DCIT, Circle-2(1), Hyderabad V. M/s. Kakatiya Cement Sugar & Industries Ltd., Hyderabad

ITA 917/HYD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66359 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 07-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K SAI PRASAD
• Assessee Lawyers: NIVEDITA BISWAS

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER I.T.A. NO. 917/HYD/2012 A.Y. : 2008-09 THE DY. CIT CIRCLE-2(1) HYDERABAD V S. M/S. KAKATIYA CEMENT SUGAR & INDUSTRIES LTD., HYDERABAD PAN: AABCK1868J APPELLANT RESPONDENT APPELLANT BY: SRI K. SAI PRASAD RESPONDENT BY: SMT. NIVEDITA BISWAS DATE OF HEARING: 24 .0 9 .2012 DATE OF PRONOUNCEMENT: 12.10.2012 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-III, HYDERABAD DATED 28.3.2012 FOR A.Y. 2008 -09. 2. THE FIRST EFFECTIVE GROUND (GROUND NO. 2) RAISED BY THE REVENUE IS AS UNDER: 'THE LEARNED CIT(A) ERRED IN FACTS AND IN LAW IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S. 80IA FOR THE POWER GENERATION PLANT TREATING THE PO WER GENERATION PLANT AS A NEW UNIT, WHEN THE PLAN HAD B EEN FORMED FROM BY MERE SPLITTING UP OF THE EXISTING BUSINESS, RECONSTRUCTION OF AN ALREADY OPERATIONAL POWER PLANT AND SOME REORGANISATION OF AFFAIRS.' 3. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINI ON THAT THIS ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2007-08 IN ITA NO. 931/HYD/2011. THE TRIBUNAL VIDE ORDER DATED 10.2.2012 HELD AS FOLLOWS: '17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE AS SESSEE COMPANY UNDER LICENSE OBTAINED FROM APERC COMMENCED A DISTINCT INDUSTRIAL UNDERTAKING FOR THE GENERATION OF POWER. IT IS AN UNDISPUTED FACT THAT THE PREMISES OF THE UNDERTA KING ARE DISTINCT FROM THE SUGAR UNIT. SEPARATE TECHNOLOGY I S USED AND I.T.A. NO. 917/HYD/2012 M/S. KAKATIYA CEMENT SUGAR & INDUSTRIES LTD. =================================== 2 LOAN WAS ALSO OBTAINED AT CONCESSIONAL RATE FROM GO VERNMENT AGENCIES LIKE IREDA. THE LOWER AUTHORITIES ARE NOT CORRECT IN HOLDING THAT THE POWER PLANT WAS NOT A DISTINCT UNI T ALTHOUGH ALL GOVERNMENT AUTHORITIES INCLUDING THE ELECTRICITY RE GULATORY AUTHORITY CONSIDERED IT AS SUCH. THE TRUE PRINCIPLE AS LAID DOWN BY THE APEX COURT, IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD., VS. CIT [SUPRA], DIRECTLY AND SQU ARELY APPLIES TO THE FACTS OF THE CASE. IN THE INSTANT CA SE, THE TRUE TEST IS NOT WHETHER THE NEW INDUSTRIAL UNDERTAKING CONNO TES EXPANSION OF THE EXISTING BUSINESS OF THE ASSESSEE BUT WHETHER IT IS ALL THE SAME A NEW AN IDENTIFIABLE UNDERTAKING S EPARATE AND DISTINCT FROM THE EXISTING BUSINESS OF THE ASSESSEE BUT WHETHER IT IS ALL THE SAME A NEW AND IDENTIFIABLE UNDERTAKING SEPARATE AND DISTINCT FROM THE EXISTING BUSINESS. THE LOWER AUTH ORITIES AGREES THAT FROM 2002-03, A NEW CO-GENERATION PLANT WAS PU T UP AND ALSO THEY AGREES THAT INSTALLATION OF SOPHISTICATED AND HIGH CAPACITY MACHINERY TO PRODUCE STEAM AND ELECTRICITY HAS TAKEN PLACE IN THE PLACE OF EXISTING OLD TECHNOLOGY. THU S, THEY IMPLIEDLY AGREE THAT THE NEW MACHINERY AND PLANT HA VE BEEN INSTALLED UNDER SEPARATE LICENCE AND PREMISES. EVEN THOUGH THE DECISION OF TEXTILE MACHINERY [SUPRA] WAS CONCERNED WITH THE CLAUSE DEALING WITH RECONSTRUCTION OF EXISTING BUSI NESS BUT THE EXPRESSION 'NOT FORMED' WAS CONSTRUED TO MEAN THAT THE UNDERTAKING SHOULD NOT BE A CONTINUATION OF THE OLD BUT EMERGENCE OF A NEW UNIT. THEREFORE, EVEN IF THE UND ERTAKING IS ESTABLISHED BY TRANSFER OF BUILDING, PLANT OR MACHI NERY, IT IS NOT FORMED AS A RESULT OF SUCH TRANSFER, IN OUR CONSIDE RED VIEW; THE ASSESSEE COULD NOT BE DENIED THE BENEFIT. WE ALSO F IND THAT A NEW UNDERTAKING FOR MANUFACTURE OF POWER WITH STEAM AS BY- PRODUCT WAS FORMED OUT OF FRESH FUNDS, IN SEPARATEL Y IDENTIFIABLE PREMISES, UNDER A SEPARATE LICENSE WIT H MANIFOLD INCREASE IN CAPACITY WITH NEW MACHINERY AND BUILDI NGS WITHOUT TRANSFER OF ANY PORTION OF THE OLD BUILDINGS OR MAC HINERY WHICH PRE-EXISTED. THE POWER AND STEAM PRODUCED EARLIER WAS PART OF THE SUGAR UNIT AND COULD SERVICE ONLY THE SUGAR UNI T AND HENCE WAS AT BEST BY-PRODUCT OF THE SUGAR UNIT MANUFACTUR ING FACILITY. THE NEW UNIT HAD POWER AS THE MAIN PRODUCT AND APAR T FROM SERVICING THE CAPTIVE CONSUMPTION IN THE SUGAR UNIT ALSO SERVICED THE CEMENT UNIT POWER REQUIREMENTS, WHICH THE OLD CAPTIVE POWER PLANT WAS NOT DOING AND THE SURPLUS P OWER IS BEING SUPPLIED TO APTRANSCO IN TERMS OF AN AGREEMEN T. THE PRICING OF POWER IS ALSO SUBJECTED TO THE VARIOUS P OWER TARIFF PRESCRIPTIONS. IT CAN BE CLEARLY SEEN THAT THE NEW UNDERTAKING IS THEREFORE NOT FORMED BY THE SPLITTING UP OF THE OLD UNDERTAKING. THE OLD UNDERTAKING FOR THE MANUFACTURE OF POWER ST ILL EXISTS. THERE IS NO CASE ALSO MADE OUT BY THE LOWER AUTHOR ITIES THAT THE NEW UNDERTAKING IS FORMED BY THE SPLITTING UP O F THE EXISTING BUSINESS. THE LEANED DR REFERS TO THE JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF CHEMBRA PEAK ESTATES LTD VS CIT I.T.A. NO. 917/HYD/2012 M/S. KAKATIYA CEMENT SUGAR & INDUSTRIES LTD. =================================== 3 REPORTED IN 85 ITR 401 WHICH IS CLEARLY DISTINGUISH ED BY THE LEARNED COUNSEL FOR THE ASSESSEE AS REFERRED ABOVE. FURTHER, THE SUPREME COURT IN THE CASE OF TEXTILE MACHINERY CORP ORATION (CITED SUPRA) WHEREIN THE SUPREME COURT CATEGORICAL LY HELD THAT NEW UNIT ESTABLISHED BY THE ASSESSEE FOR MANUF ACTURING ARTICLES USED AS INTERMEDIATE PRODUCTS IN THE OLD D IVISION, WHICH THE ASSESSEE WAS BUYING FROM THE MARKET EARLIER, IS NOT RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE. T O CONSTITUTE RECONSTRUCTION, THERE MUST BE TRANSFER OF ASSETS OF THE EXISTING BUSINESS TO THE NEW INDUSTRIAL UNDERTAKING. IN O UR OPINION, GENERATION OF POWER UNIT IS SEPARATE AND DISTINCT U NDERTAKING FOR WHICH SEPARATE APPROVAL WAS OBTAINED AND RECOGN ISED BY THE IREDA AND IT CANNOT BE SAID THAT SPLITTING OF E XISTING BUSINESS STRUCTURE. THEREFORE, IN OUR CONSIDERED O PINION, THE LOWER AUTHORITIES ARE NOT CORRECT IN DENYING THE DE DUCTION UNDER SECTION 80IA OF THE ACT. HENCE, WE DECIDE THI S ISSUE IN FAVOUR OF THE ASSESSEE COMPANY AND AGAINST THE REVE NUE.' 4. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBU NAL, WE ARE INCLINED TO CONFIRM THE ORDER OF THE CIT(A) ON THIS ISSUE. THIS GROUND BY THE REVENUE IS DISMISSED. 5. THE NEXT ISSUE RAISED BY THE REVENUE IN GROUND NOS. 3 AND 4 IS AS FOLLOWS: 3. THE LEARNED CIT(A) ERRED IN ALLOWING THE DEDUCTION OF COST OF STEAM AS ALLOWABLE EXPENDITURE IN SUGAR UNIT AS NO VALUE CAN BE ATTRIBUTED TO STEAM. 4. THE LEARNED CIT(A) HAS ERRED IN FACT AND LAW IN IGNORING THE TAX EVADING DEVICE CONTRIVED BY THE AS SESSEE BY SHOWING INTER-UNIT TRANSACTION OF SALE OF STEAM (I.E.,) FROM POWER UNIT TO SUGAR UNIT AT A SUBSTANTIALLY IN FLATED RATE SO THAT THE TAXABLE BENEFITS OF SUGAR UNIT GET S SUBSTANTIALLY REDUCED AND THE PROFITS OF POWER UNIT ARE COVERED BY 80IA CLAIM. 6. AFTER HEARING BOTH THE PARTIES ON THIS, WE ARE OF T HE OPINION THAT THE SAME ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN A SSESSEES OWN CASE FOR A.Y. 2007-08 IN ITA NO. 931/HYD/2011. THE TRIB UNAL VIDE ORDER DATED 10.2.2012 HELD AS FOLLOWS: 21. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE LOW ER AUTHORITIES DID NOT DISPUTE THAT THE PROFIT CREDITED TO PROFIT AND LOSS ACCOUNT IN RESPECT OF STEAM IS ONLY RS. 11.43 LAKHS. THUS, EVE N ASSUMING THAT STEAM IS NOT POWER AS HELD BY THE ASSESSING OFFICER , AT BEST THE DEPARTMENT COULD HAVE TREATED ONLY RS. 11.43 LAKHS AS INELIGIBLE I.T.A. NO. 917/HYD/2012 M/S. KAKATIYA CEMENT SUGAR & INDUSTRIES LTD. =================================== 4 PROFITS FOR THE PURPOSE OF CLAIMING THE DEDUCTION U NDER SECTION 80IA OF THE ACT. TO HOLD OTHERWISE, WOULD BE A GROSS ER ROR AS THE EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT OF THE POWER UNIT IS STILL BEING RETAINED BY THE DEPARTMENT WHILE MAKING THE COMPUTATION. THE CIT [A] ALSO AGREES THAT STEAM HAS NO VALUE AS NO PRICE WAS CHARGED FOR THE SAME IN THE EARLIER YEAR BUT IGNORE S THE FACT THAT IN THE ABSENCE OF GROSS TOTAL INCOME IN THE EARLIER YE AR NO EXEMPTION COULD HAVE BEEN CLAIMED. THEREFORE, WE DIRECT THAT ONLY RS.11.43 LAKHS IS TO BE TREATED AS INELIGIBLE PROFITS FOR TH E PURPOSE OF DEDUCTION UNDER SECTION 80IA OF THE ACT AND FOR THE BALANCE S ALE AMOUNT OF STEAM TO SUGAR DIVISION, THE ASSESSEE COMPANY IS EL IGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE ACT. FOR THIS P ROPOSITION, WE PLACE RELIANCE ON THE ORDER OF THE TRIBUNAL IN THE CASE OF DCW LTD.VS. ADDL. CIT, ITA NO. 126/MUM/2008, AY 2003-04 DATED 29 TH JANUARY, 2010 REPORTED IN 42 DTR (MUMBAI) (TRIB.) 369 AT PAGE 383 PARA 18.8 WHICH READS AS UN DER: 18.8 THE NEXT ITEM OF MISCELLANEOUS INCOME IS THE INCOME FROM SALE OF STEAM PRODUCED BY THE ASSESSEE. BRIEFLY THE FAC TS AND NATURE OF STEAM ARE THAT THE CAPTIVE POWER UNDERTAKING ALSO H AS WASTE HEAT RECOVERY BOILER, WHICH IS PART OF THE POWER UNDERTA KING. THE POWER GENERATED BY THE RUNNING OF DIESEL GENERATING SET I S USED IN THE MANUFACTURE OF CAUSTIC SODA. RUNNIONG OF DIESEL GE NERATING SETS PRODUCE HEAT, WHICH IS RECOVERED FROM THE WASTE HEA T RECOVERY BOILER IN THE FORM OF STEAM. DURING THE YEAR ENDED MARCH, 2002, THE TOTAL QUANTITY OF STEAM GENERATED IS 1,02,295 MT. THE S AID STEAM IS USED AS POWER FOR THE MANUFACTURE OF PVC AND LIMENITE AN D 6,240 MT WAS USED TOWARDS INTERNAL CONSUMPTION. DURNG THE Y EAR 66,900 MT OF STEAM WAS CONSUMED IN THE MANUFACTURE OF PVC AND 29,065 MT WAS CONSUMED IN THE MANUFACTURE OF LIMENITE. 18.9 THE SUBMISSION OF THE LEARNED AUTHORISED REPRE SENTATIVE OF THE ASSESSEE IS THAT SINCE POWER IN THE FORM OF STEAM WAS GENERATED BY THE CAPTIVE POWER PLANT AND CONSUMED IN THE MANUFAC TURE OF PVC AND LIMENITE, THEREFORE, THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER S. 80IA. FURTHER, THE LEARNED AUTHORISED REPRESENTATI VE SUBMITTED THAT ON IDENTICAL SET OF ACTS, THE DEPARTMENT FILED SLP BEFORE HONBLE SUPREME COURT AGAINST THE JUDGEMENT OF HONBLE MADR AS HIGH COURT IN TAX CASE NO. 1773 OF 2008 AND VIDE JUDGEMENT DT. 6TH NOVEMBER, 2008, THE APEX COURT, DISMISSED THE DEPARTMENTS AP PEAL AGAINSTG THE DECISION OF TRIBUNAL HOLDING THAT THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION UNDER S. 80-IA OF THE ACT ON THE VA LUE OF STEAM USED FOR CAPTIVE CONSUMPTION BY THE ASSESSEE. CIT VS. T ANFAC INDUSTRIES LTD., SLP(C) NO. 18537 OF 2009 (319 ITR 8 AND 9). IN THE LIGHT OF ABOVE DISCUSSION, WE FIND THAT STEAM PRODUCED BY TH E ASSESSEE IS ELIGIBLE UNIT IS A BY-PRODUCT AND INCOME FROM SALE OF STEAM IS THE INCOME DERIVED FROM INDUSTRIAL UNDERTAKING, THEREFO RE, DEDUCTION UNDER S. 80-IA IS ALLOWABLE. WE, ACCORDINGLY, SET ASIDE THE ORDER OF CIT(A) ON THIS ISSUE AND THE CLAIM OF THE ASSESSEE IS ALLOWED. 22. THE GROUND RAISED BY THE ASSESSEE WITH REGARD T O DEDUCTION U/S. 80IA IN RESPECT OF SALE OF STEAM TO THE SUGAR UNIT IS PARTLY ALLOWED.' I.T.A. NO. 917/HYD/2012 M/S. KAKATIYA CEMENT SUGAR & INDUSTRIES LTD. =================================== 5 7. IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, IN PRIN CIPLE, WE AGREE WITH THE FINDINGS OF THE CIT(A). HOWEVER, THE CALC ULATION OF VALUE OF THE STEAM PRODUCED BY THE POWER PLANT HAS TO BE DET ERMINED AFTER CONSIDERING THE COST AND PRODUCTION RECORD OF RESPE CTIVE UNIT AND THEREAFTER QUANTIFICATION OF DEDUCTION HAS TO BE DO NE IN ACCORDANCE WITH THE ORDER OF THE TRIBUNAL CITED SUPRA. THIS I SSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTI ON TO THE ASSESSEE TO FURNISH NECESSARY RECORDS FOR THE PURPOSE OF DETERM INING THE VALUE OF THE STEAM PRODUCED AND TRANSFERRED TO SUGAR UNIT. 8. THE NEXT GROUND BY THE REVENUE IS AS UNDER: 5. THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO APPLY THE INTERIM RELIEF ORDER DATED 1.2.2012 ISSUED BY THE APPELLATE TRIBUNAL FOR ELECT RICITY TO THE ASSESSEE AND TO CALCULATE THE TARIFF OF RS. 3.25/- PER UNIT OF ELECTRICITY SUPPLIED AS PER THAT ORDER THOU GH IT IS NOT APPLICABLE TO THE ASSESSEE AS THE ASSESSEE WAS NOT AN APPELLANT IN THE SAID PROCEEDINGS. 9. THE FACTS OF THE ISSUE ARE THAT AS PER THE INTERIM RELIEF ORDER OF THE APPELLATE TRIBUNAL FOR ELECTRICITY DATED 1 ST FEBRUARY, 2012 IN IA NOS. 235/11, 252/11, 253/11, 257/11 AND 258/11, THE TARIFF WAS RS. 3.25 PER UNIT OF ELECTRICITY SUPPLIED TO SUGAR AND CEMEN T UNITS. ACCORDINGLY, THE CIT(A) FIXED RS. 3.25 PER UNIT IN PLACE OF RS. 3.48 PER UNIT ADOPTED BY THE ASSESSEE. HENCE THE CIT(A) DIRECTED THE ASS ESSING OFFICER TO DISALLOW RS. 0.23 AND CALCULATE THE DISALLOWANCE BA SED ON THE UNITS SUPPLIED BY THE ASSESSEE TO APTRANSCO, SUGAR AND CE MENT UNITS. AGAINST THIS THE REVENUE IS IN APPEAL BEFORE US. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATERIA L ON RECORD. THIS IS THE INTERIM ORDER OF THE APPELLATE TRIBUNAL FOR ELECTRICITY. MORE SO, THE ASSESSEE IS NOT A PARTY TO THIS DECISION. BEING SO THE CIT(A) IS NOT JUSTIFIED IN GIVING SUCH A DIRECTION UNLESS THE ASSESSEE IS A PARTY TO THE PROCEEDINGS BEFORE THE APPELLATE TRIBUNAL FOR E LECTRICITY. ACCORDINGLY, WE REVERSE THE FINDINGS OF THE CIT(A) ON THIS ISSUE AND RESTORE THE ORDER OF THE ASSESSING OFFICER. I.T.A. NO. 917/HYD/2012 M/S. KAKATIYA CEMENT SUGAR & INDUSTRIES LTD. =================================== 6 11. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH OCTOBER, 2012. SD/ - (SAKTIJIT DEY) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 12 TH OCTOBER, 2012 TPRAO COPY FORWARDED TO: 1. THE DY. CIT, CIRCLE - 2(1), HYDERABAD. 2. M/S. KAKATIYA CEMENT SUGAR & INDUSTRIES LTD., 1 - 10 - 140/1, GURUKRUPA, ASHOK NAGAR, HYDERABAD-500 020. 3 . THE CIT(A) - III, HYDERABAD. 4. THE CIT - II, HYDERABAD 5 . THE DR A BENCH, ITAT, HYDERABAD