Shah Alloys Ltd., V. The Addl.CIT.,Range-8,

ITA 844/AHD/2006

• Counselvise Citation: [2010] 137 COUNSELVISE.COM (IT) 0187 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 14-12-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 06-04-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJEEV AGARWAL
• Assessee Lawyers: P M MEHTA S; S N SOPARKAR
• Keywords: Business income; Capital receipt
• Section: 80HHC

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' (BEFORE S/SHRI T K SHARMA AND D C AGRAWAL) ITA NO.844/AHD/2006 (ASSESSMENT YEAR: 2002-03) SHAH ALLOYS LIMITED, 5/1, SHREEJI HOUSE, 5 TH FLOOR, B/H M J LIBRARY, ASHRAM ROAD, AHMEDABAD V/S THE ADDITIONAL COMMISSIONER OF INCOME- TAX, RANGE-8, AHMEDABAD (APPELLANT) (RESPONDENT) ITA NOS.2072 AND 2073/AHD/2006 (ASSESSMENT YEARS: 2003-04 AND 2004-05) SHAH ALLOYS LIMITED, 5/1, SHREEJI HOUSE, 5 TH FLOOR, B/H M J LIBRARY, ASHRAM ROAD, AHMEDABAD V/S THE ASSISTANT COMMISSIONER OF INCOME- TAX (OSD), RANGE-8, AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY :- SHRI S N SOPARKAR AND SHRI P M MEHTA, ADVOCATES RESPONDENT BY:- SHRI RAJEEV AGARWAL, CIT - DR O R D E R PER D C AGRAWAL (ACCOUNTANT MEMBER) : THESE ARE THREE APPEALS FILED BY THE ASSESSEE FOR ASSESSMENT YEARS 2002-03, 2003-04 AND 2004-05. AS THESE APPEALS INVOLVE COMMO N ISSUES, THEY ARE TAKEN UP TOGETHER FOR THE SAKE OF CONVENIE NCE. ITA NO.844/AHD/2006 FOR ASSESSMENT YEAR: 2002-03 : 2 2 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, FOR COMPUTING THE AMOUNT OF DEDUCTION U/S 80IA FOR THE CAPTIVE POWER PLANT (CPP) THE CIT(A) HAS ERRED: (I) IN NOT ACCEPTING THE ASSESSEES CONTENTION THAT DIV IDEND IN A SUM OF RS.16,913 WAS PERTAINING TO THE INCOME OF GE NERAL UNIT AND NOT OF THE CPP. (II) IN HOLDING THAT INTEREST EARNED RS.86,66,390 ON MAR GIN MONEY DEPOSIT WITH THE BANK FOR OBTAINING LETTER OF CREDIT (LC) FOR IMPORTING RAW-MATERIALS WAS NOT ENTITLED T O DEDUCTION U/S 80IA. (III) IN DEDUCTING LOSS IN THE GENERAL UNIT RS.9,37,97,99 9 FROM THE INCOME DERIVED BY CPP RS.14,48,24,504. (IV) IN NOT APPRECIATING THE POSITION THAT THE COMPUTATI ON OF AMOUNT OF DEDUCTION U/S 80IA FOR CPP WAS REQUIRED T O BE DONE SEPARATELY AND THE LOSS SHOWN IN GENERAL UNIT WAS NOT TO BE DEDUCTED FROM THAT PROFIT PARTICULARLY BECAUS E CPP WAS ENTITLED FOR DEDUCTION U/S 80IA AT 100% AND THE GENERAL UNIT AT 30% MEANING THEREBY THAT THEY WERE DIFFEREN T CATEGORIES. (V) IN HOLDING THAT THE ASSESSEE WAS NOT JUSTIFIED IN C HARGING PRICE OF ELECTRICITY (SUPPLIED BY THE CPP TO THE GE NERAL UNIT) @ RS.5.40 PAISE PER UNIT AND SHOULD HAVE RESTRICTED IT TO RS.5.32 PAISE PER UNIT. 3 THE FACTS OF THE CASE ARE THAT THE ASSESSEE-COMP ANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND MARKET ING OF SS FLATS, SS/MS ROUNDS, MS/SS PLATES, SS SLABS, SS WIR E RODS, ETC. IN ADDITION TO THIS, IT IS RUNNING SERVICES OF MEDICAL STORES AND PATHOLOGY LABORATORY. 3 4 THE FIRST GROUND IS NOT PRESSED BY THE LEARNED A R FOR THE ASSESSEE AT THE TIME OF HEARING. HENCE, THE SAM E IS REJECTED. 5 THE SECOND GROUND RELATES TO CLAIM OF DEDUCTION U/S 80IA OF THE INCOME-TAX ACT, 1961 [THE ACT FOR SHO RT] ON INTEREST INCOME EARNED AT RS.86,66,390/- ON MARGIN MONEY DEPOSITED WITH THE BANK FOR OBTAINING LETTER OF CRE DITS [LCS]. THE ASSESSEE HAS BEEN PURCHASING RAW-MATERIALS AND BANKS REQUIRED THE ASSESSEE TO MAKE DEPOSITS FOR COVERING THE AMOUNT OF LCS. THE AO NOTED THAT THE ASSESSEE HAS TWO UNIT S; ONE IS GENERAL UNIT WHICH IS ENTITLED TO DEDUCTION U/S 80I A @ 30% WHEREAS THE OTHER UNIT CALLED CAPTIVE POWER PLANT [ CPP] UNIT WHICH IS ENTITLED TO 100% DEDUCTION U/S 80IA. THE LEARNED AO HELD THAT INTEREST INCOME IS NOT ENTITLED TO DEDUCT ION U/S 80IA IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT I N THE CASE OF PANDIAN CHEMICALS LTD. VS. CIT [262 ITR 278 (SC) ] AND OTHER DECISIONS RENDERED FOLLOWING THE ABOVE DECISION OF THE HONBLE APEX COURT. THE AO HAD DECIDED THE ISSUE AGAINST TH E ASSESSEE IN THE ASSESSMENT YEAR 2001-02 ALSO BY DENYING DEDU CTION AND THE LEARNED CIT(A) HAD ALSO CONFIRMED THE ORDER OF THE AO RELYING ON HIS JUDGMENT FOR THE ASSESSMENT YEAR 200 1-02. 6 WE HAVE HEARD THE LEARNED AR AND THE LEARNED DR. IT WAS POINTED OUT BY THE LEARNED AR AT THE OUTSET, TH AT THE ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE A SSESSEE IN THE ASSESSMENT YEAR 2001-02 IN ITA NO.1391/AHD/2004 DEC IDED ON 26-09-2008. HE REFERRED TO PARAS-7 TO 10 OF THE AFO RESAID ORDER, WHICH ARE AS UNDER:- 7 HAVING CONSIDERED THE RIVAL SUBMISSIONS AND THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION TH AT IT WILL BE USEFUL IF 4 WE FIRST CONSIDER THE VARIOUS DECISIONS RELIED UPON BY THE PARTIES AND, THEREFORE, WE PROCEED TO CONSIDER THE SAME. 7.1 FIRST OF ALL, WE ARE OF THE OPINION THAT SO FAR AS DECISION RELIED UPON BY THE CIT(APPEALS) IN REVENUE'S FAVOUR IS CON CERNED, IT IS T, DECISION OF HON'BLE SUPREME COURT IN THE CASE OF PA NDIAN CHEMICALS LTD. WHICH REQUIRES TO BE CONSIDERED BECAUSE OTHER TWO CASES BEING OF HIGH COURTS ARE DEEMED TO BE COVERED BY THE AFORE SAID DECISION OF HON'BLE SUPREME COURT. 7.2. DECISION OF HON'BTE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. SO FAR AS DECISION IN THE CASE OF PANDIAN CHEMIC AFS LTD. IS CONCERNED, THE HON'BLE SUPREME COURT WAS SEIZED 'WI TH THE| MATTER FOR THE PURPOSE OF DEDUCTION U/S.80-HH OF THE ACT A ND AS PER THE PROVISIONS OF SECTION 80 HH OF THE ACT, THE RELIEF WAS ALLOWABLE IF GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES 'ANY PRO FITS AND GAINS DERIVED FROM AN INDUSTRIAL UNDERTAKING OR THE BUSIN ESS OF A HOTEL'..... AND, THEREFORE, IT WAS IN THE CONTEXT OF THESE PROV ISIONS THAT THE HON'BLE SUPREME COURT AFTER CONSIDERING THE MEANING OF 'DERIVED FROM' CAME TO THE CONCLUSION THAT THE INTEREST DERI VED BY THE INDUSTRIAL UNDERTAKING ON DEPOSITS MADE WITH THE EL ECTRICITY BOARD FOR THE SUPPLY OF ELECTRICITY FOR RUNNING THE INDUSTRIA L UNDERTAKING COULD NOT SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL ( UND ERTAKING ITSELF AND WAS NOT PROFIT OR GAINS DERIVED BY THE UNDERTAKING FOR THE PURPOSE OF DEDUCTION U/S.80-HHC OF THE ACT. 7.3. DECISION OF HON'BLE SUPREME COURT IN THE CA SE OF CIT VS. KARNAL CO-OPERATIVE SUGAR MILLS LTD. (243 ITR 2)FSC J. (I) THE BRIEF FACTS OF THE CASE BEFORE THE HON'BLE SUPREME COURT WERE THAT THE ASSESSEE HAD DEPOSITED MONEY TO OPEN A LET TER OF CREDIT FOR THE PURCHASE OF MACHINERY REQUIRED FOR SETTING UP I TS PLANT IN TERMS OF ASSESSEE'S AGREEMENT WITH THE SUPPLIER. IT WAS ON THE MONEY SO DEPOSITED THAT SOME INTEREST HAS BEEN EARNED. THE A SSESSEE'S CASE WAS THAT ITS CASE WAS NOT A CASE WHERE ANY SURPLUS SHAR E CAPITAL MONEY WHICH IS LYING IDLE HAS BEEN DEPOSITED IN THE BANK FOR THE PURPOSE OF EARNING INTEREST. ACCORDING TO THE ASSESSEE, THE DE POSIT OF MONEY WITH THE BANK HAD DIRECT LINK WITH THE PURCHASE OF PLANT AND MACHINERY AND, THEREFORE, INTEREST WAS EARNED ON THE DEPOSITS FOR OPENING LETTER OF CREDIT WAS NOT TAXABLE AS INCOME FROM OTHER .SOU RCES. 5 (II) THE HON'BLE SUPREME COURT ON THE ABOVE FACTS A ND CIRCUMSTANCES OF THE CASE, HELD THAT, IN THE PRESENT -CASE, THE A SSESSEE HAD DEPOSITED MONEY TO OPEN A LETTER OF CREDIT FOR THE PURCHASE O F THE MACHINERY REQUIRED FOR SETTING UP ITS PLANT IN TERMS OF THE A SSESSEE'S AGREEMENT'- WITH THE SUPPLIER. IT WAS ON THE MONEY SO DEPOSITED THAT SOME INTEREST HAD BEEN EARNED. THIS WAS, THEREFORE, NOT A CASE WH ERE ANY SURPLUS SHARE CAPITAL WHICH WAS LYING IDLE HAD BEEN DEPOSIT ED IN THE BANK FOR THE PURPOSE OF EARNING INTEREST. THE DEPOSIT OF MON EY IN THE PRESENT CASE IS DIRECTLY-LINKED WITH THE PURCHASE OF PLANT AND MACHINERY. HENCE, ANY INCOME EARNED ON SUCH DEPOSIT WAS INCIDE NTAL TO THE ACQUISITION OF ASSETS FOR THE SETTING UP OF THE PLA NT AND MACHINERY. THE INTEREST WAS A CAPITAL RECEIPT, WHICH WOULD GO TO R EDUCE THE COST OF ASSET. THE HON'BLE SUPREME COURT AFFIRMED THE DECIS ION OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF KARNAL COOPERATIV E SUGAR MILLS LTD. VS. CIT (233TTR 531)[P&H], APPLIED THE DECISIO N OF SUPREME COURT IN THE CASE OF CIT VS. BOKARO STEEL LTD. (236 ITR 315)[SC] AND REFERRED TO THE DECISION OF SUPREME COURT IN THE CA SE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LIMITED VS. CIT [1 997] (227 ITR 172). THE RELEVANT PART AS CONTAINED IN HEAD NOTES OF THE DECISION OF HON'BLE SUPREME COURT, READ AS UNDER:- 'LEAVE GRANTED. 2. IN THE PRESENT CASE, THE ASSESSEE HAD DEPOSITED MONEY TO OPEN A LETTER CREDIT FOR THE PURCHASE OF THE MACHINERY REQ UIRED FOR SETTING UP ITS PLANT IN TERMS O THE ASSESSEE'S AGREEMENT WITH THE SUPPLIER. IT WAS ON THE MONEY SO DEPOSITED THAT SOME INTEREST HAS BE EN EARNED. THIS IS, THEREFORE, NOT A CASE WHERE ANY SURPLUS SHARE CAPIT AL MONEY WHICH IS LYING IDLE HAS BEEN DEPOSITED IN THE BANK FOR THE P URPOSE OF EARNING INTEREST. THE DEPOSIT OF MONEY IN THE PRESENT CASE IS DIRECTLY LINKED WITH THE PURCHASE OF PLANT AND MACHINERY. HENCE, AN Y INCOME EARNED ON SUCH DEPOSIT IS INCIDENTAL TO THE ACQUISITION OF ASSETS FOR THE SETTING UP OF THE PLANT AND MACHINERY. IN THIS VIEW OF THE MATTER THE RATIO LAID DOWN BY THIS COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT (1997) 141 CTR (SC) 387 : (1997) 227 ITR 1 72 (SC) : TC S38.3460, WILL NOT BE ATTRACTED. THE MORE APPROP RIATE DECISION IN THE FACTUAL SITUATION IN THE PRESENT CASE IS IN CIT VS. BOKARO STEEL LTD. (1999) 151 CTR (SC) 276: (1999) 236 ITR 315 (SC). T HE APPEAL IS DISMISSED. THERE WILL BE NO ORDER AS TO COSTS.' 7.4 THE NEXT DECISION RELIED UPON BY THE ASSESSEE I S THE DECISION HON'BLE JHARKHAND HIGH COURT IN THE CASE OF CIT VS. EASTER TAR P. 6 LTD. [2008J (301 ITR 427) JHARKHAND] WHICH WE HAVE ALREADY REPRODUCED IN PARAGRAPH NO.3.3 OF THIS ORDER. 8. AFTER CAREFUL CONSIDERATION OF THE RIVAL SUBMISS IONS, FACTS AND CIRCUMSTANCES OF THE CASE AND VARIOUS DECISIONS REL IED UPON BY THE PARTIES AND THE PROVISIONS OF SEC.80-HH AND SEC-.-8 0-L, WE ARE OF THE OPINION THAT (I) THE DECISION OF HON'BLE SUPREME COURT IN THE CA SE OF PANDIAN CHEMICALS (SUPRA), RELIED UPON BY THE REVENUE BEING DISTINGUISHABLE ON FACTS IS NOT APPLICABLE ON THE PRESENT CASE. (II) THE ISSUE RAISED BY THE ASSESSEE IN THE PRESEN T CASE IS COVERED IN ITS FAVOUR AND AGAINST THE REVENUE BY THE DECISION OF HON'BLE JHARKHAN HIGH COURT IN THE CASE OF CIT VS. EASTER T AR P.LTD. REFERRED IN PARAGRAPH NO.3.3 OF THIS ORDER]. (III) SO FAR AS DECISION OF HON'BLE SUPREME COUR T IN THE CASE OF KARNAL COOPERATIVE SUGAR MILLS LTD.(SUPRA) IS CONCE RNED, WHAT WE CONCERNED, WHAT WE ARE ABLE TO UNDERSTAND IS THAT - (A) THE INTEREST EARNED ON MARGIN MONEY DEPOSI TED WITH THE BANK FOR OPENING THE LETTER OF CREDIT CANNOT BE TAXED AS INCOME UNDER THE HEAD 'INCOME FORM OTHER SOURCES' AND, THEREFORE, THE DECISIONS IN THE CASE OF TUTICORIN A LKALI CHEMICALS & FERTILIZERS LTD. AND PANDIAN CHEMICALS ARE NOT APPL ICABLE. < (B) IF THE LETTER OF CREDIT IS TO BE OPENED WI TH RESPECT TO IMPORT OF CAPITAL GOODS AS WAS THE CASE IN THE CASE OF KARNAL CO-OPERATIVE SUGAR MILLS LTD.(SUPRA), THE INTEREST EARNED ON MAR GIN MONEY BEING INCIDENTAL TO ACQUISITION OF ASSETS HAS TO B CAPITA LIZED. 9. DERIVING ANALOGY FROM THE AFORESAID PROPOSITIO N OF LAW, WE ARE OF THE OPINION THAT IF LETTER OF CREDIT IS TO BE OPENE D FOR IMPORT OF RAW MATERIAL TO BE CONSUMED BY THE ASSESSEE FOR MANUFAC TURING ITS OWN GOODS EITHER FOR TRADING IN INDIA OR FOR EXPORTIN G OUTSIDE OF INDIA, THE INTEREST MONEY DEPOSITED FOR OPENING THE LETTER OF CREDIT FOR PURCHASE OF RAW MATERIAL WILL BE INCIDENTAL TO ACQU ISITION OF RAW- MATERIAL, OF TRADING GOODS; AND, THEREFORE, WILL BE A BUSINESS RECEIPT. 10. IN VIEW OF ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WE, RESPECTFULLY FOLLOWING THE DECISION IN THE C ASE OF EASTER TAR (P) LTD.(SUPRA) AS WE S THE LAW LAID DOWN BY T HE HON'BLE SUPREME COURT IN THE CASE OF KARNAL CO-OPERATIVE SU GAR MILLS 7 LTD.(SUPRA) ARE OF THE OPINION THAT SO FAR AS INTE REST RECEIVED ON OPENING OF LETTER OF CREDIT IS CONCERNED, THE SAME FALLS WITHIN THE DEFINITION OF PROFITS AND GAINS DERIVED BY AN UNDE RTAKING OR AN ENTERPRISE FROM ANY BUSINESS, AS REFERRED TO IN SU B-SECTION (4) OF SECTION 80IA OF THE ACT AND, THEREFORE, ENTITLED TO DEDUCTION U/S 80IA OF THE ACT. THE ORDER OF THE CIT(A) ON THIS ISSUE, THEREFORE, REVERSED AND ASSESSEES CLAIM IS ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT, WE DECID E THE ISSUE IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS ALLOWED. 7 THE THIRD GROUND RELATES TO DEDUCTING LOSS INCUR RED IN THE GENERAL UNIT AGAINST THE INCOME DERIVED BY CPP UNIT. THE AO REDUCED THE LOSS INCURRED IN GENERAL UNIT AGAINS T THE INCOME EARNED IN CPP UNIT AND THEREBY REDUCED THE AVAILABL E DEDUCTION U/S 80IA IN CPP UNIT. 8 THE LEARNED CIT(A) HELD THAT DEDUCTION U/S 80IA IS AVAILABLE TO THE NET INCOME AFTER ADJUSTING THE LOS S IN THE GENERAL UNIT AGAINST THE PROFIT DERIVED FROM CPP UNIT. THIS IS IN ACCORDANCE WITH SECTION 80AB. FOR THIS DECISION, TH E LEARNED CIT(A) FOLLOWED HIS DECISION IN THE ASSESSMENT YEAR 2001-02. 9 WE HAVE HEARD THE LEARNED AR AND THE LEARNED DR. THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL IN AY 2001-02. IN THIS REGARD, WE REFER TO PARAS-12 TO 16 OF THE ABOVE ORDER, AS UNDER:- 12 THE BRIEF FACTS AS HAVE BEEN REVEALED FROM THE R ECORDS ARE THAT THE ASSESSEE WAS HAVING PROFIT FROM GENERAL UNIT AN D CAPTIVE POWER PLANT BUT HAD SUFFERED LOSS IN UNIT KNOWN AS PLATE MILL. THE ASSESSEE CLAIMED DEDUCTION U/S.80-IA OF THE ACT ON THE PROFI T WITHOUT ACCOUNTING FOR THE LOSS, BUT THE ASSESSING OFFICER ALLOWED THE 8 ASSESSEE'S CLAIM AFTER SETTING OFF OF LOSS SUFFERED IN PLATE MILL AGAINST PROFIT EARNED IN GENERAL UNIT AND POWER UNIT. 13 THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEA LS), WHO CONFIRMED THE ORDER OF THE ASSESSING OFFICER AS PER HIS FINDINGS CONTAINED IN PARAGRAPH NO.4.3 OF THE APPELLATE ORDE R, WHICH WE HAVE ALREADY REPRODUCED IN PARAGRAPH NO. 14 OF THIS ORDE R. 14 THE ASSESSEE HAS REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(APPEALS) WHICH HAVE BEEN RECORDED IN PARAGRAPH NO. 4.2 OF THE APPELLATE ORDER. 15 THE LD. DR, ON THE OTHER HAND, HAS SUBMITTED THA T THE ISSUE IS COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE R EVENUE AS PER MISSION OF HON'BLE SUPREME COURT IN .THE CASE OF SY NCO INDUSTRIES LTD. VS. ASSESSING OFFICER (INCOME-TAX) AND ANOTHER [2008] (299 ITR 444) [SC], WHEREIN THE HON'BLE SUPREME COURT HAS HE LD WHILE CONSIDERING THE ASSESSEE'S CLAIM OF DEDUCTION U/S.8 0-HH AND 80-I OF THE ACT THAT THE LOSS FROM ONE DIVISION WAS REQUIRE D TO BE ADJUSTED BEFORE DETERMINING THE GROSS TOTAL INCOME. ( I) THE FACTS OF THIS CASE WERE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF OIL AND CHEMICALS. IT HAD A UNIT FOR OI L DIVISION IN SIROHI AND A UNIT FOR CHEMICAL DIVISION IN JODHPUR. FOR TH E ASSTT. YEARS 1990-91 AND 1991-92, THE ASSESSEE HAD EARNED THE PR OFITS IN BOTH THE UNITS. BUT IN THE EARLIER YEARS THE ASSESSEE HAD SU FFERED LOSSES IN THE OIL DIVISION, IN RELATION TO THE DEDUCTIONS UNDER SECTIONS 80HH AND 80-1 OF THE INCOME-TAX ACT, 1961, THE ASSESSEE HAD CLAIMED THAT EACH UNIT SHOULD BE TREATED SEPARATELY AND THE LOSSES SU FFERED IN THE EARLIER YEARS BY THE OIL DIVISION WERE NOT ADJUSTABLE AGAIN ST THE PROFITS OF THE CHEMICAL DIVISION. THE ASSESSING OFFICER, HOWEVER , HELD THAT SINCE THE GROSS TOTAL INCOME WAS NIL, THE ASSESSEE WAS NO T ENTITLED TO THE BENEFIT OF DEDUCTIONS UNDER CHAPTER VI-A. THE A PPELLATE TRIBUNAL AND THE HIGH COURT AFFIRMED THE VIEW TAKEN BY THE A SSESSING OFFICER, (II) ON APPEAL, THE HON'BLE SUPREME COURT HELD AS U NDER- 'HELD AFFIRMING THE DECISION OF THE HIGH COURT, THA T THE HIGH COURT WAS JUSTIFIED IN HOLDING THAT THE LOSS FROM THE OIL DIVISION WAS REQUIRED TO BE ADJUSTED BEFORE DETERMINING THE GROSS TOTAL I NCOME AND AS THE GROSS TOTAL INCOME WAS 'NIL' THE ASSESSEE WAS NOT E NTITLED TO CLAIM DEDUCTIONS UNDER CHAPTER VI-A WHICH INCLUDED SECTIO NS 80HH AND 80I. 9 THE EFFECT OF CLAUSE (5) OF SECTION SOB OF THE INCO ME-TAX ACT. 1961. IS THAT 'GROSS TOTAL INCOME' WILL BE ARRIVED AT AFTER MAKING THE COMPUTATION AS FOLLOWS: (I) MAKING DEDUCTIONS UNDER THE APPROPRIATE COMPUTATION PROVISIONS: (II) INCLUDING THE INCOMES, IF ANY, UNDER SECTIONS 60 TO 64 IN THE TOTAL INCOME OF THE INDIVI DUAL; (HI) ADJUSTING INFRA-HEAD AND/OR INTER-HEAD* LOSSES; AND (IV) SETT ING OFF BROUGHT (FORWARD UNABSORBED LOSSES AND UNABSORBED DEPRECIAT ION, ETC. ONLY IF THE GROSS TOTAL INCOME SO DETERMINED IS POSITIVE TH E QUESTION OF ALLOWING THE DEDUCTIONS UNDER CHAPTER VI-A WOULD AR ISE, NOT OTHERWISE. IT IS WELL SETTLED THAT WHERE THE PREDOMINANT MAJOR ITY OF THE HIGH COURTS HAVE TAKEN A CERTAIN VIEW ON THE INTERPRETAT ION OF CERTAIN PROVISIONS, THE SUPREME COURT (SHOULD LEAN IN GAVOU R OF THAT VIEW. THE WORDS 'INCLUDES ANY PRO/ITS' IN SECTION 80-1(1) ARE IMPORTANT AND INDICATE THAT THE GROSS TOTAL INCOME OF AN ASSESSEE SHALL INCLUDE PROFITS FROM A PRIORITY UNDERTAKING. WHILE COMPUTIN G THE QUANTUM OF DEDUCTION UNDER SECTION 80-I(6) THE ASSESSING OFFIC ER, NO DOUBT, HAS TO TREAT THE PROFITS DERIVED FROM AN INDUSTRIAL UND ERTAKING AS THE ONLY SOURCE OF INCOME IN ORDER TO ARRIVE AT THE DEDUCTIO N UNDER CHAPTER VI-A. HOWEVER, THE NON OBSTANTE CLAUSE IN SECTION 8 0-I(6) IS APPLICABLE ONLY TO THE QUANTUM OF DEDUCTION, WHEREA S, THE GROSS TOTAL INCOME UNDER SECTION 80B(5) WHICH IS ALSO REFERRED TO IN SECTION 80-1 (I) IS REQUIRED TO BE COMPUTED IN THE MANNER PROVID ED UNDER THE ACT WHICH PRESUPPOSES THAT THE GROSS TOTAL INCOME SHALL BE ARRIVED AT AFTER ADJUSTING THE LOSS OF THE OTHER DIVISION AGAINST TH E PROFITS DERIVED FROM AN INDUSTRIAL UNDERTAKING. TO SAY THAT UNDER SECTIO N 80-1(6) THE PROFITS DERIVED FROM ONE INDUSTRIAL UNDERTAKING CAN NOT BE/SET OFF AGAINST LOSS SUFFERED FROM ANOTHER AND THAT THE PRO FIT IS REQUIRED TO BE COMPUTED AS IF THE PROFIT MAKING INDUSTRIAL UNDERTA KING WAS THE ONLY SOURCE OF INCOME WOULD ALMOST RENDER THE PROVISIONS OF SECTION 80A(2) OF THE ACT NUGATORY. SECTIONS 80A(2) AND 80B (5) ARE DECLARATORY AND APPLY TO ALL THE SECTIONS FALLING I N CHAPTER VI-A. THEY IMPOSE A CEILING ON THE TOTAL AMOUNT OF DEDUCTION A ND THEREFORE THE NON OBSTANTE CLAUSE IN SECTION 80-I(6) CANNOT RESTR ICT THE OPERATION OF SECTIONS 80A (2) AND 80B(5) WHICH OPERATE IN DIFFE RENT SPHERES. THE GROSS TOTAL INCOME OF THE ASSESSEE HAS FIRST GOT TO BE DETERMINED AFTER ADJUSTING LOSSES ETC., AND IF THE GROSS TOTAL INCOM E OF THE ASSESSEE IS 'NIL' THE ASSESSEE WOULD NOT BE ENTITLED TO' DEDUCT IONS UNDER CHAPTER VI-A OF THE ACT.' 16. AFTER HAVING CONSIDERED THE RIVAL SUBMISSIO NS, FACTS AND CIRCUMSTANCES OF THE CASE AND LATEST DECISION OF HO N'BLE SUPREME 10 COURT IN THE CASE OF SYNCO INDUSTRIES LTD.(SUPRA), WE, RESPECTFULLY, FOLLOWING THE SAME, UPHOLD THE ORDER OF THE CLT(APP EALS). ASSESSEE'S GROUND IS REJECTED. RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE DECID E THE ISSUE AGAINST THE ASSESSEE. THIS GROUND OF THE ASSESSEE I S REJECTED. 10 GROUND NO.(IV) RELATES TO GROUND NO.(III) AND, THEREFORE, DOES NOT REQUIRE ANY INDEPENDENT ADJUDIC ATION. 11 GROUND NO.(V) RELATES TO ADDITION IN RESPECT OF ADJUSTMENT OF ELECTRICITY PRICE CHARGED BY CPP UNIT FROM GENERAL UNIT. CPP UNIT IS GENERATING ELECTRICITY AN D SUPPLYING TO GENERAL UNIT AS WELL AS OTHER CONSUMERS. CPP UNIT CHARGED RATE AT RS.5.40 PAISE PER UNIT FROM GENERAL UNIT WHEREAS THE AO RESTRICTED THE SAME TO RS.5.32 PAISE PER UNIT AND A CCORDINGLY RESTRICTED THE DEDUCTION U/S 80IA. 12 THE LEARNED CIT(A) HELD THAT GUJARAT ELECTRICIT Y BOARD [GEB] IS SUPPLYING ELECTRICITY AT AN AVERAGE RATE OF RS.5.40 PER UNIT WHICH IS INCLUSIVE OF 8 PAISE PER UNIT FOR THE ELECTRICITY DUTY. SINCE THE ASSESSEE IS NOT REQUIRE D TO CHARGE ELECTRICITY DUTY, THEREFORE, APPLICABLE RATE WOULD BE RS.5.32 PAISE PER UNIT. IN THIS REGARD THE LEARNED AR SUBMITTED T HAT THE ELECTRICITY IS GENERATED AND DOES NOT COME WITHIN T HE MISCHIEF OF SECTION 80IA(VIII) WHICH COVERS ONLY GOODS AND SERV ICES WHICH ARE PRODUCED BY ONE UNIT AND ACQUIRED BY THE OTHER UNIT. ELECTRICITY IS NEITHER GOODS NOR SERVICES. FURTHER, RATES CHARGED BY GEB IS NOT A LANDMARK. IN ANY CASE, IF GENERAL U NIT WAS TO PURCHASE ELECTRICITY FROM GEB, IT WOULD HAVE PAID R S.5.40 PAISE PER UNIT, THEREFORE, IT CANNOT BE SAID THAT THE ELE CTRICITY SOLD BY 11 THE CPP UNIT TO GENERAL UNIT WAS AT A PRICE WHICH I S MORE THAN MARKET RATE. IN FACT, THE MARKET PRICE IS WHAT THE GEB CHARGES. THE LEARNED AR FURTHER SUBMITTED THAT SIMILAR ISSUE HAD AROSE BEFORE THE ITAT, AHMEDABAD BENCH-B IN ITA NO.3594/A HD/2007 AND OTHERS IN THE CASE OF ALEMBIC LIMITED, DECIDED ON 06-06- 2008. IN THIS CASE IT HAS BEEN DECIDED BY THE TRIBU NAL, FOLLOWING THE DECISION OF THE ITAT DELHI BENCH IN THE CASE OF ACIT VS. JINDAL STEEL & POWER LTD. (2007) 16 SOT 509 (DEL) THAT THE MARKET RATE POSTULATED BY SECTION 80IA(VIII) SHALL BE THE PRICE AT WHICH THE ASSESSEE PURCHASES ELECTRICITY FROM THE E LECTRICITY BOARD. IN THIS REGARD, WE REFER TO PARA-32 OF THE J UDGMENT AS UNDER:- WE HAVE HEARD THE PARTIES AND CONSIDERED THE RIVAL SUBMISSIONS. THE CONTROVERSY IN QUESTION IS SQUARELY DECIDED BY THE TRIBUNAL, DELHI BENCH, IN THE CASE OF JINDAL STEEL & POWER LTD. (SU PRA) AND MUMBAI BENCH IN THE CASE OF WEST COAST PAPER MILLS LTD. (S UPRA) HOLDING ON UNEQUIVOCAL TERMS THAT THE MARKET VALUE POSTULATED BY THE PROVISIONS OF SECTION 80IA SHALL BE THE PRICE AT WHICH THE ASS ESSEE PURCHASES ELECTRICITY FROM ELECTRICITY BOARD AND NOT THE ONE WHICH IS FIXED BY THE LEGISLATIVE MANDATE. THEREFORE, RESPECTFULLY FOLLOW ING THE ABOVE TRIBUNAL DECISIONS, WE DIRECT THE AO TO ALLOW GRANT OF DEDUCTION U/S 80IA TO THE ASSESSEE BY TAKING THE PRICE OF ELECTRI CITY SUPPLIED BY GEB TO ASSESSEE AS A CONSUMER AS MARKET VALUE FOR THE P URPOSE OF DEDUCTION U/S 80IA. THE ASSESSEE SUCCEEDS ON THIS G ROUND . RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE HOLD THAT THE MARKET VALUE FOR ELECTRICITY WOULD BE THE ONE AT WH ICH IT IS SUPPLIED BY GEB TO OTHER ASSESSEES INCLUSIVE OF DUT Y. THEREFORE, THE RATES TAKEN BY THE ASSESSEE FOR THE PURPOSE OF SUPPLYING ELECTRICITY FROM CPP UNIT TO GENERAL UNIT IS UPHELD . THE ASSESSEE SUCCEEDS ON THIS POINT. 13 AS A RESULT, THE APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED. 12 ITA NO.2072/AHD/2006 FOR ASSESSMENT YEAR: 2003-04 : 14 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS I N THIS APPEAL:- 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE CIT(A) HAS ERRED IN NOT UPHOLDING THE ASSESSEES COMPUTATION O F DEDUCTION U/S 80IA IN RESPECT OF CPP UNIT FOR GENERATION OF ELECT RICITY. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, IN REGARD TO THE QUANTIFICATION OF INTEREST FOR COMPUTING THE AFORES AID DEDUCTION U/S 80IA THE CIT(A) HAS ERRED: (I) IN NOT ACCEPTING THE ASSESSEES CLAIM THAT INTEREST INCOME AND EXPENDITURE WERE REQUIRED TO BE NETTED; (II) IN HOLDING THAT THE INTEREST INCOME FROM THE BANKS ON THE DEPOSITS FOR LCS WAS NOT DERIVED FROM THE CPP UNIT; AND (III) IN ALLOCATING THE INTEREST INCOME BETWEEN THE GENER AL UNIT AND THE CPP UNIT ON THE BASIS OF TURNOVER. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE CIT(A) HAS ERRED IN NOT ACCEPTING THE BOOK FIGURE OF THE RATE OF ELECTRICITY CHARGED BY THE CPP UNIT TO THE GENERAL UNIT. 15 THE FIRST GROUND IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 16 THE SECOND GROUND RELATES TO ASSESSEES CLAIM I N NETTING OF INTEREST INCOME AGAINST THE EXPENDITURE. THE ASSESSEE HAS EARNED INTEREST ON DEPOSITS MADE WITH THE BANKS FOR OPENING LCS. IT HAS ALSO INCURRED AN EXPENDITURE ON LOAN BO RROWED FOR THE PURPOSE OF BUSINESS. ACCORDING TO THE ASSESSEE, ADJ USTMENT OF NETTING OF INTEREST IS PERMISSIBLE IN VIEW OF THE D ECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF KESHAVJI RAVJI & CO. VS. CIT (1990) 183 ITR 1 (SC) AS WELL AS THE DECISION OF THE HONBLE 13 DELHI HIGH COURT IN THE CASE OF CIT VS. SRI RAM HONDA POWER EQUIP & ORS. 289 ITR 475 (DELHI) . THEREIN IT HAS BEEN HELD THAT INTEREST IN CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC REFERS TO NET INTEREST. IT IS ALSO HELD BY THE DELHI HIGH COURT THAT WHERE SURPLUS FUNDS ARE PARKED WITH THE BANK AND INTEREST IS EARNED THEREON, IT CAN ONLY BE CATEGORIZED AS INCOME FROM OTHER SOURCES. IT GOES ENTIRELY OUT OF RECKONING FOR THE PURPOSE O F SECTION 80HHC. THE AO WHILE COMPUTING PROFITS OF THE EXPORT BUSINESS WILL HAVE TO REMOVE FROM THE DEBIT SIDE OF THE P&L ACCOUNT THE CORRESPONDING INTEREST EXPENDITURE THAT HAS BEEN LA ID OUT TO EARN SUCH INCOME FROM OTHER SOURCES. THUS, ACCORDINGLY E VEN IN A CASE WHERE INTEREST INCOME EARNED BY THE ASSESSEE I S TREATED AS BUSINESS INCOME EVEN THEN NETTING WILL HAVE TO BE A LLOWED TO THE EXTENT THAT THE INTEREST EXPENDITURE HAS DIRECT NEX US WITH THE INTEREST INCOME EARNED. 17 IN THE PRESENT CASE, THE AO HAS ALLOCATED THE I NTEREST INCOME BETWEEN GENERAL UNIT AND CPP UNIT ON THE BAS IS OF TURNOVER AND ACCORDINGLY REDUCED IT FROM ELIGIBLE P ROFIT FOR THE PURPOSE OF DEDUCTION U/S 80IA. 18 WE HAVE HEARD THE LEARNED AR AND THE LEARNED DR . AFTER HEARING THE PARTIES, FOLLOWING THE DECISION O F THE DELHI HIGH COURT, WE HOLD THAT ONCE INTEREST INCOME EARNE D FROM FIXED DEPOSITS KEPT WITH THE BANK IN RESPECT OF MARGIN MO NEY FOR AVAILING LC FACILITIES WOULD BE BUSINESS INCOME AS PER OUR DECISION FOR THE ASSESSMENT YEAR 2002-03 AND THEREA FTER ANY INTEREST SPENT ON EARNING SUCH INTEREST INCOME WOUL D BE REDUCED. FOR THE PURPOSE OF FINDING OUT THE NEXUS OF INTERES T EXPENDITURE WITH THE INTEREST INCOME EARNED ON MARGIN MONEY KEP T WITH THE 14 BANK FOR AVAILING LC FACILITIES AND THEREAFTER DOIN G NETTING, WE RESTORE THE MATTER TO THE FILE OF THE AO. WE MAKE I T CLEAR THAT THE ONUS IS ON THE ASSESSEE TO ESTABLISH THE NEXUS OF I NTEREST INCOME EARNED WITH THE PARTICULAR UNIT AND THEREAFTER NETT ING OF INTEREST EXPENDITURE WITH THE INTEREST INCOME EARNED IN RESP ECT TO THAT UNIT. THE AO AFTER MAKING NECESSARY VERIFICATION AL LOW NETTING. THIS GROUND OF ASSESSEE IS ALLOWED BUT FOR STATISTI CAL PURPOSE. 19 THE NEXT ISSUE IS REGARDING THE MARKET RATE OF ELECTRICITY SUPPLIED BY CPP UNIT TO GENERAL UNIT. T HIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE ASSES SMENT YEAR 2002-03 WHEREIN IT IS HELD THAT THE MARKET VALUE WO ULD BE THE RATE AT WHICH GEB SUPPLIES ELECTRICITY, INCLUSIVE O F DUTY, IF ANY. ACCORDINGLY, THIS GROUND OF ASSESSEE IS ALLOWED. 20 AS A RESULT, THE APPEAL BY THE ASSESSEE IS PART LY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NO.2073/AHD/2006 FOR ASSESSMENT YEAR: 2004-05 : 21 THE ISSUES RAISED IN THIS APPEAL ARE THE SAME A S IN THE ASSESSMENT YEAR 2003-04. FOLLOWING OUR ORDER IN THA T YEAR, WE SET ASIDE GROUND NO.1 TO THE FILE OF THE AO FOR WOR KING OUT NETTING AND GROUND NO.2 IN FAVOUR OF THE ASSESSEE. AS A RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND PA RTLY ALLOWED FOR STATISTICAL PURPOSE. 22 IN THE RESULT - 15 (I) THE APPEAL FILED BY THE ASSESSEE [ITA NO.844/AHD/2006 FOR ASSESSMENT YEAR: 2002-03] IS PARTLY ALLOWED. (II) THE APPEALS FILED BY THE ASSESSEE [ITA NOS.2072 AND 2073/AHD/2006 FOR ASSESSMENT YEARS: 2003-04 AND 2004-05)] ARE PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 08-01-2010 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (D C AGRAWAL) ACCOUNTANT MEMBER DATE : 08-01-2010 COPY OF THE ORDER FORWARDED TO : 1. SHAH ALLOYS LIMITED, 5/1, SHREEJI HOUSE, 5 TH FLOOR, B/H M J LIBRARY, ASHRAM ROAD, AHMEDABAD 2. THE ADDITIONAL CIT, RANGE-8, AHMEDABAD THE ASSISTANT COMMISSIONER OF INCOME-TAX (OSD), RANGE-8, AHMEDABAD 3. THE CIT CONCERNED 4. THE CIT(A)- 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. R/AR, ITAT, AHMEDABAD