The DCIT, Baroda Circle-1(1), Baroda V. Banco Aluminium Ltd., Baroda

ITA 1106/AHD/2010

• Counselvise Citation: 110620514 RSA 2010
• Duration Of Justice: 2 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 09-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T SHANKAR
• Keywords: Capital asset; Depreciation; Reasonable cause; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD D BENCH BEFORE: SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARA T, JUDICIAL MEMBER THE DCIT, CIR, 1(1), BARODA (APPELLANT) VS. BANCO ALMUNIUM LIMITED BIL, NR, BHAILY RLY, STATION PADRA ROAD, BARODA (RESPONDENT) PAN NO. AAACB 8629 B REVENUE BY : SRI T.SHANKAR SR. D.R. ASSESSEE BY : NONE DATE OF HEARING : 31-08-2012 DATE OF PRONOUNCEMENT : 25-10-2012 / ORDER PER : KUL BHARAT, JUDICIAL MEMBER:- THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-I, BARODA DATE D 15-12-2009. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION AMOUN TING TO RS. 3,05,593/- MADE ON ACCOUNT OF CAPITAL EXPENDITURE I RRESPECTIVE OF THE FACTS HUGE EXPENDITURE TOWARDS MACHINERY/PLANT MADE , WHICH EXTENDED THE LIFE TIME, RELYING ON THE DECISION OF THE HON. SUPREME I.T.A. NO 1106/AHD/2010 A.Y.:-2007-08 ITA NO. 1106/AHD/2010 A.Y. 207-08 PAGE NO. THE DCIT VS. BANCO ALUMINUM LTD. 2 COURT IN THE CASE OF CIT VS. SARVANA SPINING MILLS PVT. LTD. (2007) 293 ITR 201(SC). 2(A). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFF ICER TO ALLOW DEDUCTION U/S. 80IB(4) OF THE ACT AS CLAIMED BY THE ASSESSEE AMOUNT ING TO RS. 24,83,968/- ON COGEN I UNIT AND COGEN II UNIT AT THE MARKET RATE OF RS. 4.86 PER UNIT OF POWER RELYING O N THE DECISION OF HON. ITAT IN THE CASE OF ALEMBIC LTD. FOR A.Y. 2003 -04 BEARING ITA NO. 3594/AHD/2007 DATED 06.06.2008 WHEREIN THE HON. ITAT ALLOWED THE APPEAL OF THE ASSESSEE IN RESPECT OF CLAIM OF T HE ASSESSEE U/S. 80IB(4) BY TAKING THE PRICE OF ELECTRICITY SUPPLIED BY GEB. 2(B). ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. CIT(A) AS WELL AS THE HON. ITAT ERRED IN NOT CONSIDERING THE DECISION OF THE APPELLATE TRIBUNAL, CHENNAI RENDERED IN THE CASE OF CHETTINAD CEMENT CORPORATION LTD. IN ITA NO. 1026(MAD)/2005 F OR A.Y. 2001- 02, ACCORDING TO WHICH THE DEDUCTION U/S. 810IB(4) IS NOT ALLOWABLE TO THE ASSESSEE FOR GENERATING POWER FOR CAPTIVE CONSU MPTION. RELIEF CLAIMED IN APPEAL THE ORDER OF THE CIT(A) TO THE ABOVE EXTENT MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. NO-ONE APPEARED ON BEHALF OF THE ASSESSEE. AN A PPLICATION FOR ADJOURNMENT IS ON RECORD. HOWEVER, NO REASONABLE CAUSE IS GIVEN FOR THE ABSENCE, THEREFORE, THE APPLICATION FOR ADJOURNMENT IS REJECTED. THE APPEAL IS TAKEN UP FOR HEARING IN THE ABSENCE OF THE ASSESSEE . THE FACTS IN BRIEF ARE THAT THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCR UTINY ASSESSMENT, THE ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961 ( HEREINAFTER REFERRED AS TO THE ACT) WAS FINALIZED. THE ASSESSING OFFICER WH ILE FRAMING THE ASSESSMENT MADE DISALLOWANCES ON ACCOUNT OF CLUB EX PENDITURE, REPAIRS ON PLANT AND MACHINERY AND DISALLOWED DEDUCTION U/S 80 IA OF THE ACT. THE ASSESSEE FEELING AGGRIEVED BY THE ORDER OF THE ASSE SSING OFFICER FILED AN ITA NO. 1106/AHD/2010 A.Y. 207-08 PAGE NO. THE DCIT VS. BANCO ALUMINUM LTD. 3 APPEAL BEFORE THE LD. CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS PARTLY ALLOWED THE APPEAL. 3. THE FIRST GROUND IS AGAINST THE DELETION OF DISA LLOWANCES MADE OUT OF EXPENDITURE ON REPAIRS AND MAINTENANCE OF PLANT AND MACHINERY ON THE GROUND THAT THE SAME WERE OF CAPITAL NATURE. LD. S R. DR VEHEMENTLY ARGUED THAT EXPENDITURE AS CLAIMED BY THE ASSESSEE ON REPA IRS AND MAINTENANCE OF MACHINERY ARE OF CAPITAL NATURE AND THE ASSESSING O FFICER HAS RIGHTLY DISALLOWED THE SAME. HE SUBMITTED THAT THESE EXPEN DITURE INCURRED FOR THE PURCHASE OF FILTERING UNIT, PRESSURE RING, GLOW TOT ALIZER AND PRESSURE TRANSMITTER. ADDING OR REPLACING THESE PARTS OF TH E MACHINERY HAS ADDED TO THE LIFE OF THE MACHINERY AND IT IS OF ENDURING NAT URE. THE PURCHASE OF THESE PARTS ENHANCES EFFICIENCY OF THE MACHINERY. THE RE LIANCE IS ALSO PLACED ON THE JUDGMENT OF THE HONBLE SUPREME COURT RENDERED IN THE CASE OF BALLIMAL NAVAL KISHORE VS. CIT, 224 ITR 414. 4. WE HAVE HEARD LD. SR. D.R. PERUSED THE MATERIAL AVAILABLE ON RECORD AND THE JUDGMENT CITED. THE ASSESSING OFFICER TREA TED THE EXPENDITURE AS CAPITAL EXPENDITURE ON THE BASIS THAT BY ADDING/REP LACING, SUCH ADDITIONS ADDED TO LIFE OF MACHINERY AND IT IS IN THE NATURE OF ENDURING BENEFIT TO THE MACHINERY. THE SAID EXPENDITURE WAS INCURRED FOR R ESTORING AND ENHANCING THE EFFICIENCY FOR YEARS TO COME. THE AMOUNT OF CL AIMS AND THE NATURE OF THE PARTS USED SHOWS THAT THEY ARE OF CAPITAL NATURE. THE ASSESSING OFFICER PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE SUPR EME COURT RENDERED IN THE CASE OF BALLIMAL NAVAL KISHSORE VS. CIT 224 IT R 414 AND ALSO CIT V. SARAVANA SPINNING MILLS PVT. LTD, 293 ITR 201(SC). HOWEVER LD. CIT(A) HAS DECIDED THIS ISSUE IN PARA 3 OF HIS ORDER AS UN DER: ITA NO. 1106/AHD/2010 A.Y. 207-08 PAGE NO. THE DCIT VS. BANCO ALUMINUM LTD. 4 3.1 A.R. SUBMITTED THE FOLLOWING CHART DEPICTING THE NA TURE OF EXPENSES INCURRED WITH EXPLANATION:- SR. NO. OF AO AMOUNT (RS.) NATURE OF ITEM REPLACED REMARKS 1 47,966 FILTERING UNIT . THE APPELLANT HAS REPLACED THE FILTERING UNIT IN THE HEATER. OIL USED IN THE HEATER PASSED THROUGH THE FILTERING UNIT. DUE TO WEAR AND TEAR THE FILTERING UNIT WAS DAMAGED AND THEREFORE IT WAS NECESSARY TO BE REPLACED. . NO NEW ASSET HAS BEEN CREATED NOR THERE IS BENEFIT OF ENDURING NATURE. THE FILTERING UNIT CANNOT WORK INDEPENDENTLY AND IS USELESS UNLESS FITTED IN THE HEATER. THEREFORE DEDUCTION HAS BEEN RIGHTLY CLAIMED BY THE APPELLANT. 2 1,69,338 PRESSURE RING . THE FUNCTION OF THE PRESSURE RING IS TO WITHSTAND THE PRESSURE BUILT UP IN THE EXTRUSION PRESS. THE PRESSURE RINGS ARE A CONSUMABLE ITEM AND ARE REQUIRED TO BE REPLACED AS AND WHEN CONSUMED. . SINCE THE PRESSURE RING CONTROLS THE PRESSURE, ITS LIFE IS VERY SMALL AND REQUIRES FREQUENT REPLACEMENT. . NO ENDURING BENEFIT IS AVAILED BY REPLACING THE PRESSURE RING. THESE ARE CONSUMABLE ITEMS ARE THEREFORE REVENUE IN NATURE. THE LIFE OF THE EXTRUSION PRESS DOES NOT INCREASE BY INCURRING THE SAID EXPENSES. 3 31,000 GLOW . THIS IS NOT AN INDEPENDENT ITA NO. 1106/AHD/2010 A.Y. 207-08 PAGE NO. THE DCIT VS. BANCO ALUMINUM LTD. 5 TOTALIZER MACHINE. THE MACHINE IS USELESS UNLESS FITTED TO THE MAIN MACHINE. . THE ITEM IS A PART OF MAIN MACHINERY AND THEREFORE WOULD FALL UNDER THE DEFINITION OF REPLACEMENT OF PARTS. . NO ENDURING BENEFIT IS AVAILED. 4 57,289 PRESSURE TRANSMITTER . THE PRESSURE TRANSMITTER IS USED IN THE AGING FURNACE. . THE ITEM IS A CONSUMABLE ITEM AND NEEDS FREQUENT REPLACEMENT. . PRESSURE TRANSMITTER IS USELESS IF NOT FITTED WITH THE FURNACE. . IT DOES NOT HAVE ANY INDEPENDENT USE. . THEREFORE REVENUE IN NATURE. 3.2 THE LD. AR ALSO POINTED OUT THAT THE DECISIONS OF THE SUPREME COURT RELIED UPON BY THE AO ARE NOT APPLICABLE ON T HE FACTS OF THE APPELLANT. IN THE CASE OF BALLIMAL NAVAL KISHORE (S UPRA) IT WAS CONTENDED THAT IN THE SAID DECISION A GINNING FACTO RY WAS CONVERTED INTO A CINEMA THEATRE AND THE EXPENSES INCURRED FOR CONVERTING A GINNING FACTORY WAS CONVERTED INTO A CINEMA THEATRE WERE CLAIMED AS REVENUE EXPENDITURE. THIS IS NOT THE CASE WITH THE APPELLANT. IN THE CASE OF SARVANA SPINNING MILLS (SUPRA) THE SUPREME COURT HELD THAT THE HIGH COURT PROCEEDED ON A FOOTING THAT A TEXTIL E MILL IS ONE SINGLE PLANT AND THEREFORE REPLACEMENT OF MACHINES OF ONE ENTIRE DEPARTMENT CAN NOT BE CONSIDERED AS REPLACEMENT OF PARTS AND ALLOWABLE AS REVENUE EXPENDITURE, WHICH IS NOT CORRECT. A TEXTIL E MILL CANNOT BE CONSIDERED AS ONE SINGLE PLANT. IN TEXTILE MILL THE RE ARE SEVERAL DEPARTMENTS AND EACH DEPARTMENT IS EQUIPPED WITH IT S OWN MACHINERY. THEREFORE REPLACEMENT OF ENTIRE PLANT & MACHINERY O F ONE DEPARTMENT CANNOT BE CONSIDERED AS CURRENT REPAIRS. IN VIEW OF SUCH FACTUAL FINDING THE SUPREME COURT REVERSED THE ORDER OF THE HIGH COUR. 3.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE ID. A R AND THE FACTS OF THE CASE. IN VARIOUS CASES THE SUPREME COURT AND OT HER HIGH COURTS HAVE HELD THAT REPLACEMENT OF PARTS OF A LARGER MAC HINE WOULD NOT AMOUNT TO CREATION OF ANY NEW ASSET OR INCURRING OF CAPITAL EXPENDITURE. WHERE THE MANUFACTURING ACTIVITY IS CA RRIED ON BY ITA NO. 1106/AHD/2010 A.Y. 207-08 PAGE NO. THE DCIT VS. BANCO ALUMINUM LTD. 6 MACHINES COMPRISING OF VARIOUS PARTS, AND WHERE ONE OR MORE OF THE PARTS IS REPLACED, IT WOULD NOT AMOUNT TO REPLACEME NT OF THE WHOLE. THIS PROPOSITION HAS BEEN REITERATED BY THE SUPREME COURT IN THE CASE OF SARAVANA SPINNING MILK-, CONTEXT OF A PART CALLE D 'AUTO LEVELED FORMING PART OF A CARDING MACHINE, IN THE FOLLOWING TERMS: 'SIMILARLY, IN THE CARDING DEPARTMENT WE HAVE CARDI NG MACHINES WITH AUTOLEVELERS. IF THE AUTOLEVELER FAIL S, THE CARDING MACHINE BECOMES NONFUNCTIONAL IF AN AUTOLEVELER IS TO BE REPAIRED THEN THAT REPAIR WOULD COME WITHIN THE CON NOTATION OF THE WORD 'CURRENT REPAIRS' BECAUSE IF IS APART OF T HE CARDING MACHINE. EVEN IF IN A GIVEN CASE, REPLACEMENT OF AN AUTOLEVELER COULD COME WITHIN THE CONNOTATION OF THE WORD 'CURR ENT REPAIRS' IF THE OLD PART IS NOT AVAILABLE IN THE MA RKET. IT IS A 'CURRENT REPAIR' BECAUSE THE CARDING MACHINE REMAIN S AN ASSET WITHOUT ANY CHANGE EVEN AFTER REPAIR OR REPLACEMENT OF THE AUTOLEVELER. TO GIVE AN EXAMPLE, A COMPRESSOR I.E. AN IMPORTANT PART OF AN AIR-CONDITION MACHINE. REPAIR OF THE COM PRESSOR WILL COME IN THE CONNOTATION OF THE WORD 'CURRENT R EPAIRS' IN SECTION 31 (I) OF THE SAID ACT BECAUSE THE ASSESSEE DOES NOT REPLACE THE AIR-CONDITION MACHINE. AT THE HIGHEST, HE REPLACES A PART OF THE AIR-CONDITION MACHINE. SO IS THE CASE OF THE PICTURE TUBE IN A TELEVISION SET, WHEN THE PICTURE TUBE IS REPLACED THE TELEVISION SET IS NOT REPLACED, THEREFORE, SUCH REP AIRS ALONE CART COME WITHIN THE CONNOTATION OF THE WORD 'CURRENT RE PAIRS' IN SECTION 31{I) OF THE SAID ACT AS IT STOOD AT THE MA TERIAL TIME. THEY ARE EFFECTED TO PRESERVE AND MAINTAIN THE ASS ET, VIZ, AIR- CONDITIONER OR CARDING MACHINE. ' 3.3.1 HENCE, JUDICIAL OPINION IS QUITE CLEARLY ART ICULATED TO THE EFFECT THAT REPLACEMENT OF ONE OR MORE PART(S) OF A CAPITA L ASSET WOULD CONSTITUTE REVENUE EXPENDITURE AND NOT CAPITAL EXPE NDITURE. IF PRESERVATION OF THE CAPITAL ASSET ENTAILS REPLACEME NT OF WORN-OUT PARTS, SUCH EXPENSES WOULD BE REVENUE IN NATURE. 3.3.2 SO FAR AS ITEM NO. (1) ABOVE IS CONCERNED IN RESPECT OF RS.47,966/- IT IS SEEN THAT THE EXPENSES WERE INCUR RED ON PURCHASE OF FILTERING UNIT FOR USE IN HEATER. THE NATURE OF THE ITEM INDICATES THAT IT IS A SPARE PART WHICH MAY REQUIRE REPLACEMENT. FURT HER, THE FILTER DOES NOT HAVE ANY APPLICATION OTHER THAN AS PART OF THE HEATING ITA NO. 1106/AHD/2010 A.Y. 207-08 PAGE NO. THE DCIT VS. BANCO ALUMINUM LTD. 7 MACHINE. HENCE, THE EXPENDITURE INCURRED ON PURCHAS E OF SUCH SMALL PARTS WOULD, IN MY OPINION, CONSTITUTE EXPENDITURE. ACCORDINGLY, THE DISALLOWANCE OF RS.47,966/- IS DIRECTED TO BE DELET ED. 3.3.3 REGARDING EXPENSES OF RS. L,69,338/- ON PRESS URE RING, DISCUSSED AT ITEM NO. (2) ABOVE, THE FUNCTION OF TH E PRESSURE RING IS TO WITHSTAND THE PRESSURE BUILT UP IN THE EXTRUSION PR ESS. THIS IS A CONSUMABLE ITEM. NO ENDURING BENEFIT ACCRUES BY REP LACING THE PRESSURE RING. THE LIFE OF THE EXTRUSION PRESS DOES NOT INCREASE BY INCURRING THE SAID EXPENSE. ACCORDINGLY, IT IS HELD THAT EXPENDITURE ON REPLACEMENT OF SUCH PARTS IS REVENUE IN NATURE. HENCE, THE DISALLOWANCE OF RS. L,69 , 338/- IS DELETED. 3.3.4 REGARDING ITEM NOS. (3) & (4) INVOLVING AGGRE GATE EXPENSES OF RS,88,289, IT IS APPARENT FROM THE NATURE OF THE PA RTS REPLACED THAT THEY ARE SMAFL PARTS OF LARGE MACHINES, WHICH MAY R EQUIRE REPLACEMENT ON BEING WORN OUT. BY INCURRING EXPENDI TURE ON PURCHASE OF SUCH ITEMS, NO NEW ASSETS CAME INTO EXISTENCE W HICH WERE CAPABLE OF PRODUCING ANY SALEABLE ITEM. IT IS HELD THAT EXP ENDITURE ON REPLACEMENT OF SUCH PARTS IS REVENUE IN NATURE. ACC ORDINGLY, THE DISALLOWANCE OF RS,88,289 IS DIRECTED TO BE DELETED . 5. WE FIND THAT THE LD. CIT(A) HAS CONSIDERED ALL A SPECTS OF THE MATTER AND JUDGMENTS AS RELIED BY THE REVENUE RENDERED IN THE CASE OF CIT VS. SARAVANA SPINNING MILLS PVT. LTD. IS NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. AS IN THAT CASE, THE ASSESSEE WAS EN GAGED IN THE BUSINESS OF TEXTILE AND TEXTILE MACHINERY WAS REPLACED AND A CL AIM WAS MADE ON SUCH REPLACEMENT. THE REVENUE HAS NOT REBUTTED THE FIND ING OF THE LD. CIT(A) THAT THE NATURE OF ITEM INDICATES IT IS A SPARE PAR T WHICH MAY REQUIRE REPLACEMENT. FURTHER, THE FILTER DOES NOT HAVE ANY APPLICATION OTHER THAN AS PART OF ITS MACHINE. SIMILARLY, THE PRESSURE RING IS ALSO TO WITHSTAND THE PRESSURE BUILT UP IN THE EXTRUSION PRESS. IT IS O BSERVED BY LD. C IT(A) THAT THE NATURE OF PARTS REPLACED ARE SMALL PARTS OF LAR GE MACHINES WHICH MAY REQUIRE REPLACEMENT ON BEING WORN OUT. BY INCURRIN G EXPENDITURE ON ITA NO. 1106/AHD/2010 A.Y. 207-08 PAGE NO. THE DCIT VS. BANCO ALUMINUM LTD. 8 PURCHASE OF SUCH ITEMS, NO NEW ASSETS CAME INTO EXI STENCE WHICH WERE CAPABLE OF PRODUCING ANY SALEABLE ITEM. THIS FINDI NG OF FACT IS NOT CONTROVERTED BY THE REVENUE. IN THIS VIEW OF THE M ATTER WE DO NOT FIND ANY INFIRMITY INTO THE ORDER OF LD. CIT(A). HENCE, THI S GROUND OF REVENUES APPEAL IS DISMISSED. 6. NEXT GROUND IS AGAINST THE ALLOWING THE DEDUCTIO N U/S 80IA OF THE ACT AS CLAIMED BY THE ASSESSEE. LD. SR. D.R. SUBMITTED THAT THE DEDUCTION WAS NOT AVAILABLE TO THE ASSESSEE IN VIEW OF DECISION O F THE HONBLE ITAT CHENNAI BENCH RENDERED IN THE CASE OF M/S CHETTINAD CEMENT CORPORATION LTD VS. ACIT ITA NO. 1029(MAD)2005 FOR THE ASSESSME NT YEAR 2001-02 LD. DR HAS ALSO GIVEN A WRITTEN SUBMISSION ON THIS ISSUE WHICH IS REPRODUCED AS UNDER:- THE FIRST OF THE SECOND ISSUE IS THAT THE ASSESSING OFFICER HAS ADOPTED RATE OF RS. 2,36/- PER UNIT, CONSIDERING TH E AVERAGE PRICE CHARGED BY POWER GENERATING COMPANIES TO GUVNL, FOR THE DET ERMINATION OF DEDUCTION U/S 80IA(4) FOR COGEN I & II. THE AO CONSIDERED THAT THE PROFIT WORKED OUT BY THE ASSESSEE WAS NOT ACCEPTABLE AS GE NUINE. THE ASSESSEE HAS APPLIED CHARGES LEVIED BY GUJARAT ELEC TRICITY BOARD AS THE 'MARKET RATE' OF ELECTRICITY GENERATED BY THE ASSES SEE FOR ITS CAPTIVE CONSUMPTION. AS PER THE AGREEMENT, THE ASSESSEE IS BOUND NOT TO SELF THE ELECTRICITY GENERATED BY IT WITHOUT THE EXPRESS PER MISSION OF GEB. THIS ITSELF BRINGS IN A TREMENDOUS CONSTRAINT ON THE ASS ESSEE AS IT LOOSES THE FREEDOM NOT ONLY TO CHOOSE ITS MARKET BUT ALSO ITS MARKET PRICE. THE CIT (A) HAS DIRECTED THE AO TO ALLOW DEDUCTION U/S 80IA(4) AT THE MARKET RATE OF RS. 4.86/- PER UNIT RELYING ON THE PRICE OF ELECTRICITY SUPPLIED BY THE GUJARAT ELECTRICITY BOARD. THE ASSESSEE'S CLAIM THAT THE MARKET VALUE FOR ELEC TRICITY GENERATED BY IT SHOULD BE EQUIVALENT OF WHAT THE GEB CHARGES TO THE RETAIL CONSUMERS WOULD BE ABNITIO INCONGRUOUS. SINCE THE ENTIRE GENE RAL OF ELECTRICITY IS USED FOR CAPTIVE UTILIZATION AND CONSUMPTION; THERE IS NO ADDITIONAL COST TO ELECTRICITY UNIT GENERATED BY THE ASSESSEE IN TERMS OF MARKETING THE ELECTRICITY. MOREOVER, THE GEB IS PROVIDING AN ASSU RED SUPPLY OF ELECTRICITY. THEREFORE, IT CANNOT EQUATE THE ASSESSEE WITH GEB F OR THE PURPOSE OF FIXING ITS MARKET PRICE OF ELECTRICITY UNITS. ITA NO. 1106/AHD/2010 A.Y. 207-08 PAGE NO. THE DCIT VS. BANCO ALUMINUM LTD. 9 THE SECOND ISSUE INVOLVED IS THAT THE ASSESSING OFF ICER HAS DISALLOWED THE DEDUCTION OF RS. 24,63,968/- U/S 80IA OF THE I T AC T, 1961 RELYING ON THE DECISION OF THE HON'BLE ITAT CHENNAI IN THE CASE OF M/S CHETTINAD CEMENT CORPORATION LTD. VS ACIT IN ITA NO. 1029 (MADS) 200 5 IN RESPECT OF POWER GENERATING PLANTS USED FOR CAPTIVE CONSUMPTIO N AND ALSO THERE IS NO INCOME IN RESPECT OF COGEN-I AND II. THE HON'BLE IT AT, CHENNAI HAS HELD THAT THE DEDUCTION U/S 80-IA IS NOT AVAILABLE I N RESPECT OF CAPTIVE POWER PLANT TO MEET IN HOUSE REQUIREMENT AND (II) RATE OF SUPPLY. THE ITAT FURTHER HELD THAT 'THE PLAIN READING OF THIS SECTION SHOWS THAT WHERE GROSS TOTAL INCOME OF THE ASSESSEE INCLUDES ANY PROFIT AND GAIN S DERIVED BY AN UNDERTAKING OF AN ENTERPRISE FROM BUSINESS OF ELIGIBLE UNDERTAKING ONLY ARE TO BE CONSIDERED FOR THE PURPOSE OF ALLOWING DEDUCTION. THE CIT(A) HAS ALLOWED DEDUCTION U/S 80-IA RELYING ON THE MUMBAI BENCH OF ITAT IN THE CASE OF WEST COAST PAPER MILLS VS ACIT (103 ITD 19 ). IN VIEW OF THE HON'BLE ITAT, CHENNAI'S DECISION IN THE CASE OF M/S CHETTINAD CEMENT: CORPORATION PVT LTD, THE HON'BLE ITAT MAY KINDLY BE RESTORED THE DISALLOWANCE U/S 80-IA MADE BY THE ASS ESSING OFFICER. 7. WE HAVE HEARD THE LD. SR. D.R. AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. LD. CIT(A) HAS DECIDED THIS ISSUE AS UNDER : 6. GROUND NO. 4 RELATES TO THE DENIAL OF THE CLAIM OF DEDUCTION U/S 80IA(4) AMOUNTING TO RS.24.83,968/- ON COGEN - 1 UNIT AND COGEN - II UNIT. THE ASSESSEE MANUFACTURES ALUMINUM EXTRUSION SECTIONS FROM ALUMINUM INGOTS. IT ALSO GENERATES CA PTIVE POWER AT ITS 250 KVA - I AND 250 KVA - II POWER PLANTS BEING COG EN UNIT -I AND COGBN UNIT - II RESPECTIVELY. THE ENERGY GENERATED IN THE SAID CAPTIVE POWER PLANTS WAS USED BY THE ASSESSEE FOR I TS OWN CONSUMPTION. THE AO OBJECTED TO THE CLAIM OF DEDUCT ION U/S 80IA(4) ON THE GROUND THAT (A) THE DEDUCTION WAS ELIGIBLE O NLY WHERE SEPARATE BUSINESS UNDERTAKING IS PUT UP FOR GENERATION/DISTR IBUTION OF POWER. SINCE THE ASSESSEE HAD SET UP THE PLANTS MAINLY FOR CAPTIVE USE, THE DEDUCTION U/S 80LA(4)(IV) WOULD NOT BE AVAILABLE, ( B) THE ASSESSEE HAS NOT WORKED OUT THE PROFIT OF THE ELIGIBLE UNDERTAKI NGS AS PER SECTION 801A(5) OF THE ACT. IN VIEW OF THE AO, THE ASSESSEE IS REQUIRED TO SET OFF PREVIOUS YEAR'S BROUGHT FORWARD LOSSES OF THE S AID UNITS FIRST, AND (C) EVEN IF THE ASSESSEE WERE ELIGIBLE FOR DEDUCTIO N, THE QUANTUM OF DEDUCTION WAS TO BE WORKED OUT WITH REFERENCE TO 'M ARKET RATES' OF ELECTRICITY GENERATED BY THE ASSESSEE AND NOT AT TH E RATE CLAIMED. THE ITA NO. 1106/AHD/2010 A.Y. 207-08 PAGE NO. THE DCIT VS. BANCO ALUMINUM LTD. 10 ASSESSEE HAD CLAIMED DEDUCTION AMOUNTING TO RS.24,8 3,968/- ON THE BASIS OF PURCHASE PRICE OF POWER FROM GEB, I.E. RS. 4.86 PER UNIT. THE AO REDUCED THE DEDUCTION, WITHOUT PREJUDICE TO HIS EARLIER OBJECTION THAT NO DEDUCTION AT ALL WAS AVAILABLE. THE REDUCED QUANTUM OF DEDUCTION WAS WORKED OUT AT RS. NIL/- BASED ON THE RATE OF RS. 2.36 PER UNIT OF POWER, BEING THE AVERAGE RATE AT WHICH GEB PURCHASED POWER FROM DIFFERENT COMPANIES. THE DETAILS OF THE WORKING OF THIS AVERAGE RATE OF RS. 2.36 PER UNIT AND THE DEDUCTION OF RS. NIL LACS HAVE BEEN STATED AT PAGES 11 & 12 OF THE ASSESSMENT ORDER. 6.1 REGARDING THE ISSUE AS TO ELIGIBILITY OF TH E ASSESSEE FOR CLAIMING THE DEDUCTION IN RESPECT OF CAPTIVE POWER PLANT AS OPPOSED TO A SEPARATE LINE OF BUSINESS OF GENERATION OF POWER, T HE LD.AR RELIED ON THE DECISION OF THE ITAT, MUMBAI BENCH IN WEST COAST PAPER MILLS V ACIT (103 ITD 19) WHEREIN IT WAS HELD THAT SO FAR A S THE ISSUE OF ALLOWANCE OF DEDUCTION U/S 801A IS CONCERNED, THE C LAIM OF THE ASSESSES COULD NOT BE DENIED SIMPLY ON THE GROUND T HAT IT MANUFACTURED POWER ONLY FOR THE CAPTIVE CONSUMPTION OF THE ASSESSEE. FURTHER, RELIANCE WAS PLACED ON THE DECISION OF THE GUJARAT HIGH COURT IN CIT V AHMEDABAD MANUFACTURING AND CALICO P RIMING CO. LTD., (162 ITR 760) WHEREIN IT WAS HELD THAT THE AS SESSEE WOULD BE ENTITLED TO DEDUCTION U/S 801 IRRESPECTIVE OF THE F ACT WHETHER ITS PRODUCT WAS SOLD IN OPEN MARKET OR WAS USED FOR CAP TIVE CONSUMPTION. 6.2 WITH RESPECT TO THE ALLEGATION OF THE AO THAT THE APPELLANT HAS NOT COMPUTED THE PROFITS OF THE ELIGIBLE UNIT AS PE R SECTION 801A(5), IT WAS SUBMITTED BY THE LD. AR THAT IN THE VIEW OF THE AO, INITIAL ASSESSMENT YEAR IS THE YEAR IN WHICH THE ELIGIBLE U NIT STARTS GENERATION OF POWER. HOWEVER, IT WAS CONTENDED THAT THE INITI AL ASSESSMENT YEAR IS THE FIRST YEAR IN WHICH THE APPELLANT OPTS TO CL AIM DEDUCTION U/S, 801A FOR ANY PERIOD OF 10 YEARS FROM AMONGST THE 15 YEAR PERIOD. IN VIEW OF THE AO THE UNABSORBED LOSSES AS WELL AS UNA BSORBED DEPRECIATION BEGINNING FROM THE YEAR OF MANUFACTURE SHOULD BE SET OFF FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 8OIA. IN THE CASE OF THE APPELLANT, C0GEN UNIT - I STARTED GENERATING POWER FROM 26-6-2001 (AY 2002-03), THEREFORE THE NOTIONAL UNABSORBED LOS SES OF THE SAID UNIT FROM AY 2002-03 SHOULD BE CONSIDERED FOR THE P URPOSE OF COMPUTING THE PROFITS ELIGIBLE FOR DEDUCTION U/S. 8 01A. SIMILARLY THE COGEN UNIT - II STARTED GENERATION OF POWER FROM 25 -2-2005 (AY 2005-06), THEREFORE THE NOTIONAL UNABSORBED LOSSES OF THE SAID UNIT ITA NO. 1106/AHD/2010 A.Y. 207-08 PAGE NO. THE DCIT VS. BANCO ALUMINUM LTD. 11 FROM AY 2005-06 SHOULD BE CONSIDERED FOR THE PURPOS E OF COMPUTING THE PROFITS ELIGIBLE FOR DEDUCTION U/S, 801A. IT WA S SUBMITTED THAT SINCE THE APPELLANT HAS STARTED CLAIMING DEDUCTION U/S. 8 01A FROM AY 2007- 08 BEING THE FIRST YEAR IN WHICH THE APPELLANT OPTE D TO CLAIM SUCH DEDUCTION, UNABSORBED LOSSES DEPRECIATION SUBSEQUEN T LO THE SAID INITIAL ASSESSMENT YEAR CAN ONLY BE CONSIDERED AND NOT PRIOR TO THAT. 6,3 SO TAR AS THE THIRD ASPECT REGARDING THE C OMPUTATION OF THE DEDUCTION IS CONCERNED, RELYING ON THE DECI SION OF 1TAT, AHMEDABAD BENCH IN ITA 3594/AHD/2007 FOR AY 2003-04 IN THE CASE OF ALEMBIC LTD, IT WAS SUBMITTED BY THE ID. AR THAT THE TRIBUNAL HAS HELD THAT THE PURCHASE PRICE OF POWER BY THE AS SESSES FROM THE ELECTRICITY COMPANY WOULD CONSTITUTE THE MARKET PRI CE AND NOT THE PRICE AT WHICH POWER WAS PURCHASED BY THE ELECTRICI TY COMPANY. THE APPELLANT ALSO RELIED ON ANOTHER DECISION OF AHMEDA BAD TRIBUNAL IN THE CASE OF PRAGATI GLASS PVT. LTD V. ACIT IN ITA N O. H09/A/2007 FOR AY 2003-04. 6.4 I HAVE CONSIDERED THE SUBMISSIONS OF THE ID. A R AND THE FACTS OF THE CASE. ON THE ISSUE REGARDING ALLOW ABILITY OF D EDUCTION U/S. 80IA TO THE CAPTIVE POWER PLANT SET UP TO MEET IN-HOUSE REQUIREMENTS ON THE GROUND THAT IT CANNOT BE CONSIDERED AS SEPARATE UND ERTAKING, THE MUMBAI BENCH OF 1TAT (IN WEST COAST PAPER MILLS} HA S CLEARLY HELD THAT IN CASE OF GENERATION OF POWER FOR CAPTIVE CON SUMPTION, THE CLAIM OF DEDUCTION U/S 8OIA WOULD BE AVAILABLE. IT IS ALS O TRUE THAT THE POWER GENERATING PLANT HAS INDEPENDENT BUILDING, IN DEPENDENT PLANT AND MACHINERIES, COMPLETELY DIFFERENT PRODUCTS, SEP ARATE SET OF EMPLOYEES WORKING ON THE PLANT AND DISTINCT EXISTEN CE. IN VIEW OF THE JUDGMENT OF THE MUMBAI TRIBUNAL (SUPRA) DEDUCTION U /S. 801A CANNOT BE DISALLOWED ON THIS GROUND. 6.5 REGARDING THE COMPUTATION OF PROFITS IN CONFORM ITY WITH THE PROVISIONS OF SECTION 801A(5), IT IS SEEN THAT THE CONTROVERSY IN QUESTION IS COVERED BY THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF MOHAN BREWERIES & DISTILLER IES LTD. V. ACIT, 114 TTJ 532. IN THIS CASE THE TRIBUNAL HAS VERY CAT EGORICALLY HELD THAT INITIAL ASSESSMENT YEAR IS THE YEAR IN WHICH THE AS SESSE FIRST OPTS TO BE GOVERNED BY THE DEDUCTION PROVISIONS AND NOT NECESS ARILY THE YEAR OF COMMENCEMENT OF MANUFACTURING ACTIVITY. IN THE CONT EXT OF INITIAL ASSESSMENT YEAR THE TRIBUNAL OBSERVES AS UNDER: ITA NO. 1106/AHD/2010 A.Y. 207-08 PAGE NO. THE DCIT VS. BANCO ALUMINUM LTD. 12 'ADVERTING TO THE FACTS OF THE CASE THE INITIAL ASS ESSMENT YEAR IN THIS CASE STARTS FROM 2004-05. SINCE THE ASSESSEE H AS OPTED TO CLAIM THIS DEDUCTION ONLY IN THIS ASSESSMENT YEAR, THE INITIAL ASSESSMENT YEAR CANNOT BE THE YEAR IN -WHICH THE UN DERTAKING COMMENCED ITS OPERATIONS AND IN THIS CASE THE INITI AL ASSESSMENT YEAR IS THE ASSESSMENT YEAR IN WHICH ASS ESSEE HAS CHOSEN TO CLAIM DEDUCTION UNDER S. 80-1A. HENCE THE PROVISIONS OF S. 80-IA(5) TREATING UNDERTAKING AS A SEPARATE S OLE SOURCE OF INCOME CANNOT BE APPLIED TO A YEAR PRIOR TO THE YEA R IN WHICH ASSESSES OPTED TO CLAIM RELIEF UNDER SECTION 80-IA FOR THE FIRST TIME. DEPRECIATION AND CARRY FORWARD LOSS RELIEF TO THE UNIT WHICH CLAIMS DEDUCTION UNDER S. 80-IA, CANNOT HE NO TIONALLY CARRIED FORWARD AND SET OFF AGAINST THE INCOME FROM THE YEAR IN WHICH THE ASSESSEE STARTED CLAIMING DEDUCTION UNDER 80-IA. AT THE COST OF REPETITION, WE MAKE IT CLEAR THAT THE C ASE LAW RELIED ON BY THE DEPARTMENTAL REPRESENTATIVE ARE DELIVERED BEFORE THE AMENDMENT TO SECTION BY FINANCE ACT. 1999. BEFORE T HE AMENDMENT THE INITIAL ASSESSMENT YEAR WAY DEFINED I N THE ACT BUT AFTER THE AMENDMENT THERE IS NO DEFINITION FOR INITIAL ASSESSMENT YEAR IN THE ACT AND THERE IS OPTION TO T HE ASSESSEE IN SELECTING THE YEAR OF CLAIMING RELIEF UNDER SECTION 80IA. IN VIEW OF THIS, WE ARE OF THE OPINION THAT THERE IS NO QU ESTION OF SETTING OFF NOTIONALLY CARRIED FORWARD UNABSORBED DEPRECIAT ION OR LOSS AGAINST THE PROFITS OF THE UNITS AND ASSESSES IS EN TITLED TO CLAIM DEDUCTION UNDER S. 80-IA ON CURRENT ASSESSMENT YEAR ON THE CURRENT YEAR PROFIT. ACCORDINGLY WE ALLOW THE CLAIM OF THE ASSESSEE. ' 6.6 REGARDING THE THIRD ISSUE, THE DECISION OF THE ITAT AHMEDABAD BENCH IN THE CASE OF ALEMBIC LTD (SUPRA) AND THE IT AT DELHI BENCH IN THE CASE OF ADDL. CIT V JINDAL STEEL AND POWER LID (16 SOT 509) ARE SQUARELY APPLICABLE ON THE FACTS OF THE PRESENT CAS E. IN JINDAL STEEL & POWER LTD., THE TRIBUNAL HAS HELD THAT THE MARKET V ALUE SHALL BE THE PRICE AT WHICH THE ASSESSEE PURCHASES ELECTRICITY F ROM THE ELECTRICITY BOARD AND NOT THE ONE WHICH IS FIXED BY THE LEGISLA TIVE MANDATE. IN THE INSTANT CASE THE ASSESSEE IS PREVENTED BY THE LEGIS LATIVE MANDATE FROM SELLING POWER TO ANY PERSON OTHER THAN GEB. ON THE OTHER HAND, THE GEB SOLD POWER TO THE ASSESSEE @ RS. 4.86 PER UNIT. SINCE THE FACTS OF THE INSTANT CASE ARE SQUARELY COVERED BY THE DECISI ONS OF DIE ITAT AS ABOVE, IT IS CLEAR THE AO WAS NOT JUSTIFIED IN DENY ING THE CLAIM U/S ITA NO. 1106/AHD/2010 A.Y. 207-08 PAGE NO. THE DCIT VS. BANCO ALUMINUM LTD. 13 80IA. ACCORDINGLY, THE AO IS DIRECTED TO ALLOW THE DEDUCTION U/S 8OIA AS CLAIMED, BASED ON MARKET RATE OF RS, 4.86 PER UN IT OF POWER. 8. WE DO NOT FIND ANY INFIRMITY INTO THE ORDER OF L D. CIT(A) AS HE HAS CONSIDERED ALL ASPECTS OF THE MATTER AND HAS RIGHTL Y FOLLOWED THE DECISIONS OF THE HONBLE CO-ORDINATE BENCH OF DELHI RENDERED IN THE CASES OF ADDL.CIT VS. JINDAL STEEL AND POWER LTD 16 SOT 509. IN THI S VIEW OF THE MATTER THIS GROUND OF THE REVENUES APPEAL IS ALSO DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE. SD/- SD/- (A.K. GARODIA) (KUL BHARAT) ACCOUNTANT MEMBER JU DICIAL MEMBER AHMEDABAD : DATED 25 /10/2012 AK / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. / CONCERNED CIT 4. - / CIT (A)-III, BARODA 5. , ! , '# / DR, ITAT, AHMEDABAD 6. $% &' / GUARD FILE. BY ORDER/ , ( / ' ) ! , '# *