DCIT, New Delhi V. M/s. SBEC Bioenergy Ltd., New Delhi

ITA 5805/DEL/2013

• Counselvise Citation: 580520114 RSA 2013
• Duration Of Justice: 1 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Appeal Filed On: 30-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR
• Assessee Lawyers: P S KASHYAP
• Keywords: Retrospective amendment; Wholly owned subsidiary
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G , NEW DELHI) BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO. 5805/DEL/2013 ASSESSMENT YEAR : 2010-11 DCIT, CIRCLE 7(1), VS. M/S. SBEC BIOENERGY LTD., NEW DELHI 1400, HEMKUNT TOWER, 98, NEHRU PLACE, NEW DELHI. GIR / PAN:AADCS9993C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI BRR KUMAR, SR. DR RESPONDENT BY : SHRI P S KASHYAP, CA DATE OF HEARING : 13.03.2015 DATE OF PRONOUNCEMENT : 20.03.2015 ORDER PER T.S. KAPOOR, AM: THIS IS AN APPEAL FILED BY REVENUE AGAINST THE ORD ER OF LD. CIT(A) DATED 30.08.2013. THE GROUNDS OF APPEAL TAKEN BY R EVENUE ARE AS UNDER: I) ON THE FACTS AND CIRCUMSTANCES OF THE THE LD. C IT(A) HAS ERRED IN LAW AND MERITS OF THE CASE IN DELETING THE ADDIT ION OF RS.1,56,65,700/- MADE BY THE A.O. ON ACCOUNT OF SAL E VALUE OF EXHAUSTS STEAM SUPPLIED TO SSI. II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN LAW AND MERITS OF THE CASE IN HOLDING THAT STEAM IS ONE OF THE FORM OF POWER AND AS IS ELIGIBLE FOR DEDUCTION U/S 80-IA. 2. AT THE OUTSET, LD. A.R. SUBMITTED THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED IN ITS FAVOUR BY THE ORDER OF THE TRIBUNAL IN EARLIER YEARS IN THE CASE OF ASSESSEE ITSELF. IN THIS RESPECT, OUR ATTENTION WAS INVITED TO COPY ITA NO.5805/DEL/2013 2 OF ITAT ORDER FOR THE ASSESSMENT YEAR 2006-07 TO 20 09-10 PLACED IN PAPER BOOK PAGES 1 TO 22. LD. A.R. SUBMITTED THAT LD. CI T(A) HAS GIVEN RELIEF ON THE BASIS OF EARLIER DECISION OF ITAT. 3. LD. D.R. FAIRLY CONCEDED THAT THE MATTER WAS COV ERED IN FAVOUR OF ASSESSEE. 4. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH ROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF GENERATION AND SELLING OF POWER. DURING THE YEAR, THE ASSESSEE HAS CLAIMED TO HAVE SUPPLIED STEAM FREE OF COST TO UPSEB AND SS L. THE A.O. HELD THAT STEAM SUPPLIED BY ASSESSEE CERTAINLY HAD COST AND T HEREFORE, HE MADE THE ADDITION OF AN AMOUNT CALCULATED ON THE BASIS OF NO TIONAL VALUE FOLLOWING THE EARLIER YEARS. ON APPEAL BEFORE LD. CIT(A), THE LD . CIT(A) DELETED THE ADDITIONS RELYING UPON HIS EARLIER DECISIONS IN THE CASE OF ASSESSEE ITSELF. FOR THE SAKE OF CONVENIENCE, THE ORDER OF LD. CIT(A) IS REPRODUCED BELOW: 2.3 AFTER GOING THROUGH THE OBSERVATIONS OF THE A. O., SUBMISSIONS OF THE AR OF THE APPELLANT, DECISIONS OF THE HONBL E ITAT FOR VARIOUS YEARS IN THE APPELLANTS OWN CASE AS WELL AS THE DE CISIONS OF THE CIT(A) ON THE SAME ISSUE FOR EARLIER YEARS, THIS GROUND IS BEING FINALIZED AFTER MAKING THE FOLLOWING OBSERVATIONS: (I) ON GOING THROUGH THE ASSESSMENT ORDER, IT IS CLEAR THAT HT A.O. HAS MADE THIS ADDITION ON A NOTIONAL BASIS AND FOLL OWING EARLIER YEARS ASSESSMENT ORDERS WHERE SIMILAR ADDIT IONS HAD BEEN MADE, THE A.O. HAS MADE THIS ADDITION BY PRIMA RILY STATING THAT SINCE THIS ISSUE IS PENDING BEFORE THE HON'BLE HIGH COURT, IT HAS NOT REACHED FINALITY AND THE ADDITION WAS BE ING MADE IN THIS YEAR ALSO. (II) THIS ISSUE HAS BEEN CONSIDERED BY THE UNDERSIGNED I N ASSESSMENT YEAR 2009-10 AND HAS BEEN DECIDED IN FAV OUR OF THE APPELLANT, FOLLOWING THE PRINCIPLES OF JUDICIAL DIS CIPLINE AND VARIOUS DECISIONS OF THE HONBLE ITAT. THE RELEVAN T PORTION OF ITA NO.5805/DEL/2013 3 MY OBSERVATION IN ASSESSMENT YEAR 2009-10 IS REPROD UCED AS FOLLOWS: 2.4 THE RELEVANT PORTION OF THE OBSERVATIONS OF TH E CIT(A) AND THE ITAT FROM THE ORDER OF CIT(A) FOR ASSESSMENT YEAR 2 006-07 IS BEING REPRODUCED AS FOLLOWS: 2.1 GROUND NO.2 IS AGAINST ADDITION OF RS 9,93,41, 508 BEING THE SALE VALUE OF STEAM SUPPLIED TO SSL WORKED OUT BY T HE AO @ 236 PER TON. THE APPELLANT HAD SHOWN SALE PROCEEDS IN RESPE CT OF SUPPLY OF POWER TO UPSEB AND SSL AGGREGATING TO RS 11,59,51,5 75. HOWEVER NO SALE PROCEEDS IN RESPECT OF EXHAUST STEAM SUPPLI ED TO SSL WORK SHOWN IN THE ACCOUNTS. THE AO 'NOTED THAT IN THE EA RLIER YEARS THE APPELLANT HAD SOLD EXHAUST STEAM TO SSL @ RS 236 & RS 75 PER TON FOR VARYING PERIODS. DURING THIS YEAR HOWEVER THE S TEAM WAS SUPPLIED FREE OF COST. THE AO THEREFORE PROPOSED TO TREAT TH E SALE PROCEEDS OF EXHAUST STEAM WORK OUT AT THE RATE OF RS 236 PER TO N CLAIMED INCOME FROM THE APPELLANT IN THE SAME WAS AS IN EARLIER YE ARS. IN RESPONSE TO SHOW CAUSE NOTICE THE APPELLANT MADE WRITTEN SUBMIS SIONS BY LETTER DATED 3/2/06 AND THEREFORE BY LETTER DATED 13/3/06. THE CONTENTS OF LETTER DATED 13/3/06 HAVE BEEN REPRODUCED BY THE AO ON PAGE 4 OF THE ASSESSMENT ORDER. SINCE THE SAID LETTER GIVES GIST OF HISTORY OF THIS ISSUE BUT SAME IS REPRODUCED IN THIS ORDER ALSO EVE N AT THE COST OF REPETITION: - 1. RECEIPTS FROM STEAM DURING A Y 2000-01 WERE RECO GNIZED IN THE BOOKS @ RS 236 PER TON. HOWEVER, DUE TO REVISION OF RATES, IN AY 01- 02 A REVERSAL ENTRY WAS PASSED IN THE BOOKS REDUCIN G THE RECEIPTS EXCESS ACCOUNTED FOR IN AY 2000-01. 2. IN THE ASSESSMENT PROCEEDINGS FOR AY 2000-01 THE ASSESSEE COMPANY CLAIMED THAT THE RECEIPTS BE REDUCED BY RS 3,82,59,074 SINCE THE RATE OF STEAM WITH RETROSPECTIVE EFFECT HAD BEE N REVISED TO RS 75 PER TON. 3. THE ASSESSING OFFICER REJECTED THIS CLAIM OF THE ASSESSEE COMPANY BY OBSERVING IN THE ORDER PASSED U/S 143(3) DATED . 28/2/03 FOR A Y 00-01 THAT LITHE EFFECT FOR WHAT HAS HAPPEN ED IN THE NEXT ITA NO.5805/DEL/2013 4 ASSESSMENT YEAR WOULD BE SEEN NEXT YEAR DURING THE COURSE OF FURTHER PROCEEDINGS. ' 4. THE ASSESSEE WENT IN APPEAL BEFORE CIT(A) AND TH EREAFTER TO ITAT AGAINST THIS REJECTION. 5. ITAT WHICH IS THE FINAL FACT FINDING AUTHORITY H AS MENTIONED THE FOLLOWING FACTS IN ITS ORDER IN ITA NO.5461/DEL/200 3 & 1007/DEL/2004 DATED 26/3/04 AS UNDER (COPY ENCLOSED AS ANNEXURE B):- A) THE ASSESSEE COMPANY HAD ENTERED INTO A CONVERSI ON CONTRACT DATED 1/10/98 WITH SBEC SUGAR LTD (SSL). THIS AGREE MENT WAS SUBJECT TO PICUP'S APPROVAL. B) IN VIEW OF PICUP'S OBJECTION, AN INTERIM ARRANGE MENT DATED 26TH. AUGUST, 99 WAS AGREED. UNDER THIS INTERIM ARR ANGEMENT, THE PARTIES AGREED THAT THEY WOULD PAY AND RECEIVE RS 2 36 PER METRIC TON FOR STEAM. FOR ELECTRICAL ENERGY IT - WAS TO CHARGE AT THE SAME RATE AT WHICH ELECTRICITY WAS SUPPLIED TO UPSEB. C) REVENUE IN THE BOOKS OF ACCOUNTS WAS RECOGNIZED ON THE BASIS OF THIS INTERIM ARRANGEMENT. D) THE INTERIM ARRANGEMENT WAS SUBSEQUENTLY REVISED AND UNDER THE REVISED ARRANGEMENT IT WAS AGREED THAT THE RECE IPT FROM STEAM WOULD BE @ RS 75 PER METRIC TON. E) THE REVENUE HAS NOT DOUBTED THE GENUINENESS OF T HESE AGREEMENTS. F) NO MATERIAL HAS BEEN PLACED BY THE REVENUE TO HO LD THAT THIS AGREEMENT OF REVISION WAS NOT GENUINE AND WAS PROSP ECTIVE AND NOT RETROSPECTIVE. THUS THE FACT THAT THE RATE OF STEAM WAS RS 75 PER METRIC TON AS PER SECOND ARRANGEMENT LETTER DATED 20/6/01 WAS ACCEPTE D AND NOT SUBJECT MATTER OF DISPUTE. IN AY 00-01 THE DEPARTME NT HAS NEVER' DOUBTED THE GENUINENESS OF THIS AGREEMENT. THE ONLY DISPUTE WAS REGARDING RETROSPECTIVE APPLICABILITY OF THIS ARRAN GEMENT SINCE THE ARRANGEMENT WAS ENTERED AFTER THE CLOSE OF THE PREV IOUS YEAR VIDE LETTER DATED 20/6/01. IN THIS REGARD WE WOULD LIKE TO BRING TO YOUR NOTICE THAT QUESTION SOUGHT TO BE REFERRED BY THE D EPARTMENT TO THE HON. DELHI HIGH COURT IN AY 2000-01 READS AS UNDER: 'BECAUSE RETROSPECTIVE PROVISO OF ARRANGEMENT BY WH ICH RATES PER UNIT WERE REVISED BY SUBSEQUENT LETTER DATED 20/6/0 1 CANNOT EXEMPT THE INCOME ALREADY ACCRUED UPTO 31/3/00. ' ITA NO.5805/DEL/2013 5 FURTHER AS SUBMITTED IN OUR LETTER DATED 3/2/06 ONL Y REAL INCOME COULD BE TAXED. SSL HAS STOPPED PAYING FOR CHARGES OF EXH AUST STEAM WITH EFFECT FROM OCT. 2001. 'THUS NO RECEIPT SHOULD BE E STIMATED AND. TAXED ON ACCOUNT OF STEAM IN THE PRESENT ASSESSMENT YEAR. THE PROPOSED ESTIMATED INCOME OF STEAM COMPUTED @ RS 236/ PER TO NE IS UNJUSTIFIED AND AGAINST THE PRINCIPLES LAID DQWN::- BY THE SUPREME COURTEND VARIOUS HIGH COURTS INCLUDING THE TERRTTOR TETJUQIDS! HIGH COURT. 2.2 AS CAN BE SEEN THE APPELLANT AGREED THAT IN THE EARLIER YEARS STEAM WAS SOLD @ RS 236 PER TON AND THAT RATE WAS RETROSP ECTIVELY CHANGED TO RS 75 PER TON. HOWEVER WITH EFFECT FROM OCT., 20 01 SSL HAS REFUSED TO MAKE ANY PAYMENT TOWARDS SUPPLY OF STEAM: SINCE THERE WAS UNCERTAINTY ABOUT REALIZATION OF ANY SALE PRICE OF SUPPLY OF STEAM THE APPELLANT DID NOT RECOGNIZE THE VALUE FOLLOWING THE ACCOUNTING STANDARD 9 AS NOTIFIED U/S 145(2) OF THE I. T. ACT. SINCE THERE WAS NO RIGHT TO RECEIVE ANY AMOUNT FOR SUPPLY OF STEAM AND NEITHER WAS ANY AMOUNT ACTUALLY RECEIVED THERE CANNOT BE ANY INCOME FROM SALE OF STEAM. IT WAS CONTENDED THAT ONLY THE REAL INCOME C AN BE TAXED UNDER II PROVISION. THE AO DID NOT ACCEPT THE EXPLANATION SUBMITTED BY THE APPELLANT ON THE GROUND THAT THE STEAM DEFINITELY A VALUE AND THE APPELLANT WAS RECOGNIZING THE RECEIPTS FROM SALE OF STEAM IN EARLIER YEARS. HE MENTIONED THAT THE RATES REGARDING SUPPLY TO SSL WERE NEVER FINALIZED AS THE CONVERSION CONTRACT WAS SUBJ ECT TO APPROVAL BY PICUP. SALE VALUE OF STEAM WAS ALWAYS RECOGNIZED AS PER INTERIM ARRANGEMENTS. THE AO HAS, MENTIONED -THAT ALTHOUGH ADDITION ON THIS ISSUE MADE IN EARLIER YEARS WERE DECIDED BY APPELLA TE AUTHORITIES IN FAVOUR OF APPELLANT, DEPARTMENT HAD NOT ACCEPTED RE DUCTION OF PRICE OF STEAM FOR RS 236 PER TON TO RS. 75 AND HAS FILED FU RTHER APPEAL BEFORE ITAT IN ASSESSMENT YEAR 01-02 & HIGH COURT IN AY 00 -01. HENCE THERE WAS NO QUESTION OF ACCEPTING THE APPELLANTS CONTENTION REGARDING SUPPLY OF STEAM FREE OF COST. IN VIEW OF THIS THE AO WORKED OUT SALE PROCEEDS OF STEAM SUPPLIED BY THE APPELLAN T TO SSL AT RS.99341508 AND ADDED TO THE TOTAL INCOME. 2.3 IN THE APPEAL PROCEEDINGS PAPER BOOK RUNNING IN TO 300 ODD PAGES WAS FILED ALONG WITH WRITTEN SUBMISSIONS FOR ~II TH E GROUNDS. IN THE WRITTEN REPLY THE APPELLANTS AR EXPLAINED THE BACKG ROUND FACTS RELATING TO THE DISPUTE BETWEEN THE APPELLANT COMPA NY AND SSL REGARDING PRICE PAPER FOR SUPPLY OF STEAM CORRESPON DENCE BETWEEN ITA NO.5805/DEL/2013 6 THE APPELLANT AND SSL O-N THIS ISSUE BY WAY OF VARI OUS LETTERS EXCHANGED WAS SUBMITTED IN THE PAPER BOOK. THE FACT S STATING TO THIS ISSUE IS SIMPLE TERMS WERE EXPLAINED LIKE -THIS. TH E POWER PLANT OF THE APPELLANT COMPANY AND SUGAR FACTORY OF SSL ARE LOCA TED AT THE SAME PLACE SIDE BY SIDE. SSL SUPPLIES BAGASSE (SUGARCANE REMAINS AFTER EXTRACTION OF JUICE) AND WATER TO THE APPELLANT COM PANY FREE OF COST. THE BAGASSE IS USED AS FUEL AND BURNT TO PRODUCE ST EAM FROM WATER. THE STEAM IS USED TO PRODUCE ELECTRICITY USING STEA M TURBINES BY APPELLANT COMPANY. THE ELECTRICITY GENERATED IS SUP PLIED TO SSL AND SURPLUS, IF ANY, TO UPSEB. THE EXHAUST STEAM AFTER RUNNING THE TURBINES IS ALSO SUPPLIED TO 55L INITIALLY IT WAS A GREED BETWEEN THE TWO COMPANIES THAT THE APPELLANT COMPANY WOULD RECEIVE CONVERSION CHARGES FROM SSL TO CONVERTING BAGASSE AND WATER IN TO ELECTRIC POWER AND EXHAUST STEAM WHICH WILL BE SUPPLIED TO SSL. FO R THIS PURPOSE A CONVERSION CONTRACT DATED 10/12/98 WAS EXECUTED. AC CORDING TO THIS CONVERSION CONTRACT FOLLOWING PAYMENTS WERE TO BE R ECEIVED BY THE APPELLANT FROM SSL AS CONVERSION CHARGES:- A) A FIXED FEE OF RS 19.75 MILLION PER MONTH DURING THE PRODUCTION SEASON. B) VARIABLE CHARGES IN PROPORTION TO THE QUANTITIES OF ELECTRICITY AND STEAM SUPPLIED: RS 0.52/PER UNIT OF ELECTRICAL ENERGY, IE ELECTRICI TY RS 40 PER TONNE OF THERMAL ENERGY, IE STEAM 2.4 THE FIXED FEE OF RS 19.75 MILLION PER MONTH INC LUDED 50% OF INCOME RECEIVED FROM SALE OF SURPLUS ELECTRICITY TO UPSEB. THEREFORE, IT WAS PROVIDED IN CLAUSE 7.11 THAT 50% OF SUCH REE TIZATION FROM UPSEB WOULD BE RETURNED TO SSL. AS PER ARTICLE 18 O F THE CONVERSION CONTRACT THE SAID AGREEMENT WAS TO BE APPROVED BY P ICUP WHO HAD GIVEN LOAN OF RS 8 CRORES OF SSL. PICUP STRONGLY OB JECTED TO PAYMENT TERMS AS PER CONVERSION CONTRACT AND DID NOT GIVE I TS APPROVAL. IN VIEW OF PICUP'S OBJECTION RE-NEGOTIATION OF THE PAY MENT TERMS WERE PROPOSED BETWEEN THE APPELLANT & SSL. PENDING THE N EGOTIATIONS, INTERIM ARRANGEMENT DTD 26/8/99 FOR PAYMENT WAS AGR EED TO. ACCORDING TO THIS, RS 236 PER TON WAS TO BE PAID FO R STEAM AND SUPPLY TO SSL. FOR ELECTRICAL ENERGY THE SAME RATE AS FOR UPSEB WAS TO BE CHARGED BY APPELLANT FROM SSL. FOR SOME PERIOD THE APPELLANT RAISED THE BILLS AND SSL MADE PAYMENT THESE FOR SUPPLY OF STEAM AS PER THIS ARRANGEMENT. HOWEVER EVEN THIS ARRANGEMENT WAS OBJE CTED TO BY PICUP ON THE GROUND THAT ACCEPTED RATE OF RETURN JU STIFIED IN POWER ITA NO.5805/DEL/2013 7 INDUSTRY WAS 16% OF CAPITAL EMPLOYED AS AGAINST 21 % ADOPTED FOR MAKING THE INTERIM ARRANGEMENT. IN VIEW OF THIS SSL INFORMED THE APPELLANT COMPANY THAT THE PROPER RATE OF STEAM WOU LD BE RS. 75 PER TON AS AGAINST RS 236 APPLIED EARLIER. THE RATE OF RS 75 PER TON AS AGAINST RS.236 APPLIED EARLIER. THE RATE OF RS.75/ - PER TON WAS AGREED TO RETROSPECTIVELY I.E. FROM THE 1 ST YEAR OF OPERATION. THE EARLIER INVOICES RAISED @ RS. 236 PER TON WERE ALSO REVISED IN VIEW OF THIS RETROSPECTIVE AMENDMENT TO THE INTERIM ARRANGE MENT. THE APPELLANT PASSED REVERSAL ENTRY IN SUBSEQUENT YEAR AND CLAIMED REDUCTION OF INCOME FROM SALE OF STEAM IN AY 00-01 BEFORE THE AD DURING ASSESSMENT PROCEEDINGS. THE AD AS ALSO CIT(A ) DID NOT ALLOW THE REDUCTION OF RECEIPT ON THE GROUND THAT IT HAD ALREADY ACCRUED. HOWEVER ITAT DELHI IN THEIR ORDER DTD 26/3/04 HELD THAT THE INCOME CANNOT. BE SAID TO ACCRUE @ 236 PER TON IN VIEW OF RETROSPECTIVE AMENDMENT TO THE SAID AGREEMENT. 2.5 SUBSEQUENTLY SSL INFORMED THE APPELLANT COMPANY BY LETTER DTD 2/11/02 THE DECISION NOT TO PAY ANYTHING FOR EXHAUS T STEAM SINCE OCT 2001. IT WAS FURTHER FOLLOWED BY ANOTHER LETTER DTD 21/2/03 WHEREIN THE MAIN REASONS FOR THIS DECISION WERE STATED TO B E AS UNDER: THE CONVERSION AGREEMENT DATED 10/12/98 NEVER CAME INTO OPERATION, AS PICUP HAS NOT APPROVED THE CONTRACT. THE SSL SUP PLIES BAGGASE AND WATER FREE OF ANY CHARGE TO SI-AL. WITHOUT THES E SI-AL CANNOT GENERATE POWER. IN ADDITION WATER AND STEAM CONDENS ATE ARE ALSO SUPPLIED FREE OF ANY CHARGE. THE STEAM THAT IS SUPPLIED IS EXHAUST STEAM, WHICH HAS NO VALUE AND CANNOT OTHERWISE BE USED OR SOLD. ON THE OTHER HAND , THE BAGGASE SUPPLIED TO SI-AL FREE OF ANY CHARGE IS EASILY SALE ABLE BY SSL FOR WHICH IT DOES NOT GET ANY COMPENSATION. NO REDUCTIO N/ADJUSTMENTS ARE ALSO ON THAT ACCOUNT IN THE CHARGES FOR ELECTRIC PO WER THAT ARE BEING PAID BY SSL. 2.6 IN VIEW OF THIS SSL STOPPED PAYING ANYTHING FOR EXHAUST STEAM FROM OCT. 2001. SINCE THERE- WAS A LOT OF UNCERTAIN TY REGARDING REALIZATION OF ANY AMOUNT FOR STEAM SUPPLIED FROM O CT. 01, THE APPELLANT DID NOT RAISE ANY INVOICE TO RECOGNIZE RE VENUE FOR THE SAME. THE APPELLANT RELIED ON ACCOUNTING STANDARD 9 (AS 9 ) ISSUED BY ICAI ON REVENUE RECOGNITION. IT IS NOW MANDATORY TO FOLL OW SUCH STANDARDS AS ACCOUNTING PRACTICE. THE RELEVANT CLAUSE IS 10 T O 12 OF AS 9 WERE REPRODUCED IN THE SUBMISSIONS (THEY HAVE BEEN REPRO DUCED BY AO ALSO ON PAGE 3 OF ASSESSMENT ORDER AS PART OF APPEL LANT'S REPLY). IT ITA NO.5805/DEL/2013 8 WAS THEREFORE, STATED THAT THE APPELLANT WAS FULLY JUSTIFIED IN NOT RECOGNIZING ANY SALE PROCEEDS OF STEAM APPLIED TO S SL. THE MAIN CONTENTION WAS THAT ONLY REAL INCOME CAN BE TAXED U NDER THE IT ACT. NOTIONAL INCOME ON ESTIMATED BASIS CANNOT BE BROUGH T TO TAX. IN SUPPORT OF THIS LEGAL. .CONTENTION ALSO THE APPELLA NT RELIED ON A FEW JUDICIAL DECISIONS. THEREFORE ACCORDING TO APPELLAN T THE INCOME ESTIMATED BY AO FROM SUPPLY OF STEAM TO SSL AND AT THE RATE OF 236 PER TON WAS HIGHLY UNJUSTIFIED AND AGAINST THE JUDI CIAL PRINCIPLES. WITHOUT PREJUDICE, IT WAS ALSO STATED THAT THE AO H AS NOT GIVING JUSTIFICATION FOR ADOPTING THE RATE OR STEAM AT THE RATE OF 236 PER METRIC TON WHEN ONLY RS 75 WAS CHARGEABLE BY THE AP PELLANT AS PER THE REVISED INTERIM ARRANGEMENTS MADE WITH SSL. IT WAS MENTIONED BY THE APPELLANT THAT THE ADDITION MADE IN EARLIER YEA RS WHEN THE RATE OF STEAM WAS REDUCED FROM RS 236 PER METRIC TON TO RS 75 PER METRIC TON WAS DELETED BY ITAT IN AY 00-01 WHOSE ORDER HAS BEE N FOLLOWED BY THE CIT(A) IN A YS 01-02 ORDER DTD 26/7/04 AND 99-0 0 ORDER DTD 4/1/06. 2.7 SUBSEQUENTLY BY LETTER DATED 5/9/06 THE APPELLA NT FURTHER SUBMITTED THAT BAGASSE SUPPLIED BY SSL TO THE APPELLANT WAS A MARKETABLE COMMODITY WHICH COULD BE SOLD @ AROUND RS 500 PER T ON. IF THE MARKET VALUE OF BAGASSE SUPPLIED BY 55L TO APPELLAN T, FREE OF COST, WAS WORKED OUT IT WOULD BE ABOUT RS 8.18 CRORES. AS AGAINST THIS, EVEN IF THE COST OF 3,59,933 TONS OF STEAM SUPPLIED BY A PPELLANT TO 55L IS DETERMINED @ 236 IT WOULD AMOUNT TO 8.49 CRORES. HE NCE IT WAS NOT THAT THE ARGUMENTS OF SSL IN DENYING ANY PAYMENT FO R STEAM SUPPLIED BY THE APPELLANT WERE WITHOUT ANY BASIS. ACCORDING TO 55L THE BAGASSE SUPPLIED BY THEM TO APPELLANT DID HAVE A MA RKETABLE VALUE WHEREAS STEAM SUPPLIED BY 55L WAS NOT OF ANY USE AS IT WAS NOT A FREELY MARKETABLE COMMODITY. 2.8 - I HAVE CAREFULLY CONSIDERED THE SUBMISSION MA DE ON BEHALF OF THE APPELLANTS. THERE IS NO DISPUTE TO THE FACT THAT TH E APPELLANT HAS NOT CREDITED ANY SALE PROCEEDS IN RESPECT OF STEAM SUPP LIED TO SSL DURING THE YEAR. IT IS ALSO UNDISPUTED FACT THAT SSL REFUS ED TO PAY ANYTHING FOR STEAM SUPPLIED TO IT- END HAS ALSO NOT ACTUALLY PAI D ANYTHING FOR THAT. THE AO HAS ESTIMATED THE SALE VALUE OF STEAM AT THE RATE OF RS 236 PER METRIC TON WHICH ACCORDING TO HIM WAS THE REAL RATE OF STEAM IN VIEW OF AGREEMENT APPLICABLE IN EARLIER YEARS. SO FAR AS ESTIMATING THE VALUE OF STEAM -@ 236 PER TON AGAINST RS 75 IN EARL IER YEAR IS CONCERNED, THE ISSUE IS COVERED IN FAVOUR OF APPELL ANT BY ORDER OF ITA NO.5805/DEL/2013 9 ITAT IN AY 00-01. HENCE THE ONLY ISSUE TO BE DECIDE D IS WHETHER THE APPELLANT WAS RIGHT. IN NOT SHOWING ANY REVENUE AT ALL FROM SUPPLY OF STEAM TO SSL. IT IS TO BE NOTED THAT TRANSACTION OF PURCHASE/SALE IS IN THE FORM OF A CONTRACT BETWEEN THE TWO PARTIES. SAL E PRICE IS THE INCOME OF SELLER & LIABILITY BEING PURCHASE PRICE T O THE PURCHASER. IT CAN BE TREATED AS INCOME ACCRUED IN THE HANDS OF SE LLER (AND LIABILITY CRYSTALLIZED IN THE HANDS OF PURCHASER) ONLY IF THE RELEVANT CONTRACT IS ACCEPTED BY BOTH THE PARTIES TO CONTRACT. THERE IS NO DOUBT THAT THE STEAM WAS SUPPLIED BY THE SSL AS IT WAS DONE IN EAR LIER YEARS. HOWEVER, EARLIER THE INCOME (BEING SALE VALUE OF ST EAM) WAS CREDITED IN THE ACCOUNTS AT THE RATE AGREED AND CONFIRMED BY THE SSL. IN FACT THE RATE WAS RETROSPECTIVELY RENDERED & SUCH REDUCTION WAS AGREED TO BY BOTH THE PARTIES. ON THIS BASIS IT SELF THE ITA T IN A Y 2000-01 ALLOWED REDUCTION OF INCOME FROM SALE OF ST EAM. THE POINT TO BE NOTED IS THAT THE INCOME FROM ANY CONTRACT (SALE ) CAN BE SAID TO ACCRUE AS PER AGREED TERMS OF SUCH CONTRACT. IF THE RE IS ANY DISPUTE BY EITHER PARTY THE ACCRUAL OF INCOME (OF EXPENDITURE IN THE HANDS OF OTHER PARTY) WILL BE SUBJECT TO THE OUTCOME OF SUCH DISPUTE & ACCORDINGLY CONTINGENT. NORMALLY THE INCOME IN SUCH CASES CAN BE SAID TO ACCRUE IN THE YEAR IN WHICH THE DISPUTE IS RESOLVED & OTHER PARTY ACKNOWLEDGES THE DEBT. EVEN IN SUCH CASES SOM E PARTY MAY CHOOSE TO RECOGNIZE ITS INCOME OR LIABILITY AS ACCR UED ACCORDING TO FACTS & CIRCUMSTANCES WHEREBY IT IS CERTAIN TO BE A BLE TO ENFORCE THE TERMS OF CONTRACT. HOWEVER, THE APPELLANT DID NOT R ECOGNIZE ANY REVENUE FROM SALE OF STEAM IN CURRENT YEAR ACCORDIN G TO AS-9, SINCE SSL HAD CATEGORICALLY REFUSED TO MAKE ANY PAYMENT F OR SUPPLY OF STEAM. THEREFORE, NON-RECOGNITION OF ANY ACCRUAL OF INCOME FROM SUPPLY OF STEAM DOES NOT APPEAR TO BE UNJUSTIFIED. 2.9 IT MAY BE NOTED THAT NORMALLY IF SOME BUYER REF USES TO MAKE PAYMENT FOR GOODS SUPPLIED TO IT; THE SELLER WOULD IMMEDIATELY STOP SUPPLY OF GOODS. HOWEVER THE APPELLANT DID NOT STOP SUPPLY OF STEAM TO SSL EVEN IN THE FACE OF CLEAR DECLARATION OF NOT GETTING ANY PAYMENT FOR THE SAME. THIS APPEARS TO BE UNUSUAL UNLESS THE APPELLANT BEING OTHER PARTY TO CONTRACT ALSO ACCEPTED THE SAID PROP OSAL FINALLY. SINCE APPELLANT'S STAND ON CONTENTION OF SSL WAS NOT SPEC IFIED THE APPELLANTS AR WAS REQUESTED TO CLARIFY THE STAND OF THE APPELLANT COMPANY ON THE PROPOSAL OF SSL NOT TO PAY ANY PRICE FOR SUPPLY OF STEAM. IN RESPONSE TO THIS IT WAS SUBMITTED BY THE APPELLANT'S AR THAT THE MATTER WAS DISCUSSED BY THE BOARD OF DIRECTORS OF THE APPELLANT ITA NO.5805/DEL/2013 10 COMPANY IN THEIR MEETING ON 8/7/03. A COPY OF THE M INUTES OF BOARD MEETING FOR THAT DAY WAS SUBMITTED WHEN ASKED TO DO SO. IT WAS STATED THAT IN THE SAID MEETING IT WAS DECIDED NOT TO RAIS E ANY INVOICE FOR SUPPLY OF STEAM AS IT WOULD UNNECESSARILY RESULT IN TO UNREALISTIC RECEIVABLES. THE BOARD ALSO DECIDED TO REVERSE THE BILLING MADE IN THE FY 01-02 AND REVISE THE INCOME TAX RETURN. THE AR WAS FURTHER ASKED TO CLARIFY AS TO WHETHER A PART FROM NOT RAISING ANY BILLS; THE DECISION OF SSL HAS BEEN ACC EPTED BY THE COMPANY OR STILL THE MATTER WAS BEING PURSUED WITH THEM FOR PAYMENT OF STEAM CHARGES. IT WAS THEN STATED THAT SOME DISP UTE IN RESPECT OF ALLOTMENT OF SHARES TO FOREIGN COLLABORATOR OF THE JOINT VENTURE WAS PENDING BEFORE COMPANY LAW BOARD. THE SAID MATTER H AS SINCE BEEN DECIDED AND AFTER THAT THE APPELLANT COMPANY HAS CO NFIRMED BY LETTER DATED 9/1/06 TO SSL THAT NO CONVERSION CHARGES IN R ESPECT OF STEAM WOULD BE CLAIMED FROM THEM WEF 1/10/01. ON ASKING A COPY OF SAID LETTER DATED 9/1/06 WAS FILED. 2.10 IN VIEW OF THE CLARIFICATION AS ABOVE THERE DO ES NOT REMAIN ANY DOUBT THAT BOTH THE PARTIES TO CONTRACT HAVE AGREED THAT NO PAYMENT IN RESPECT OF SUPPLY OF STEAM WAS TO BE MADE TO APPELL ANT BY SSL. THEREFORE THERE CANNOT BE SAID TO BE ANY ACCRUAL OF INCOME FOR SUPPLY OF STEAM. THE BASIS FOR THIS ARRANGEMENT IS ALSO CL EAR SINCE IT IS A KIND OF BARTER SYSTEM WHERE BAGASSE AND WATER IS SUPPLIE D BY SSL TO APPELLANT COMPANY FREE OF CHARGE WHILE THE APPELLAN T SUPPLIES ELECTRICITY AND STEAM TO SSL. THE APPELLANT'S INCOM E IS FROM SALE OF SURPLUS POWER TO UPSEB. EVEN IF THEORETICALLY THE P RICE OF STEAM IS COMPUTED AT RS 236 PER TON (WHICH HOWEVER WAS NEVER AGREED AND ACTED UPON BETWEEN THE TWO PARTIES) IT IS ALMOST EQ UIVALENT TO THE COST OF BAGASSE WORKED OUT AT THE MARKET PRICE. THEREF ORE IN THIS KIND OF TRANSACTION THERE IS NO PROFIT OR LOSS IN MONEY TER MS TO ANY OF THE COMPANY. HOWEVER TRANSACTION OF EXCHANGE OF BAGASSE & WATER FOR POWER & STEAM IS FOR MUTUAL BENEFIT AND CONVENIENCE . 2.11 EVEN IF WE LOOK AT THINGS FROM A DIFFERENT PER SPECTIVE, THE INCOME OF ONE COMPANY WILL BE A DEDUCTIBLE EXPENDITURE FOR THE OTHER AND BETWEEN THE TWO THERE IS NO TAX GAIN FROM THIS TRAN SACTION. THE INCOME IN THE CASE OF APPELLANT IS ELIGIBLE TO 100% DEDUCT ION U/S 80-IA ALSO. HENCE NO ALLEGATION OF TAX PLANNING CAN BE ATTRIBUT ED IN THIS TRANSACTION WHICH APPEARS TO BE WHOLLY FOR BUSINESS CONSIDERATIONS. IT MAY NOT BE OUT OF PLACE TO REPRODUCE HEREUNDER A PA RT OF LETTER DATED 2/11/02 WRITTEN BY SSL TO THE APPELLANT COMPANY. ITA NO.5805/DEL/2013 11 'THE SUGAR AND POWER GENERATION PROJECT ARE FOR ALL PRACTICAL PURPOSES TWO LIMBS OF A SINGLE PROJECT ONE CANNOT S URVIVE WITHOUT THE OTHER. IN 1994, WHEN THE CONSTRUCTION OF THE SUGAR PLANT WAS FIRST TAKEN UP, THE POWER GENERATION FACILITY WAS AN INTE GRAL PART OF THE PROJECT AND OWNED BY THIS COMPANY ITSELF. SUBSEQUENTLY IN 1995 AIR LIQUIDE OFFERED TO INVEST SUBSTANTIAL MONIES IN THE POWER PROJECT AND FOR DOING SO INSISTED THAT THE POWER PROJECT BE TRANSFERRED TO AND OWNED BY A SEPARATE COMPANY, INDEPENDENT FROM SSL. THE OWNERSHIP OF THE PLANT AND MACHINERY THEN CAME TO BE DIVIDED. UNDER THIS ARRANGEMENT, THE POWER GENERATI NG FACILITY WAS AGREED TO BE TRANSFERRED TO AND OWNED BY SI-AL SBEC BIOENERGY LIMITED, WHICH WAS TO BE THE JOINT VENTURE BETWEEN THE MODI GROUP AND AIR LIQUIDE/SIDEC. IN 1997 AFTER THE PROJECT DI VISION HAD BEEN IMPLEMENTED AND THE JC COMPANY INCORPORATED, SERIOU S DISPUTES AROSE WITH AIR LIQUIDE END SIDEC WHICH EXPOSED BOTH COMPANIES TO BE RISK OF LIQUIDATION. IN THOSE COMPELLING CIRCUMS TANCES, A COMPROMISE WAS WORKED OUT WHEREIN VARIOUS UNREASONA BLE TERMS INSISTED UPON BY AIR LIQUIDE AND SIDEC HAD TO BE AC CEPTED TO PROTECT THE COMPANIES FROM LIQUIDATION, TO AVOID CANCELLATI ON OF THE LOAN SANCTIONED BY TREDA AND TO ENABLE THE TWO PROJECTS TO BE COMPLETED. THE TERMS FOR THE CONVERSION CONTRACT THEN STIPULAT ED BY AIR- LIQUIDE AND SIDEC THROUGH THE JV COMPANY WERE TOTALLY ONE S IDED AND IN FAVOUR OF THE POWER COMPANY FOR THE SOLE PURPOSE OF ENSURING AN ADEQUATE FLOW OF FUNDS TO FACILITATE THE REPAYMENT OF THE INVESTMENTS MADE BY SI-AL IN THE SHARE CAPITAL F THE JC COMPANY . SI-AL HAD MADE IT CLEAR THAT IT WAS IN FACT A LENDER AND NOT AN IN VESTOR. THIS IS EVIDENT FROM THE DOCUMENTS SIGNED THEN IN PARTICULAR THE AG REEMENTS WHERE UNDER IT WAS AGREED THAT THE SI-AL SHAREHOLDINGS WO ULD BE BOUGHT OUT. IF PLEASE NOTE THAT IT IS OUR DECISION THAT ON - RESOLUTION OF THE CONTROVERSIES WITH SI-AL BIOENERGIE FRANCE, SSL WIL L ACQUIRE THE ENTIRE SHARE CAPITAL THE JV COMPANY AND MAKE IT ITS WHOLLY OWNED SUBSIDIARY UNLESS OF COURSE IT THEN DECIDED TO AMA LGAMATE THE JV COMPANY WITH THIS COMPANY AND BRING THE POWER PROJE CT ALSO DIRECTLY INTO THE OWNERSHIP OF SSL (EMPHASIS SUPPLIED). 2.12 FROM THE ABOVE, IT CAN BE SEEN THAT THE ENTIRE PROJECT OF SUGAR PRODUCTION PLANT OF SSL AS WELL AS THE POWER GENERA TION UNIT OF THE APPELLANT WAS IN FACT PART OF SOME PROJECT OWNED BY ONE COMPANY. THE POWER GENERATION UNIT WAS SEPARATED TO GET INVE STMENT FROM FRENCH COMPANY AIR-LIQUIDE, WHICH AGREED TO JOIN AS JV (JOINT ITA NO.5805/DEL/2013 12 VENTURE) PARTNER. THEREFORE THE TRANSACTION OF EXCH ANGE OF BAGASSE & WATER WITH POWER & STEAM IS IN FACT BETWEEN TWO LIM BS OF SAME PROJECT. IF THE WHOLE PROJECT WAS OWNED BY ONE COMP ANY (AS IN FACT IT WAS INITIALLY) ONLY THE NET PROFIT OF THE ENTIRE PR OJECT WOULD HAVE BEEN TAXABLE. AS CAN BE SEEN IN THE LAST PARAGRAPH REPRO DUCED ABOVE FROM HE LETTER OF SSL, THE APPELLANT COMPANY PROPOSED TO BE MADE A SUBSIDIARY OF SSL (AND IN FACT HAS ALREADY BECOME S O). LOOKED FROM THIS ANGLE, THE TRANSACTION IS BETWEEN THE HOLDING AND SUBSIDIARY COMPANY. THEREFORE IN MY OPINION ACTION OF THE APPE LLANT COMPANY IN NOT CHARGING FOR STEAM SUPPLIED TO SSL IS QUITE JUS TIFIED AND CANNOT BE SAID TO BE DELIBERATE OR MOTIVATED. MOREOVER EVEN I F AN ASSESSEE GIVES (SELLS) HIS GOODS FREE OF COST TO OTHER, THERE IS N O PROVISION IN THE IT ACT TO TAX ITS SALE VALUE' AS INCOME ON PRESUMPTIVE BASIS. LEGALLY SPEAKING SINCE NO INCOME HAS ACCRUED & NEITHER ANY PAYMENT HAS ACTUALLY BEEN RECEIVED BY THE APPELLANT COMPANY, MA KING ADDITION IN RESPECT OF ESTIMATE PRICE OF STEAM AMOUNTS TO TAXIN G OF NOTIONAL INCOME WHICH IS NOT PERMISSIBLE. IN VIEW OF THIS TH E ADDITION OF RS 9,93,41,508 (RS 8,49,44,188 AFTER RECTIFICATION) IS DELETED. UNQUOTE 2.5. ON THE BASIS OF THE FINDINGS OF THE CIT(A) FOR EARLIER YEARS AS WELL AS THE DECISION OF THE ITAT IN THE ASSESSEE'S OWN C ASE FOR EARLIER YEARS, IT IS CLEAR THAT THIS ISSUE IS SQUARELY COVE RED IN FAVOUR OF THE APPELLANT AND THE AND THE FACTS IN THIS YEAR ARE SI MILAR TO THOSE IN THE EARLIER YEARS. THE ASSESSING OFFICER HAS ALSO NOTED IN THE ASSESSMENT ORDER THAT THE ISSUE IS PENDING WITH HIGHER AUTHORI TIES. AFTER CAREFUL CONSIDERATION OF THE FACTS OF THE CASE AND CONSIDER ING THE FACT THAT THE HIGHER AUTHORITIES HAVE DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT, FOLLOWING THE CODE OF JUDICIAL DISCIPLINE, I AM INC LINED TO AGREE WITH THE CONTENTIONS OF THE A. R. OF THE APPELLANT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE APPELLANT. ACCORDINGLY, THIS GROUN D OF THE APPELLANT IS TREATED AS ALLOWED.' 5. WE FIND THAT FACTS AND CIRCUMSTANCES OF THE PRES ENT CASE REMAINS THE SAME, THEREFORE, RESPECTFULLY FOLLOWING THE EARLIER ORDER IN THE CASE OF ASSESSEE ITSELF, GROUNDS NO.1OF THE APPEAL IS DISMI SSED. 6. IN GROUND NO.2, THE REVENUE IS AGGRIEVED WITH TH E FINDINGS OF LD. CIT(A) THAT STEAM IS ONE OF THE FORM OF POWER AND E LIGIBLE FOR DEDUCTION U/S ITA NO.5805/DEL/2013 13 80IA. AS WE HAVE ALREADY DISMISSED THE 1 ST GROUND OF APPEAL OF REVENUE AND HAVE CONFIRMED THE DELETION OF ADDITION ON ACCO UNT OF NOTIONAL INCOME, THEREFORE, GROUND NO.2 HAS BECOME INFRUCTUOUS AND I S THEREFORE, DISMISSED. 7. IN VIEW OF ABOVE, APPEAL FIELD BY REVENUE IS DIS MISSED. 8. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH MARCH, 2015. SD./- SD./- ( DIVA SINGH) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 20 TH MARCH, 2015 SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 13/3 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 16,18,20/3 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 20/3 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 20/3 SR. PS/PS 7 FILE SENT TO BENCH CLERK 20/3 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER