DCIT, CIR-11, KOLKATA, Kolkata V. M/s Graphite India Ltd., Kolkata

ITA 559/KOL/2008

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4619 (ITAT-KOLKATA)
• Duration Of Justice: 8 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 27-05-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 16-04-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Keywords: Gift; Business income; Transfer pricing; Question of law; Capital receipt
• Section: 143(3); 80HHC; 115JB; 28; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO. 304 - 305 /KOL/ 2008 & ITA NO.559/KOL/2008 ASSESSMENT YEAR:2003-04 GRAPHITE INDIA LTD. 31, CHOWRINGHEE ROAD, KOLAKTA-700 016 [ PAN NO. AAACC 0457 C ] DCIT, CIRCLE-11, P-7, CHOWRINGHEE SQUARE, KOLKTA-700 069 / V/S . / V/S . ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-11, AAYKAR BHAWAN, P-7, CHOWRINGHEE SQURE, KOLKATA-700 069 M/S GRAPHITE INDIA LTD., 31, CHOWRINGHEE ROAD, KOLKAATA-16 /APPELLANT .. /RESPONDENT /BY ASSESSEE SHRI SOUMEN ADAK, FCA /BY REVENUE SHRI G. MALLIKARJUNA, CIT-DR /DATE OF HEARING 09-06-2016 /DATE OF PRONOUNCEMENT 24-08-2016 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- OUT OF THREE APPEALS TWO BY THE ASSESSEE AND ONE BY REVENUE ARE AGAINST THE COMMON ORDER OF COMMISSIONER OF INCOME TAX (APPEALS )-XI, KOLKATA VIDE APPEAL NO. 173/CIT(A)-XI/CIR-11/05-06 AND 250/CIT(A)-XI/R- 11/06-07 DATED 09.01.2008. ASSESSMENT WAS FRAMED BY ADDL. CIT, RANGE-11, KOLKA TA U/S 154/143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS T HE ACT) VIDE HIS SEPARATE ORDER DATED 20.02.2007 AND 28.02.2006 RESPECTIVELY FOR AS SESSMENT YEAR 2003-04. ITA NO.304-05 & 559/KOL/2008 A.Y 03-04 GRAPHIT E INDIA LTD. VS. ADDL. CI T, RNG-11, KOL. PAGE 2 SHRI SOUMEN ADAK, LD. AUTHORIZED REPRESENTATIVE APP EARED ON BEHALF OF ASSESSEE AND SHRI G MALLIKARJUNA, LD. DEPARTMENTAL REPRESENTATIV E APPEARED ON BEHALF OF REVENUE. 2. ALL THE APPEALS ARE HEARD TOGETHER AND DEEM IT A PPROPRIATE TO DISPOSE ALL OF THEM BY THIS COMMON ORDER. AT THE VERY OUTSET, WE O BSERVE A DELAY OF JUST ONE DAY IN THE FILING OF ITS APPEAL BY REVENUE, WHICH THOUGH S TANDS SUITABLY EXPLAINED AS PER ACCOMPANYING AFFIDAVIT BY THE CONCERNED OFFICIAL OF THE REVENUE. THE APPEAL WAS ACCORDINGLY ADMITTED, AND THE HEARING PROCEEDED WIT H. FIRST WE TAKE UP ASSESSEES APPEAL IN ITA 305/KOL/2 008. 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1(A) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(APPEALS) WAS NOT JUSTIFIED AND ERRED IN HOLDING THAT TAX OR LEVY IS SNOT BE INCLUDED IN THE COMPUTATION OF TRANSFER PRICE OF POWER FOR COMPUT ATION OF DEDUCTION U/S 80- IA IN RESPECT OF POWER GENERATING UNIT. 1(B)THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, LD. CIT(APPEALS)FAILED TO APPRECIATE THE FACT THAT THE TRANSFER PRICE OF POWER ADOPTED BY THE APPELLANT FOR COMPUTATION OF DEDUCTI ON U/S. 80-IA IN RESPECT OF POWER GENERATING UNIT WAS IN ACCORDANCE WITH THE PR OVISIONS OF SECTION 80- IA(8) OF THE INCOME TAX ACT, 1961. 2(A) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) ERRED IN ALLOCATING COMMON EXPENDITURE TO THE TUNE OF RS.1,52,86,622/- TO THE POWER UNDERTAKING WITHOUT A PPRECIATING THE FACT THAT THE SAID EXPENDITURE ARE NOT RELATED TO POWER UNITS . 2(B) THAT ON THE FACTS AND N THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(APPEALS) SHOULD HAVE APPRECIATED THE FACT THAT EXPENDITURE NOT DIRECTLY RELATED TO THE POWER UNDERTAKING SHOULD NOT BE DEDU CTED IN COMPUTING THE PROFITS EARNED BY THE SAID INDUSTRIAL UNDERTAKING F OR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80IA OF THE ACT. 3. THAT ON THE FACTS AND IN RELATION TO THE CIRCUMS TANCES OF THE CASE, THE LD. CIT(APPEALS) ERRED IN HOLDING THAT ELIGIBLE PROFITS FOR THE PURPOSE OF SECTION 80HHC HAS TO BE COMPUTED AFTER ADJUSTING THE PROFIT FROM GENERATION OF POWE4R ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT, WITHOUT APPRECIATING THE FACT THAT SECTION 80HHC, BEING A SELF-CONTAINED CODE, QU ANTIFICATION OF DEDUCTION HAS TO BE ARRIVED AT ON THE BASIS OF ARTIFICIAL FOR MULA AS PROVIDED IN THE SAID SECTION. ITA NO.304-05 & 559/KOL/2008 A.Y 03-04 GRAPHIT E INDIA LTD. VS. ADDL. CI T, RNG-11, KOL. PAGE 3 4(A) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) WAS WHOLLY UNJUSTIFIED IN HOLDING THAT 90% OF INTEREST RECEIVED (RS.29,58,000/-) IS TO BE REDUCED FROM THE PROFITS AND GAINS OF BUSINESS AND PROFESSION TO ARRIVE AT THE PROFITS OF THE BUSINES S FOR COMPUTATION OF DEDUCTION U/S/. 80HHC. 4(B) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND WITHOUT PREJUDICE TO GROUND NO. 4(A) TAKEN HERE-IN-ABOVE, T HE LD. CIT(APPEALS)ERRED IN REDUCING 90% OF THE GROSS INCOME, INSTEAD OF 90% OF THE NET INCOME , RECEIVED FROM INTEREST INCOME IN ORDER TO COMPUTE PROFITS O F THE BUSINESS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S. 80HHC. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(APPEALS) ERRED IN HOLDING THAT SALES TAX INCENTIVE RECEIVED BY THE APPELLANT UNDER THE WEST BENGAL INCENTIVE SCHEME, 1993 AMOUNTING TO RS. 89,44,090/- IS REVENUE IN NATURE. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS)ERRED IN ISSUING AN ENHANCEMENT NOTICE ON ACCOUNT OF DIS ALLOWANCE OF EPB CREDIT IN COMPUTING DEDUCTION U/S. 80HHC WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HAS NOT BEEN GRANTED ANY DEDUCTION UNDER PROVISO TO SECTION 80HHC(3) AND HENCE ISSUANCE OF ENHANCEMENT NOTICE T ANTAMOUNT TO DOUBLE DISALLOWANCE. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND WITHOUT PREJUDICE TO GROUND NO.6 HERE-IN ABOVE, THE LD. CIT(APPEALS) WAS NOT JUSTIFIED AND ERRED IN HOLDING THAT DEPB RECEIPT WHICH FALLS UNDER SEC TION 28(IV) ALSO NEEDS TO BE REDUCED FROM THE PROFIT OF THE BUSINESS IN TERMS OF EXPLANATION (BAA) TO SECTION 80HHC. 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND WITHOUT PREJUDICE TO GROUND NO.6 & 7 HERE-IN ABOVE, THE LD. CIT(APPEAL) WAS NOT JUSTIFIED IN NOT CONSIDERING THE FACT THAT ONLY PROFITS ON TRANSFER OF DEPB FALLS WITHIN THE AMBIT OF SECTION 28(IIID) OF THE ACT. 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS)WAS NOT JUSTIFIED AND ERRED IN NOT DELETING INTEREST LE VIED U/S. 234D OF THE ACT AS TH SAME IS BAD IN LAW. 10. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND, MODIFY, RESCIND, SUPPLEMENT OR ALTER ANY OF THE GROUNDS STATED HEREIN-ABOVE EIT HER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 4. THE FACTS IN BRIEF AS HAVE BEEN BROUGHT ON RECOR D ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A LIMITED COMPANY AND ENGAGED IN TH E BUSINESS OF GENERATION OF POWER ITA NO.304-05 & 559/KOL/2008 A.Y 03-04 GRAPHIT E INDIA LTD. VS. ADDL. CI T, RNG-11, KOL. PAGE 4 AND MANUFACTURING OF ELECTRODES. THE RETURN OF INCO ME WAS FILED BY THE ASSESSEE ON DATED 07.11.2003 DECLARING TOTAL INCOME OF RS. 3,47 ,00,774/- WHICH WAS SUBSEQUENTLY REVISED AT RS.2,83,48,680/- ON DATED 31.3.2005. THE TOTAL INCOME OF THE ASSESSEE CONSISTS OF INCOME FROM BUSINESS, HOUSE PROPERTY AN D OTHER SOURCES. THEREAFTER THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCOR DINGLY NOTICE U/S 143(2) WAS ISSUE TO INITIATE THE PROCEEDINGS U/S 143(3). THE ASSESSM ENT U/S 143(3) WAS COMPLETED ON 28.02.2006 BY DETERMINING TOTAL INCOME AT RS.26,16, 24,330/- BY MAKING CERTAIN ADDITION AND DISALLOWANCE. THE ASSESSEE, FOR THE Y EAR UNDER CONSIDERATION ALSO CLAIMED DEDUCTION U/S 80IA FOR ITS POWER GENERATION BUSINESS AND U/S 80HHC FOR ITS MANUFACTURING OF ELECTRODES BUSINESS ON ITS EXPORT TURNOVER. THE ADDITIONS AND DISALLOWANCES MADE BY THE AO AND SUBSEQUENTLY ENHAN CED BY THE LD. CIT(A) ARE SUBJECT-MATTER OF DISPUTES IN THIS APPEAL. THE ASSE SSEE HAS TOTAL 7 PLANTS OUT OF WHICH 3 ARE FOR POWER GENERATION UNITS AND THE BALANCE 4 AR E FOR MANUFACTURING OF ELECTRODES PLANTS. ONE POWER GENERATING PLANT IS LOCATED IN BA NGALORE WITHIN THE FACTORY COMPOUND OF ELECTRODE PLANT, BANGALORE, SECOND POWE R GENERATING PLANT IS LOCATED AT CHUNCHUNKATTE IN THE STATE OF KARNATAKA AT A DISTAN CE FROM BANGALORE FACTORY AND THIRD POWER GENERATING PLANT IS LOCATED WITHIN THE FACTORY OF NASIK PLANT OF ELECTRODE, MAHARASHTRA. THE ASSESSEE MAJORLY USED T HE ELECTRICITY POWER GENERATED BY ITS UNITS FOR CAPTIVE CONSUMPTION IN ITS PLANTS MAN UFACTURING ELECTRODES. HOWEVER, THE ASSESSEE SOLD THE POWER GENERATED BY ITS SECOND PLA NT TO THIRD PARTIES THROUGH KARNATAKA ELECTRICITY BOARD (FOR SHORT KEB). BESIDE S THE ABOVE, ASSESSEE ALSO PURCHASED POWER FROM KEB FOR ITS BANGALORE FACTORY AND FROM MAHARASHTRA STATE ELECTRICITY BOARD (FOR SHORT MSEB) NASIK FACTORY. NOW COMING TO THE SPECIFIC ISSUES OF THE CASE WHICH ARE AS UNDER : 5. THE FIRST ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 1(A) & 1(B) IS THAT LD. CIT(A) ERRED IN HOLDING THAT TAX OR LEVY ON POWER I S NOT TO BE INCLUDED IN THE COMPUTATION OF TRANSFER PRICE FOR CLAIMING DEDUCTIO N UNDER SECTION 80-IA OF THE ACT. THE ASSESSEE DETERMINED THE VALUE OF ITS POWER UNIT S GENERATED BY ITS POWER PLANTS WHICH WAS UTILIZED FOR CAPTIVE CONSUMPTION AT A PRI CE AT WHICH THE ASSESSEE HAD TO BUY FROM KEB. HOWEVER, THE AO DISREGARDED THE SAME BY H OLDING THAT IT SHOULD BE PRICE ITA NO.304-05 & 559/KOL/2008 A.Y 03-04 GRAPHIT E INDIA LTD. VS. ADDL. CI T, RNG-11, KOL. PAGE 5 AT WHICH THE ASSESSEE SALES ITS POWER TO KEB. THE C ONTENTIONS OF AO FOR OBSERVING SO ARE AS UNDER : 1) IN THE PAST THE ASSESSMENT WAS FRAMED TAKING THE UN IT RATE AT WHICH POWER WAS SOLD TO THE KEB. 2) AS PER SECTION 80-IA OF THE ACT THE MARKET VALUE IS THE PRICE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH IN THE OPEN MARKET. 3) THE ASSESSEE IN THE INSTANT CASE IS ITSELF A BUYER AND SELLER OF ELECTRICITY AS IT IS UTILIZED FOR CAPTIVE CONSUMPTION. SO THE OPEN MARKE T RATE FOR BUYING THE POWER CANNOT BE ACCEPTED. IT HAS NECESSARILY TO BE CLOSED MARKET RATE. 4) THE SELLING RATE OF KEB FOR THE POWER IS HIGHER BEC AUSE IT SUFFERS DISTRIBUTION LOSSES THOUGH THE ASSESSEE IN THE INSTANT CASE DOES NOT SUFFER ANY DISTRIBUTION LOSS. 5) THE ASSESSEE SALES POWER TO THIRD PARTIES AT A PRIC E RANGING BETWEEN 3.30 TO 3.60 PER UNIT AND THE SAME PRICE SHOULD BE ACCEPTED . IN VIEW OF ABOVE THE AO HAS TAKEN THE SALE PRICE OF THE POWER AT WHICH THE ELECTRICITY WAS SOLD TO THE THIRD PARTIES THROUGH KEB FOR THE P URPOSE OF DEDUCTION U/S 80-IA OF THE ACT. 6. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LD. CI T(A) WHO HAS GIVEN THE RELIEF TO THE ASSESSEE IN PART BY RELYING ON THE ORDERS OF EARLIER YEARS AND ACCORDINGLY DIRECTED TO ADOPT THE PRICE AT WHICH THE ASSESSEE B UYS THE ELECTRICITY FROM THE ELECTRICITY BOARD LESS THE ELEMENT OF TAX COMPONENT EMBODIED IN THE ELECTRICITY BOARD BILL. THE EXTRACT OF THE ORDER IS REPRODUCED BELOW : III. 3 GROUND NO. 2 RELATES TO VALUATION OF TRANSF ER PRICE OF ELECTRICITY CONSUMED FOR CAPTIVE CONSUMPTION WITHIN THE MEANING OF SECTION 80IA(8). THE A/R HAS FILED A COPY OF ITAT KOLKATA B BENCH DECI SION DATED 06-12-2007 FOR AY 2001-02 IN ITA NO. 949(KOL) OF 2005 FILED BY THE ASSESSEE AND ITA NO. 1142(KOL) OF 2005 FILED BY REVENUE, AS ALSO FOR AY 1999-00 IN ITA NO. 1926(KOL) OF 2005 FILED BY REVENUE AND ITA NO. 191( KOL) OF 2005 FILED BY THE ASSESSEE. I HAVE ALSO SEEN THE DECISION OF MY PREDE CESSOR IN THESE APPEALS, AND THE FACTS ARE SIMILAR TO THE FACTS OF THE APPEAL IN HAND FOR AY 2003-04. IN EXPLANATION BELOW SECTION 80IA(8), REFERENCE TO MAR KET VALUE OF SUCH GOODS OR SERVICES HAS TO BE CONSTRUED IN TERMS OF THE PRICES AT WHICH SUCH GOODS OR SERVICES ARE LIKELY TO BE TRADED IN A TWO-WAY TRANS ACTION AMONG BUYERS AND SELLERS, AND NOT JUST CASES OF DISTRESS SALE. THE A SSESSEE COMPANY USUALLY BUYS ITA NO.304-05 & 559/KOL/2008 A.Y 03-04 GRAPHIT E INDIA LTD. VS. ADDL. CI T, RNG-11, KOL. PAGE 6 POWER FROM ELECTRICITY BOARD, THIS PRICE CAN BE ONL Y ONE OF THE INDICATORS OF THE MARKET VALUE. THE OTHER INDICATORS OF MARKET VALUE COULD BE THE VALUE OR PRICE DISCOVERED IN TRADING OF ELECTRICITY BY THE POWER T RADING CORPORATION OF INDIA, OR EVEN THE PRICE AT WHICH THE POWER WAS SOLD TO OT HER PARTIES. THE FINAL INDICATOR COULD HAVE BEEN THE ACTUAL COST OF GENERA TING THE POWER+ AN ACCEPTABLE RATE OF RETURN ON INVESTMENT MADE IN THE POWER PROJECT. THE LAST INDICATOR, PERHAPS, WOULD HAVE BEEN THE BEST INDICA TOR OF VALUE, BUT THE NECESSARY FACTS ARE NOT AVAILABLE ON RECORD. AT THIS STAGE, I MAY MENTION THAT I FEEL UNCOMFORTA BLE IN ACCEPTING THE FINDINGS FOR EARLIER YEARS TO BE APPLIED FOR THIS YEAR BECAU SE ACCEPTING THE PRICE OF POWER AT THE RATES CHARGED BY THE ELECTRICITY BOARD LESS DUTY OR TAX ELEMENTS DOES SIGNIFICANTLY DISTORT THE RESULTS IF THE SAME IS APPLIED FOR THE EXTENT OF POWER UTILIZED FOR CAPTIVE CONSUMPTION. IT RESULTS IN ASCRIBING PROFITS TO THE WERE GENERATION BUSINESS OF THE ASSESSEE THAT ARE F AR MORE LUCRATIVE, OR RATHER A SIGNIFICANT MULTIPLE OF THE PROFITS OF ANY EFFICI ENT BUSINESS OF GENERATING AND SELLING ELECTRIC POWER RUN BY ANY POWER COMPANY EVE N AS RENOWNED AS NATIONAL THERMAL POWER CORPORATION (NTPC). BY THE S AME YARDSTICK, NTPC OR ANY OTHER SUCH COMPANY WOULD HAVE BEEN THE MOST PROFITABILITY OF THE WORLD. IN FACT, ADOPTING THE PRICE AS INDICATED IN THE ORD ER FOR EARLIER YEARS GIVES RIDICULOUS FIGURES OF PROFITABILITY OF THE POWER DI VISION, AND IT IS A MOOT POINT WHETHER IT CAN BE LAID DOWN AS LAW TO DETERMINE THE PRICE OF CAPTIVE USE OF POWER SO AS TO RESULT IN ABSURD RESULTS. HOWEVER, FOLLOWING THE DECISION IN THE EARLIER YEAR S, I DIRECT THAT IN RESPECT OF ELECTRICITY CONSUMED IN ITS OWN UNITS, THE TRANSFER PRICE WOULD BE THE PRICE CHARGED FROM IT BY SATE ELECTRICITY BARD LESS THE T AX/DUTY COMPONENT IN THE SEB BILL. BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) - ASSESS EE CAME IN SECOND APPEAL BEFORE US ON THE GROUND THAT THE ELEMENT OF TAX AND DUTY SHOU LD NOT BE EXCLUDED FROM THE VALUE OF THE ELECTRICITY. REVENUE IS ALSO IN APPEAL BEFOR E US ON THE AMOUNT OF RELIEF GRANTED BY THE LD. CIT(A) FOR ADOPTING BUYING RATE FROM THE ELECTRICITY BOARD. 7. THE REVENUE HAS RAISED THE FOLLOWING GROUND OF A PPEAL NO. 1 IN ITA 559/KOL/2008 . 1. WHETHER UNDER THE FACTS AND CIRCUMSTANCES, THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING MARKET VALUE AS DEFINED IN SEC. 80IA(8) OF THE I TAX ACT AT TH E PRICE AT WHICH POWER WAS PURCHASED FROM KEB IN PLAC E OF THE PRICE AT WHICH THE ASSESSEE SOLD SURPLUS POWER TO CUSTOMERS. ITA NO.304-05 & 559/KOL/2008 A.Y 03-04 GRAPHIT E INDIA LTD. VS. ADDL. CI T, RNG-11, KOL. PAGE 7 8. FIRST WE TAKE UP THE ISSUE RAISED BY THE REVENUE IN ITS GROUND NO. 1. AT THE OUTSET, WE FIND THIS ISSUE IS ALREADY COVERED IN FA VOUR OF ASSESSEE IN ITS OWN CASE FOR THE ASSESSMENT YEAR 2001-02 IN ITA NO. 949/KOL/2005 ORDER DATED 06.12.2007, AY 1999-00 IN ITA NO. 1142/KOL/2005, ITA NO. 1926/KOL/ 2005 AND 1931/KOL/2005. THE RELEVANT EXTRACT OF THE ORDER IS PRODUCED BELOW : 7.2. THE CASE OF WEST COAST PAPER MILLS LTD.AND JIN DAL STEEL & POWER LTD. DEAL WITH CAPTIVE CONSUMPTION OF GENERATED POWER AS IS INVOLVED IN THE INSTANT APPEAL. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CAS E OF WEST COAT PAPER MILLS LTD . (SUPRA IN PARA 32 HELD AS UNDER:- 32. HAVING HELD THAT THE ASSESSEE IS ENTITLED FOR THE DEDUCTION AVAILABLE UNDER S. 80-IA, THE NEXT QUESTION IS WHAT SHOULD BE THE PRICE ATTRIBUTABLE TO THE POWER GENERATED AND CONSUMED BY THE ASSESSEE . THE ANSWER TO THE QUESTION IS READILY AVAILABLE IN SUB-S. (8) OF S. 8 0-IA, WHICH READS AS FOLLOWS:- WHERE ANY GOODS HELD FOR THE PURPOSE OF THE ELIGIB LE PROFITS ARE TRANSFERRED TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE, OR WHERE ANY GOODS HELD FOR THE PURPOSES OF ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE ARE TRANSFERRED TO THE E LIGIBLE BUSINESS AND, 9IN EITHER CASE, THE CONSIDERATION, IF ANY, FO R SUCH TRANSFER AS RECORDED IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS D OES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS AS ON THE DATE OF TRANSFER, THEN FOR THE PURPOSES OF THE DEDUCTION UN DER THIS SECTION, THE PROFITS AND GAINS OF SUCH ELIGIBLE BUS INESS SHALL BE COMPUTED AS IF THE TRANSFER, IN EITHER CASE, HAD BE EN MADE AT THE MARKET VALUE OF SUCH GOODS AS ON THAT DATE. THE ABOVE CONCEPT OF TRANSFER PRICING IS ALSO APPAR ENT IN R. 7 OF IT RULES, 1962 PROVIDED FOR DETERMINING THE INCOME FRO M AGRICULTURAL PRODUCTS CONSUMED BY THE AGRICULTURIST-ASSESSEE IN HIS BUSINESS AS RAW MATERIAL. THE RULE PROVIDES THAT IN THE CASE OF INC OME WHICH IS PARTIALLY AGRICULTURAL INCOME AND PARTLY INCOME CHARGEABLE AS BUSINESS INCOME, IN DETERMINING THAT PART WHICH IS CHARGEABLE TO INC OME-TAX, THE MARKET VALUE OF ANY AGRICULTURAL PRODUCE WHICH HAS BEEN RA ISED BY THE ASSESSEE AND UTILIZED AS A RAW MATERIAL IN SUCH BUSINESS SHA LL BE DEDUCTED AT THE PREVALENT MARKET VALUE. THIS PRINCIPLE HAS BEEN CON SIDERED AND UPHELD BY THE SUPREME COURT IN THE CASE OF THIRU AROORAN SUGARS LTD. VS. CIT (1977) 142 CTR 9 (SC); (1997) 227 ITR 432 (SFC). TH EREFORE, WE DIRECT THE ASSESSING AUTHORIT9Y TO WORK OUT THE PROFITS ON THE BASIS OF THE PRICE OF THE POWER GENERATED BY THE ASSESSEE AT THE AVERA GE OF THE ANNUAL LANDED COST OF ELECTRICITY PURCHASED BY THE ASSESSE E FROM KARNATAKA STATE ELECTRICITY BOARD DURING THE IMPUGNED PREVIOU S YEAR. IT MAY BE DETERMINED ON THE BASIS OF PAYMENT DETAILS AVAILABL E FROM THE BILLS ITA NO.304-05 & 559/KOL/2008 A.Y 03-04 GRAPHIT E INDIA LTD. VS. ADDL. CI T, RNG-11, KOL. PAGE 8 ISSUED BY THE KARNATAKA STATE ELECTRICITY BOARD, DU RING THE YEAR UNDER CONSIDERATION. 7.3 IN THE CASE OF JINDAL STEEL & POWER LTD. (SUPRA ) THE ASSESSEE WAS RECEIVING RS.2.32 PER UNIT FOR THE ELECTRICITY SUPPLIED BY IT WHEREAS STATE ELECTRICITY BOARD WAS SELLING IT AT RS.3.72 PER UNIT. IT COMPUT ED TRANSFER PRICE UNDER S4ECTION 80IA (8) OF THE ACT AT RS.3.72 PER UNIT TH E RATE AT WHICH THE STATE ELECTRICITY BOARD SUPPLIED POWER TO THE INDUSTRIAL CONSUMERS. AFTER EXAMINING THE SCOPE OF SECTION 80IA (8) AND THE EXPRESSION MARKET VALUE APPEARING THEREIN IN PARA 18 THE TRIBUNAL HELD AS UNDER:- HAVING HELD SO, THE NATURAL COROLLARY IS TO ASCERT AIN WHETHER THE PRICE RECORDED BY THE ASSESSEE AT RS.3.72 PER UNIT CAN BE CONSIDERED TO BE THE MARKET VALUE FOR THE PURPOSES OF SECTION 80-IA (8) OF THE ACT. THE ANSWER TO OUR MIND IS IN THE AFFIRMATIVE. THIS IS F OR THE REASON THAT THE ASSESSEE AS AN INDUSTRIAL CONSUMER IS ALSO BUYING P OWER FROM THE BOARD AND THE BOARD SUPPLIES SUCH POWER AT THE RATE OF RS .3.72 PER UNIT TO ITS CONSUMERS. THIS IS THE PRICE AT WHICH THE CONSUMERS ARE ABLE TO PROCURE THE POWER. WE MAY CONSIDER HYPOTHETICAL SITUATION A S WELL. HAD THE ASSESSEE NOT BEEN SADDLED WITH RESTRICTIONS OF SUPP LYING SURPLUS POWER TO THE STATE ELECTRICITY BOARD, IT WOULD HAVE SUPPL IED POWER TO THE ULTIMATE CONSUMERS AT RATES SIMILAR TO THESE OF THE BOARD OR SUCH OTHER COMPETITIVE RATES, MEANING THEREBY THE PRICE RECEIV ED BY THE ASSESSEE WOULD BE IN THE VICINITY OF RS.3.72 PER UNIT I.E. C HARGED BY THE BOARD FROM ITS INDUSTRIAL CONSUMERS / USERS. THUS, UNDER THE GIVEN CIRCUMSTANCES, IT WOULD BE IN THE FITNESS OF THINGS TO HOLD THAT THE CONSIDERATION RECORDED BY THE ASSESSEES UNDERTAKIN G GENERATING ELECTRIC POWER FOR TRANSFER OF POWER FOR CAPTIVE CONSUMPTION AT THE RATE OF RS.3.72 PER UNIT CORRESPONDS TO THE MARKET VALUE OF POWER. THEREFORE, ON THIS ASPECT, WE UPHOLD THE STAND OF THE ASSESSEE AN D SET ASIDE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW RE LIEF TO THE ASSESSEE UNDER SECTION 80-IA AS CLAIMED. ASSESSEE SUCCEEDS O N THIS GROUND. 8. WE HAVE EXAMINED THE RIVAL SUBMISSIONS. RESPECT FULLY FOLLOWING THE DECISION OF THE TRIBUNAL GROUND NO. 1 TAKEN IN THE DEPARTMENTAL APPEAL FAILS AND IS DISMISSED. 8.1 HENCE, REVENUE APPEAL VIDE ITA NO. 733 OF 2008 WITH REFERENCE TO GA NO. 3114 OF 2008 WAS ALSO DISMISSED DATED BY THE HONBL E HIGH COURT 10-12-2008. THE RELEVANT EXTRACT IS REPRODUCED BELOW:- SUCH FACT AND THE POSITION HAVE ALSO BEEN CONSIDER ED BY THE LEARNED TRIBUNAL WHICH WOULD BE EVIDENT FROM THE ORDER SO PASSED BY THE LEARNED TRIBUNAL. THE LEARNED TRIBUNAL ALSO IN PARAGRAPH 7.1 DEALT WITH T HE MATTER EXTENSIVELY WHICH IS ALSO SET OUT HEREIN. ITA NO.304-05 & 559/KOL/2008 A.Y 03-04 GRAPHIT E INDIA LTD. VS. ADDL. CI T, RNG-11, KOL. PAGE 9 7.1 FROM THE FACTS IT IS CLEAR THAT THE ASSESSEE WA S NOT A REGULAR SUPPLIED OF POWER AND COULD NOT SUPPLY POWER ON ANY REGULAR AND SUSTAINED BASIS. IN TERMS OF THE AGREEMENT WITH KSEB IT WAS ALLOWED TO SELL T HE SURPLUS POWER BANKED WITH IT SUBJECT TO THE CONDITION THAT SUCH SURPLUS WOULD LAPSE AT THE END OF THE MONSOON YEAR. THE ASSESSEE HAD THEREFORE TO DISPOSE OF ITS SUCH SURPLUS BANKED POWER WHICH REMAINED AFTER ITS OWN USE ON AD HOC BA SIS TO AVOID LOOSING THE BENEFIT ALTOGETHER. IN TERMS OF THE PROVISIONS OF S ECTION 80IA(8) SUCH TRANSFER PRICE HAS TO BE TAKEN AT THE MARKET VALUE OF SUCH G OODS WHICH THE EXPLANATION TO THE SAID SUB SECTION DEFINES TO MEAN THE PRICE T HAT SUCH GOODS WOULD ORDINARILY FETCH IN THE OPEN MARKET. IT CANNOT BE D ISPUTED THAT THE AMOUNT CHARGED BY KSEB FOR SUPPLY OF THE POWER TO THE ASSE SSEE IS THE PRICE WHICH IS ORDINARILY CHARGED IN THE OPEN MARKET. THIS ISSUE A LSO CAME UP FOR CONSIDERATION IN SEVERAL DECISIONS OF THE TRIBUNAL IN THE UNDERNOTED CASES:- (I) ASSAM CARBON PRODUCTS LTD VS. ACIT (2006) 100 T TJ 224 (KOL) (II) JCIT VS. CIPLA LTD. (2005) 2 SOT 617 (MUM) (III) WEST COAST PAPER MILLS LTD. VS. JCIT (2006) 1 00 TTJ 883 (MUM) (IV) ADDL. CIT VS. JINDAL STEEL 7 POWER LTD. (2007) 16 SOT 509 (DEL) FURTHERMORE, IT APPEARS THAT DURING THE SUBSEQUENT ASSESSMENT YEAR ALSO, THE LEARNED TRIBUNAL HAS ALSO ACCEPTED SUCH POSITION AN D THE APPEAL PREFERRED BEFORE THIS COURT WHICH WAS NOT PRESSED BY THE APPE ALS AT THAT POINT OF TIME. THEREFORE, THE LAW HAS ALREADY BEEN SETTLED BY THIS COURT. THEREFORE, IN OUR CONSIDERED OPINION, WE DO NOT FIND THAT THERE IS AN Y SUBSTANTIAL QUESTION OF LAW INVOLVED IN THIS MATTER WHICH IS TO BE GONE INTO BY THIS COURT. HENCE, THE APPEAL BEING ITA NO. 733 OF 2008 IS DISM ISSED. RESPECTFULLY FOLLOWING THE JUDGMENT OF HONBLE JURI SDICTIONAL HIGH COURT IN GA NO. 3114 OF 2008, WE DISMISS THE GROUND NO.1 OF REVENUE APPEAL. 9. NOW COMING TO THE ISSUE RAISED BY ASSESSEE IN IT S AFORESAID GROUND OF APPEAL IS THAT THE ELEMENT OF TAX SHOULD NOT BE EXCLUDED FROM THE VALUATION OF THE POWER UNITS CONSUMED IN HOUSE. 10. WE HAVE HEARD THE CONTENTIONS OF THE RIVAL PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE LD. AR BEFORE US HAS FILED A PAPER BOOK COMPRISING PAGES FROM 1 TO 338 AND SUBMITTED THAT THE LD. CIT(A) HEL D TO EXCLUDE ELEMENT OF THE DUTY FROM THE TRANSFER PRICE OF THE UNITS CONSUMED IN HO USE FOLLOWING THE ORDER HONBLE ITAT OF THE EARLIER YEARS IN THE OWN CASE OF THE AS SESSEE. THE EARLIER ORDERS WERE PASSED BY THE ITAT MUMBAI BENCH IN THE EARLIER YEAR S FOLLOWING THE DECISION OF ITA NO.304-05 & 559/KOL/2008 A.Y 03-04 GRAPHIT E INDIA LTD. VS. ADDL. CI T, RNG-11, KOL. PAGE 10 HONBLE ITAT MUMBAI BENCH IN THE CASE OF WEST COAST PAPER MILLS LTD. VS ACIT (2006) 103 ITD 19 (MUM). THE SAME DECISION OF ITAT MUMBAI HAS SINCE BEEN REVERSED BY ITAT MUMBAI IN THE SAME ASSESSEES CASE IN WEST COAST PAPER MILLS LTD. VS. ADDL. CIT (2014) 33 ITR (TRIB) 560 (MUM), WHEREIN ITAT MUMBA I HELD THAT IN THE SAID ORDER TRIBUNAL HAS NEITHER CONSIDERED ITS EARLIER ORDERS WHERE THE ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE NOR CONSIDERED PROVISIONS OF SEC. 80-IA (8) FOR ARRIVING AT A DIFFERENT CONCLUSION. HENCE A S PER PROVISIONS OF SEC. 80IA (8), MARKET PRICE CANNOT BE ARRIVED BY REDUCING THE PRIC E BY ANY OTHER FACTORS LIKE TAXES, DUTIES ETC., AS THE SAME ARE EMBEDDED IN THE PRICE. FURTHER, ITAT MUMBAI IN DCW LTD. VS. ADDL. CIT (2010) 37 SOOT 322 (MUM), DISTINGUISHED THE DECISI ON IN [103 ITD 19 (SUPRA)] AND HELD THAT MARKET PRICE WOULD IN CLUDE ELECTRICITY DUTY FOR COMPUTING DEDUCTION U/S. 80-IA. THE SAID DECISION I S ALSO FOLLOWED IN DCW LTD. VS. ADDL. CIT ( ITA NO. 5969/MUM/2008 DT. 29.07.2010). RELIANCE IS ALSO PLACED ON THE DECISION IN GARDEN SILK MILLS LTD. VS. ADDL. CIT (2 013) 35 CCH 135 (AHD-TRIB). IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT THE LATER D ECISION BE PREFERRED, SINCE THE SAME HAS MORE PRECEDENCE VALUE. FURTHER, THE ISS9UE IS N OW COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE GUJARAT HIGH CO URT IN CIT VS. SHAH ALLOYS LTD. (TAX AP/2092-2094/2010 DTD. 22.11.2011), WHEREIN IT HAS BEEN HELD THAT ELECTRICITY DUTY SHALL FORM PART OF THE MARKET VALUE AT WHICH E LECTRICITY IS TRANSFERRED BY CPP UNIT WHILE COMPUTING DEDUCTION U/S. 80IA. DEPARTMENTAL S LP HAS BEEN DISMISSED BY THE APEX COURT IN SLP NO. 11106 OF 2012 DTD. 16.07.2012 AND AGAIN IN SLP NO. 13348 OF 2012 DTD. 15.10.2012). IT IS A SETTLED PRINCIPLE TH AT IN ABSENCE OF ANY CONTRARY DECISION OF THE HIGH COURTS, THE DECISION OF NON-JURISDICTIO NAL TRIBUNAL & / OR SPECIAL BENCH. [REFER RAJAMAHENDRI SHIPPING & OIL FIELD SERVICES L TD. VS. ADDL CIT (2012) 51 SOT 242 (VIZAG & CIT VS.S GODAVARI DEVI SARAF (1978) 11 3 ITR 589 (BOM). ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORTED T HE ORDER OF THE AUTHORITIES BELOW. 11. FROM THE ABOVE DISCUSSION, WE FIND THAT ORDER O F THE ITAT MUMBAI BENCH FOR THE EARLIER YEARS WAS BASED ON THE ORDER OF WEST COAST PAPER MILLS LTD. (SUPRA) WHICH ITA NO.304-05 & 559/KOL/2008 A.Y 03-04 GRAPHIT E INDIA LTD. VS. ADDL. CI T, RNG-11, KOL. PAGE 11 HAS BEEN REVERSED BY THE SAME HONBLE ITAT. THE REL EVANT EXTRACT IS REPRODUCED BELOW : ASSESSEE HAS WORKED OUT THE NOTIONAL SALE OF POWER SUPPLIED BY ITS POWER UNIT TO ITS PAPER DIVISION @ RS.5.80 PER UNIT. THIS WAS ON THE BASIS OF AVERAGE ACTUAL GRID CHARGES CHARGED BY KARNATAKA ELECTRICITY BOARD FOR SUPPLYING THE ELECTRICITY TO THE ASSESSEE. THIS WAS SHOWN FROM THE AMOUNT OF THE BIL L AND THE TOTAL NUMBER OF UNITS CONSUMED. FROM THE SAID BILLS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE IS PAYING FUEL EXCAVATION CHARGES, TAXES, ETC., WHICH SHOULD BE REDUCED FOR WORKING OUT THE AVERAGE PRICE PER UNIT FOR WORK ING OUT THE SALE PRICE OF THE ELECTRICITY SUPPLIED BY ITS POWER UNIT TO THE PAPER DIVISION. IF THE PAPER DIVISION HAS BEEN PURCHASING THE ELECTRICITY FORM THE KARNAT AKA ELECTRICITY BOARD AT AN AVERAGE COST OF RS.5.80, WHICH FACT IS NOT IN DISPU TE, THEN THE SAME PRICE SHOULD BE CONSIDERED AS MARKET VALUE FOR BENCH MARKING THE PRICE AT WHICH POWER UNITS ARE SUPPLYING THE ELECTRICITY TO THE PAPER DIVISION . IF THE TAXES AND DUTIES ARE PART OF THE PRICE AT WHICH THE POWER/ELECTRICITY IS SUPP LIED BY THE KARNATAKA ELECTRICITY BOARD TO THE PAPER DIVISION, THEN THE SAME PRICE IS THE INDICATOR OF THE MARKET VALUE WHICH IS FETCHABLE IN THE OPEN MARKET. ITAT D O NOT FIND ANY REASON FOR EXCLUDING THE ELEMENT OF TAX AND DUTY WHILE DETERMI NING THE MARKET VALUE OF THE ELECTRICITY PRICE PER UNIT SUPPLIED BY THE POWE R UNIT TO THE ASSESSEE AS CONTEMPLATED IN SUBSECTION (8) OF SECTION 80IA. UN DER THESE FACTS AND CIRCUMSTANCES, ITAT ARE RENDERING OUR DECISION PURE LY ON THE BASIS OF OUR INTERPRETATION OF STATUTORY PROVISIONS, SANS GOING BY ANY EARLIER YEAR PRECEDENCE. THUS, IN ITAT OPINION, WE HAVE TO FOLLOW THE PROVIS IONS AS CONTAINED IN SECTION 80IA(8) FOR DETERMINING THE MARKET PRICE, WHICH CAN NOT BE ARRIVED BY REDUCING THE PRICE BY ANY OTHER FACTORS LIKE TAXES, DUTIES, ETC., AS THE SAME ARE EMBEDDED IN THE PRICE. THUS, ITAT SET ASIDE THE IMPUGNED ORD ER PASSED BY THE LEARNED COMMISSIONER (APPEALS) ON THIS ISSUE . SIMILARLY THE SAME ISSUE WAS DECIDED IN FAVOUR OF A SSESSEE BY THE HONBLE GUJRAT HIGH COURT IN THE CASE OF CIT VS. SHAH ALLOYS LTD. IN TAX APPEAL NO. 2092 OF 2010 DATED 22.11.2011 AND RELEVANT EXTRACT IS REPRODUCED BELOW:- 7. WE MAY NOTICE THAT THE TRIBUNAL DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE ELECTRICITY IS NEITHER GOODS NOR SERVICES AND THAT, TRANSFER OF ELECTRICITY, THEREFORE, WOULD NOT BE COVERED UNDER SUB-SECTION (8) OF SECTION 80IA OF THE ACT. HOWEVER, IN SO FAR AS THE TRIBUNAL S REASONING TO ADOPT THE MARKET VALUE OF THE GOODS AT RS.5.40 PS. PER UNIT I S CONCERNED, WE FIND NO ERROR. UNDISPUTEDLY, GEB SUPPLIED THE ELECTRICITY T O ITS CONSUMERS AT TH9E SAME RATE. THIS, THEREFORE, WAS A MARKET VALUE OF THE EL ECTRICITY SUPPLIED BY THE CPP UNIT TO THE GENERAL UNIT. THE FACT THAT THIS AMOUNT OF RS.5.40 PS. COMPRISES OF A COMPONENT OF 8 PAISE, WHICH WAS ELECTRICITY DUTY, T O OUR MIND, WOULD MAKE NO DIFFERENCE IN SO FAR AS THE MARKET VALUE IS CONCERN ED. TO A CONSUMER, THE PRICE BEING PAID REMAINS 5.40 PS. PER UNIT. THE ACT THAT THE SELLER RETAINS ONLY RS.5.32 PS. OUT OF THE AID COLLECTION AND PASSES ON 8 PAISE PER UNIT TO THE GOVERNMENT IN THE FORM OF ELECTRICITY DUTY, TO OUR MIND, WOULD MAKE NO DIFFERENCE. THIS QUESTION, IS THEREFORE, NOT REQUIR ED TO BE CONSIDERED. ITA NO.304-05 & 559/KOL/2008 A.Y 03-04 GRAPHIT E INDIA LTD. VS. ADDL. CI T, RNG-11, KOL. PAGE 12 RESPECTFULLY FOLLOW THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SHAH ALLOYS LTD. (SUPRA) WE ALLOW ASSESSEES GROUND. 12. THE NEXT ISSUE RAISED BY THE ASSESSEE IN ITA NO. 305/KOL/2008 A.Y 03-04 ITS GROUNDS OF APPEAL IN. 2(A) & 2(B) IS THAT THE LD. C IT(A) ERRED IN ALLOCATING COMMON EXPENDITURE TO THE TUNE OF RS. 1,52,86,622/- TO THE POWER GENERATING UNITS. 13. THE ASSESSEE HAS SHOWN THE COST PER UNIT OF ELE CTRICITY GENERATED FROM DIESEL GENERATOR AT RS. 3.35 PER UNIT AND 3.83 PER UNIT AT BANGALORE AND NASIK FACTORY RESPECTIVELY. HOWEVER THE AO DURING THE ASSESSMENT PROCEEDINGS OBSERVED THAT THE COST PER UNIT OF OTHER COMPANIES GENERATING POWER F ROM DIESEL GENERATOR IS RANGING RS. 5.28 TO 14.79 PER UNIT. ACCORDINGLY THE AO OPINED T HAT THE ASSESSEE HAS SHOWN LESS EXPENSE TO THE POWER DIVISIONS IN ORDER TO SHOW MOR E PROFIT SO THAT IT CAN CLAIM MORE DEDUCTION UNDER SECTION 80IA OF THE ACT. THE AO ALS O OBSERVED THAT THE INVESTMENT IN THE POWER DIVISIONS IS 28.62% OF THE TOTAL FUNDS IN CLUDING LOANS. ACCORDINGLY THE AO ALLOCATED THE TOTAL INTEREST EXPENSES IN THE ABOVE STATED RATIO I.E. 28.62% AMOUNTING TO RS. 2.44 CRORES ONLY. ON THE SIMILAR ANALOGY THE AO ALSO ALLOCATED OTHER EXPENSES AS LISTED ON PAGE 8 OF THE AO ORDER TO THE POWER DIVIS IONS AMOUNTING TO RS. 2,71,84,554.00 (9,81,72,227.00 @ 28.62% - AMOUNT AL READY ALLOCATED RS. 9,12,346.00) ONLY. 14. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD. CIT(A) WHO DELETED THE ENTIRE AMOUNT OF INTEREST EXPENSES ALLOCATED TO POWER DIVI SIONS BY OBSERVING THAT THERE WAS SEPARATE AND SPECIFIC LOAN FACILITY UTILIZED IN THE POWER DIVISIONS. THE RELEVANT CONNECTED INTEREST EXPENSE HAS BEEN DULY CLAIMED IN DETERMINING THE PROFIT FROM THE POWER DIVISIONS. HENCE NO ADDITION WITH REGARD TO T HE INTEREST EXPENSES NEEDS TO BE DISALLOWED. 14.1 HOWEVER WITH REGARD TO THE OTHER INDIRECT EXPE NSES THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE TO RS. 1,52,86,622/- AN D GRANTING RELIEF OF RS. 1,18,97,932/- OUT OF THE TOTAL DISALLOWANCE OF RS. 2,71,84,554.00. THE LD. CIT(A) IN ITA NO.304-05 & 559/KOL/2008 A.Y 03-04 GRAPHIT E INDIA LTD. VS. ADDL. CI T, RNG-11, KOL. PAGE 13 PRINCIPAL AGREED WITH THE WORKING OF THE AO BUT FOU ND SOME CLERICAL ERROR IN THE TOTAL AMOUNT OF OTHER EXPENSES I.E. RS. 9,81,72,227/-. TH E LD. CIT(A) OBSERVED THAT CERTAIN FIGURES HAVE BEEN INCLUDED DOUBLE AND CERTAIN EXPEN SES ARE EXCLUSIVELY FOR THE EXPORT BUSINESS OF ELECTRODE PRODUCTS FOR RS.4,15,72,056/- (FIGURES OF RS. 1,70,66,277.00 INCLUDED DOUBLE AND A FIGURES OF RS. 2,45,05,779.00 WAS USED EXCLUSIVELY FOR THE EXPORT OF ELECTRODE PRODUCTS). ACCORDINGLY THE LD. CIT(A) UPHELD THE ORDER OF THE AO BY REMOVING THE ERROR FROM THE TOTAL OTHER EXPENSES CLAIMED BY THE ASSESSEE. BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) BOTH ASS ESSEE AND REVENUE CAME IN APPEAL BEFORE US. 15. FIRST WE TAKE UP THE ISSUE OF THE ASSESSEE. THE ASSESSEE IS AGAINST THE CONFIRMATION OF AO ORDER TO THE EXTENT OF RS. 1,52, 86,662/-. 16. THE LD. AR BEFORE US SUBMITTED THAT WHILE DETER MINING PROFIT AND GAINS DERIVED FROM POWER GENERATING UNIT, THE ASSESSEE DULY DEBIT ED THE ENTIRE EXPENDITURE WHICH HAVE DIRECT AND IMMEDIATE NEXUS WITH THE POWER GENE RATING UNIT. THUS, FURTHER ALLOCATING OF ANY OTHER EXPENDITURE DOES NOT ARISE. LD.AR FURTHER SUBMITTED THAT ON THE PERUSAL OF THE EXPENDITURE ALLOCATED, IT COULD BE S EEN THAT THE EXPENDITURE INCURRED BY THE HO AND ELECTRODE DIVISION DOES NOT HAVE ANY DIR ECT AND IMMEDIATE NEXUS WITH THE POWER GENERATING UNIT AND HENCE CANNOT BE CONSIDERE D FOR ALLOCATION FOR DETERMINING PROFITS OF THE UNIT ELIGIBLE FOR TAX HOLIDAY. HE ST ATED THAT THE USE OF THE EXPRESSION DERIVED FROM AS USED IN SEC. 80IA(1) SIGNIFIES THAT ONLY INCOM E / EXPENDITURE DIRECTLY AND INEXTRICABLY RELATED TO ELIGIBLE UNDER TAKING SHOULD BE CONSIDERED IN COMPUTING PROFIT OF THE ELIGIBLE UNDERTAKING. INDIR ECT EXPENDITURE WHICH HAS NO DIRECT NEXUS OR CONNECTION WITH THE PROFIT OF INDUSTRIAL U NDERTAKING SHOULD NOT BE CONSIDERED IN COMPUTING DEDUCTION U/S. 80IA. THE AFORESAID VIE W IS SUPPORTED BY THE PRINCIPLE LAID DOWN IN THE FOLLOWING DECISIONS. LIBERTY INDIA VS. CIT (2009) 317 ITR 218 (SC) CIT VS.STERLING FOODS (1999) 237 ITR 579 (SC) CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. VS. CIT (1978) 113 ITR 84 (SC) ITA NO.304-05 & 559/KOL/2008 A.Y 03-04 GRAPHIT E INDIA LTD. VS. ADDL. CI T, RNG-11, KOL. PAGE 14 PANDIAN CHEMICALS LTD. VS. CIT (2003) 262 ITR 278 ( SC) FURTHER, CO-ORDINATE BENCH IN THE CASE OF BALARAMPUR CHINI MILLS LTD. VS. DCIT (2011) 140 TTJ 73 (KOL)(UO) HAS CATEGORICALLY HELD THAT EXPENDITURE WHICH DOES NOT HAVE FIRST DEGREE RELATION WITH THE ELIGIBLE UNIT C ANNOT BE CONSIDERED FOR ALLOCATION TO THE ELIGIBLE UNIT. SIMILAR VIEW IS ALSO EXPRESSED R ECENTLY BY THE CO-ORDINATE BENCH IN THE CASE OF DCIT VS. SICPA INDIA PVT. LTD. ITA NO. 599/KOL/2012 DATED 04.12.2015 AND ALSO BY THE MUMBAI ITAT IN DCW LT. VS. ACIT (20 10) 37 SOT 322 (MUM) AGAIN SIMILAR VIEW IS ALSO TAKEN IN THE FOLLOWING D ECISIONS:- NATIONAL FERTILIZERS LTD. IN RE (2005) 142 TAXMAN 5 AAR NEW DELHI DCIT VS. CATVISION PRODUCTS LTD. )2004) 84 TTJ 241 (DEL) RRB CONSULTATNTS & ENGG. (P) LTD. VS. ITO (2007) 1 12 TTJ 794 (DEL) CIT VS. HINDUSTAN LEVER LTD. (2014) 221 TAXMAN 71 (MAD) RELIANCE INFRASTRUCTURE LTD. VS. ACIT ITA NO.4631/M UM/2009 DTD.31.01.2011 WITHOUT PREJUDICE TO ABOVE, THE EXPENSES HAVE BEEN ALLOCATED BY AO ON THE BASIS OF THE CAPITAL INVESTMENT WHICH HAVE NO NEXUS WITH THE EXPENSES INCURRED. HENCE, THE BASIS OF ALLOCATION OF THE EXPENSES BY THE AO IS TO TALLY UNJUSTIFIABLE. 17. ON THE OTHER HAND, LD DR SUBMITTED THAT THE ASS ESSEE HAS CLAIMED CERTAIN EXPENSES WHICH CANNOT BE ATTRIBUTED SOLELY TO THE E LECTRODE DIVISIONS SUCH EXPENSES ARE CHARITY, DONATION, GIFTS AND DOCUMENTATION & LE GAL EXPENSES. THE LD. DR REQUESTED THE BENCH TO RESTORE THE ISSUE TO AO FOR FRESH VERIFICATION. 18. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE FACTS OF THE CA SE HAVE ALREADY BEEN ELABORATED IN THE FOREGOING PARAGRAPH. SO THE SAME ARE NOT REPROD UCED TO AVOID THE REPETITION. WE FIND THAT THE LOWER AUTHORITIES HAVE NOT FOUND ANY DEFECT IN THE BOOKS OF ACCOUNTS WHICH ARE MAINTAINED SEPARATELY. THE AO ALLOCATED T HE COST TO THE POWER DIVISIONS ON FINDING THE COST OF PRODUCTION OF OTHER POWER GENER ATING UNITS ON HIGHER SIDE THAN THE PRODUCTION COST OF THE ASSESSEE. THE BORROWED FUND WAS DIRECTLY USED BY THE ASSESSEE FOR ITS POWER DIVISIONS. THERE WAS NO AMBIGUITY WIT H REGARD TO THE INTEREST EXPENSES CLAIMED BY THE ASSESSEE IN THEIR DIVISIONS. THE AO HAS ALLOCATED THE COST HIS PREMISE ITA NO.304-05 & 559/KOL/2008 A.Y 03-04 GRAPHIT E INDIA LTD. VS. ADDL. CI T, RNG-11, KOL. PAGE 15 AND CONJUNCTURE. IN THIS CONNECTION WE RELY IN THE JUDGMENT HONBLE SUPREME COURT OF INDIA IN THE CASE OF LIBERTY INDIA VS. CIT (2009 ) 317 ITR 218 (SC). THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW : THE IT ACT BROADLY PROVIDES FOR TWO TYPES OF TAX I NCENTIVES, NAMELY, INVESTMENT LINKED INCENTIVES AND PROFIT LINKED INCE NTIVES. CHAPTER VI-A WHICH PROVIDES FOR INCENTIVES IN THE FORM OF TAX DEDUCTIO NS ESSENTIALLY BELONG TO THE CATEGORY OF 'PROFIT LINKED INCENTIVES'. THEREFORE, WHEN S. 80-IA/80-IB REFERS TO PROFITS DERIVED FROM ELIGIBLE BUSINESS, IT IS NOT T HE OWNERSHIP OF THAT BUSINESS WHICH ATTRACTS THE INCENTIVES. WHAT ATTRACTS THE IN CENTIVES UNDER S. 80-IA/80-IB IS THE GENERATION OF PROFITS (OPERATIONAL PROFITS). IT IS FOR THIS REASON THAT PARLIAMENT HAS CONFINED DEDUCTION TO PROFITS DERIVE D FROM ELIGIBLE BUSINESSES MENTIONED IN SUB-SS. (3) TO (11A) (AS THEY STOOD AT THE RELEVANT TIME). ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. EACH OF THE ELIGIBL E BUSINESSES IN SUB-SS. (3) TO (11A) CONSTITUTES A STAND-ALONE ITEM IN THE MATTER OF COMPUTATION OF PROFITS. THAT IS THE REASON WHY THE CONCEPT OF 'SEGMENT REPO RTING' STANDS INTRODUCED IN THE INDIAN ACCOUNTING STANDARDS (IAS) BY THE ICA I. ANALYSING CHAPTER VI-A, IT IS FOUND THAT SS. 80-IB AND 80-IA ARE THE CODE B Y THEMSELVES AS THEY CONTAIN BOTH SUBSTANTIVE AS WELL AS PROCEDURAL PROVISIONS. THEREFORE, THE COURT NEEDS TO EXAMINE WHAT THESE PROVISIONS PRESCRIBE FOR 'COM PUTATION OF PROFITS OF THE ELIGIBLE BUSINESS'. IT IS EVIDENT THAT S. 80-IB PRO VIDES FOR ALLOWING OF DEDUCTION IN RESPECT OF PROFITS AND GAINS DERIVED FROM THE EL IGIBLE BUSINESS. THE WORDS 'DERIVED FROM' ARE NARROWER IN CONNOTATION AS COMPA RED TO THE WORDS 'ATTRIBUTABLE TO'. IN OTHER WORDS, BY USING THE EXP RESSION 'DERIVED FROM', PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE. ON ANALYSIS OF SS. 80-IA AND 80-IB IT BECOMES CLEAR THAT ANY IN DUSTRIAL UNDERTAKING, WHICH BECOMES ELIGIBLE ON SATISFYING SUB-S. (2), WOULD BE ENTITLED TO DEDUCTION UNDER SUB-S. (1) ONLY TO THE EXTENT OF PROFITS DERIVED FR OM SUCH INDUSTRIAL UNDERTAKING AFTER SPECIFIED DATE(S). HENCE, APART FROM ELIGIBIL ITY, SUB-S. (1) PURPORTS TO RESTRICT THE QUANTUM OF DEDUCTION TO A SPECIFIED PE RCENTAGE OF PROFITS. THIS IS THE IMPORTANCE OF THE WORDS 'DERIVED FROM INDUSTRIA L UNDERTAKING' AS AGAINST 'PROFITS ATTRIBUTABLE TO INDUSTRIAL UNDERTAKING'.C IT VS. KIRLOSKAR OIL ENGINES LTD. (1985) 44 CTR (BOM) 98 : (1986) 157 ITR 762 (B OM) APPROVED. RESPECTFULLY FOLLOW THE JUDGMENT OF HONBLE SUPREME COURT OF INDIA IN THE CASE OF LIBERTY INDIA VS. CIT (2009) 317 ITR 218 (SC). WE ALLOW ASSESSEES GROUN D OF APPEAL. 19. NOW COMING TO THE REMAINING ISSUES OF REVENUES APPEAL IN ITA NO. 559/KOL/2008 FOR WHICH FOLLOWING GROUNDS NO. 2 AND 3 WERE RAISE D. 2. WHETHER UNDER THE FACTS AND CIRCUMSTANCES, THE LD. CIT(A) WAS JUSTIFIED IN REDUCING THE INTEREST EXPENDITURE ALLOCATED BY THE AO FOR THE PURPOSE OF COMPUTING PROFIT FOR THE PURPOSE OF DEDUCTION U/S 8 0IA, ASSUMING THAT ITA NO.304-05 & 559/KOL/2008 A.Y 03-04 GRAPHIT E INDIA LTD. VS. ADDL. CI T, RNG-11, KOL. PAGE 16 ACCUMULATED PROFIT FROM POWER DIVISION WAS RETAINED IN THE POWER UNIT ITSELF WHEREAS IN THE ACCOUNTS OF THE ASSESSEE COMPANY, SU CH PROFIT WAS NOT SHOWN TO HAVE BEEN SEPARATELY RETAINED. 3. WHETHER UNDER THE FACTS AND CIRCUMSTANCES, THE L D. CITE WAS JUSTIFIED IN ALLOWING RELIEF OF RS.1,18,97,932/- ON ACCOUNT OF ALLOCATION OF OTHER EXPENSES IN COMPUTING PROFIT FOR THE PURPOSE DEDUCTION U/S 8 0IA ON THE BASIS OF ASSESSEES CLAIM WITHOUT APPRECIATING THE FACT MENT IONED IN THE ASSESSMENT ORDER AND WITHOUT GIVING FINDING AS TO HOW THESE EX PENSES ARE INCLUDED TWICE OR NOT ALLOCABLE. WE HAVE ALREADY DECIDED THE ISSUE IN FAVOR OF ASSES SEE VIDE PARA NO. 18 OF THIS ORDER AS STATED ABOVE. HENCE, BOTH ISSUE RAISED BY REVENU E STAND DISMISSED. 20. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 3 IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO BY HOLDING THAT THE DEDUCTION UNDER SECTION 80HHC SHALL BE WORKED OUT AFTER ADJUSTING THE PROFI T ELIGIBLE AMOUNT OF DEDUCTION UNDER SECTION 80 IA OF THE ACT. 20.1 AT THE OUTSET, WE FIND THAT ISSUE IS COVERED I N FAVOUR OF REVENUE AND AGAINST THE ASSESSEE IN ITS OWN CASE IN ITA NO.949/KOL/2005 DATED 06.12.2007, WHEREIN THE TRIBUNAL HAS HELD AS UNDER:- 10.1 THE CLAIM OF THE ASSESSEE THAT THE BUSINESS P ROFITS FOR COMPUTATION UNDER SECTION 80HHC OF THE ACT SHOULD NOT BE REDUCED BY T HE AMOUNT OF PROFITS FOR WHICH DEDUCTION HAS BEEN ALLOWED UNDER SECTION 80IA OF THE ACT HAS TO BE CONSIDERED IN THE LIGHT OF THE PROVISIONS OF SECTIO N 80IA(9) OF THE ACT WHICH PROVIDES THAT WHERE ANY AMOUNT OF PROFITS OR GAINS OF AN UNDERTAKING OR OF AN ENTERPRISE IN THE CASE OF AN ASSESSEE IS CLAIMED AN D ALLOWED UNDER THE SAID SECTION FOR ANY ASSESSMENT YEAR, THE DEDUCTION TO T HE EXTENT OF SUCH PROFITS OR GAINS SHALL NOT BE ALLOWED UNDER ANY OTHER PROVISIO N OF CHAPTER VIA. THE DEDUCTION FOR THE PROFITS UNDER SECTION 80IA HAS BE EN ALLOWED IN RESPECT OF THE POWER UNDERTAKINGS. MOST OF THE ENERGY GENERATED TH EREIN HAS BEEN CAPTIVELY USED FOR MANUFACTURE OF GOODS PROFITS WHEREOF ARE P ART OF PROFITS OF BUSINESS. THE COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE DEC ISION OF BOMBAY HIGH COURT IN THE CASE OF GODREJ AGROVET LTD. VS. ACIT ((2007) 290 ITR 252. THIS ISSUE CAME UP FOR CONSIDERATION BEFORE THE SPECIAL BENCH OF THE TRIBUNAL AT CHENNAI IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME TAX VS. ROGINI GAR MENTS REPORTED IN (2007) 294 ITR (AT). IN VIEW OF THE SAI D DECISION OF THE SPECIAL BENCH WHICH IS BINDING ON US THE CONTENTION OF THE ASSESSEE CANNOT BE ACCEPTED ITA NO.304-05 & 559/KOL/2008 A.Y 03-04 GRAPHIT E INDIA LTD. VS. ADDL. CI T, RNG-11, KOL. PAGE 17 AND GROUND NO. 3 IN THE ASSESSEES APPEAL IS DISMIS SED AND THE ORDER OF CIT(A) ON THE ISSUE IS AFFIRMED. IN VIEW OF THE FORESAID FACTS AND CIRCUMSTANCES AND RESPECTFULLY FOLLOWING THE DECISION OF THIS CO-ORDINATE BENCH IN ASSESSEES OWN CASE WE DISMISS ASSESSEES GROUND. AO IS DIRECTED ACCORDINGLY. 21. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND S NO. 4(A) & 4(B) IS THAT LD. CIT(A) ERRED BY HOLDING THAT 90% OF INTEREST RECEIV ED IS TO BE REDUCED FROM THE PROFIT TO WORK OUT THE ELIGIBLE DEDUCTION UNDER SECTION 80 HHC OF THE ACT. 22. AT THE OUTSET, WE FIND THAT THIS CO-ORDINATE BE NCH IN ASSESSEES OWN CASE (SUPRA) HAS DECIDED THE ISSUE REMITTED BACK TO THE FILE OF AO AND RELEVANT EXTRACT IS REPRODUCED BELOW:- 10.2 SO FAR AS THE CLAIM OF THE ASSESSEE THAT 90% OF THE NET AMOUNT OF RENT AND INTEREST SHOULD BE DEDUCTED FROM THE PROFITS OF THE BUSINESS AND NOT THE GROSS AMOUNT WE FIND THAT THIS ISSUE CAME UP BEFORE THE T RIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1996-97 IN ITA NO. 5241/MUM/2000 , THE TRIBUNAL RESTORED THE MATTER TO AO TO EXAMINE THE N EXUS BETWEEN THE RENT AND INTEREST RECEIPTS AND PAYMENTS AND IN CASE THERE WA S SUCH A NEXUS THEN ONLY 90% OF THE NET AMOUNT WAS TO BE EXCLUDE FROM THE BU SINESS PROFITS. WE FIND THAT SIMILAR VIEW WAS ALSO TAKEN IN THE CASE OF GLOSTER JUTE MILLS LTD. VS. DCIT IN ITA NO. 1879(KOL) OF 2006 DATED 20/04/07. ACCORDINGLY, WE RESTORE THE ISSUE TO AO TO EXAMINE WHETHER THERE IS ANY NEXUS BETWEEN THE RECEIPTS AND PAYMENTS AND IF HE SO FINDS THEN TO TAKE ONLY 90% O F NET AMOUNT OF SUCH RENT AND INTEREST FOR DEDUCTION FROM BUSINESS PROFITS FO R COMPUTATION UNDER SECTION 80HHC OF THE ACT. GROUND NOS. 1(A) AND 4(B) IN THE ASSESSEES APPEAL ARE ACCORDINGLY RESTORED TO AO WITH THE DIRECTIONS AFOR ESAID AND ORDER OF CIT(A) ON THE ISSUE IS SET ASIDE. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH WE SET ASIDE THE ORDER OF LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF AO WITH A DIRECTION AS CONTAINED. ASSESSEES GROUND IS ALLOWED FOR STATISTICAL PURPOS E. 23. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND S NO. 5 IS THAT LD. CIT(A) ERRED BY HOLDING THAT SALES TAX INCENTIVE RECEIVED UNDER THE WEST BENGAL INCENTIVE SCHEME 1993 FOR AN AMOUNT OF RS. 89,44,090/- AS REVENUE IN NATURE. ITA NO.304-05 & 559/KOL/2008 A.Y 03-04 GRAPHIT E INDIA LTD. VS. ADDL. CI T, RNG-11, KOL. PAGE 18 24. AT THE OUTSET, WE FIND THAT COORDINATE BENCH HA S DECIDED THIS ISSUE AGAINST THE ASSESSEE IN ASSESSEES OWN CASE (SUPRA) AND RELEVAN T EXTRACT IS REPRODUCED BELOW:- 16.1 HOWEVER THE CALCUTTA HIGH COURT IN THE CASE O F CIT VS. CHHINDWARA FUELS REPORTED IN (2000) 245 ITR 9 HELD THAT SALES TAX SUBSIDY RECEIVED FROM THE GOVERNMENT WAS AFTER COMMENCEMENT OF PRODUCTION AND WAS NOT A CAPITAL RECEIPT. THE ASSESSEES CONTENTION THAT THE SUBSIDY INVOLVED IN THE SAID CASE WAS NOT UNDER THE 1993 SCHEME AND WAS DIFFERENT CAN NOT BE ACCEPTED IN VIEW OF THE DECISION OF THE HIGH COURT SPECIFICALLY LAYI NG DOWN THAT SUBSIDY ON ACCOUNT OF SALES TAX IS NOT A CAPITAL RECEIPT. ACCO RDINGLY THE SAID AMOUNT IS ASSESSABLE UNDER THE NORMAL PROVISIONS OF THE ACT A S A REVENUE RECEIPT. SINCE THE RECEIPT IN QUESTION IS A REVENUE RECEIPT THE QU ESTION OF EXCLUDING IT FROM BOOK PROFITS UNDER SECTION 115JB OF THE ACT ALSO DO ES NOT ARISE. ACCORDINGLY ADDITIONAL GROUND NOS. 1AND 2 IN THE ASSESSEES APP EAL ARE DISMISSED. TAKING A CONSISTENT VIEW IN ASSESSEES OWN CASE WE DISMISS ASSESSEES GROUND ACCORDINGLY. 25. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND S NO. 6 TO 8 IS THAT LD. CIT(A) ERRED BY REDUCING THE AMOUNT OF DEPB SALE FOR WORKI NG OUT THE PROFIT OF THE BUSINESS UNDER SECTION 80HHC OF THE ACT. 26. THE ASSESSEE DURING THE YEAR HAS RECEIVED DEPB ON ACCOUNT OF THE EXPORT FOR RS. 35,23,24,936/- WHICH WAS CREDIT IN THE PROFIT & LOSS ACCOUNT. THE AO DID NOT REDUCE THE 90% OF IT WHILE WORKING OUT DEDUCTION UN DER SECTION 80HHC OF THE ACT AT THE TIME OF ORIGINAL ASSESSMENT. ACCORDINGLY THE AO ISSUED A NOTICE UNDER SECTION 154 OF THE ACT TO RECTIFY THE AFORESAID MISTAKE. IN COM PLIANCE TO THE NOTICE THE ASSESSEE SUBMITTED THAT THE DEDUCTION HAS BEEN CLAIMED BY TH E ASSESSEE AT THE CORRECT AMOUNT AND WITHIN THE PROVISIONS OF SECTION 80HHC OF THE A CT. HOWEVER THE AO DISREGARDED THE CLAIM OF THE ASSESSEE AND COMPUTED THE DEDUCTIO N UNDER SECTION 80HHC OF THE ACT AT RS. 1,22,74,092/-. ACCORDINGLY, THE EXCESS DEDUC TION OF RS. 9,18,77,535/- WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASS ESSEE. 27. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD. CIT(A) WHO HAS CONFIRMED THE ORDER OF THE AO BY HOLDING THAT THE TURNOVER OF THE ASSESSEE IS EXCEEDING THE AMOUNT OF RS. 10 CRORES THEREFORE THE BENEFIT FOR THE DEDU CTION OF DEPB FACE VALUE IS NOT ITA NO.304-05 & 559/KOL/2008 A.Y 03-04 GRAPHIT E INDIA LTD. VS. ADDL. CI T, RNG-11, KOL. PAGE 19 AVAILABLE IN TERMS OF 3 RD PROVISO TO SECTION 80HHC OF THE ACT. THE PROVISION S TO SECTION 28(IIID) JUST CLARIFIES THAT THE PROFIT ON TRANSFER OF DEPB WILL ALSO BE REDUCED FROM THE PROFIT FOR CALCULATING THE PROFIT FROM THE BUSINESS AS CONTEMPLATED UNDER EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT. AS P ER THE LD. CIT(A) FACE VALUE OF THE DEPB AND ANY PROFIT AROSE THERE ON THE TRANSFER OF THE DEPB, BOTH WILL BE REDUCED BY 90% AS PER THE PROVISIONS OF SECTION OF EXPLANATION (BAA) TO THE SECTION 80HHC OF THE ACT IF THE ASSESSEE HAS THE TURNOVER EXCEEDING RS. 10 CRORES. BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) THE ASSE SSEE CAME IN APPEAL BEFORE US. THE LD. AR BEFORE US SUBMITTED THAT THE FACE VALUE OF THE DEPB IS COVERED UNDER THE SECTION 28(IIIB) OF THE ACT AND NOT UNDER THE SECTI ON 28(IIID) OF THE ACT. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF T HE AUTHORITIES BELOW. 28. WE HAVE HEARD THE RIVAL CONTENTIONS & PERUSED T HE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE FIND THAT THE SECTION 28(I IID) OF THE ACT TALKS ABOUT THE PROFIT DERIVED ON THE TRANSFER OF DEPB AND THE FACE VALUE ACCRUED TO THE ASSESSEE FOR THE DEPB IS COVERED BY THE PROVISIONS OF SECTION 28(III B) OF THE ACT. HENCE WE CONCLUDE THAT THE FACE VALUE OF THE DEPB IS COVERED UNDER TH E PROVISIONS OF SECTION 28(IIIB) OF THE ACT. IN THIS CONNECTION WE FIND SUPPORT FROM TH E JUDGMENT OF APEX HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS VS. CIT (2012) 342 ITR 29 (SC). THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW : TO THE FIGURE OF PROFITS DERIVED FROM EXPORTS WORKE D OUT AS PER THE FORMULA UNDER SUB-S. (3)(A) OF S. 80HHC, THE ADDITIONS AS M ENTIONED IN FIRST, SECOND, THIRD AND FOURTH PROVISOS UNDER SUB-S. (3) ARE MADE TO PROFITS DERIVED FROM EXPORTS. UNDER THE FIRST PROVISO, NINETY PER CENT O F THE SUM REFERRED TO IN CLS. (IIIA), (IIIB) AND (IIIC) OF S. 28 ARE ADDED IN THE SAME PROPORTION AS EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINES S CARRIED ON BY THE ASSESSEE. IN THIS FIRST PROVISO, THERE IS NO ADDITION OF ANY SUM REFERRED TO IN CL. (IIID) OR CL. (IIIE). HENCE, PROFIT ON TRANSFER OF DEPB OR DFRC A RE NOT TO BE ADDED UNDER THE FIRST PROVISO. WHERE THEREFORE IN THE PREVIOUS YEAR NO DEPB OR DFRC ACCRUES TO THE ASSESSEE, HE WOULD NOT BE ENTITLED T O THE BENEFIT OF THE FIRST PROVISO TO SUB-S. (3) OF S. 80HHC BECAUSE HE WOULD NOT HAVE ANY SUM REFERRED TO IN CL. (IIIB) OF S. 28 OF THE ACT. THE SECOND PR OVISO TO SUB-S. (3) OF S. 80HHC STATES THAT IN CASE OF AN ASSESSEE HAVING EXPORT TU RNOVER NOT EXCEEDING RS. 10 CRORES DURING THE PREVIOUS YEAR, AFTER GIVING EFFEC T TO THE FIRST PROVISO, THE EXPORT PROFITS ARE TO BE INCREASED FURTHER BY THE A MOUNT WHICH BEARS TO NINETY ITA NO.304-05 & 559/KOL/2008 A.Y 03-04 GRAPHIT E INDIA LTD. VS. ADDL. CI T, RNG-11, KOL. PAGE 20 PER CENT OF ANY SUM REFERRED TO IN CLS. (IIID) AND (IIIE) OF S. 28, THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTA L TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. THE THIRD PROVISO TO SU B-S. (3) OF S. 80HHC STATES THAT IN CASE OF AN ASSESSEE HAVING EXPORT TURNOVER EXCEEDING RS. 10 CRORES, SIMILAR ADDITION OF NINETY PER CENT OF THE SUMS REF ERRED TO IN CL. (IIID) OF S. 28 SHALL BE MADE ONLY IF THE ASSESSEE HAS THE NECESSAR Y AND SUFFICIENT EVIDENCE TO PROVE THAT (A) HE HAD AN OPTION TO CHOOSE EITHER TH E DUTY DRAWBACK OR THE DEPB SCHEME, BEING THE DUTY REMISSION SCHEME; AND ( B) THE RATE OF DRAWBACK CREDIT ATTRIBUTABLE TO THE CUSTOMS DUTY WA S HIGHER THAN THE RATE OF CREDIT ALLOWABLE UNDER THE DEPB SCHEME, BEING THE D UTY REMISSION SCHEME. THEREFORE, IF THE ASSESSEE HAVING EXPORT TURNOVER O F MORE THAN RS. 10 CRORES DOES NOT SATISFY THESE TWO CONDITIONS, HE WILL NOT BE ENTITLED TO THE ADDITION OF PROFIT ON TRANSFER OF DEPB UNDER THE THIRD PROVISO TO SUB-S. (3) OF S. 80HHC. THE AFORESAID DISCUSSION WOULD SHOW THAT WHERE AN A SSESSEE HAS AN EXPORT TURNOVER EXCEEDING RS. 10 CRORES AND HAS MADE PROFI TS ON TRANSFER OF DEPB UNDER CL. (IIID) OF S. 28, HE WOULD NOT GET THE BEN EFIT OF ADDITION TO EXPORT PROFITS UNDER THIRD OR FOURTH PROVISO TO SUB-S. (3) OF S. 8 0HHC, BUT HE WOULD GET THE BENEFIT OF EXCLUSION OF A SMALLER FIGURE FROM 'PROF ITS OF THE BUSINESS' UNDER EXPLN. (BAA) TO S. 80HHC AND THERE IS NOTHING IN EX PLN. (BAA) TO S. 80HHC TO SHOW THAT THIS BENEFIT OF EXCLUSION OF A SMALLER FI GURE FROM 'PROFITS OF THE BUSINESS' WILL NOT BE AVAILABLE TO AN ASSESSEE HAVI NG AN EXPORT TURNOVER EXCEEDING RS. 10 CRORES. IN OTHER WORDS, WHERE THE EXPORT TURNOVER OF AN ASSESSEE EXCEEDS RS. 10 CRORES, HE DOES NOT GET THE BENEFIT OF ADDITION OF NINETY PER CENT OF EXPORT INCENTIVE UNDER CL. (IIID) OF S. 28 TO HIS EXPORT PROFITS, BUT HE GETS A HIGHER FIGURE OF PROFITS OF THE BUSINESS, WH ICH ULTIMATELY RESULTS IN COMPUTATION OF A BIGGER EXPORT PROFIT. THE HIGH COU RT, THEREFORE, WAS NOT RIGHT IN COMING TO THE CONCLUSION THAT AS THE ASSESSEE DI D HAVE THE EXPORT TURNOVER EXCEEDING RS. 10 CRORES AND AS THE ASSESSEE DID NOT FULFILL THE CONDITIONS SET OUT IN THE THIRD PROVISO TO S. 80HHC(3), THE ASSESSEE W AS NOT ENTITLED TO A DEDUCTION UNDER S. 80HHC ON THE AMOUNT RECEIVED ON TRANSFER OF DEPB AND WITH A VIEW TO GET OVER THIS DIFFICULTY THE ASSESSE E WAS CONTENDING THAT THE PROFITS ON TRANSFER OF DEPB UNDER S. 28(IIID) WOULD NOT INCLUDE THE FACE VALUE OF THE DEPB. IT IS A WELL-SETTLED PRINCIPLE OF STAT UTORY INTERPRETATION OF A TAXING STATUTE THAT A SUBJECT WILL BE LIABLE TO TAX AND WI LL BE ENTITLED TO EXEMPTION FROM TAX ACCORDING TO THE STRICT LANGUAGE OF THE TAXING STATUTE AND IF AS PER THE WORDS USED IN EXPLN. (BAA) TO S. 80HHC READ WITH THE WORD S USED IN CLS. (IIID) AND (IIIE) OF S. 28, THE ASSESSEE WAS ENTITLED TO A DED UCTION UNDER S. 80HHC ON EXPORT PROFITS, THE BENEFIT OF SUCH DEDUCTION CANNO T BE DENIED TO THE ASSESSEE. WHERE DEPB ACCRUES TO THE ASSESSEE IN ONE PREVIOUS YEAR AND IT TRANSFERS THE DEPB CERTIFICATE IN ANOTHER PREVIOUS YEAR, ONLY NIN ETY PER CENT OF THE PROFITS ON THE TRANSFER OF THE DEPB COVERED UNDER CL. (IIID ) OF S. 28 AND NOT NINETY PER CENT OF THE ENTIRE SALE VALUE INCLUDING THE FACE VA LUE OF THE DEPB HAS TO BE EXCLUDED TO ARRIVE AT THE 'PROFITS OF THE BUSINESS' UNDER CL. (BAA) OF EXPLANATION TO S. 80HHC; WHERE THE EXPORT TURNOVER OF AN ASSESSEE EXCEEDS RS. 10 CRORES, IT DOES NOT GET THE BENEFIT OF ADDITION OF NINETY PER CENT OF EXPORT INCENTIVES UNDER CL. (IIID) OF S. 28 TO ITS EXPORT PROFITS, BUT IT WOULD HAVE THE ITA NO.304-05 & 559/KOL/2008 A.Y 03-04 GRAPHIT E INDIA LTD. VS. ADDL. CI T, RNG-11, KOL. PAGE 21 BENEFIT OF EXCLUSION OF A SMALLER FIGURE FROM THE ' PROFITS OF THE BUSINESS' UNDER CL. (BAA) OF EXPLANATION TO S. 80HHC WHICH WOULD UL TIMATELY RESULT IN COMPUTATION OF A BIGGER EXPORT PROFIT. RESPECTFULLY FOLLOWING THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF TOPMAN EXPORTS (SUPRA) WE REVERSE THE ORDER OF AUTHORITIES BELOW AND ALLOW THE ISSUE RAISED BY ASSESSEE. AO DIRECTED ACCORDINGLY. THIS GROUND OF ASSESSEES APPEAL IS ALLOWED. 29. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. COMING TO ASSESSEES APPEAL IN ITA NO.304/KOL2008. 30. GROUNDS RAISED BY ASSESSEE ARE REPRODUCED BELOW :- 1.0 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD. CIT(APPEALS)WAS NOT JUSTIFIED AND ERRED IN HOLDING THAT RECTIFICATI ON PROCEEDINGS U/S. 154 WAS SNOT BAD IN LAW AND THERE WAS A MISTAKE APPARENT FR OM RECORD WHICH WAS RECTIFIED BY THE AO VIDE ORDER U/S. 154. 2.0 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(APPEALS)WAS NOT JUSTIFIED AND ERRED IN HOLDING THAT DEPB RECEIP TS WHICH FALLS UNDER SECTION 28(IV) ALSO NEEDS TO BE REDUCED FROM THE PROFIT OF THE BUSINESS IN TERMS OF EXPLANATION (BAA) TO SECTION 80HHC. 3.0. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND WITHOUT PREJUDICE TO GROUND NO. 2 HERE-IN ABOVE, THE LD. CIT(APPEALS) WA S NOT JUSTIFIED IN NOT CONSIDERING THE ACT THAT ONLY PROFITS ON TRANSFER O F DEPB FALLS WITHIN THE AMBIT OF SECTION 28(IIID) OF THE ACT. 4.0 THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND, MODIFY, RESCIND, SUPPLEMENT OR ALTER ANY OF THE GROUNDS STATED HERE-IN-ABOVE EI THER BEFORE OR AT THE TME OF HEARING OF THE APPEAL. 31. AT THE OUTSET, WE FIND THAT THE ISSUE RAISED BY ASSESSEE IN GROUND NO.2 & 3 ON MERIT IN ITA 305/KOL/2008 HAS ALREADY BEEN DECIDED IN ITS FAVOUR VIDE PARA-2 8 OF THIS ORDER. HENCE, WE ALLOW BOTH THE GROUNDS OF ASSESSEE S APPEAL IN TERMS OF ABOVE. 32. COMING TO TECHNICAL ISSUE RAISED BY ASSESSEE IN GROUND NO. 1 IN THIS APPEAL REGARDING THE VALIDITY OF THE ORDER PASSED BY AO U/ S. 154 OF THE ACT. WE FIND THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF ASSESSE E ON MERIT. THEREFORE, WE ARE NOT INCLINED TO ADJUDICATE THIS TECHNICAL ISSUE RAISED BY THE ASSESSEE. HENCE, THIS GROUND OF ASSESSEE IS DISMISSED AS INFRUCTUOUS. ITA NO.304-05 & 559/KOL/2008 A.Y 03-04 GRAPHIT E INDIA LTD. VS. ADDL. CI T, RNG-11, KOL. PAGE 22 33. LAST GROUND OF ASSESSEES APPEAL IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SEPARATE ORDER. 34. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. 35. IN THE RESULT, BOTH APPEALS OF ASSESSEE ARE PARTLY ALLOWED AND THAT OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 24/08/2016 SD/- SD/- (S.S.VISWANETHRA RAVI) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER *DKP '#$ - 24/08/2016 / KOLKATA / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE GRAPHITE INDIA LTD., 31, CHOWRINGHEE ROA D, KOLKATA-16 2. /REVENUE-ADDL. CIT, RANGE-11, AAYKAR BHAWAN, P-7, C HOWRINGHEE SQ. 3. ##&' ( / CONCERNED CIT 4. ( - / CIT (A) 5. )*+ ,,&' , &' / DR, ITAT, KOLKATA 6. +-. / GUARD FILE. BY ORDER/ , /TRUE COPY/ / # &',