assessee and against the Department. The impugned orders of the ITAT and the corresponding orders of the AO and the CIT (A) to the above extent for the AYs 2002-03, 2003-04, 2007-08 and 2008-09 are hereby set aside. 17. ITA Nos.24 and 25 of 2009 and ITA No.1 and 2 of 2015 are accordingly disposed o....