DCIT, New Delhi V. M/s. K R Pulp & Papers Ltd., New Delhi

ITA 1344/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97888 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 13-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 07-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RICHA RASTOGI
• Keywords: Sale consideration of property below Jantri Value
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH D NEW DELHI BEFORE : SHRI I.C. SUDHIR , JUDICIAL MEMBER & SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 1344/DEL./2013 ASSTT. YEAR : 2008 - 09 D.C.I.T., CIRCLE 5(1), VS. K.R. PULP & PAPERS LTD., NEW DELHI. 304,ROOTS TOWER, DISTT. CENTRE, LAXMI NAGAR, NEW DELHI [PAN: AAACK5861C] (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. RICHA RASTOGI, SR. DR RESPONDENT BY : SHRI VED JAIN, C.A. DATE OF HEARING : 13.10.2015 DATE OF PRONOUNCEMENT : 20 .11.2015 ORDER PER L.P. SAHU, ACCOUNTANT MEMBER: BY MEANS OF THIS APPEAL, THE REVENUE HAS CHALLENGED THE ORDER DATED 31.12.2012 OF LD. CIT(A) - VIII, NEW DELHI FOR THE ASSESSMENT YEAR 2008 - 08 , ON THE FOLLOWING GROUNDS : 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS JUSTIFIED IN IGNORING THE LOSS OF RS.3,06,31,943/ - COMPUTED BY THE A.O. AS AGAINST THE PROFIT OF RS.3,38,97,650/ - IN THE POWER UNIT. 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS JUSTIFIED IN ACCEPTING THE FORMULA OF COST IN THE RATIO OF ENERGY INSTEAD OF COST IN THE RATIO OF STEAM PRESSURE AS ADOPTED BY THE A.O. ITA NO. 1344/DEL./2013 2 3. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS JU STIFIED IN ACCEPTING THE EFFICIENCY OF 85 TO 86% INSTEAD OF FURTHER 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 - COMPA NY 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.1,16,27,6 20 / - . IN THE COMPUTATION OF INCOME, THE ASSESSEE CLAIMED DEDUCTION U/S. 80IA OF THE INCOM E - 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 T HE 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 AND NOW THE ASSE SSEE IS USING RICE HUSK TO GENERATE HEAT SO THAT STEAM IS PRODUCED FOR GAS TURBINE. THE AO ALSO NOTICED THAT THE UNITS OF ELECTRICITY GENERATED HAVE BEEN TAKEN ON ESTIMATE BASIS. THE ASSESSEE HAD ALSO THE ASSESSEE WAS ASKED ITA NO. 1344/DEL./2013 3 TO SUBMIT DETAILS IN RESPECT OF POWER GENERATION AND ALSO TO GIVE A WORKING OF THE NOTIONAL REVENUE EARNED IN ACCORDANCE WITH THE TARIFF POLICY DATED 06.01.2006. THE ASSESSEE WAS ALSO ASKED TO GIVE THE DETAILS OF STEAM GENERATION AND TO SHOW CAUSE AS TO WHY THIS SHOULD NOT BE REMOVED FRO M THE CALCULATION OF DEDUCTION U/S. 80IA. THE ASSESSEE WAS ALSO ASKED TO SHOW CAUSE AS TO WHY ITS CLAIM FOR DEDUCTION U/S. 80IA SHOULD NOT BE DISALLOWED, AS NOBODY CAN EARN PROFIT OUT OF ONESELF. 3. IN RESPONSE TO VARIOUS QUERIES OF THE ASSESSING OFFICER , THE ASSESSEE SUBMITTED DETAILED REPLY . THE ASSESSEE TOOK THE NOTIONAL PRICE OF RS.4.50 PER UNIT AT THE AVERAGE RATE AT WHICH UPSEB HAS SUPPLIED ELECTRICITY TO ONE OF THE INDUSTRIAL UNITS IN ITS VICINITY. THE AO, HOWEVER, DID NOT AGREE WITH IT AND AFTER C ONSIDERING INCLUSION OF VARIOUS OTHER COMPONENTS IN THE ELECTRICITY RATES OF UPSEB, PROCEEDED TO RECAST THE P & L ACCOUNT FOR POWER DIVISION AND WORKED OUT A LOSS IN ELECTRICITY GENERATION ACTIVITY, AS MENTIONED AT PAGE 5 OF THE ASSESSMENT ORDER. AFTER CO NSIDERING THE REPLY OF ASSESSEE, THE AO FURTHER DISALLOWED THE CLAIM OF ASSESSEE U/S. 80IA STATING THAT THE ISSUE OF ALLOWABILITY OF DEDUCTION U/S. 80IA FOR TRANSFER OF POWER TO ASSESSEE S OWN ANOTHER UNITY I.E., CAPTIVE CONSUMPTION, THE ALLOWABILITY OR OT HERWISE OF DEDUCTION U/S. 80IA IS A LEGAL ISSUE. NEITHER THE ASSESSEE NOR THE DEPARTMENT HAS THE BENEFIT OF THE ITA NO. 1344/DEL./2013 4 DECISION OF THE HON BLE HIGH COURT ON THIS ISSUE. THE DECISION OF THE HON BLE HIGH COURT HAS NOT BEEN RECEIVED YET ON THIS ISSUE AND MORE SPECIF ICALLY WITH RESPECT TO TRANSFER OF POWER FROM ONE UNIT TO ANOTHER UNIT. 4. THE ASSESSING OFFICER FURTHER REFERRING TO THE PROVISIONS OF SUB - SECTION 8 OF SECTION 80IA OBSERVED THAT THE GOODS OR SERVICES HELD FOR THE PURPOSES OF ELIGIBLE BUSINESS ARE TRANSFERRED. IN THIS CASE, THE POWER GENERATION IS NOT HELD FOR THE PURPOSES OF ELIGIBLE BUSINESS AND RATHER THE POWER GENERATION IS FOR THE CAPTIVE CONSUMPTION FOR THE OTHE R UNIT AND THEREFORE, THE POWER GENERATION IS PRIMARILY TO REDUCE THE COST OF POWER AND FUEL EXPENDITURE OF OTHER UNIT. THE OUTPUT OF THE MAIN UNIT IS THE INPUT OF THE 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 OTH ER 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 BUSI NESS. IT WAS LASTLY OBSERVED THAT AS THE ASSESSEE HAS NOT EARNED ANY ACTUAL PROFITS, THE PROFIT IS DEEMED TO BE RS. ITA NO. 1344/DEL./2013 5 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. T HE 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 F INDINGS OF THE AO AND THE FACTS ON RECORD. SINCE THE CLAIM OF THE APPELLANT IS ON THE PROVISIONS OF SECTION 80IA, THE SAID RELEVANT PROVISIONS ARE REPRODUCED AS UNDER : 80 - IA. (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB - SECTION (4) (SUCH BUSINESS BEING HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSINESS), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, I N COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION OF AN AMOUNT EQUAL TO HUNDRED PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSECUTIVE ASSESSMENT YEARS. (2) THE DEDUCTION SPECIFIED IN SUB - SECTION (1) MAY, AT THE OPTION OF THE ASSESSEE, BE CLAIMED BY HIM FOR ANY TEN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING OR THE ENTERPRISE DEVELOPS AND BEGINS TO OPERATE ANY INFRASTRUCTURE FACILITY OR STARTS PROVIDING TELECOMMUNICATIO N SERVICE OR DEVELOPS AN INDUSTRIAL PARK OR DEVELOPS A SPECIAL ECONOMIC ZONE REFERRED TO IN CLAUSE ( III ) OF SUB - SECTION (4) OR GENERATES POWER OR COMMENCES TRANSMISSION OR DISTRIBUTION OF POWER OR UNDERTAKES SUBSTANTIAL RENOVATION AND MODERNISATION OF THE EXISTING TRANSMISSION OR DISTRIBUTION LINES OR LAYS AND BEGINS TO OPERATE A CROSS COUNTRY NATURAL GAS DISTRIBUTION NETWORK] (8) WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSES OF THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE, OR WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSES OF ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE ARE TRANSFERRED TO THE ELIGIBLE BUSINESS AND, IN EITHER CASE, THE CONSIDERATION, IF ANY, FOR SUCH TRANSFER AS RECORDED IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DATE OF THE TRANSFER, THEN, FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS SHALL BE COMPUTED AS IF THE TRANSFER, IN EITHER CASE, HAD BEEN MADE AT THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THAT DATE. FROM THE ABOVE IT IS EVIDENT THAT THE SAID SECTION IS APPLICABLE IN THE GIVEN CONTEXT ON THE FOLLOWING UNDERTAKINGS: ITA NO. 1344/DEL./2013 6 GENERATION OF POWER, OR GENERATI ON AND DISTRIBUTION OF POWER. THE FIRST TYPE OF UNDERTAKINGS WOULD BE SIMILAR TO THAT OF THE APPELLANT BEING INTO ONLY GENERATION AND CONSEQUENTLY USE OF THAT POWER WITHOUT DISTRIBUTING IT TO OTHERS; WHILE THE SECOND TYPE OF UNDERTAKINGS WOULD BE MAINLY T HE 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 THA T 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 EXEM PTION 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 BUSINESS IS TO BE COMPUTED AS IF THE TRANSFER HAS BEEN MADE AT THE MARKET VALUE OF SUCH GOODS OR SERVICES. THE ASSESSING OFFICER HAS OVERLOOKED THE PROVISIONS OF THIS SUB - SECTION. I AM IN AGREEMENT WITH THE CONTENTION OF T HE APPELLANT THAT THE EXEMPTION UNDER SECTION 80IA IS NOT ASSESSEE BASED BUT UNDERTAKING BASED. THE EXEMPTION UNDER SECTION 80IA IS AVAILABLE TO AN UNDERTAKING WHICH IS ELIGIBLE FOR EXEMPTION. THE APPELLANT HAVING SET UP AN UNDERTAKING FOR GENERATION OF PO WER, THE APPELLANT WILL BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA.THE AO HIMSELF IN THE ASSESSMENT ORDER IN PARA 3 HAS GIVEN A FINDING THAT THE ASSESSEE HAS INSTALLED ONE GAS TURBINE FOR GENERATING ELECTRICITY TO MEET ITS ENERGY NEEDS. THE ELECTRIC TURB INE SET UP BY THE ASSESSEE IS AN UNDERTAKING AND IS GENERATING POWER. THIS UNDERTAKING FULFILS ALL THE CONDITIONS PRESCRIBED UNDER SECTION 80IA FOR WHICH THERE IS NO DISPUTE AS IS EVIDENT FROM THE A SSESSMENT ORDER. THE AO HAS DENIED THE EXEMPTION ON THE GR OUND THAT THIS UNDERTAKING HAS BEEN SET UP TO MEET ITS OWN POWER NEEDS AND AS SUCH IS NOT AN ELIGIBLE UNDERTAKING. THIS REASONING OF THE ASSESSING OFFICER IS NOT CORRECT AND IS AGAINST THE PROVISIONS OF THE ACT. THE HON BLE MADRAS HIGH COURT IN THE CASE O F TAMIL NADU PETRO PRODUCTS LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX REPORTED IN 238 CTR (MAD) 454 HAS HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S. 80IA IN RESPECT OF NOTIONAL INCOME FROM GENERATION OF ELECTRICITY WHICH WAS CAPTIVELY CONSUMED BY ITSELF. IN CIT VS. ORISSA CEMENT LTD. 254 ITR 412 (DELHI HIGH COURT) THE ASSESSEE CARRIED ON MINING OPERATIONS OF LIMESTONE FOR THE MANUFACTURE OF CEMENT. THE APPELLATE ASSISTANT COMMISSIONER AND THE APPELLATE TRIBUNAL FOUND THAT THE PRODUCTION OF LIME STONE WAS DONE AT A STAGE FOR THE PURPOSE OF MANUFACTURE OF CEMENT AND THAT IT WAS POSSIBLE, FROM THE AUDITED STATEMENT, TO COMPUTE THE PROFITS ON THE BASIS OF THE TRANSFER OF LIMESTONE TO THE FINAL STAGES AT THE MARKET PRICE. HELD, THAT THE ASSESSEE WAS E NTITLED TO BENEFIT OF SPECIAL DEDUCTION UNDER SECTION 80 - I IN RELATION TO THE PROFITS DERIVED FROM THE PRODUCTION OF LIMESTONE. IN CIT VS. DALMIA DADRI CEMENT LTD. 263 ITR 364 (DELHI HIGH COURT) IT HAS BEEN HELD AS UNDER : ITA NO. 1344/DEL./2013 7 REGARDING THE SECOND QUESTION, AN IDENTICAL ISSUE WAS CONSIDERED BY THE COURT IN CIT V. ORISSA CEMENT LTD. (NO. 2) [2002] 254 ITR, WHEREIN, 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 OF FICER 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 ENG AGED 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 IN SCHEDULE VI ARE MANUFACTURED AND SOLD BY THE ASSESSEE AS SUCH OR UTILIZED BY THE ASSES SEE IN THE MANUFACTURE OF OTHER GOODS FOR SALE WILL NOT MAKE AN DIFFERENCE FOR GRANT OF RELIEF UNDER SECTION 80 - 1.' (EMPHASIS SUPPLIED) THE QUESTION RAISED BY THE ASSESSING OFFICER IS ANSWERED BY THE SUPREME COURT IN THE CASE OF ORIENT PAPER MILLS LTD. [1 989] 176 ITR 110. THIS DECISION OF THE SUPREME COURT DOES NOT BRING OUT THE FACTS. IT HAS ONLY AFFIRMED THE DECISION OF THE CALCUTTA HIGH COURT IN CIT VS. ORIENT PAPER MILLS LTD. [1974] 94 ITR 73. THE FACTS COULD ONLY BE FOUND IN THE JUDGMENT OF THE CALCUT TA HIGH COURT. THE ASSESSEE IN THAT CASE OWNED A PAPER MILL. IT SET UP A PLANT FOR THE MANUFACTURE OF CAUSTIC SODA AN ESSENTIAL CHEMICAL FOR USE IN THE PROCESS OF MANUFACTURE OF PAPER. THE ASSESSEE OBTAINED A SEPARATE LICENSE FOR THE MANUFACTURE OF CAUSTIC SODA AND THE PLANT WAS HOUSED IN A SEPARATE BUILDING, THE INCOME TAX OFFICER IN THAT CASE HELD THAT THE CAUSTIC SODA PLANT WAS ANCILLARY TO THE MAIN MANUFACTURING UNIT AND NO PART OF CAUSTIC SODA WAS SOLD TO ANY OUTSIDER AND THEREFORE NO RELIEF COULD BE C LAIMED BY THE ASSESSEE UNDER SECTION 15C OF THE 1922 ACT. THE MATERIAL PRODUCED IN THE PLANT WAS USED FOR CAPTIVE CONSUMPTION. BEFORE THE TRIBUNAL IT WAS CONTENDED BY THE REVENUE THAT THE LANGUAGE USED IN SECTION 15C WAS 'PROFIT AND GAIN DERIVED FROM AN IN DUSTRIAL UNDERTAKING'. UNLESS THE PROFITS AROSE BY THE SALE OF THE PRODUCT OF THE NEW PLANT, NO PROFIT COULD BE SAID TO HAVE BEEN DERIVED. THE ARGUMENT WAS THAT PROFIT SHOULD BE DIRECTLY DERIVED AND NOT INDIRECTLY OR DEEMED TO BE DERIVED. THE TRIBUNAL DID NOT ACCEPT THESE SUBMISSIONS OF THE REVENUE AND PROCEEDED TO GRANT THE RELIEF. THE HON'BLE CALCUTTA HIGH COURT CONFIRMED THE ORDER OF THE TRIBUNAL AND THE APEX COURT HAS DISMISSED THE APPEAL OF THE REVENUE BY TAKING SUPPORT FROM ITS OWN DECISIONS IN TEXTIL E MACHINERY CORPORATION LTD. V. CIT [1977J 107ITR 195 AND CIT V. INDIAN ALUMINIUM CO. LTD. [1977J 108 ITR 367. THEREFORE, THE STAND OF THE ASSESSING OFFICER CANNOT BE ACCEPTED. AGAIN THE CALCUTTA HIGH COURT WAS FACED WITH THE SAME SET OF FACTS IN THE CASE OF CIT VS. HINDUSTAN MOTORS LTD. [19811 127 ITR 210. THE ASSESSEE IN THAT CASE WAS ENGAGED IN THE MANUFACTURE OF MOTOR CARS. IT ESTABLISHED CERTAIN ANCILLARY UNITS. THE ASSESSING OFFICER REPEATED HIS FINDINGS ON THE SAME LINE AS HE DID IN THE CASE OF ORIE NT 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 ITA NO. 1344/DEL./2013 8 WERE SOLD BY THE ASSESS EE 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 TH AT 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 (IT AT MUMBAI), THE ISSUE FOR DECISION WAS OF IDENTICAL NATURE AS IN T HE CASE OF THE APPELLANT COMPANY. THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE AND SALE OF PAPER AND PAPERBOARDS, MULTI - LAYER BOARDS, ETC. AND IN THE BUSINESS OF POWER GENERATION. THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80 - IA OF THE INCOME - TAX ACT, 196 1, FOR ALL THE FOUR POWER GENERATING UNITS TO THE EXTENT OF RS. 7,85,06,996/ - . THE ASSESSING OFFICER DISALLOWED THE ASSESSEE'S CLAIM FOR DEDUCTION UNDER SECTION 80 - IA ON THE GROUND THAT THESE - DG UNITS WERE CATERING TO THE ASSESSEE'S CAPTIVE POWER REQUIREM ENT. THE ASSESSING OFFICER WAS OF THE VIEW THAT IT WAS ONLY AN INTER - DIVISION TRANSFER AND THERE WAS NO REVENUE REALISED BY IT AND CONSEQUENTLY THERE WAS NO DERIVATION OF PROFIT OR INCOME IN THE BUSINESS OF INDUSTRIAL UNDERTAKING, UNDER THESE FACTS, IT WAS HELD THAT THE CLAIM OF THE ASSESSEE COULD NOT BE DENIED ONLY ON THE GROUND THAT THE DG SETS MANUFACTURED POWER ONLY FOR THE CAPTIVE CONSUMPTION OF THE ASSESSEE. THEREFORE, THE STAND OF THE ASSESSING OFFICER COULD NOT BE ACCEPTED. WHILE DELIVERING THE DECI SION, THE ITAT HELD AS UNDER : 'MOREOVER, THE PROVISION OF SECTION 80 - IA(8) ITSELF SAYS THAT WHERE ANY GOODS OR SERVICE OF THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE AND THE CONSIDERATION, IF ANY FOR SUCH TRANSFER IS RECORDED IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DATE OF TRANSFER, THEN FOR THE PURPOSE OF DEDUCTION UNDER THAT SECTION, THE PROFIT AN D GAL' FOR SUCH TRANSFERRED BUSINESS SHALL BE COMPUTED AS IF THE TRANSFER HAS BEEN MADE AT MARKET VALUE AS ON THAT DATE. IN OTHER WORDS, THE PROVISIONS OF SECTION 80 - IA THEMSELVES PROVIDE AN ANSWER AND GIVE A SOLUTION WHERE THERE IS CONSUMPTION OF THE F INISHED GOODS OF THE ELIGIBLE UNITS. ' IN VIEW OF THE FOREGOING, IT IS CRYSTAL CLEAR THAT SUCH ISSUES HAVE BEEN DECIDED BY THE COURTS INCLUDING THE SUPREME COURT, IN FAVOUR OF THE ASSESSES WHENEVER THE PRODUCT OF THE OTHER UNIT WAS PUT TO CAPTIVE USE. THE DECISION OF ITAT MUMBAI BENCH IN WEST COAST PAPER MILLS LTD. VS. ASSISTANT COMMISSIONER OF INCOME - TAX (SUPRA) HAS DEALT WITH THE PROVISIONS OF THE SECTION 80IA(8) AND HELD IT TO BE AN ANSWER TO THE QUERY/PROBLEM IN CONTRA - DISTINCTION TO THE BASIS FOR REFU SING TO ALLOW THE CLAIM, AS DONE BY THE AO IN THE APPELLANT'S CASE. IN VIEW OF THE FINDINGS ABOVE THE FIRST CONTENTION OF THE ASSESSING OFFICER THAT THE APPELLANT CANNOT EARN PROFIT OUT OF ONESELF FOR REJECTING THE CLAIM OF THE ASSESSEE IS NOT AS PER THE L 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 SAM E 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 425C AND 42 KG/CM2 AND COMING OUT WHICH IS 4.2 KG/CM2 AND THUS ITA NO. 1344/DEL./2013 9 IT WOULD BE 10: 1 AND ON THIS BASIS HE HAS ALLOCATED THE GAS. THIS METHOD OF COST ALLOCATIO N 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 HUSK CONSUMPTION DURING THE YEAR WAS 37,204 MT. EACH ONE TONE RICE HUSK PRODUCE 3.83 MT OF STEAM. THE STEAM SO PRODUCED WAS (AT 46 ATA AND 425C TEMP). THE CALORIE VALUE OF SUCH STEAM IS 779 KCAL/KG. ACCORDINGLY THE TOTAL ENERGY SO PRODUCED FROM THE RICE HUSK OF 37,204 MT COMES TO 111000489 KCLLKG. OUT OF THIS TOTAL ENERGY SO PRODUCED FOLLOWING ENERGY GETS USED IN THE PAPER PLANT. (B) EXTRACTION STEAM (AT 5.5ATA & 225C 94470 X 695 = 65656650 KCAL/KG TEMP) (C) EJECTOR (AT 5.5ATA & 250C TEMP) 2000 X 707 = 1414000 KCAL/KG (D) CONDENSER 46021 X 617 = 28394957 KCAL/KG THE BALANCE STEAM I.E. 15534882 KEEL/KG IS USED FOR GENERATION OF POWER. THE MEASUREMENT OF THE ENERGY IS DONE IN KCAL AND AS SUCH THE CONTENTION OF THE ASSESSING OFFICER THAT THE FORMULA USED BY THE APPELLANT FOR THE ALLOCATION OF THE EXPENSES IS NOT CORR ECT. ON THE OTHER HAND THE ASSESSING OFFICER HAS SIMPLY USED THE STEAM PRESSURE FOR ALLOCATION OF THE COST. THE PRESSURE OF THE STEAM CANNOT BE A BASIS FOR ALLOCATION OF THE COST. THE MEASUREMENT HAS TO BE DONE IN TERMS OF THE ENERGY WHICH HAS TO BE MEASUR ED IN KCL. THE ASSESSEE ON THE BASIS OF THIS HAS RIGHTLY ALLOCATED THE COST IN THE RATIO OF THE ENERGY. THE APPELLANT HAS POINTED OUT THAT THE ASSESSING OFFICER HAS NOT GIVEN ANY REASON WHY THE FORMULA USED BY IT WAS WRONG. IN THIS REGARD THE OBSERVATION O F THE AO THAT THE APPELLANT HAS ALLOCATED COST IN PROPORTION TO TEMPERATURE IS NOT CORRECT. PERUSAL OF THE FACTS ON RECORD SHOW THAT THE COST HAS BEEN ALLOCATED NOT IN PROPORTION TO TEMPERATURE BUT IN THE MEASURABLE UNIT OF KCL/KG OF ENERGY WHICH IS VERY R EASONABLE. THE THIRD CONTENTION OF THE AO IS THAT THE ASSESSEE HAS NOT SUBMITTED PROJECT VIABILITY REPORT. IN THIS REGARD IT IS SEEN THAT THE APPELLANT HAD SUBMITTED TO THE AO INFORMATION ABOUT THE POWER PLANT AS ANNEXURE TO THE LETTER DATED 13TH DECEMBER, 2010, A COPY OF WHICH IS PLACED IN THE PAPER BOOK AT PGS. 96 TO 100. THE APPELLANT HAD FURTHER SUBMITTED THAT THE POWER GENERATION I S SUBJECT TO GOVERNMENT REGULATIONS AND THERE IS REGULAR INSPECTION BY THE GOVERNMENT DEPARTMENT AND A REPORT OF S UCH INSPECTION WAS ALSO SUBMITTED TO THE ASSESSING OFFICER. IT HAS ALSO BEEN POINTED OUT DURING THE COURSE OF SUCH INSPECTION A DATE WISE CHART WAS ALSO PREPARED MONITORING THE CONSUMPTION OF THE RAW MATERIAL AND POWER GENERATION. A COPY 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 C ONTENTION 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 I TS 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 EFFICIENC Y 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 1000 MEANING THEREBY THE TOTAL NUMBER OF UNITS PRODUCED WOULD HAVE BEEN 18067068. OUT OF THIS THE ITA NO. 1344/DEL./2013 10 ACCESSORY CONSUMPTION IS TO THE EXTENT OF 11% I.E. 1987377 UNITS HAVE BEEN REDUCED LEAVING THE TOTAL UNIT PRODUCED TO 16079690. THE APPELLANT CONSIDERING THE EFFICIENCY AT 85 TO 86% HAS COMPUTED THE POWER TRANSFERRED TO PAPER UNIT AT 3906143 UNITS. THE ABOVE CALCULA TION CLEARLY DEMONSTRATES THAT THE APPELLANT HIMSELF HAS COMPUTED THE EFFICIENCY BY REDUCING THE SAME TO, 85 TO 86%, AND THEREFORE THE AO WAS NOT JUSTIFIED IN FURTHER REDUCING THE SAME BY ANOTHER 15%. THE 4TH ISSUE RAISED BY THE AO WHILE COMPUTING THE PRO FIT OF THE POWER UNDERTAKING IS REGARDING THE RATE OF THE ELECTRICITY. THE APPELLANT HAS TAKEN THE RATE AT RS.4.50 PER UNIT WHICH THE AO PRIMA FACIE HAS NOT DISPUTED. HOWEVER, THE ASSESSING OFFICER HAS REDUCED THE SAME TO RS.3 PER UNIT ON THE GROUND THAT W HEN THE POWER IS SENT BY THE STATE ELECTRICITY BOARD IT HAS TO INCUR BEYOND THE GENERATING COST, BILLING CHARGES, DISTRIBUTION CHARGES. ON THE ABOVE BASIS THE AO HAS HELD THAT THE SELLING PRICE OF THE POWER FOR THE APPELLANT SHOULD BE 2/3RD OF RS.4.50 I.E. RS.3/ - PER UNIT. THE COMPUTATION DONE BY THE ASSESSING OFFICER DOES NOT HAVE ANY SCIENTIFIC BASIS. THE AO IS AGREEING WITH THE VIEW THAT THE STATE ELECTRICITY BOARD'S SELLING PRICE IS RS.4.50 PER UNIT. IF THAT BE THE CASE THEN THE PROVISIONS OF SECTION 80 IA(8) CANNOT BE IGNORED WHEREBY THE PROFIT HAS TO BE COMPUTED BY APPLYING THE MARKET RATE. THE MARKET RATE HAS TO BE THE PRICE AT WHICH POWER IS BEING SOLD IN THE OPEN MARKET. IF THE APPELLANT BOUGHT POWER FROM THE U.P. STATE ELECTRICITY BOARD IT WOULD HAV E BEEN REQUIRED TO PAY RS.4.50 PER UNIT. IN VIEW OF THE ABOVE IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN REDUCING THE PER UNIT PRICE TO RS.3/ - PER UNIT AS AGAINST RS.4.50 PER UNIT. THE ABOVE VIEW IS ALSO SUPPORTED BY THE JUDGMENT OF THE IT AT MUMBAI BENCH IN THE CASE OF DCW LTD. VS. ADDITIONAL COMMISSIONER OF INCOME TAX (2010) 132 TTJ (MUMBAI) 442. IN VIEW OF THE FINDINGS ABOVE ON THE ISSUES RAISED BY THE AO IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN NOT ALLOWING THE DEDUCTION OF RS. 3,38,97,680/ - UNDER THE PROVISIONS OF SECTION 80LA OF THE ACT. THESE GROUNDS OF APPEAL ARE ALLOWED. 6. THE REVENUE , BEING DISSATISFIED BY THIS ORDER OF LD. CIT(A), HAS COME UP IN THIS APPEAL BEFORE US. 7. THE LEARNED DR RELIED UPON 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 WITH OUT 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. ITA NO. 1344/DEL./2013 11 8. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE BEFORE US, WE FI ND 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 DEDUC TION 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 PROJECT VIABILITY REPORT, THE LD. CIT(A) HAS CATEGORICALLY OBSERVED THAT THE AS SESSEE HAD FILED COMPLETE INFORMATION ABOUT THE POWER PLANT VIDE ANNEXURE TO THE LETTER DATED 13 TH DECEMBER, 2010 AND A INSPECTION REPORT BY GOVERNMENT DEPARTMENT WAS ALSO FURNISHED. ALL THESE DOCUMENTARY EVIDENCE WERE FURNISHED BEFORE THE LD.CIT(A) AGAINS T WHICH NO EVIDENCE IS PLACED BEFORE US ON BEHALF OF THE REVENUE TO DISLODGE THE FINDINGS REACHED BY HIM . REGARDING THE NUMBER OF UNITS GENERATED AND PROFIT OF THE POWER UNDERTAKING, WE FIND THAT THE LD. CIT(A) HAS RIGHTLY OBSERVED THAT ONCE THE ASSESSEE H IMSELF HAS COMPUTED THE EFFICIENCY BY REDUCING THE SAME TO 85 TO 86%, THERE WAS NO JUSTIFICATION TO REDUCE THE SAME BY FURTHER 15% AS DONE ITA NO. 1344/DEL./2013 12 BY THE AO. APART FROM IT, NO CASE IS MADE OUT BY THE REVENUE AGAINST THE REASONING GIVEN BY THE FIRST APPELLATE AUTHO RITY THAT IF THE ASSESSEE BOUGHT POWER FROM UPSEB, IT WOULD HAVE BEEN REQUIRED TO PAY RS.4.50 PER UNIT AND THEREFORE, THE AO WAS NOT JUSTIFIED TO REDUCE THE RATE PER UNIT TO RS.3/ - . THE LD. CIT(A) HAS SUPPORTED THIS FINDING BY THE DECISION OF ITAT, MUMBAI IN THE CASE OF DCW LTD. VS. ADDL. CIT (SUPRA). ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE WELL REASONED ORDER OF THE LD. CIT(A). 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20.11.2015 . SD/ - SD/ - ( I.C. SUDHIR ) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 20.11.2015 *AKS/ - COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT. REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI