ACIT, Circle-1, Nellore, Nellore V. Madurai Power Corporation Pvt. Ltd., Chennai, Chennai

ITA 477/HYD/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2444 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 13-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: THANGADURAI
• Keywords: Business income
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B BENCH: HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA. NOS. 477 & 478/HYD/2017 ASSESSMENT YEARS: 2007 - 08 AND 2012 - 13 ACIT, CIRCLE - 1, NELLORE. VS. MADURAI POWER CORPORATION PVT LTD., CHENNAI. PAN: AACCM 7661 C (APPELLANT) (RESPONDENT) FOR ASSESSEE: SHRI THANGADURAI FOR REVENUE : SHRI R. MOHAN REDDY, DR DATE OF HEARING : 27.02.2018 DATE OF PRONOUNCEMENT : 27.02.2018 ORDER PER D. MANMOHAN , VP. THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST THE ORDERS PASSED BY LD. CIT(A), TIRUPATI AND THEY PERTAIN TO ASSESSMENT YEARS 2007 - 08 AND 2012 - 13. FOLLOWING IDENTICAL GROUNDS WERE URGED BY THE REVENUE IN THE APPEALS FOR THE AYS UND ER CONSIDERATION: - 1. THE LD. CIT(A) ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE BOTH ON FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD. CIT(A) OUGHT NOT HAVE HELD THAT THE SALE OF SLUDGE / WASTE OIL IS INCOME FROM BUSINESS. 3. THE LD. CIT(A) OUGHT TO H AVE CONSIDERED THAT THERE MUST BE DIRECT NEXUS, FOR THE APPLICATION OF WORDS, DERIVED FROM BETWEEN THE PROFITS AND GAINS AND THE INDUSTRIAL UNDERTAKING BUT NOT ANY NEXUS THAT IS NOT DIRECT BUT ONLY INCIDENTAL AS HELD BY THE HONBLE SUPREME COURT. 2. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AS WELL AS THE LEARNED COUNSEL FOR THE ASSESSEE IN THIS REGARD AND CAREFULLY PERUSED THE RECORD. FACTS NECESSARY FOR DISPOSAL OF THE APPEALS ARE 2 STATED IN BRIEF. THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956 AND IT IS ENGAGED IN THE BUSINESS OF GENERATION AND SUPPLY OF POWER TO TAMIL NADU ELECTRICITY BOARD (TNEB). FOR THE YEARS UNDER CONSIDERATION, IT DECLARED INCOME UNDER THE REGULAR PROVISIONS AS WELL AS UNDER THE PROVISIONS O F SECTION 115JB OF THE ACT. THOUGH THE RETURNS OF INCOME WERE PROCESSED U/S 143(1) OF THE ACT INITIALLY, THE MATTER WAS TAKEN UP FOR SCRUTINY BY ISSUING A NOTICE U/S 143(2) OF THE ACT, WHEREIN THE A.O. CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY THE INCO ME ON SALE OF SLUDGE AND WASTE OIL SHOULD NOT BE TREATED UNDER THE HEAD OTHER INCOME. IN OTHER WORDS, THE A.O. WAS OF THE OPINION THAT THE MAIN BUSINESS OF THE ASSESSEE B E I N G SALE OF POWER, AN ACTIVITY OF SALE OF WASTE OIL AND SLUDGE IS NOT DIRECTLY ATTRIB UTABLE TO THE BUSINESS IN WHICH THE ASSESSEE IS ENGAGED. CONSEQUENTLY, THE COMPUTATION OF DEDUCTION U/S 80IA OF THE ACT WAS MADE WITHOUT CONSIDERING THE INCOME EARNED OUT OF SALE OF SLUDGE AND WASTE OIL. 3. ON AN APPEAL FILED BY THE ASSESSEE LD. CIT(A) OBSERVED THAT IN THE ASSESSEES OWN CASE FOR THE A.Y. 2010 - 11, ITAT HYDERABAD A BENCH (ITA NO.666/HYD/2015) DECIDED THE SAME ISSUE IN FAVOUR OF THE ASSESSEE, BY HOLDING THAT THE INCOME ON SALE OF SLUDGE AND W ASTE OIL IS ASSESSABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. IN THIS REGARD, THE CASE OF THE ASSESSEE WAS THAT THE SLUDGE IS NOTHING BUT IMPURITIES SEPARATED FROM THE FUEL USED FOR RUNNING THE POWER GENERATION MACHINERY AND IT CANNOT BE T REATED AS BY - PRODUCT IN THE PROCESS OF POWER GENERATION. IN OTHER WORDS, THE IMPURITIES ARE REMOVED FROM THE FUEL SO AS TO MAKE THE FUEL SUITABLE FOR RUNNING THE MACHINERY BUT IT IS NOT ANY OUTCOME OF POWER GENERATION ACTIVITY OF THE ASSESSEE. SIMILARLY, THE WASTE OIL IS LEFT OVER LUBRICANT USED FOR THE MACHINERY WHICH IN TURN WAS USED FOR SMOOTH RUNNING OF THE MACHINERY. THUS THE INCOME FROM SALE OF BOTH THE ITEMS CANNOT BE 3 TREATED AS INCOME ON SALE OF BY - PRODUCTS AND THEY SHOULD BE TREATED AS INCOM E FROM BUSINESS AND FURTHER C O N T E N D E D THAT DEDUCTION U/S 80IA OF THE ACT HAS TO BE RECOMPUTED ACCORDINGLY. LD. CIT(A) ACCEPTED THE VIEW TAKEN BY THE ASSESSEE. AGGRIEVED, REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING, LEARNED COUNSE L FOR THE ASSESSEE PLACED BEFORE US A COPY OF THE ORDER OF THE ITAT HYDERABAD A BENCH FOR THE A.Y. 2010 - 11 WHEREIN THE C OURT OBSERVED AS UNDER: - 7.2. AFTER CONSIDERING ALL THE ABOVE DECISIONS, WE ARE OF THE OPINION THAT THE LD. CIT(A)S FINDING THAT TH E USED LUBRICANT OIL, CONSTITUTE A BY - PRODUCT OF THE BUSINESS OF THE ASSESSEE AND SALE OF SUCH WASTE OIL CONSTITUTED BUSINESS RECEIPTS TO THE ASSESSEE IS CORRECT. THEREFORE, THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 80IA. THE LD. CIT(A) ALSO C ATEGORICALLY DISTINGUISHED THE LANGUAGE USED IN SECTION 80HH / 80I, 80IB. 7.3. AFTER CONSIDERING THE AFORECITED DECISIONS OF HONBLE SUPREME COURT AND HONBLE DELHI HIGH COURT AND ALSO THE ORDER OF THE LD. CIT(A), WE ALSO COME TO THE CONCLUSION THAT THE P ROFITS AND GAINS DERIVED FROM SUCH BUSINESS CONSIDERED TO INCLUDE THE SALE OF SLUDGE, WHICH IS THE PRODUCT OF THE BUSINESS UNDERTAKEN BY THE ASSESSEE I.E., MANUFACTURE OF POWER AND THE SLUDGE IS GENERATED OUT OF SUCH ACTIVITY AND IS HELD TO BE DIRECTLY ATT RIBUTABLE TO THE BUSINESS ACTIVITY OF THE ASSESSEE. HENCE, WE ARE OF THE FIRM VIEW THAT THE PROFITS AND GAINS DERIVED BY THE ASSESSEE FROM THE SALE OF SLUDGE / WASTE OIL IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE ACT AND WE DO NOT FIND ANY INFIRM ITY IN THE ORDER OF THE LD. CIT(A) AND ACCORDINGLY, WE CONFIRM THE SAME. 5. SINCE THE VIEW TAKEN BY THE LD. CIT(A) IS CONSISTENT WITH THE VIEW TAKEN BY THE ITAT IN THE ASSESSEES OWN CASE FOR THE A.Y. 2010 - 11, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A). 6. IN THE RESULT, APPEALS FILED BY THE REVENUE ARE DISMISSED. PRONOUNCED ACCORDINGLY IN THE OPEN COURT ON 27 TH FEBRUARY, 2018. S D / - S D / - (S. RIFAUR RAHMAN) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT HYDERABAD, DATED: 27 TH FEBRUARY , 2018. OKK, SR.PS 4 COPY TO 1. M/S. MADURAI POWER CORPORATION PVT LTD ., OLD NO.2, NEW NO.3 (1 FLOOR) II STREET, SUBBARAO AVENUE, COLLEGE ROAD, CHENNAI 600 006. 2. ACIT, CIRCLE - 1, 24 - 2 - 438. GNT ROAD, DARGAMITTA, NELLORE. 3. CIT (A), TIRUPATI. 4. PR. CIT, TIRUPATI. 5. DR, ITAT, HYDERABAD. 6. GUARD FILE