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

ITA 666/HYD/2015

• Counselvise Citation: 66622514 RSA 2015
• Duration Of Justice: 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 18-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Assessee Lawyers: N V BALAJI
• Keywords: Business income
• Section: 143(3); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA.NO.666/HYD/2015 ASSESSMENT YEAR 2010-2011 DCIT, CIRCLE - 1 NELLORE. PAN AACCM7661C VS. M/S. MADURAI POWER CORPORATION P.LTD., CHENNAI 600 006. (APPELLANT) (RESPONDENT) FOR REVENUE : MR. RAMAKRISHNA BANDI FOR ASSESSEE : MR. N.V. BALAJI DATE OF HEARING : 18.08.2015 DATE OF PRONOUNCEMENT : 28 .08.2015 ORDER PER SMT. P. MADHAVI DEVI, J.M. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), TIRUPATI DATED 20 TH FEBRUARY, 2015 FOR THE A.Y. 2010-2011 AND ARISES OU T OF THE ASSESSMENT COMPLETED UNDER SECTION 143(3) OF TH E I.T. ACT, 1961. 2. BRIEFLY STATED, ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF GENERATION AND SUPPLY OF POWER A ND IT FILED ITS RETURN OF INCOME ON 28.09.2010 FOR THE YE AR UNDER CONSIDERATION, ADMITTING TOTAL INCOME OF RS.5,69,35,280. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. CALCULATED THE DIFFERENCE IN INTEREST 2 ITA.NO.666/HYD/2015 M/S. MADURAI POWER CORPORATION P. LTD., CHENNAI RECEIVED, AS PER FORM 26AS(TDS) CERTIFICATE AND ADD ED AN AMOUNT OF RS.2,26,01,852. BESIDES THIS, THE A.O. TR EATED THE INCOME FROM SALE OF SLUDGE AND WASTE OIL AS INC OME FROM OTHER SOURCES AND NOT AS BUSINESS INCOME AS CLAIMED BY THE ASSESSEE, BY HOLDING THAT THEY ARE IMPURITIES SEPARATED FROM THE FUEL TO MAKE IT USABL E FOR RUNNING THE MACHINERY AND ARE THEREFORE NOT BY-PROD UCTS OF POWER GENERATION PROCESS. THEREFORE, HE DISALLOW ED THE CLAIM FOR DEDUCTION UNDER SECTION 80IA TO THE EXTEN T OF RS.78,92,135, WHICH IS SALE CONSIDERATION OF THE SL UDGE AND WASTE OIL. AGGRIEVED BY THE ORDER OF THE A.O. T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) RAIS ING 15 GROUNDS. THE LD. CIT(A) PARTLY ALLOWED GROUND NOS. 2 TO 5 AND 9 TO 12 FOR STATISTICAL PURPOSES AND THE LD. CI T(A) ALLOWED GROUND NOS. 6 TO 8 RELATING TO THE SALE OF SLUDGE AND WASTE OIL, ARISING FROM THE BUSINESS OF POWER GENERATION, AS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE ACT. AGGRIEVED BY THE SAID ORDER OF THE LD. CIT (A), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUN AL AND HAS RAISED THE FOLLOWING GROUNDS : 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 HAVE CONSIDERED THAT THERE MUST BE DIRECT NEXUS, FOR THE APPLICATION OF WORDS, DERIVED FROM BETWEEN THE PROFITS AND GAINS AND THE INDUSTRIAL UNDERTAKING BUT NOT5 ANY NEXUS THAT 3 ITA.NO.666/HYD/2015 M/S. MADURAI POWER CORPORATION P. LTD., CHENNAI IS NOT DIRECT BUT ONLY INCIDENTAL AS HELD BY THE HONBLE SUPREME COURT. 4. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 3. GROUND NOS. 1 AND 4 ARE GENERAL IN NATURE AND THEREFORE, NEED NO ADJUDICATION. NOW THE ONLY QUEST ION BEFORE US IS, WHETHER THE INCOME GENERATED FROM SAL E OF SLUDGE/WASTE OIL IS PART AND PARCEL OF INCOME DERIV ED FROM POWER GENERATION PROCESS OF THE ASSESSEE ? IF SO, T HE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION UNDER SECT ION 80IA FOR A SUM OF RS.78,92,132. 4. THE LEARNED D.R. ARGUED THAT THE ASSESSEE ADMITTED AN AMOUNT OF RS.78,92,135 AS INCOME FROM S ALE OF THE SLUDGE/WASTE OIL AND CLAIMED DEDUCTION UNDER SECTION 80IA. BUT THE INCOME FROM SALE OF SLUDGE IS NEITHER A BY-PRODUCT NOR AN OUT-COME OF THE PROCESS OF POWER GENERATION ACTIVITY OF THE FIRM. THE LEARNED D.R. FURTHER ARGUED THAT THE INCOME FROM SALE OF SLUDGE IS NOT INCOME DERIVED FROM THE BUSINESS OF ELECTRICITY GEN ERATION. THEREFORE, THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTI ON OF SUCH INCOME. HE FURTHER ARGUED THAT SALE OF SLUDGE IS ONLY INCIDENTAL TO ASSESSEES BUSINESS AND THERE IS NO D IRECT NEXUS BETWEEN THE PROFITS AND GAINS. THE LEARNED D. R. STRONGLY RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. PANDIAN CHEMICALS LTD., (200 3) 262 ITR 278 WHEREIN IT WAS HELD THAT THE SALE OF SCRAP WAS NOT CONSIDERED AS PROFITS AND GAINS OF INDUSTRIAL UNDER TAKING AND THEREFORE, THE A.O. USED THE SAME ANALOGY FOR 4 ITA.NO.666/HYD/2015 M/S. MADURAI POWER CORPORATION P. LTD., CHENNAI DISALLOWING THE PROFITS ON SALE OF SLUDGE/WASTE OIL . THE LEARNED D.R. FURTHER ARGUED THAT THE LD. CIT(A) FAI LED TO APPRECIATE THE RATIO LAID DOWN IN THE CASE OF PANDI YAN CHEMICALS LTD., (SUPRA) AND REQUESTED THAT THE APPE AL OF THE REVENUE MAY PLEASE BE ALLOWED. 6. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, STRONGLY RELIED UPON THE ORDER OF THE LD. CIT (A) AND SUBMITTED THAT THE LUBE OIL USED IN ENGINES REQUIRE D REPLACING AT REGULAR INTERVALS AS PER THE SPECIFIC REQUIREMENT AND THE USE OF LUBE OIL REMOVED FROM DI ESEL ENGINES USED IN POWER GENERATION IS OF VERY POOR QU ALITY CALLED SLUDGE/WASTE OIL, WHICH IS THE OUTCOME OF PO WER GENERATION AND FOR THIS REASON ONLY THE LD. CIT(A) CAME THE CONCLUSION THAT THE ASSESSEE IS ENTITLED FOR DE DUCTION UNDER SECTION 80IA. THE LD. COUNSEL FURTHER SUBMITT ED THAT THE LUBRICATING OIL IS USED FOR MAINTENANCE OF ENGINES TO MEET THE TECHNICAL REQUIREMENTS AND SUCH LUBE OI L PASSED OUT FREQUENTLY. ONCE THE OIL LOOSES THE LUBR ICATION CAPACITY AND THE SAME IS SOLD AS WASTE OIL/SLUDGE O IL, SOME OF LOCAL INDUSTRIES MIGHT USE IT FOR VARIOUS P URPOSES AND SUCH PRODUCT IS THE OUTCOME OF THE POWER GENERA TION. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE COMPANY HAS BEEN AVAILING THE DEDUCTION UNDER SECTION 80IA IN R ESPECT OF PROFITS OF POWER GENERATION BUSINESS, WHICH INCL UDES THE SALE PROCEEDS OF SLUDGE WHICH IS NOTHING BUT US ED OIL ARISING OUT OF THE EXCLUSIVE BUSINESS OF POWER GENE RATION AND FURTHER THAT THE COMPANY NEVER MANUFACTURED AND SOLD SUCH A PRODUCT AS A SEPARATE PRODUCT. 5 ITA.NO.666/HYD/2015 M/S. MADURAI POWER CORPORATION P. LTD., CHENNAI 6.1. HE ARGUED FURTHER THAT INCOME GENERATED FROM SALE OF SLUDGE AND WASTE OIL BEING RELATED AND DERI VED FROM THE POWER GENERATION PROCESS, IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE ACT. THE LD. CO UNSEL FOR THE ASSESSEE ALSO CONTENDED THAT THE A.O. RELIE D ON THE DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF C IT VS. STERLING FOODS (1999) 237 ITR 579 AND CIT VS. PANDI AN CHEMICALS LTD., (2003) 262 ITR 278 (WHEREIN THE COURT HAS HELD THAT THERE MUST BE A DIRECT NEXUS, FOR THE APPLICATION OF WORDS DERIVED FROM BETWEEN PROFIT S AND GAINS AND THE INDUSTRIAL UNDERTAKING, FOR THE PU RPOSE OF CLAIMING DEDUCTION UNDER SECTION 80HH OF THE I.T. A CT) AND THE A.O. HAD TREATED THE SALE OF SLUDGE AKIN TO S ALE OF SCRAP AND HELD THAT SUCH SALE IS NOT RELATABLE TO PROFITS OF INDUSTRIAL UNDERTAKING AND SUCH NEXUS IS NOT DIRECT BUT ONLY INCIDENTAL, THEREFORE, THE A.O. DENIED DEDUCTI ON UNDER SECTION 80IA OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE ARGUED FURTHER THAT THERE IS NO REQUIREMEN T OF THERE BEING A DIRECT NEXUS BETWEEN THE ACTIVITY OF AN INDUSTRIAL UNDERTAKING AND THE PROFITS AND GAINS OF BUSINESS FOR CLAIMING DEDUCTION UNDER SECTION 80IA, WHEREAS UNDER SECTION 80HH, THE INDUSTRIAL UNDERTAK ING HAD TO BE THE DIRECT SOURCE OF PROFIT, AND NOT AS M EANS TO EARN PROFIT. THE LD. COUNSEL ALSO RELIED ON A DECIS ION IN THE CASE OF LIBERTY INDIA VS. CIT (2009) 317 ITR 21 8 TO MAKE DISTINCTION BETWEEN THE PROVISIONS OF SECTION 80HH/80I, 80IB. THE LD. COUNSEL SUBMITS THAT THERE IS NO IRREGULARITY IN THE ORDER OF THE LD. CIT(A) AND 6 ITA.NO.666/HYD/2015 M/S. MADURAI POWER CORPORATION P. LTD., CHENNAI SUBMITTED THAT THE APPEAL OF THE REVENUE MAY BE DISMISSED. 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. A S COULD BE SEEN FROM THE FACTS OF THE CASE, THE ASSES SEE COMPANY IS IN THE BUSINESS OF POWER GENERATION WITH ITS PLANT LOCATED IN TAMILNADU AND POWER SUPPLY TO TAMILNADU ELECTRICITY BOARD. THE CLAIM OF THE ASSES SEE FOR DEDUCTION UNDER SECTION 80IA FOR THE YEAR UNDER CONSIDERATION WAS RS.51,83,44,409 AND THE INCOME GENERATED FROM SALE OF SLUDGE WAS AT RS.78,92,135. HOWEVER, THE A.O. DISALLOWED THE CLAIM RELATABLE TO THE SALE OF SLUDGE ON THE GROUND THAT SALE OF SLUDGE IS ONLY INCIDENTAL TO THE BUSINESS AND THERE IS NO DIRECT N EXUS BETWEEN THE PROFITS AND GAINS OF INDUSTRIAL UNDERTA KING. FOR APPLICATION OF WORDS DERIVED FROM, A.O. HAD R ELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F PANDIAN CHEMICALS LIMITED VS. CIT (SUPRA). WE HAVE PERUSED THE JUDGMENT OF HONBLE SUPREME COURT IN TH E CASE OF PANDIAN CHEMICALS LTD., VS. CIT WHEREIN THE HONBLE COURT HELD THAT SALE OF SCRAP CANNOT BE CONSIDERED AS PROFITS AND GAINS OF INDUSTRIAL UNDER TAKING, AS SALE OF SCRAP IS NOT RELATABLE TO THE INDUSTRIAL ACTIVITY OF THE ASSESSEE FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER SECTION 80HH. HOWEVER, THE ASSESSEE IN SUPPORT OF H IS CONTENTION RELIED ON THE DECISION OF HONBLE SUPREM E COURT IN THE CASE OF LIBERTY INDIA VS. CIT (2009) 3 17 ITR 218 TO ESTABLISH THE DISTINCTION BETWEEN THE PROVIS IONS OF 7 ITA.NO.666/HYD/2015 M/S. MADURAI POWER CORPORATION P. LTD., CHENNAI SECTION 80HH/80I, 80IB AND 80IA. IN THIS CONNECTION , IT IS RELEVANT TO EXTRACT THE RELEVANT PROVISIONS OF SECT ION 80IA AND SECTION 80HH AS UNDER : SECTION 80IA: '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), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF TH IS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION OF AN AMOUNT EQUAL TO HUNDRED PERCENT OF THE PROFITS AND GAINS DERIVED FR OM SUCH BUSINESS FOR TEN CONSECUTIVE ASSESSMENT YEARS. SECTION 80HH : 'WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED FRO M AN INDUSTRIAL UNDERTAKING OR THE BUSINESS OF A HOTE L, TO WHICH THIS SECTION APPLIES, THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF TH IS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION FROM SUCH PROFITS AND GAINS OF AN AMOUNT EQUAL TO TWENTY PER CENT THEREOF .' 7.1. FROM THE CAREFUL PERUSAL OF ABOVE PROVISIONS, IT IS NOTICED THAT SECTION 80HH REFERS TO THE PROFITS AND GAINS DERIVED FROM AN INDUSTRIAL UNDERTAKING, WHERE AS, PROVISIONS OF SECTION 80IA REFERS TO PROFITS AND GA INS DERIVED BY AN INDUSTRIAL UNDERTAKING OR ENTERPRISE FROM ANY BUSINESS CARRIED ON BY SUCH UNDERTAKING. THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF PA NDIAN CHEMICALS LTD., (SUPRA) WAS IN THE BACKGROUND OF TH E PROVISIONS OF SECTION 80HH, WHILE DEDUCTION CLAIMED BY THE ASSESSEE IN THE PRESENT CASE IS WITH REFERENCE TO DEDUCTION UNDER SECTION 80IA BEING IN THE ELIGIBLE BUSINESS OF POWER GENERATION. APART FROM THIS, THE HONBLE 8 ITA.NO.666/HYD/2015 M/S. MADURAI POWER CORPORATION P. LTD., CHENNAI DELHI HIGH COURT IN THE CASE OF CIT VS. ELTEK SGS ( P) LTD. (2008) 300 ITR 6 (HC) (DEL.) HAS HELD THAT THE LANGUAGE USED IN SEC.80HH/80I IS MATERIALLY DIFFERENT. SECTION 80IB DOES NOT USE THE EXPRESSION PROFITS AND GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING AS USED IN SECTION 80HH/80I BUT USES THE EXPRESSION PROFITS AND GAINS DERIVED FROM ANY BUSINESS REFERRED TO IN SUB-SECTION. 7.2. AFTER CONSIDERING ALL THE ABOVE DECISIONS, WE ARE OF THE OPINION THAT THE LD. CIT(A)S FINDING TH AT THE USED LUBRICANT OIL, CONSTITUTE A BY-PRODUCT OF THE BUSINESS OF THE ASSESSEE AND SALE OF SUCH WASTE OIL CONSTITU TED BUSINESS RECEIPTS TO THE ASSESSEE IS CORRECT. THERE FORE, THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 80 IA. THE LD. CIT(A) ALSO CATEGORICALLY DISTINGUISHED THE LAN GUAGE USED IN SECTIONS 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 T HE CONCLUSION THAT THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS CONSIDERED TO INCLUDE THE SALE OF SLUDGE, WHICH IS THE PRODUCT OF THE BUSINESS UNDERTAKEN BY THE AS SESSEE I.E., MANUFACTURE OF POWER AND THE SLUDGE IS GENERA TED OUT OF SUCH ACTIVITY AND IS HELD TO BE DIRECTLY ATTRIBU TABLE TO THE BUSINESS ACTIVITY OF THE ASSESSEE. HENCE, WE AR E OF THE FIRM VIEW THAT THE PROFITS AND GAINS DERIVED BY THE ASSESSEE FROM THE SALE OF SLUDGE/WASTE OIL IS ELIGI BLE FOR DEDUCTION UNDER SECTION 80IA OF THE ACT AND WE DO N OT 9 ITA.NO.666/HYD/2015 M/S. MADURAI POWER CORPORATION P. LTD., CHENNAI FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) A ND ACCORDINGLY, WE CONFIRM THE SAME. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.08.2015. SD/- SD/- (B. RAMAKOTAIAH) (SMT. P. MADHAVI DEVI) ACOUNTANT MEMBER JUDICIALMEMBER HYDERABAD, DATED 28 TH AUGUST, 2015 VBP/- COPY TO : 1. THE DCIT, CIRCLE - 1, 24 - 2 - 438, GNT ROAD, DARGAMITTA, NELLORE. 2. M/S. MADURAI POWER CORPORATION P. LTD., OLD NO.2, NEW NO.3 (I-FLOOR) II STREET, SUBBARAO AVENUE, COLL EGE ROAD, CHENNAI 600 006. 3. CIT(A), TIRUPATI 4 . CHIEF COMMISSIONER OF INCOME TAX, VIJAYAWADA 5 . D.R. ITAT A BENCH, HYDERABAD. 6 . GUARD FILE