TaxTMI 
TaxTMI 
2015 (11) TMI 1909
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.... reduction of 15% by the A.O. on the ground that ideal condition rarely exist and even if so it will not be throughout the year." 2. The brief facts of the case are that the assessee-company is engaged in the business of manufacturing of paper and generation of power. The assessee filed its return of income on 29.09.2008 declaring income at Rs. 1,16,27,620/-. In the computation of income, the assessee claimed deduction u/s. 80IA of the Income-tax Act, 1961 (hereinafter referred to as "the Act") on the notional profit of its power generation division of Rs. 3,38,97,650/- for the first time. During the assessment proceedings, it was noticed that the assessee never had any electric connection at its factory. Earlier they were using diesel generator to generate electricity and run their plant and machinery. The assessee had separate boiler to produce steam which was utilized in the paper manufacturing process. It was in the financial 2005-06 that the assessee had installed one gas turbine for generation of electricity to meet its energy needs and also to use leftover gas for use in paper manufacturing. Earlier, the assessee was using rice husk to generate heat for running the boiler....
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....he power unit and both are interlinked and therefore, it is stated that the power unit can by no stretch of imagination be sated to be a standalone unit. Further referring to the provisions of sub-section 10 of sec. 80IA, the Assessing officer observed that owing to close connection between the assessee carrying on the eligible business and other unit of assessee company to show notional profit for claiming deduction u/s. 80IA, such profits have been arrived at. "Any other person" for the purposes of this section includes the part of assessee's other unit which is not carrying the eligible business. It was lastly observed that as the assessee has not earned any actual profits, the profit is deemed to be Rs. Nil as per the provisions of sub-sec. 10. He accordingly disallowed the claim of deduction u/s. 80IA of the Act of Rs. 3,38,97,650/-. 5. The aggrieved assessee approached the ld.CIT(A) in appeal, who after considering contentions of the assessee, allowed the appeal of the assessee. The findings of the ld. CIT(A) are reproduced as under : "I have considered the submissions of the appellant findings of the AO and the facts on record. Since the claim of the appellant is....
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....and consequently use of that power without distributing it to others; while the second type of undertakings would be mainly the power companies which are into both the activities. Thus, it is evident that the benefits of deduction u/s. 80IA is available to the undertaking into exclusive 'Generation of power'. Perusal of the facts on record show that the appellant was engaged in the manufacture of paper and had also set up a captive power plant and exemption was claimed in respect of the profit from the power plant. Requisite permission from the government of U.P. and the Government of India are on record. The AO had observed that nobody can earn profit out of oneself since the appellant had sold power produced by it to its own manufacturing unit. The observation of the Assessing Officer, is against the provisions of the Act. As per the provisions of the Act, the benefit of exemption is available irrespective of the fact whether such power is being sold to outside party or being consumed within the undertaking. In this regard provisions of sub-section (8) of section 80IA are relevant. The said provisions clearly demonstrate that the profits and gains of eligible bu....
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.... while distinguishing another decision of this court in CIT v. Dalmia Cement (Bharat) Ltd. [2002] 253 ITR 725, it has been held that an assessee who is producing limestone, even for captive use, is entitled to relief under section 80-I of the Act. In the light of the said decision, with which we are in respectful agreement, the view taken by the Tribunal in remitting the mater back to the Assessing Officer to determine the profits and gains attributable to the manufacture and business of limestone cannot be held to be erroneous. Consequently, the question is also answered in the affirmative, i.e., in favour of the assessee and against the revenue. In the case of CIT vs. Chitram & Co. Pvt. Ltd. 191 ITR 96 (Madras High Court); the court held as under : "In order to claim relief u/s 80-1 of the IT Act, 1961, the assessee should be engaged in the production or manufacture of one or more of the items enumerated in Schedule VI to the Income-tax Act, 1961, in which case the assessee should be regarded as engaged in a priority industry. The emphasis for grant of relief is on the manufacture of one or more of the items enumerated in Schedule VI. Whether the items mentioned....
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.... did in the case of Orient Paper Mills Ltd. [1974) 94 ITR 73 (Cal) and denied the relief under section 80E of the 1961 Act. The Calcutta High Court held that the assessee was entitled to such relief Irrespective of whether the ancillaries manufactured item were sold by the assessee to outsiders or were used by it for its own manufacture of cars. Similarly, the Bombay High Court in CIT v. Sahney Steel and Press Works p, Ltd. [1989] 177 ITR 354, the Assessing Officer denied similar claim under section 80J of the Act on the ground that the new unit was manufacturing articles to be used as raw material for the existing business of the assessee. The Bombay High Court held that the fact that the new unit manufactured articles used in the existing business of the assessee was not relevant and the assessee was held to be entitled for relief under section 80J of the Act. In the case of West Coast Paper Mills .Ltd. Vs. Assistant Commissioner of Income-tax 286 ITR (AT) 252 (ITAT Mumbai), the issue for decision was of identical nature as in the case of the appellant company. The assessee was engaged in the manufacture and sale of paper and paperboards, multi-layer boards, etc. and in ....
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....aw. The second ground on which the Assessing Officer has rejected the claim of the assessee is that the profit computed by it for generation of power is not correct. In this regard it is observed that the AO has drawn his own trading account on page 5 in para 3.1.3. While drawing this trading account the Assessing Officer has made various assumptions. The Assessing Officer has allocated 9/10th of the total expenditure to the electricity generation. The logic given by the Assessing Officer for doing the same is the ratio of the pressure of steam, the ratio of the pressure of steam entering the turbine and the pressure of the same coming out. In para 3.9 the Assessing Officer has stated that the assumption made by the assessee for bifurcating the cost is not correct. In this regard he has referred to the fact that for running the turbine pre-heated steam at 425°C and 42 kg/cm2 and coming out which is 4.2 kg/cm2 and thus it would be 10: 1 and on this basis he has allocated the gas. This method of cost allocation of the Assessing Officer is not scientific. The assessee has filed before the Assessing Officer the calculation of generation of units. As per this the total rice....
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.... of such report was also filed with the Assessing Officer and it has been placed at Paper Book Pgs. 108 to 112. Perusal of the inspection report shows calculation regarding the average power generation and the rice husk consumption. This inspection report also supports the contention of the appellant regarding the cost allocation and the generation of power. The next issue raised by the AO is regarding the number of units generated during the year. In this regard the Assessing Officer has stated that the assessee has given its own calculation of number of units of electricity generated. However such calculations have been reduced by 15% by the Assessing Officer on the ground that idle condition rarely exists and it will not be so throughout the year. Based on this the AO has reduced the number of units of power produced as per the appellant from 13906143 to 11820222. Thus the dispute is regarding the difference of 15%. Perusal of the submissions of the appellant show that it had computed its calculation at 85% of the efficiency itself. As stated above the total steam consumed for power generation was 15534882 kcl/kg. As per the formula of steam 1 kcl/kg = .001163 units x 1....
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.... the order of the Assessing Officer and submitted that the ld. CIT(A) was not justified in allowing the claim of deduction u/s. 80IA without appreciating the correct facts of the case. On the other hand, the ld. AR of the assessee supported the order of ld. CIT(A) and submitted that the impugned order is based on true interpretation of law and supported by various decisions of Hon'ble Supreme Court and High Court. 8. Having considered the rival submissions and perused the material available before us, we find that the ld. CIT(A) after making elaborate discussion has correctly interpreted the provisions of section 80IA and has based his conclusions on various decisions of Hon'ble Supreme Court and High Court. The objection of the AO for disallowance of deduction u/s. 80IA that the no assessee cannot earn profit out of oneself, has been discarded by various decisions of Hon'ble Supreme Court and High Courts against which no counter law has been placed by the ld. DR before us. The ld. CIT(A) further has given cogent reasons to discard the trading account drawn by the AO himself for computing the profit of the assessee. Regarding the objection of assessee's alleged failure to submit....