Kakatiya Cements, Sugars and Industries Ltd, Secunderabad V. Addl.CIT, Range-2, Hyderabad

ITA 931/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59245 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 13-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K MYTHILI RANI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A. NO. 931/HYD/2011 ASSESSMENT YEAR : 2007-08 M/S. KAKATIYA CEMENTS, SUGARS AND INDUSTRIES LTD. HYDERABAD PAN: AABCK1868J VS. THE ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE-2 HYDERABAD. APPELLANT RESPONDENT I.T.A. NO. 1051/HYD/2011 ASSESSMENT YEAR : 2007-08 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-2(1) HYDERABAD. VS. M/S. KAKATIYA CEMENTS, SUGARS AND INDUSTRIES LTD. HYDERABAD PAN: AABCK1868J APPELLANT RESPONDENT ASSESSEE BY: SHRI A.V. SADASIVA/ SHRI M.V. ANIL KUMAR REVENUE BY: SMT. K. MYTHILI RANI DATE OF HEARING: 04.01.2012 DATE OF PRONOUNCEMENT: 10.02.2012 O R D E R PER CHANDRA POOJARI, AM: THESE TWO CROSS APPEALS ARE DIRECTED AGAINST THE O RDER OF THE CIT(A)-III DATED 31.3.2011. 2. THE APPEAL OF THE ASSESSEE AS WELL REVENUE IS FILED AGAINST THE ORDER OF THE CIT [A] FOR THE ASSESSMENT YEAR 20 07-08. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY, WH ICH IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF CEMENT AND SUGAR, HAD FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 27.10.2007 SHOWING INCOME OF RS.14,90,81,091/-, AFTER CLAIMING DEDUCTION UNDER SECTION 80IA OF THE ACT FOR AN AMOUNT OF RS. 11,56,46,378/- I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 2 THE ASSESSEE COMPANY IS HAVING SUGAR MANUFACTURING UNIT ALONG WITH CO-GENERATION PLANT IN KHAMAM DISTRICT. IT HAS CEMENT FACTORY IN KRISHNA DISTRICT. THE INCOME FROM CEMENT AND SUG AR DIVISIONS IS SHOWN AT RS.10,08,73,179/- AND RS.4,45,00,385/- RES PECTIVELY. IN RESPECT OF INCOME FROM POWER DIVISION, SHOWN AT RS.11,56,46,368/-, THE ASSESSEE COMPANY HAS CLAIMED DEDUCTION UNDER SECTION 80IA OF THE ACT. THE TURNOVER IN RESP ECT OF THIS DIVISION IS SHOWN AT RS.31,33,93,291/-. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE A SSESSEE COMPANY WAS SANCTIONED A 17 MW BAGASSEE CO-GENERATI ON PLANT BY NON- CONVENTIONAL ENERGY DEVELOPMENT CORPORATION OF ANDHRA PRADESH (NEDCAP), VIDE LETTER DATED 09.06.2010 AND IT HAS ENTERED INTO MOU WITH THEM ON 16.08.2010. AS PER TH E SAID MOU THE ASSESSEE COMPANY HAS TO ABIDE BY THE REGULATION S OF AP ELECTRICITY REGULATORY COMMISSION (APERC). IT WAS A LSO UNDER OBLIGATION TO ENTER INTO SEPARATE AGREEMENT WITH AP TRANSCO. THE AGREEMENT ENTERED INTO WITH APTRANSCO ON 19.02.2002 , PROVIDED FOR CAPTIVE CONSUMPTION OF 9.05 MW FOR SUGAR PLANT, FOR CONSUMPTION OF 5 MW IN CEMENT PLANT AND FOR SALE OF 5.75 MW TO APTRANSCO DURING THE SEASON OF SUGAR PRODUCTION. VI DE GO MS NO.93 OF ENERGY DEPARTMENT DATED 18.11.1997, THE GO VERNMENT HAS FIXED THE POWER PURCHASE PRICE AT RS.2.25 PER U NIT, WITH ESCALATION OF 5% PER ANNUM WITH 1997-98 AS BASE YEA R. AS PER THE ARTICLE-3 OF THE AGREEMENT, THE PURCHASE PRICE BY A PTRANSCO SHALL BE DECIDED BY APERC BEYOND THE YEAR 2003-04. THE ASSESSING OFFICER NOTED THAT THE TURNOVER SHOWN IN RESPECT OF POWER DIVISION INCLUDES SALE OF ELECTRICITY TO SUGA R DIVISION SHOWN AT RS.490.48 LAKHS, SALE OF ELECTRICITY TO CEMENT D IVISION AT RS.855.06 LAKHS, SALE OF ELECTRICITY TO APTRANSCO A T RS.1345.01 LAKHS AND SALE OF STEAM TO SUGAR DIVISION AT RS.484 .31 LAKHS. I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 3 3. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE COM PANY SUBMITTED THAT BEFORE COMMISSIONING OF CO-GENERATIO N POWER UNIT ON 12.04.2002, THE STEAM AND POWER REQUIREMENT OF T HE SUGAR PLANT WERE MET THROUGH TWO BOILERS OF CAPACITY 32TP H BY 32KG PRESSURE EACH AND STEAM TURBINES. AFTER COMMENCEMEN T OF OPERATION IN NEW CO-GENERATION UNIT IN 2002-03, THE EXISTING BOILER AND STEAM TURBINE WERE NOT PUT TO USE AND THE SAME WERE DISMANTLED AND SOLD IN 2003-04. STATING THAT THE CO -GENERATION PLANT IN THEIR CASE IS A NEW UNIT, THE ASSESSEE HAS SUBMITTED THAT SUCH UNDERTAKING IS ELIGIBLE FOR DEDUCTION UNDER SE CTION 80IA OF THE ACT. IN THIS CONTEXT, IT WAS SUBMITTED THAT TH E SAID PLANT WAS COMMISSIONED AFTER OBTAINING PERMISSION FROM NEDCAP AND OBTAINING LICENSE FROM APERC FOR PRODUCING ELECTRIC ITY. IT WAS FURTHER STATED THAT TECHNOLOGY AND MACHINERY USED I N SUCH PLANT ARE TOTALLY DIFFERENT FROM THOSE USED IN THE OLD UN IT. IT WAS FURTHER SUBMITTED THAT THE OPERATION OF THE OLD UNIT WAS ON LY RESTRICTED TO STEAM PRODUCTION AND ELECTRICITY GENERATION FOR CAP TIVE CONSUMPTION IN THE SUGAR PLANT. HOWEVER, THE ASSES SING OFFICER DID NOT ACCEPT SUCH SUBMISSIONS OF THE ASSESSEE COM PANY. HE NOTED THAT SUCH POWER DIVISION IN THE CASE OF THE A SSESSEE, IS FORMED BY SPLITTING OF AN EXISTING BUSINESS STRUCTU RE WHICH IS MANUFACTURING SUGAR. HE NOTED THAT THE INTEGRAL PAR T OF PRODUCING SUGAR INVOLVES USAGE OF STEAM WHICH IS GE NERATED IN BOILERS BY BURNING THE BAGASSE, WHICH IS RESIDUE OB TAINED ON CRUSHING THE SUGAR CANE. A PART OF THE STEAM WAS C ONVERTED INTO ELECTRICITY IN THE TURBINES AND THE SAME IS USED IN THE PLANT. STATING THAT BY HAVING THIS INTEGRAL PART OF THE BU SINESS INTO A SEPARATE UNDERTAKING, HE NOTED THAT THE ASSESSEE HA S ONLY SPLIT THE EXISTING BUSINESS IN THIS CASE. REFERRING TO T HE SUBMISSION OF THE ASSESSEE FOR INSTALLING NEW MACHINERY IN THE PO WER PLANT, HE NOTED THAT INSTALLATION OF SOPHISTICATED AND HIGH C APACITY MACHINERY TO PRODUCE STEAM AND ELECTRICITY, IN PLAC E OF EXISTING I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 4 OLD MACHINERY, CANNOT BE TREATED AS NEW UNDERTAKING WITHIN THE MEANING OF SECTION 80IA OF THE ACT. ON REFERENCE BY THE ASSESSEE FOR OBTAINING PERMISSION FROM DIFFERENT AUTHORITIES FOR INSTALLING SUCH PLANT, HE NOTED THAT SUCH PERMISSIONS ARE ONLY STATUTORY REQUIREMENTS, WHICH ARE NECESSARY FOR COMMISSIONING THE NEW MACHINERY. HE FURTHER NOTED THAT BY BI-FURCATING TH E EXISTING BUSINESS STRUCTURE INTO TWO UNITS, THE ASSESSEE HAS TRIED TO CLAIM TO BE IN A NEW BUSINESS OF STEAM. HE FURTHER NOTED THAT THERE IS NO MARKET FOR STEAM AND THE SAME IS NOT A TRADABLE COMMODITY. SO FAR AS RAISING INVOICES TO APTRANSCO IS CONCERNE D, HE NOTED THAT THE SAME MAY BE CONSIDERED AS A NEW CLIENT FOR THE EXISTING BUSINESS. WITH THESE OBSERVATIONS AND REFERRING TO THE VARIOUS JUDGMENTS OF THE HIGH COURTS AS MENTIONED IN HIS OR DER, HE HELD THAT IN THE CASE OF THE ASSESSEE THERE IS NO NEW UN DERTAKING AND THE SAME IS ONLY FORMED BY SPLITTING OF EXISTING BU SINESS AND HENCE, IT IS NOT ENTITLED TO ANY DEDUCTION UNDER SE CTION 80IA OF THE ACT. HE THUS, REJECTED SUCH CLAIM OF THE ASSES SEE FOR DEDUCTION UNDER SECTION 80IA OF THE ACT. 4. FURTHER REFERRING TO SUCH CLAIM OF DEDUCTION UNDER SECTION 80IA OF THE ACT IN RESPECT OF THE SAID POWER PLANT, HE NOTED THAT, IF ANY APPELLATE AUTHORITY DECIDES THAT THE ASSESSEE I S ENTITLED TO DEDUCTION UNDER THIS SECTION, THEN THE VALUE OF STE AM WHICH IS CLAIMED BY THE ASSESSEE AT RS.484.31 LAKHS, SHOULD BE NIL. THE ASSESSEE HAS SHOWN SUCH AMOUNT TOWARDS SALE OF STEA M TO THE SUGAR UNIT AND ON THAT AMOUNT HAS CLAIMED DEDUCTION UNDER SECTION 80IA OF THE ACT. HOWEVER, HE NOTED THAT HA VING REGARD TO THE PROVISIONS OF CLAUSE (A) TO SECTION 80IA (4)(IV ) OF THE ACT, NO DEDUCTION CAN BE ALLOWED IN RESPECT OF STEAM. STAT ING THAT NO INCOME CAN BE RECOGNIZED ON STEAM, HE HELD THAT THE QUESTION OF DEDUCTION UNDER SECTION 80IA OF THE ACT THEREON DOE S NOT ARISE FOR THE SUPPOSED SALE OF STEAM TO THE SUGAR UNIT IN THI S CASE. THE I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 5 ASSESSING OFFICER FURTHER NOTED THAT THE STEAM IS D RAWN FOR SUGAR PLANT, AFTER EFFECTIVELY CONVERTING THE THERMAL ENE RGY IN THE STEAM TO ELECTRICITY. SUCH LOW PRESSURE (LP) STEAM HAS N O FURTHER VALUE IN GENERATING ANY FURTHER ELECTRICITY. THE SAME IS TO BE TREATED AS A BI-PRODUCT OF THE ELECTRICITY GENERATING UNIT. S TATING THAT SUCH LP STEAM CANNOT BE MARKETED AND HAS NO SALABLE VALU E, HE HELD THAT THE VALUE OF THE SAME IS ZERO. HE OBSERVED TH AT THE ASSESSEE, BY USING HIGHER VALUATION, HAS SOUGHT TO INFLATE TH E CLAIM OF DEDUCTION UNDER SECTION 80IA OF THE ACT AND TO REDU CE THE PROFIT OF SUGAR UNIT BY INCREASING ITS COST OF MANUFACTURING. HE FURTHER NOTED THAT APERC, WHILE FIXING THE TARIFF FOR CO-GE NERATION UNITS, HAS NOT CONSIDERED ANY VALUE FOR THE LP STEAM. SINC E, THERE IS NO SALE PRICE FOR THE LP STEAM OUTPUT; HE NOTED THAT T HE VALUE OF THE SAME HAS TO BE TAKEN AT NIL. FURTHER, STATING THAT ANY COST INCURRED FOR PRODUCING SUCH STEAM UTILIZED IN SUGAR UNIT, HAS BEEN DULY REFLECTED IN THE TARIFF FIXED FOR ELECTRICITY ITSELF, SUCH CLAIM OF THE ASSESSEE FOR REDUCTION IN THE COST OF MANUFACTU RING STEAM HAS NO BASIS. LASTLY, STATING THAT STEAM IS NOT A POWER AS ENVISAGED IN SECTION 80IA OF THE ACT AND THE SAME BEING MERELY A BI-PRODUCT WHICH CANNOT BE SAID TO BE INCOME FROM BUSINESS OF POWER GENERATION, HE HELD THAT THE VALUE OF THE SAME HAS TO BE TAKEN AS NIL. FURTHER, STATING THAT AS THE COST OF FUEL HAS BEEN FULLY CONSIDERED IN FIXING THE TARIFF OF ELECTRICITY, HE HELD THAT NO SEPARATE DEDUCTION IN THE FUEL COST CAN BE ALLOWED. WITH THESE OBSERVATIONS, WHILE REJECTING THE CLAIM OF DEDUCTIO N FOR AN AMOUNT OF RS.484.31 LAKHS UNDER SECTION 80IA OF THE ACT ON THAT ACCOUNT, I.E., TOWARDS ALLEGED SELLING PRICE OF LP STEAM, HE HELD THAT SINCE THE VALUE OF THE SAME IS NIL, THE INCOME OF SUGAR D IVISION HAS TO BE INCREASED BY THAT AMOUNT OF RS.484.31 LAKHS. 5. AS REGARDS, THE PRICE CHARGED FOR ELECTRICITY SUPPL Y TO APTRANSCO, SUGAR DIVISION AND CEMENT DIVISION IS CO NCERNED, THE I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 6 ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS ADOPT ED A RATE OF RS. 3.48 PER UNIT. REFERRING TO GO.MS NO.93 DATED 18.1 1.1997 OF GOVERNMENT OF ANDHRA PRADESH, THE FACTS RELATING TO RATE THAT WAS FIXED AT RS.2.25 PER UNIT WITH 5% ESCALATION PER AN NUM WITH 1997- 98 AS BASE YEAR, FORMATION OF APERC ON 03.04.1999, SUBSEQUENT POWER PURCHASE AGREEMENTS SIGNED BY APTRANSCO WITH NON CONVENTIONAL ENERGY DEVELOPERS AND COMING INTO FORC E OF THE ELECTRICITY ACT, 2003 EMPOWERING THE STATE ELECTRIC ITY REGULATORY COMMISSION TO FIX THE TARIFF, HE NOTED THAT AS PER THE ORDER PASSED BY APERC ON 20.03.2004 FIXING TARIFFS FOR VARIOUS S OURCES OF ENERGY, THE ASSESSEE IS ENTITLED TO A PRICE OF RS.2 .67 PER UNIT DURING THE FINANCIAL YEAR 2006-07. HOWEVER, AFTER REFERRING TO THE DISPUTE RAISED BY SOUTH INDIAN SUGAR MILLS ASSOCIAT ION TO SUCH RATE FIXED BY APERC AND DISCUSSING THE CHRONOLOGICA L EVENTS OF THE LITIGATIONS AT VARIOUS STAGES INCLUDING THE HON'BLE APEX COURT, ON THAT ACCOUNT, HE NOTED THAT THE SAME HAS NOT REACHE D THE FINALITY AND IN THE MEANTIME THE APTRANSCO HAS BEEN PAYING T HE CHARGES AS PER NEW TARIFF FIXED BY THE APERC ORDER ALONG WITH 50% OF THE DIFFERENTIAL AMOUNT BETWEEN THE OLD AND THE NEW TARIFFS. HOWEVER, HE HELD THAT SUCH DIFFERENTIAL AMOUNT HAS NOT ACCRUED TO THE ASSESSEE. IN THIS REGARD, REFERRING TO THE DEC ISION OF THE HON'BLE APEX COURT IN THE CASE OF GODHRA ELECTRICIT Y COMPANY LTD., VS. CIT REPORTED IN 225 ITR 746 AND IN THE CA SE OF CIT VS. HINDUSTAN HOUSING AND LAND DEVELOPMENT TRUST LTD., REPORTED IN 161 ITR 524, HE HELD THAT SUCH DIFFERENTIAL AMOUNT RECEIVED BY THE ASSESSEE, CANNOT BE CONSIDERED TOWARDS INCOME IN TH E CASE OF THE POWER UNIT. STATING THAT THE RATE OF RS.2.67 PER U NIT SHOULD BE CONSIDERED AS PRICE OF ELECTRICITY PER UNIT, AND CO MPUTING THE SELLING PRICE OF POWER SUPPLIED TO SUGAR UNIT, CEME NT UNIT AND APTRANSCO, ON THAT BASIS, HE HELD THAT THE TOTAL IN COME OF THE POWER UNIT GETS REDUCED BY RS.10,70,44,888/-. HOWE VER, HE NOTED THAT AS THE SALE OF POWER AND STEAM TO SUGAR UNIT A RE TO BE I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 7 CONSIDERED A PART OF EXISTING BUSINESS, NO DEDUCTIO N IS AVAILABLE ON THE SAME. HE FURTHER NOTED, IN CASE OF SALE OF POWE R TO SUGAR UNIT, THE COST OF PRODUCING THAT AMOUNT OF ELECTRICITY NE EDS TO BE REDUCED. 6. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESS EE HAS CLAIMED CONSUMPTION OF 1,26,170 MT BAGASSE DURING T HE YEAR, WHICH HAS BEEN VALUED AT RS.750 PER MT I.E., AT RS. 946.28 LAKHS. THE SAME HAS BEEN SHOWN AS TURNOVER IN THE SUGAR DI VISION AND HAS BEEN CLAIMED AS EXPENDITURE IN THE POWER DIVISI ON. HE FURTHER NOTED THAT THE ASSESSEE HAS SHOWN TOTAL BAGASSE CON SUMPTION AT 164164 MT IN THEIR CALCULATION. HOWEVER, UNDER SUG AR DIVISION THE SALE OF BAGASSE IS SHOWN ONLY AT 126170 MT. TH E ASSESSEE HAS ACCOUNTED SUCH DIFFERENCE AS TRASH PURCHASED FROM F ARMERS DIRECTLY FROM THEIR FIELDS. SUCH AMOUNT WAS CLAIMED DIRECTLY DEBITING TO PROFIT AND LOSS ACCOUNT IN THE POWER DI VISION. HOWEVER, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE IN THE FORM OF PURCHASE BILL OR PAYMEN T VOUCHER TO SUBSTANTIATE SUCH CLAIM REGARDING PURCHASE OF TRASH FROM FARMERS. HE NOTED THAT SINCE THE ASSESSEE HAS SHOWN TOTAL SU GAR CANE CRUSHED DURING THE YEAR AT 484313 MT, THE BAGASSE G ENERATION THERE FROM IS APPROXIMATELY L/3 RD OF SUCH QUANTITY, WHICH WORKS OUT TO 161438 MT. IN THE ABSENCE OF ANY VOUCHERS P RODUCED BY THE ASSESSEE FOR PURCHASE OF TRASH FROM FARMERS, TH E ASSESSING OFFICER HELD THAT THE ENTIRE REQUIREMENT OF BAGASSE WAS INTERNALLY MET BY THE ASSESSEE FROM ITS SUGAR UNIT. UNDER THE CIRCUMSTANCE, WHILE STATING THAT THE ASSESSEE HAS NOT PURCHASED A NY TRASH FROM THE FARMERS DURING THE PREVIOUS YEAR AND FURTHER ST ATING THAT THE BALANCE BAGASSE OF 37994 MT WAS OBTAINED FROM THE S UGAR UNIT, HE HELD THAT THE VALUE OF THE SAME AMOUNTING TO RS. 2,84,94,500/- (37994 X 750), HAS TO BE CONSIDERED TOWARDS UNDISCL OSED INCOME IN RESPECT OF THE SUGAR UNIT. WITH THE ABOVE DISCU SSIONS, THE I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 8 ASSESSING OFFICER COMPUTED THE INCOME FROM SUGAR DI VISION AT RS.13,28,43,574/-, INCOME FROM CEMENT DIVISION AT RS.12,07,50,567/- AND INCOME FROM POWER UNIT AT RS. 86,01,490/-, AND HE COMPLETED THE ASSESSMENT BY DETERMINING TOTA L INCOME OF THE ASSESSEE COMPANY AT RS.26,59,03,160/-. 7. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, TH E ASSESSEE WENT AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY . THE ASSESSEE COMPANY HAS RAISED MAINLY FOUR ISSUES. FIRSTLY, TH E ASSESSING OFFICER WAS NOT JUSTIFIED IN HOLDING THAT THE POWER DIVISION IS NOT A NEW UNIT AND THUS NOT ENTITLED TO DEDUCTION UNDER S ECTION 80IA OF THE ACT. SECONDLY, THE ASSESSING OFFICER IS NOT JU STIFIED IN ADDING A SUM OF RS.4,84,31,300/- TOWARDS PROFIT IN RESPECT O F SUGAR DIVISION. THIRDLY, HE IS NOT JUSTIFIED IN ADDING A SUM OF RS.2,84,95,500/- TOWARDS INCOME IN RESPECT OF SUGAR DIVISION FOR BAGASSE NOT ACCOUNTED FOR. FOURTHLY, THE ASSESSING OFFICER ERRED IN MAKING ADDITIONS OF RS.1,14,16,389/- AND RS.1,98 ,77,388/- TO THE PROFITS OF SUGAR AND CEMENT DIVISION BEING THE DIFFERENCE BETWEEN THE TARIFF DETERMINED BY THE ASSESSEE AND T HE RATE RECOMMENDED BY APERC. 8. THE FIRST APPELLATE AUTHORITY CONFIRMED THE ACTION OF THE ASSESSING OFFICER ON THE FIRST THREE ISSUES NAMELY, POWER UNIT IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF TH E ACT, SALE OF STEAM IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 8 0IA OF THE ACT AND DISALLOWANCE OF CANE TRASH PURCHASE. HOWEVER, THE CIT [A] ALLOWED THE APPEAL OF THE ASSESSEE ON THE ISSUE WIT H REGARD TO THE POWER TARIFF. THUS, HE PARTLY ALLOWED THE APPEAL O F THE ASSESSEE. THE ASSESSEE IS IN APPEAL BEFORE US FOR ALL THE GRO UNDS DECIDED AGAINST IT BY THE CIT [A] AND THE DEPARTMENT IS IN APPEAL BEFORE US WITH REGARD TO THE RELIEF GIVEN BY CIT [A] ON THE I SSUE OF POWER TARIFF TO BE CHARGED FOR THE SUPPLY OF ELECTRICITY. I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 9 9. NOW, WE WILL TAKE UP THE APPEAL OF THE ASSESSEE. TH E FIRST ISSUE IN THE APPEAL OF THE ASSESSEE IS WHETHER THE POWER DIVISION IS A NEW UNIT OR NOT AND WHETHER THE PROFIT FROM THE A BOVE DIVISION IS ENTITLED TO DEDUCTION UNDER SECTION 80IA OF THE ACT OR NOT?. BEFORE THE FIRST APPELLATE AUTHORITY, THE ASSESSEE COMPANY WHILE OBJECTING TO DENIAL OF DEDUCTION UNDER SECTION 80IA OF THE AC T, IT WAS SUBMITTED THAT THE ASSESSEE UNDER LICENSE OBTAINED FROM APERC COMMENCED A DISTINCT INDUSTRIAL UNDERTAKING FOR GEN ERATION OF POWER. IT WAS SUBMITTED THAT THE PREMISES OF THE UN DERTAKING IS DISTINCT FOR THE SUGAR UNIT. LOAN WAS OBTAINED AT CONCESSIONAL RATE FROM GOVERNMENT AGENCIES LIKE IREDA FOR INSTALLING THE POWER PLANT. IT WAS SUBMITTED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN STATING THAT THE POWER PLANT WAS NOT A DISTINCT UNIT. IT WAS FURTHER SUBMITTED THAT HE WAS NOT CORRECT IN ST ATING THAT THE NEW POWER PLANT IN THIS CASE WAS A BUSINESS DERIVED FROM SPLITTING OF THE EXISTING BUSINESS. REFERRING TO THE DECISIO N OF HON'BLE APEX COURT IN THE CASE OF TEXTILE MACHINERY CORPORATION LIMITED VS. CIT REPORTED IN 107 ITR 195, IT WAS SUBMITTED THAT THE POWER PLANT IN THE CASE OF THE ASSESSEE IS A SEPARATE AND DISTINCT UNDERTAKING, ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE AC T. OBJECTING TO SUCH OBSERVATION OF THE ASSESSING OFFICER THAT THE POWER DIVISION IN THE CASE OF THE ASSESSEE IS FORMED BY DIVISION OF T HE EXISTING BUSINESS STRUCTURE, IT WAS SUBMITTED THAT HE HAS NO T GIVEN ANY FINDING AS TO WHICH BUSINESS STRUCTURE IS SPLIT. HE MERELY STATED THAT SINCE THE EXISTING BUSINESS IS MANUFACTURE OF SUGAR, WHICH INCLUDES THE USAGE OF STEAM AND PART OF THE STEAM I S CONVERTED INTO ELECTRICITY IN THE BUSINESS, THE ASSESSEE HAS SPLIT THE EXISTING BUSINESS STRUCTURE. FURTHER, OBJECTING TO HIS OBSER VATION THAT THE INTEGRAL PART OF THE BUSINESS IS DIVIDED INTO A SEP ARATE UNDERTAKING, IT WAS STATED THAT HAVING REGARD TO TH E DECISION IN THE CASE OF TEXTILE MACHINERY CORPORATION LIMITED ( SUPRA), THE SAID POWER PLANT IN THE CASE OF THE ASSESSEE HAS TO BE T REATED AS A NEW I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 10 AND SEPARATE INDUSTRIAL UNDERTAKING AND DEDUCTION U NDER SECTION 80IA OF THE ACT HAS TO BE ALLOWED IN RESPECT OF PRO FIT DERIVED BY THAT UNDERTAKING. AFTER ELABORATE DISCUSSION BY THE CIT [A] IN HIS ORDER, HE HELD THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION UNDER SECTION 80IA OF THE ACT IN RESPECT OF PROFIT OF THE SAID POWER PLANT. HENCE, HE CONCLUDED THAT DENIAL OF CLAIM OF DEDUCTI ON UNDER SECTION 80IA OF THE ACT IN RESPECT OF SUCH PLANT BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IS JUSTIFIED. 10. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY UNDER LICENSE OBTAINED FROM APERC COMMENCED A DISTINCT INDUSTRIAL UNDERTAKING FOR THE GENERATION OF POWER. THE PREMISES OF THE UNDERTAKING ARE DISTINCT FROM THE SUGAR UNIT. SEPARATE TECHNOLOGY IS USED AND LOAN WA S OBTAINED AT CONCESSIONAL RATE FROM GOVERNMENT AGENCIES LIKE IRE DA. THE ASSESSING OFFICER IN A PRE-DETERMINED MANNER CONSID ERED THAT THE POWER PLANT WAS NOT A DISTINCT UNIT THOUGH ALL GOVE RNMENT AUTHORITIES INCLUDING THE ELECTRICITY REGULATORY AU THORITY CONSIDERED IT AS SUCH. THE ASSESSING OFFICER HAS CO ME TO A WRONG CONCLUSION THAT THE NEW POWER PLANT WAS A BUSINESS DERIVED FROM SPLITTING THE EXISTING BUSINESS. THE FACTS ARE HOWE VER CONTRARY TO HIS FINDINGS. THE TRUE PRINCIPLE AS LAID DOWN BY TH E APEX COURT, IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD., VS. CIT [SUPRA], DIRECTLY APPLIES TO THE FACTS OF THE CASE. IN THE I NSTANT CASE, THE TRUE TEST IS NOT WHETHER THE NEW INDUSTRIAL UNDERTA KING CONNOTES 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 ASSESSING OFFICER WAS INCORRECT TO HOLD THAT ONLY FROM 2002-03 ON PUTTING UP THE NEW CO- GENERATION PLANT, THE OLD TURBINES AND BOILERS WERE NOT BEING USED. I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 11 THEY WERE DISMANTLED AND SOLD OFF IN 2003-04. INSTA LLATION OF SOPHISTICATED AND HIGH CAPACITY MACHINERY TO PRODUC E STEAM AND ELECTRICITY IN PLACE OF EXISTING OLD TECHNOLOGY MAC HINERY CANNOT BE TREATED AS NEW UNDERTAKING. THE ANSWER IS FOUND IN THE FINDINGS OF THE ASSESSING OFFICER ITSELF. THE ASSESSING OFFI CER AGREES THAT FROM 2002-03, A NEW CO-GENERATION PLANT WAS PUT UP AND HE ALSO AGREES THAT INSTALLATION OF SOPHISTICATED AND HIGH CAPACITY MACHINERY TO PRODUCE STEAM AND ELECTRICITY HAS TAKE N PLACE IN THE PLACE OF EXISTING OLD TECHNOLOGY. WHAT HE HAS NOT S TATED THOUGH AGREED TO BY HIM IS THAT THE NEW MACHINERY AND PLAN T HAVE BEEN INSTALLED UNDER SEPARATE LICENSE AND PREMISES. IN S IMILAR CIRCUMSTANCES, THE APEX COURT IN THE CASE OF TEXTIL E MACHINERY CORP. LTD VS CIT [SUPRA] HAS POINTED OUT TO THIS AS PECT OF THE MATTER IN FOLLOWING WORDS: 'THE NEW ACTIVITY MAY PRODUCE THE SAME COMMODITIES OF THE OLD BUSINESS OR IT MAY PRODUCE SOME OTHER DISTINCT MARKETABLE PRODUCTS, EVEN COMMODITIES WHIC H MAY FEED THE OLD BUSINESS. THESE PRODUCTS MAY BE CONSUMED BY THE ASSESSEE IN HIS OLD BUSINESS OR MAY BE SOLD IN THE OPEN MARKET. ONE THING IS CERTAIN TH AT THE NEW LEAST A MINIMUM OF TEN PERSONS WITH THE AID OR POWER AND A MINIMUM OF TWENTY PERSONS WITHOUT THE AID OF POWER HAVE BEEN EMPLOYED. SUCH A NEW INDUSTRIALLY RECOGNIZABLE UNIT OF AN ASSESSEE CANNO T BE SAID TO BE RECONSTRUCTION OF HIS OLD BUSINESS SINCE THERE IS NO TRANSFER OF ANY ASSETS OF THE OLD BUSINESS TO THE NEW UNDERTAKING WHICH TAKES PLACE WHEN THERE IS RECONSTRUCTION OF THE OLD BUSINESS' 11. IN FACT, IT HAS SPELT OUT ALL THE REQUIREMENTS OF A NEW INDUSTRIAL UNDERTAKING IN A POSITIVE MANNER AS AGAI NST THE DEFINITION, WHICH HAD ONLY STRESSED THE PROHIBITION S, IN FOLLOWING WORDS. 'NO HARD AND FAST RULE CAN BE LAID DOWN. TRADE AND INDUSTRY DO NOT RUN IN EARMARKED CHANNELS AND PARTICULARLY SO IN VIEW OF MANIFOLD SCIENTIFIC AND TECHNOLOGICAL DEVELOPMENTS. THERE IS GREAT SCOPE FO R EXPANSION OF TRADE AND INDUSTRY. THE FACT IS THAT A N I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 12 ASSESSEE BY ESTABLISHMENT OF A NEW INDUSTRIAL UNDERTAKING EXPANDS HIS EXISTING BUSINESS, WHICH HE CERTAINLY DOES, WOULD NOT, ON THAT SCORE, DEPRIVE H IM OF THE BENEFIT UNDER SECTION 15C. EVERY NEW CREATION I N BUSINESS IS SOME KIND OF EXPANSION AND ADVANCEMENT. THE TRUE TEST IS NOT WHETHER THE NEW INDUSTRIAL UNDERTAKING CONNOTES EXPANSION OF 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. NO PARTICULAR DECISION IN ONE CASE CAN LAY DOWN AN INEXORABLE TES T TO DETERMINE WHETHER A GIVEN CASE COMES UNDER SECTION 15C OR NOT. IN ORDER THAT THE NEW UNDERTAKING CAN B E SAID TO BE NOT FORMED OUT OF THE ALREADY EXISTING BUSINESS, THERE MUST BE A NEW EMERGENCE OF A PHYSICALLY SEPARATE INDUSTRIAL UNIT WHICH MAY EXIST ON ITS OWN AS A VIABLE UNIT. AN UNDERTAKING IS FORMED OUT OF THE EXISTING BUSINESS IF THE PHYSICAL IDENTITY W ITH THE OLD UNIT IS PRESERVED.' 12. IT IS SUBMITTED THAT THE ASSESSING OFFICERS WRONGLY FINDS THAT THE DIVISION IS FORMED BY DIVISION OF THE EXISTING BUSINESS STRUCTURE. HE HAS NOT GIVEN A FINDING AS TO WHICH B USINESS STRUCTURE IS SPLIT. HE MERELY STATES THAT SINCE THE EXISTING BUSINESS IS MANUFACTURE OF SUGAR WHICH INCLUDES THE USAGE OF STEAM AND A PART OF THE STEAM IS CONVERTED INTO ELECTRICITY IN THE BUSINESS, THE ASSESSEE HAS SPLIT THE EXISTING BUSINESS STRUCTURE. HE COMES TO A WRONG FINDING THAT THE INTEGRAL PART OF THE BUSINES S IS HIVED INTO A SEPARATE UNDERTAKING. THERE IS NO PHYSICAL TRANSFER OF THE OLD BUSINESS TO THE NEW BUSINESS OR HAS THE OLD BUSINES S HAS BEEN ACTUALLY BEEN SPLIT UP. THE ASSESSEE UNDER LICENSE FROM NEDCAP AND PERMISSION FROM APERC COMMISSIONED A DISTINCT I NDUSTRIAL UNDERTAKING FOR THE GENERATION OF POWER. THE CRUCIA L QUESTION REVOLVES AROUND THE PROVISIONS OF SECTION 80IA (3) OF THE ACT IS THAT THE ELIGIBLE UNIT SHOULD NOT HAVE BEEN FORMED BY TH E SPLITTING UP OR THE RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTEN CE. THE PROHIBITION IS WITH RESPECT TO THE FORMATION OF THE NEW UNDERTAKING IN THE MANNER CLARIFIED IN THE SUB-SECTION. HE ALSO RELIED ON JUDGMENT OF THE APEX COURT IN THE CASE OF BAJAJ TEM PO LTD. VS CIT I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 13 REPORTED IN 196 ITR 188 FOR THE ABOVE PROPOSITION W HEREIN IT WAS HELD AS UNDER: THE LIMITED QUESTION IS WHETHER THE ASSESSEE WHICH HAS BEEN FOUND BY TRIBUNAL TO BE A NEW COMPANY COUL D BE DENIED THE BENEFIT AS VISUALISED IN S. 15C(1) BE CAUSE OF OPERATION OF CL. (I) OF SUB-S. (2). IT IS A RE STRICTIVE CLAUSE. IT DENIES BENEFIT WHICH IS OTHERWISE AVAIL ABLE IN SUB-S. (1). A PROVISION IN A TAXING STATUTE GRANTI NG INCENTIVES FOR PROMOTING GROWTH AND DEVELOPMENT SHOULD BE CONSTRUED LIBERALLY. THE SECTION, READ AS A WHOLE, WAS A PROVISION, DIRECTED TOWARDS ENCOURAGIN G INDUSTRIALISATION BY PERMITTING AN ASSESSEE SETTING UP A NEW UNDERTAKING TO CLAIM BENEFIT OF NOT PAYING TAX TO THE EXTENT OF SIX PER CENT IN A YEAR ON THE CAPITAL EMPLOYED. BUT THE LEGISLATURE TOOK CARE TO RESTRICT SUCH BENEFIT ONLY TO THOSE UNDERTAKINGS WHICH WERE NEW I N FORM AND SUBSTANCE, BY PROVIDING THAT THE UNDERTAKI NG SHOULD NOT BE, FORMED ' IN ANY MANNER PROVIDED IN CL. (I) OF SUB-S. (2) OF S. 15C. EACH OF THESE REQUIRE MENTS, NAMELY, FORMATION OF THE UNDERTAKING BY SPLITTING U P OR RECONSTRUCTION OF AN EXISTING BUSINESS OR TRANSFER TO THE UNDERTAKING OF BUILDING. RAW MATERIAL OR PLANT USED IN ANY PREVIOUS BUSINESS RESULTS IN DENIAL OF THE BENE FIT CONTEMPLATED UNDER SUB-S. (1). SINCE A PROVISION INTENDED FOR PROMOTING ECONOMIC GROWTH HAS TO BE INTERPRETED LIBERALLY THE RESTRICTION ON IT, TOO, HAS TO BE CONSTRUED SO AS TO ADVANCE THE OBJECTIVE OF THE SEC TION AND NOT TO FRUSTRATE IT, BUT THAT TURNED OUT TO BE THE, UNINTENDED, CONSEQUENCE OF CONSTRUING THE CLAUSE LITERALLY, AS WAS DONE BY THE HIGH COURT FOR WHICH IT CANNOT BE BLAMED, AS THE PROVISION IS SUSCEPTIBLE O F SUCH CONSTRUCTION IF THE PURPOSE BEHIND ITS ENACTME NT, THE OBJECTIVE IT SOUGHT TO ACHIEVE AND THE MISCHIEF IT INTENDED TO CONTROL IS LOST SIGHT OF. ONE WAY OF R EADING IT IS THAT THE CLAUSE EXCLUDES ANY UNDERTAKING FORM ED BY TRANSFER TO IT OF ANY BUILDING, PLANT OR MACHINE RY USED PREVIOUSLY IN ANY OTHER BUSINESS. NO OBJECTIO N COULD HAVE BEEN TAKEN TO SUCH READING BUT WHEN THE RESULT OF READING IN SUCH PLAIN AND SIMPLE MANNER I S ANALYSED THEN IT APPEARS THAT LITERAL CONSTRUCTION WOULD NOT BE PROPER. TAKING FACTS OF THIS CASE AS ILLUSTR ATION, THE INHERENT FALLACY SURFACES. THE ITO FOUND THAT TOOLS AND IMPLEMENTS WORTH RS. 3,500 USED IN EARLIER BUSINESS WERE TRANSFERRED TO IT. THEY COMPRISED OF MACHINES WHICH WERE OF VERY MINOR NATURE, BUT FOR ONE SPOTWELLING MACHINE THE COST OF WHICH WAS RS. 1,500 , I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 14 THE OTHER 13 ITEMS WERE OF VALUE OF RS. 100, RS. 20 0. RS. 300 OR AT MOST RS. 400. ON PLAIN READING THE E FFECT OF SUCH TRANSFER WAS OPERATION OF THE CLAUSE AND DE NIAL OF BENEFIT TO THE ASSESSEE. BUT THAT WOULD BE DENI AL OF VERY PURPOSE FOR WHICH THE PROVISION WAS ENACTED. T HE LEGISLATURE BY CL. (I) OF SUB-S. (2) OF S. 15C INTE NDED TO CONTROL ANY ATTEMPT OR EFFORT TO ABUSE THE BENEFIT INTENDED FOR NEW UNDERTAKING BY CHANGE OF LABEL. TH E INTENTION WAS NOT TO DENY BENEFIT TO GENUINE NEW INDUSTRIAL UNDERTAKING BUT TO CONTROL THE MISCHIEF WHICH MIGHT HAVE OTHERWISE TAKEN PLACE. THE RESULT WAS. HOWEVER, JUST THE CONTRARY. ANY USE OF BUILDING O R PLANT OR MACHINERY. HOWSOEVER NOMINAL EITHER BECAUS E OF COMPULSION OR INADVERTENCE OR SHEER NECESSITY F ELL IN THE MISCHIEF AND THE DEPARTMENTAL AUTHORITIES, BOUN D AS THEY WERE WITH THE PROVISIONS OF THE SECTION. RE FUSED TO GRANT EXEMPTION. INITIAL EXERCISE, THEREFORE, SHOULD BE TO FIND OUT IF THE UNDERTAKING WAS NEW. ONCE THIS TEST IS SATISFIED TH EN CL. (I) OF S. 15C(2) WOULD BE APPLIED REASONABLY AN D LIBERALLY IN KEEPING WITH SPIRIT OF S. 15C(1). WO RDS OF A STATUTE ARE UNDOUBTEDLY THE BEST GUIDE. BUT IF THE IR MEANING GETS CLOUDED THEN THE COURTS ARE REQUIRED T O CLEAR THE HAZE. SUB-S. (2) ADVANCES THE OBJECTIVE OF SUB- S. (1) BY INCLUDING IN IT EVERY UNDERTAKING EXCEPT IF IT IS COVERED BY CL. (I) FOR WHICH IT IS NECESSARY THAT I T SHOULD NOT BE FORMED BY TRANSFER OF BUILDING OR MACHINERY. THE RESTRICTION OR DENIAL OF BENEFIT ARISES NOT BY TRAN SFER OF BUILDING OR MATERIAL TO THE NEW COMPANY BUT THAT IS SHOULD NOT BE FORMED BY SUCH TRANSFER. THIS IS THE KEY TO THE INTERPRETATION. THE FORMATION SHOULD NOT BE BY SUCH TRANSFER. THE EMPHASIS IS ON FORMATION NOT ON USE. THEREFORE, IT IS NOT EVERY TRANSFER OF BUILDIN G OR MATERIAL BUT THE ONE WHICH CAN BE HELD TO HAVE RESU LTED IN FORMATION OF THE UNDERTAKING. EVEN IF THE UNDERT AKING IS ESTABLISHED BY TRANSFER OF BUILDING, PLANT OR MACHINERY BUT IT IS NOT FORMED AS A RESULT OF SUCH TRANSFER THE ASSESSEE COULD NOT BE DENIED THE BENEF IT. FORM ACCORDING TO THE DICTIONARY HAS DIFFERENT MEANINGS. IN THE CONTEXT IN WHICH IT HAS BEEN USED IT WAS INTENDED TO CONNOTE THAT THE BODY OF THE COMPAN Y OR ITS SHAPE DID NOT COME UP IN CONSEQUENCE CIT TRA NSFER OF BUILDING, MACHINERY OR PLANT USED PREVIOUSLY FOR BUSINESS PURPOSE. USE OF THE NEGATIVE BEFORE WORD FORMED FURTHER STRENGTHENS IT. IN OTHER WORDS. BUILDING, MACHINERY OR PLANT USED PREVIOUSLY IN OTH ER BUSINESS SHOULD NOT RESULT IN THE UNDERTAKING BEING I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 15 FORMED BY IT. THE TRANSFER TO TAKE OUT THE NEW UNDERTAKING OUT OF PURVIEW OF SUB-S. (1) MUST BE SU CH THAT BUT FOR TRANSFER THE NEW UNDERTAKING COULD NOT HAVE COME INTO BEING. ON FACTS FOUND BY THE TRIBU NAL, THE PART PLAYED BY TAKING THE BUILDING ON LEASE WAS NOT DOMINANT IN FORMATION OF THE COMPANY. THE HIGH COUR T WAS, THEREFORE, NOT JUSTIFIED IN ANSWERING THE QUES TION IN FAVOUR OF THE REVENUE. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE ASSESSEE WAS ENTITLED TO PARTIAL EXEMPTION UNDER S. 15C OF THE ACT - CAPSULA TION SERVICES P. LTD. VS. CIT (1973) 91 ITR 566 (BOM) : TC2SR.576 AND PHAGOO MAL SANT RAM VS. CIT (1969) 74 ITR 734 (P&H) : TC25R.559 APPROVED TO THE EXTENT THEY HOLD THAT, PREVIOUSLY USED IN ANY OTHER BUSIN ESS' CANNOT BE CONSTRUED SO NARROWLY AS TO CONFINE IT TO BUILDING OF THE ASSESSEE ONLY BUT CAPSULATION SERVI CES P. LTD. VS. CIT (SUPRA) DISAPPROVED TO THE EXTENT I T TOOK THE VIEW THAT IF A NEW UNDERTAKING IS ESTABLISHED I N A PREMISES TAKEN ON LEASE THEN IT ALWAYS AMOUNTS TO FORMATION OF THE UNDERTAKING BY TRANSFER OF THE BUI LDING PREVIOUSLY USED. 13. HE ALSO RELIED ON THE JUDGEMENT IN THE CASE OF CIT VS. HINDUSTAN GENERAL INDUSTRIES LTD., 137 ITR 188 (DEL ) WHEREIN HELD THAT WHERE THE ASSESSEE SETS UP A NEW FACTORY AND O NLY AN INSIGNIFICATN PORTION OF PLANT AND MACHINERY FROM P REVIOUS BUSINESS IS UTILISED AND THE INTEGRITY OF EARLIER U NIT IS NOT AFFECTED, THE NEW UNIT CANNOT BE SAID TO BE RECONSTRUCTION, S PLITTING UP OR TRANSFER OF ASSETS OF EXISTING BUSINESS, HENCE ENTI TLED TO DEDUCTION U/S. 84. 14. IT IS SUBMITTED THAT THE ASSESSING OFFICER FOUND TH AT THOUGH THE UNDERTAKING WAS A NEW UNDERTAKING, BECAUSE IT A MOUNTS TO A SPLITTING UP OR RECONSTRUCTION OF EXISTING BUSINESS AND BENEFIT OF SECTION 80IA OF THE INCOME TAX ACT, 1961 SHOULD BE DENIED. BUT HE DOES NOT GIVE A FINDING THAT THE NEW UNDERTAKING WAS FORMED BY THE SPLITTING UP OR RECONSTRUCTION OF THE EXISTING BUSINESS. THE HON'BLE SUPREME COURT IN THE BAJAJ TEMPO CASE EMPHA SIS ON THE FORMATION OF THE NEW UNDERTAKING PLACE IN THE PROHI BITED MANNER AS DESCRIBED IN SECTION 15C(2) OF THE INCOME TAX AC T, 1922 WHICH I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 16 IS IN PARIMATERIA WITH SECTION 80IA (3) OF THE INCO ME TAX ACT, 1961. EVEN THOUGH THIS DECISION IN THE CASE OF TEXT ILE WAS CONCERNED WITH THE CLAUSE DEALING WITH RECONSTRUCTI ON OF EXISTING BUSINESS BUT THE EXPRESSION 'NOT FORMED' WAS CONSTR UED TO MEAN THAT THE UNDERTAKING SHOULD NOT BE A CONTINUATION O F 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 THE ASSESSEE CO ULD NOT BE DENIED THE BENEFIT. 15. IT IS SUBMITTED THAT A NEW UNDERTAKING FOR MANUFACT URE OF POWER WITH STEAM AS BY-PRODUCT WAS FORMED OUT OF FR ESH FUNDS, IN A SEPARATELY IDENTIFIABLE PREMISES, UNDER A SEPARAT E LICENSE WITH MANIFOLD INCREASE IN CAPACITY WITH NEW MACHINERY AN D BUILDINGS WITHOUT TRANSFER OF ANY PORTION OF THE OLD BUILDING S OR MACHINERY WHICH PRE-EXISTED. IN FACT THE OLD TURBINE OF 2.5M W, WERE ALLOWED TO BE USED AS A STAND-BY. THE POWER AND STEAM PRODU CED EARLIER WAS PART OF THE SUGAR UNIT AND COULD SERVICE ONLY T HE SUGAR UNIT AND HENCE WAS AT BEST BY-PRODUCT OF THE SUGAR UNITS MANUFACTURING FACILITY. THE NEW UNIT HAS POWER AS THE MAIN PRODUCT AND APART FROM SERVICING THE CAPTIVE CONSUM PTION IN THE SUGAR UNIT ALSO SERVICE THE CEMENT UNITS POWER REQU IREMENTS, WHICH THE OLD CAPTIVE POWER PLANT WAS NOT DOING AND THE SURPLUS POWER IS BEING SUPPLIED TO APTRANSCO IN TERMS OF A WHEELING AGREEMENT. THE PRICING OF POWER IS ALSO SUBJECTED T O THE VARIOUS POWER TARIFF PRESCRIPTIONS. IT CAN BE CLEARLY SEEN THAT THE NEW UNDERTAKING IS THEREFORE NOT FORMED BY THE SPLITTIN G UP OF THE OLD UNDERTAKING. THE OLD UNDERTAKING FOR THE MANUFACTUR E OF POWER STILL EXISTS. THERE IS NO CASE ALSO MADE OUT BY THE ASSESSING OFFICER THAT THE NEW UNDERTAKING IS FORMED BY THE SPLITTING UP OF THE EXISTING BUSINESS. FOR THIS PROPOSITION, HE RELIED ON THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT VS HINDU STAN GENERAL I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 17 INDUSTRIES REPORTED IN 137 ITR 851. IT IS SUBMITTED THAT THE INTEGRITY OF THE SUGAR DIVISION DOES NOT SUFFER AND IN FACT AS IN THE DELHI HIGH COURT CASE REFERRED ABOVE, THERE HAS BEE N ANY FINDING THAT THE SUGAR UNIT AND THE POWER UNIT WERE DOING O NLY WHAT THE OLD SUGAR UNIT HAS BEEN DOING. THE FACTS ARE THAT C APTIVE POWER UNIT STILL EXISTED AS A STAND BY AND AN ADDITIONAL NEW POWER GENERATING UNIT WAS SETUP WITH CAPACITY OF 17MW BAG ASSE COGENERATION PLANT. HENCE THIS IS NOT A CASE OF 'SP LITTING UP'. THE ASSESSING OFFICER REFERS TO THE JUDGMENT OF THE KE RALA HIGH COURT IN THE CASE OF CHEMBRA PEAK ESTATES LTD VS CIT REPO RTED IN 85 ITR 401. THIS CASE IS CLEARLY DISTINGUISHABLE FROM THE PRESENT CASE. IN THAT CASE THE TRIBUNAL FOUND THAT THERE WAS A 'SPLI TTING UP' OF THE BUSINESS ON THE FACTS OF THAT CASE. THE HIGH COURT FOUND THAT SECTION 84 OF THE INCOME TAX ACT, 1961 APPLIES TO ' INDUSTRIAL UNDERTAKING' AND NOT TO A 'BUSINESS' AND HENCE DENI ED EXEMPTION TO THE ASSESSEE. FURTHER IN THAT CASE BOTH THE OLD AND NEW UNITS WERE MANUFACTURING TEA. IN THE PRESENT CASE, THE SU GAR UNIT HAD POWER AS A BY-PRODUCT AND A NEW INDUSTRIAL UNDERTAK ING WITH POWER AS THE MAIN PRODUCT WAS SET UP BY THE ASSESSE E. THE HIGH COURT ALSO DID NOT HAVE OCCASION TO CONSIDER WHETHE R THE 'NEW INDUSTRIAL UNDERTAKING' WAS FORMED BY THE SPLITTING OF THE EXISTING BUSINESS AS EXPLAINED BY THE HON'BLE SUPREME COURT IN BAJAJ TEMPO'S CASE. THEREFORE, HE CONCLUDED THAT THE LOWE R AUTHORITIES ARE NOT CORRECT IN DENYING THE DEDUCTION UNDER SECT ION 80IA OF THE ACT. 16. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED T HAT THE ASSESSEE COMPANY HAS SET UP A POWER PLANT FOR G ENERATING ELECTRICITY WHICH HAS BEEN UTILIZED IN THE SUGAR PL ANT AND THE CEMENT PLANT AND THE SURPLUS GENERATED FROM THE SAM E HAS BEEN SOLD TO APTRANSCO. FURTHER, THE LOW POWER STEAM, WH ICH IS A BI- PRODUCT OF THE SAID PLANT, HAS BEEN UTILIZED IN THE SUGAR PLANT. HOWEVER, THE FACT REMAINS THAT FOR GENERATING BOTH STEAM AND I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 18 ELECTRICITY, THE ASSESSEE WAS ALREADY HAVING BOILER S AND STEAM TURBINES WHICH, AFTER COMMISSIONING OF SAID POWER P LANT, WERE DISMANTLED AND SOLD OFF IN 2003-04. THUS, IT IS FAC T THAT FOR ITS MAIN BUSINESS OF MANUFACTURING SUGAR, THE ASSESSEE WAS EARLIER HAVING NECESSARY PLANT/UNDERTAKING FOR PRODUCING S TEAM AND ELECTRICITY. UNDER THIS CIRCUMSTANCE, BY SETTING UP OF THE SAID POWER PLANT LATER, IT CANNOT BE SAID THAT THE ASSES SEE HAS ESTABLISHED A NEW INDUSTRIAL UNDERTAKING WITHIN THE MEANING OF THE SECTION 80IA OF THE ACT. IN FACT, HAVING REGARD TO THE PROVISIONS OF SECTION 80IA(3) OF THE ACT, IT CANNOT BE SAID TH AT THE SAID PLANT IN THE CASE OF THE ASSESSEE WAS A NEW INDUSTRIAL UN DERTAKING WITHIN THE MEANING OF THAT SECTION. THE SAID POWER PLANT IN THE CASE OF THE ASSESSEE, HAS BEEN FORMED FROM BY MERE SPLITTING UP OF THE EXISTING BUSINESS AND SOME REORGANIZATION OF TH E AFFAIRS IN THIS CASE. HENCE, THE ASSESSEE IS NOT ENTITLED TO DEDUCT ION UNDER SECTION 80IA OF THE ACT IN RESPECT OF THE PROFIT DE RIVED FROM THAT POWER PLANT, NOTWITHSTANDING SALE OF SOME ELECTRICI TY FROM THAT PLANT TO APTRANSCO DURING THE PREVIOUS YEAR RELEVAN T TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSEE H AS CLAIMED FOR SUCH DEDUCTION UNDER SECTION 80IA OF THE ACT MA INLY RELYING ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF T EXTILE MACHINERY CORPORATION LIMITED VS. CIT SUPRA. HOWEVER, THE SA ID DECISION IS NOT APPLICABLE TO THE PRESENT CASE OF THE ASSESSEE. IN THAT CASE THE MATTER RELATES TO RECONSTRUCTION OF BUSINESS ALREAD Y IN EXISTENCE WITH REFERENCE OF PROVISIONS OF SECTION 15C OF THE ACT. THUS, THE ISSUE INVOLVED FOR CONSIDERATION IN THAT CASE, IS T OTALLY DIFFERENT FROM THE ISSUE INVOLVED IN THE PRESENT CASE. HERE, THE ASSESSING OFFICER, AFTER ANALYZING THE FACTS OF THE CASE HAS GIVEN A FINDING THAT SETTING UP SUCH POWER PLANT IN THE CASE OF THE ASSE SSEE, IS MERELY SPLITTING UP OF EXISTING BUSINESS. THIS ISSUE REGAR DING SPLITTING UP OF THE BUSINESS ALREADY IN EXISTENCE, WAS NOT THERE BEFORE THE HON'BLE SUPREME COURT IN THAT CASE. SINCE IN THE I NSTANT CASE, THE I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 19 SAID POWER PLANT SET UP AND COMMISSIONED BY THE ASS ESSEE, AMOUNTS TO MERE SPLITTING UP OF THE BUSINESS ALREAD Y IN EXISTENCE, HAVING REGARD TO THE REASONS STATED BY THE LOWER AU THORITIES AND HAVING REGARD TO THE DECISION OF HON'BLE KERALA HIG H COURT IN CHEMBRA PEAK ESTATES LTD., VS. CIT (85 ITR 401), TH E ASSESEE COMPNAY IS NOT ELIGBILE TO CLAIM DEDUCITON UNDER SE CTION 80IA OF THE ACT. HE SUBMITTED THAT THE JUDGEMENT OF SUPREM E COURT IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD. HAS NO APPLICATION TO THE FACTS OF THE CASE. THOUGH THE ASSESSEE HAS SET UP A NEW POWER PLANT FOR GENERATING ELECTRICITY, WHICH HAS B EEN UTILISED IN THE SUGAR PLANT AND SURPLUS GENERATED FROM THE SAME HAS BEEN SOLD TO APTRANSCO. FURTHER THE LOW POWER STEAM, WH ICH IS A BI- PRODUCT OF THE SAID PLANT WAS GENERATING BOTH STEAM AND ELECTRICITY, THE ASSESSEE WAS ALREADY HAVING BOILER AND STEAM TURBINE WHICH AFTER COMMENCING OF THE SAID POWER PL ANT WERE DISMANTLED AND SOLD OFF IN 2003-04. THUS, FOR ITS MAIN BUSINESS OF MANUFACTURING SUGAR, THE ASSESSEE WAS EARLIER HA VING NECESSARY PLANT FOR PRODUCING STEAM AND ELECTRICITY. BEING S O, BY SETTING UP OF THE SAID POWER PLANT, IT CANNOT BE SAID THAT THE ASSESSEE HAS ESTABLISHED A NEW INDUSTRIAL UNDERTAKING WITHIN THE MEANING OF SECTION 80IA OF THE I.T. ACT. IT IS ONLY HAS BEEN FORMED FROM BY MERE SPLITTING UP OF THE EXISTING BUSINESS AND RE-O RGANISATION OF THE AFFAIRS OF THE ASSESSEE. THE JUDGEMENT RELIED ON BY THE ASSESSEES COUNSEL IN THE CASE OF TEXTILE MACHINERY CORPORATION, THE ISSUE RELATES TO RE-CONSTRUCTION OF BUSINESS AL READY IN EXISTENCE WITH REFERENCE TO PROVISIONS OF SECTION 1 5C OF THE ACT. IN THAT CASE, THE ASSESSEE A HEAVY ENGINEERING CONCERN MANUFACTURING BOILERS, MACHINERY PARTS, WAGONS, ETC ., SET UP TWO NEW UNITS, A STEEL FOUNDRY AND A JUTE MILL DIVISION . THE STEEL FOUNDRY DIVISION STARTED MANUFACTURING SOME CASTING WHICH THE ASSESSEE WAS PREVIOUSLY BUYING FROM THE MARKET, BUT THE SAME WERE USED BY THE EXISTING DIVISION OF THE ASSESSEE. RAW-MATERIALS I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 20 WERE SUPPLIED TO THE JUTE MILL DIVISION BY THE BOIL ER DIVISION OF THE ASSESSEE AND AFTGER MACHINING AND FORGING, THE PART S WERE GIVEN BACK BY THE JUTE MILL DIVISION TO THE BOILER DIVISI ON. AFTER CAREFULLY CONSIDERING THE FACTS OF THAT CASE, THE TRIBUNAL NO TED THAT THE EXISTING BUSINESS OF THE ASSESSEE CONSISTED OF MANU FACTURING BOILERS, WAGONS, ETC., AND FOR THAT PURPOSE THE ASS ESSEE WAS PURCHASING THE PARTS, FORGINGS AND CASTINGS FROM OU TSIDE AND THAT THE BUSINESS OF THE NEW UNITS WAS TO MANUFACTURE TH ESE VERY PARTS AND THEREFORE, IT COULD NOT BE SAID THAT THE NEW UN DERTAKINGS WERE FROMED OUT OF THE EXISTING BUSINESS TO COME WITHIN THE MISCHIEF OF SECTION 15C(2)(I). UNDER SUCH FACTS, LATER, THE SU PREMECOURT HELD THAT FOR THE RECONSTRUCTION OF AN EXISTING BUSINESS THERE MUST BE TRANSFER OF ASSETS OF THE EXISTING BUSINESS TO THE NEW INDUSTRIAL UNDERTAKING. THUS, THE ISSUE INVOLVED FOR CONSIDER ATION IN THAT CASE, IS TOTALLY DIFFERENT FROM THE ISSUE INVOLVED IN THE PRESENT CASE. HERE, THE ASSESSING OFFICER, AFTER ANALYSING THE FACTS OF THE CASE HAS GIVEN A FINDING THAT SETTING UP SUCH POWER PLANT IN THE CASE OF THE ASSESSEE IS MERELY SPLITTING UP OF EXIS TING BUSINESS. THUS, HE DISTINGUISHED THE JUDGEMENT OF SUPREME COU RT. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE AS SESSEE COMPANY UNDER LICENSE OBTAINED FROM APERC COMMENCED A DISTI NCT INDUSTRIAL UNDERTAKING FOR THE GENERATION OF POWER. IT IS AN UNDISPUTED FACT THAT THE PREMISES OF THE UNDERTAKIN G ARE DISTINCT FROM THE SUGAR UNIT. SEPARATE TECHNOLOGY IS USED AN D LOAN WAS ALSO OBTAINED AT CONCESSIONAL RATE FROM GOVERNMENT AGENCIES LIKE IREDA. THE LOWER AUTHORITIES ARE NOT CORRECT IN HO LDING THAT THE POWER PLANT WAS NOT A DISTINCT UNIT ALTHOUGH ALL GO VERNMENT AUTHORITIES INCLUDING THE ELECTRICITY REGULATORY AU THORITY CONSIDERED IT AS SUCH. THE TRUE PRINCIPLE AS LAID D OWN BY THE APEX COURT, IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD., VS. CIT I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 21 [SUPRA], DIRECTLY AND SQUARELY APPLIES TO THE FACTS OF THE CASE. IN THE INSTANT CASE, THE TRUE TEST IS NOT WHETHER THE NEW INDUSTRIAL UNDERTAKING CONNOTES EXPANSION OF THE EXISTING BUSI NESS OF THE ASSESSEE BUT WHETHER IT IS ALL THE SAME A NEW AN ID ENTIFIABLE UNDERTAKING SEPARATE AND DISTINCT FROM THE EXISTING BUSINESS OF THE ASSESSEE BUT WHETHER IT IS ALL THE SAME A NEW A ND IDENTIFIABLE UNDERTAKING SEPARATE AND DISTINCT FROM THE EXISTING BUSINESS. THE LOWER AUTHORITIES AGREES THAT FROM 2002-03, A NEW C O-GENERATION PLANT WAS PUT UP AND ALSO THEY AGREES THAT INSTALL ATION OF SOPHISTICATED AND HIGH CAPACITY MACHINERY TO PRODUC E STEAM AND ELECTRICITY HAS TAKEN PLACE IN THE PLACE OF EXISTIN G OLD TECHNOLOGY. THUS, THEY IMPLIEDLY AGREE THAT THE NEW MACHINERY A ND PLANT HAVE BEEN INSTALLED UNDER SEPARATE LICENCE AND PREMISES. EVEN THOUGH THE DECISION OF TEXTILE MACHINERY [SUPRA] WAS CONCE RNED 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 SEPARATELY IDENTI FIABLE PREMISES, UNDER A SEPARATE LICENSE WITH MANIFOLD INCREASE IN CAPACITY WITH NEW MACHINERY AND BUILDINGS WITHOUT TRANSFER OF ANY PORTION OF THE OLD BUILDINGS OR MACHINERY WHICH PRE-EXISTED. THE POWER AND STEAM PRODUCED EARLIER WAS PART OF THE SUGAR UNIT A ND COULD SERVICE ONLY THE SUGAR UNIT AND HENCE WAS AT BEST B Y-PRODUCT OF THE SUGAR UNIT MANUFACTURING FACILITY. THE NEW UNIT HAD POWER AS THE MAIN PRODUCT AND APART FROM SERVICING THE CAPTI VE CONSUMPTION IN THE SUGAR UNIT ALSO SERVICED THE CEM ENT UNIT POWER REQUIREMENTS, WHICH THE OLD CAPTIVE POWER PLA NT WAS NOT I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 22 DOING AND THE SURPLUS POWER IS BEING SUPPLIED TO AP TRANSCO IN TERMS OF AN AGREEMENT. THE PRICING OF POWER IS ALSO SUBJECTED TO THE VARIOUS POWER TARIFF PRESCRIPTIONS. IT CAN BE C LEARLY SEEN THAT THE NEW UNDERTAKING IS THEREFORE NOT FORMED BY THE SPLITTING UP OF THE OLD UNDERTAKING. THE OLD UNDERTAKING FOR THE MA NUFACTURE OF POWER STILL EXISTS. THERE IS NO CASE ALSO MADE OUT BY THE LOWER AUTHORITIES THAT THE NEW UNDERTAKING IS FORMED BY T HE SPLITTING UP OF THE EXISTING BUSINESS. THE LEANED DR REFERS TO THE JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF CHEMBRA PEAK E STATES LTD VS CIT REPORTED IN 85 ITR 401 WHICH IS CLEARLY DISTING UISHED 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 CATEGORICALLY HELD THAT NEW UNIT ESTABLISHED BY THE ASSESSEE FOR MANUFACTURING ARTIC LES USED AS INTERMEDIATE PRODUCTS IN THE OLD DIVISION, WHICH TH E ASSESSEE WAS BUYING FROM THE MARKET EARLIER, IS NOT RECONSTRUCTI ON OF BUSINESS ALREADY IN EXISTENCE. TO CONSTITUTE RECONSTRUCTION , THERE MUST BE TRANSFER OF ASSETS OF THE EXISTING BUSINESS TO THE NEW INDUSTRIAL UNDERTAKING. IN OUR OPINION, GENERATION OF POWER UNIT IS SEPARATE AND DISTINCT UNDERTAKING FOR WHICH SEPARATE APPROVA L WAS OBTAINED AND RECOGNISED BY THE IREDA AND IT CANNOT BE SAID THAT SPLLITTING OF EXISTING BUSINESS STRUCTURE. THEREFO RE, IN OUR CONSIDERED OPINION, THE LOWER AUTHORITIES ARE NOT C ORRECT IN DENYING THE DEDUCTION UNDER SECTION 80IA OF THE ACT . HENCE, WE DECIDE THIS ISSUE IN FAVOR OF THE ASSESSEE COMPANY AND AGAINST THE REVENUE. 18. THE NEXT ISSUE IN THE APPEAL OF THE ASSESSEE RELATE S TO ADDITION OF AN AMOUNT OF RS.4,84,31,300/- [BEING SA LE OF STEAM BY POWER DIVISION TOWARDS INCOME IN RESPECT OF SUGAR D IVISION. THE ASSESSEE HAS CLAIMED SUCH AMOUNT TOWARDS INCOME IN RESPECT OF THE POWER DIVISION. FURTHER, IT HAS CLAIMED SUCH A MOUNT AS I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 23 EXPENDITURE IN RESPECT OF SUGAR DIVISION. IT IS TH E ASSESSEE'S CLAIM THAT THE SAME IS EXPENDITURE IN CASE OF SUGAR DIVIS ION, FROM SUPPLY OF LOW POWER STEAM FROM POWER PLANT. HOWEVER, THE A SSESSING OFFICER FOR THE REASONS DISCUSSED AT LENGTH, ESPECI ALLY IN PARA 6.4 AND 6.5 OF HIS ORDER REJECTED SUCH CLAIM OF THE ASS ESSEE COMPANY AND HOLDING THAT THE VALUE OF SUCH LP STEAM IN THIS CASE IS NIL, AND HE HAS HELD THAT THE INCOME OF SUGAR DIVISION, SHAL L BE ENHANCED BY RS.484.31 LAKHS. ON APPEAL, THE CIT [A] SUSTAINE D THE AFORESAID ADDITION IN RESPECT OF SUGAR DIVISION AND CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 19. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT FUEL CONSUMED BY THE POWER UNIT IS USED TO HIT WATER AND PRODUCE STEAM TO OPERATE THE TURBINES AND GENERATE ELECTRIC ITY. THE STEAM WHICH IS NEUTRAL IS TRANSFERRED AT A LOW PRESSURE T O THE SUGAR UNIT. DURING CRUSHING SEASON, ADDITIONAL FUEL COST IS INC URRED FOR GENERATING STEAM AND THE STEAM PRICE CHARGED TO THE SUGAR UNIT TAKES INTO ACCOUNT THE INCREMENTAL FUEL COST. IT WA S STATED THAT THE ACTUAL PROFIT ON SUCH ACTIVITY WAS RS.11.43 LAKHS W HICH SHOULD HAVE BEEN THE MAXIMUM AMOUNT WHICH SHOULD HAVE BEEN DISALLOWED. HOWEVER, THE ASSESSING OFFICER REDUCED THE CREDIT SIDE OF THE PROFIT AND LOSS ACCOUNT OF THE POWER UNIT WI THOUT REDUCING THE CORRESPONDING COST ON DEBIT SIDE. IT WAS SUBMI TTED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING CLAIM OF DEDUCTION UNDER SECTION 80IA OF THE ACT ON VALUE OF SUCH STEA M AND ALSO WAS NOT JUSTIFIED IN MAKING ADDITION OF AN AMOUNT OF RS .4,84,31,300/- TO THE INCOME IN RESPECT OF THE SUGAR UNIT. 20. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED T HAT THE LOWER AUTHORITIES ARE RIGHTLY NOTED THAT THE VA LUE OF SUCH LP STEAM, WHICH IS A BI-PRODUCT OF THE SAID POWER PLAN T, SHOULD BE TAKEN AS NIL. THE ASSESSEE COMPANY NEVER CLAIMED SU CH INCOME FROM UTILIZATION OF LP STEAM IN THE PRECEDING YEARS . FROM THE I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 24 ANNUAL REPORT FOR THE YEAR 2006-07 OF THE ASSESSEE COMPANY FILED, IT IS CLEAR THAT SUCH VALUE TOWARDS LP STEAM, SHOWI NG AS INCOME UNDER POWER DIVISION, HAS BEEN SHOWN FOR THE FIRST TIME IN THE CURRENT YEAR AT RS.484.31 LAKHS. THERE WAS NO SUCH INCOME SHOWN FOR THE PREVIOUS YEAR 2005-06. UNDER THIS CIRCUMSTA NCE, IT CLEARLY SHOWS THAT THE ASSESSEE ADMITS THAT THE SAID LP STE AM OBTAINED FROM THE POWER PLANT HAS NO VALUE I.E., ITS PRICE I S ZERO. HOWEVER, FOR THE CURRENT YEAR, RELEVANT ASST. YEAR 2007-08, WHEN THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80IA O F THE ACT FOR THE FIRST TIME, IT HAS SHOWN SUCH AN AMOUNT TOWARDS VALUE OF THAT LOW POWER STEAM. HOWEVER, WHEN THE ASSESSEE HAS NEV ER CLAIMED/SHOWN ANY INCOME TOWARDS LP STEAM DURING TH E EARLIER YEARS, SUCH CLAIM MADE FOR THE CURRENT YEAR CANNOT BE ACCEPTED. HENCE, SUCH CLAIM OF THE ASSESSEE COMPANY IS TO BE REJECTED. SINCE, THE ASSESSEE COMPANY HAS SHOWN SUCH INCOME B Y CLAIMING SUCH AMOUNT AS EXPENDITURE IN RESPECT OF THE SUGAR DIVISION, THE LOWER AUTHORITIES WERE JUSTIFIED IN ADDING THE SAID AMOUNT TO THE INCOME OF THE SUGAR DIVISION. 21. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D 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, EVEN ASSUMING THAT STEAM IS NOT POWER AS HELD BY THE ASSESSING OF FICER, AT BEST THE DEPARTMENT COULD HAVE TREATED ONLY RS. 11.43 LA KHS AS INELIGIBLE PROFITS FOR THE PURPOSE OF CLAIMING THE DEDUCTION UNDER SECTION 80IA OF THE ACT. TO HOLD OTHERWISE, WOULD BE A GROSS ERROR AS THE EXPENDITURE DEBITED TO THE PROFIT AND LOSS A CCOUNT OF THE POWER UNIT IS STILL BEING RETAINED BY THE DEPARTMEN T 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 IGNORES THE FACT THAT IN THE ABSENCE OF GROSS TOTAL INCOME IN THE I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 25 EARLIER YEAR NO EXEMPTION COULD HAVE BEEN CLAIMED. THEREFORE, WE DIRECT THAT ONLY RS.11.43 LAKHS IS TO BE TREATED AS INELIGIBLE PROFITS FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80IA OF THE ACT AND FOR THE BALANCE SALE AMOUNT OF STEAM TO SUGAR DIVISION, THE ASSESSEE COMPANY IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80I A OF THE ACT. FOR THIS PROPOSITION, WE PLACE RELIANCE ON THE ORDE R OF THE TRIBUNAL IN THE CASE OF DCW LTD.VS. ADDL. CIT, ITA NO. 126/M UM/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 FACTS AND NATURE OF STEAM ARE THAT THE CAPTIVE POWER UNDERTAKING ALSO HAS WASTE HEAT RECOVERY BOILER, WHICH IS PART OF THE POWER UNDERTA KING. THE POWER GENERATED BY THE RUNNING OF DIESEL GENERATING SET IS USED IN THE MANUFACTURE OF CAUSTI C SODA. RUNNIONG OF DIESEL GENERATING SETS PRODUCE H EAT, WHICH IS RECOVERED FROM THE WASTE HEAT RECOVERY BOI LER IN THE FORM OF STEAM. DURING THE YEAR ENDED MARCH, 2002, THE TOTAL QUANTITY OF STEAM GENERATED IS 1,02 ,295 MT. THE SAID STEAM IS USED AS POWER FOR THE MANUFACTURE OF PVC AND LIMENITE AND 6,240 MT WAS USED TOWARDS INTERNAL CONSUMPTION. DURNG THE YEAR 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 REPRESENTATIVE OF THE ASSESSEE IS THAT SINCE POWER IN THE FORM OF STEAM WAS GENERATED BY THE CAPITVE POWE R PLANT AND CONSUMED IN THE MANUFACTURE OF PVC AND LIMENITE, THEREFORE, THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER S. 80IA. FURTHER, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT ON IDENTIC AL SET OF ACTS, THE DEPARTMENT FILED SLP BEFORE HONBLE SUPREME COURT AGAINST THE JUDGEMENT OF HONBLE MADRAS HIGH COURT IN TAX CASE NO. 1773 OF 2008 AND VIDE JUDGEMENT DT. 6TH NOVEMBER, 2008, THE APEX COURT, DISMISSED THE DEPARTMENTS APPEAL AGAINSTG T HE DECISION OF TRIBUNAL HOLDING THAT THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION UNDER S. 80-IA OF THE A CT ON THE VALUE OF STEAM USED FOR CAPITVE CONSUMPTION BY THE ASSESSEE. CIT VS. TANFAC NDUSTRIES LTD., SLP(C) NO . I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 26 18537 OF 2009 (319 ITR 8 AND 9). IN THE LIGHT OF A BOVE DISCUSSION, WE FIND THAT STEAM PRODUCED BY THE ASSESSEE IS ELIGIBLE UNIT IS A BY-PRODUCT AND INCOM E FROM SALE OF STEAM IS THE INCOME DERIVED FROM INDUS TRIAL UNDERTAKING, THEREFORE, 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 TO D EDUCTION U/S. 80IA IN RESPECT OF SALE OF STEAM TO THE SUGAR UNIT IS PARTLY ALLOWED. 23. THE NEXT ISSUE RELATE TO ADDITION OF RS.2,84,95,500 /- MADE TOWARDS INCOME IN RESPECT OF SUGAR DIVISION FOR VAL UE OF BAGASSE NOT ACCOUNTED FOR IN THAT DIVISION. THE ASSESSEE CO MPANY HAS SHOWN CONSUMPTION OF BAGASSE AT 164164 MT IN THE PO WER DIVISION. HOWEVER, IN THE SUGAR DIVISION, IT HAS SH OWN SALE OF BAGASSE FOR 126170 MT ONLY. IN SUPPORT OF CLAIM OF SUCH CONSUMPTION OF BAGASSE IN POWER DIVISION, THE ASSES SEE COMPANY HAS SUBMITTED THAT THE DIFFERENCE IN SUCH FIGURES I S ON ACCOUNT OF PURCHASE OF CANE TRASH DURING THE YEAR FROM THE FAR MERS. HOWEVER, IN ABSENCE OF ANY EVIDENCE FOR SUCH CLAIM OF PURCHA SE OF TRASH PRODUCED BY THE ASSESSEE COMPANY, THE ASSESSING OFF ICER REJECTED SUCH CLAIM. SINCE, IN THE SUGAR DIVISION THE ASSESS EE HAS SHOWN SUGAR CANE CONSUMPTION AT 48313 MT, WHILE HOLDING B AGASSE GENERATION WOULD BE AT L/3 RD OF SUCH QUANTITY, HE HELD THAT ALMOST THE ENTIRE CONSUMPTION OF 164164 MT OF BAGASSE IN T HE POWER DIVISION WAS MET FROM PRODUCTION OF SUCH BAGASSE IN THE SUGAR PLANT. UNDER THE CIRCUMSTANCE, WHILE REJECTING SUCH CLAIM OF THE ASSESSEE COMPANY FOR PURCHASE OF CANE TRASH DURING THE YEAR, HE HELD THAT THE VALUE OF SUCH BALANCE QUANTITY OF BAG ASSE, WHICH WAS MADE AVAILABLE FROM THE SUGAR PLANT, HAS TO BE ADDE D TO THE INCOME OF THE ASSESSEE COMPANY UNDER THAT DIVISION I.E., SUGAR DIVISION. ACCORDINGLY, HE MADE SUCH ADDITION OF RS. 2,84,95,500/- I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 27 TO THE INCOME OF THE ASSESSEE COMPANY UNDER THAT DI VISION FOR BAGASSE NOT ACCOUNTED BY THEM. ON APPEAL, THE CIT [A] CONFIRMED THE ACTION OF THE ASSESSING OFFICER AND CONFIRMED T HE AFORESAID ADDITION. 24. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT BAGASSE WHICH IS RAW MATERIAL BEING FUEL USED IN POWER DIVI SION, IS PRODUCED AS A BI-PRODUCT IN THE SUGAR UNIT, DURING THE PROCESS OF MANUFACTURE OF SUGAR. IT WAS STATED THAT THE QUANTI TY OF BAGASSE CONSUMED IN THE POWER UNIT IS ACCOUNTED FOR ON DAY TO DAY BASIS IN THE RECORDS OF POWER UNIT. BAGASSE IS TRANSFERRE D BY THE SUGAR UNIT TO THE POWER UNIT AND SUCH TRANSFER TO THE POW ER UNIT, ARE CREDITED AS INCOME IN THE BOOKS OF THE SUGAR UNIT. IT WAS FURTHER STATED THAT TRASH IS PURCHASED SEPARATELY AND WEIGH ED ON A WEIGH BRIDGE AND SEPARATE WEIGHMENT SLIPS ARE PREPARED. I T WAS FURTHER SUBMITTED THAT FOR PURCHASE OF TRASH PAYMENTS ARE M ADE BY CHEQUES TO THE FARMERS. IT WAS FURTHER SUBMITTED TH AT THE WEIGHMENT SLIPS AND BANK PAYMENT VOUCHERS FOR PURCH ASE OF BAGASSE WERE PRODUCED BEFORE THE ASSESSING OFFICER. HOWEVER, THE SAME WERE NOT CONSIDERED BY HIM. IT IS SUBMITTED TH AT THE LOWER AUTHORITIES WAS NOT JUSTIFIED IN REJECTING THE CLAI M OF PURCHASE DURING THE YEAR AND CONFIRMING THE ADDITION AMOUNTI NG TO RS.2,84,95,500/- TO THE INCOME OF SUGAR DIVISION. 25. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED T HE ASSESSEE HAS NOT CORRECTLY DISCLOSED THE PRODUCTION OF BAGASSE ACTUALLY MADE DURING THE YEAR FROM CONSUMPTION OF 4 84313 MT OF SUGAR CANE. FROM THE RECORDS OF EARLIER YEARS IN TH E CASE OF THE ASSESSEE, IT WAS FOUND THAT THE BAGASSE GENERATION WAS ALMOST AT L/3 RD OF THE QUANTITY OF CONSUMPTION OF SUGAR CANE. FROM THE ANNUAL REPORT OF THE YEAR 2003-04, IT IS SEEN THAT THE QUANTITY OF SUGAR CANE CONSUMED IS SHOWN AT 260836 MT AND INTER NAL CONSUMPTION OF BAGASSE WAS SHOWN AT 84088 MT. FROM THE I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 28 ANNUAL REPORT FOR THE YEAR 2004-05, IT IS SEEN THAT THE SUGAR CANE CONSUMPTION WAS 188013 MT AND THE INTERNAL CONSUMPT ION OF BAGASSE WAS SHOWN AT 78577 MT. FURTHER, AS PER THE ANNUAL ACCOUNT FOR THE YEAR 2002-03, THE SUGAR CANE CONSUM PTION WAS 517614 MT AND THE INTERNAL CONSUMPTION OF BAGASSE W AS SHOWN AT 188648 MT. FROM THE ABOVE, IT IS THUS SEEN THAT THE BAGASSE GENERATION FROM SUGAR DIVISION WAS L/3 RD OF SUCH QUANTITY OF CANE CONSUMPTION AND IT IS JUSTIFIED IN HOLDING THAT THE BAGASSE GENERATION DURING THE CURRENT YEAR WAS AT L/3 RD QUANTITY OF THE CANE CONSUMPTION SHOWN AT 484313 MT. UNDER THIS CIR CUMSTANCE, AND IN ABSENCE OF ANY PURCHASE VOUCHER OR BILL PROD UCED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS, THE DEP ARTMENT JUSTIFIED IN HOLDING THAT THE ENTIRE REQUIREMENT OF BAGASSE CONSUMPTION IN THE POWER PLANT, WAS MET FROM THE SU GAR DIVISION AND THUS RIGHTLY ADDED THE SAID AMOUNT OF RS.2,84,9 5,500/- TO THE INCOME OF THE SUGAR DIVISION. HENCE, SUCH ADDITION IS TO BE SUSTAINED. 26. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. IT APPEARS THAT THE ASSESSEE COMPANY HAS PRODUCED WEIGHMENT SLIPS, BANK VOUCHERS FOR PAYMENTS OF CANE TRASH AS WELL AS LEDGER ACCOUNTS B EFORE THE ASSESSING OFFICER WHICH IS EVIDENCED BY THE COPY OF THE COVERING LETTER ADDRESSED TO THE ASSESSING OFFICER, PLACED I N THE PAPER BOOK. IN FACT, THE ASSESSEE COMPANY, IN THE LICENSING CON DITIONS, IS ALLOWED TO USE ONLY 'BAGASSE, CANETRASH AND CONVENT IONAL FUEL LIKE COAL ETC TO THE EXTENT OF ADMISSIBILITY AS PER MNES GUIDE LINES FOR THE YEAR 2000- 2001. THE FACT THAT ALL DETAILS WERE FURNISHED TO THE ASSESSING OFFICER BY ASSESSEE COMPANY IS NOT CONSID ERED BY CIT (A). HE SIMPLY IGNORED THE DOCUMENTARY EVIDENCE. SE PARATE BOOKS ARE MAINTAINED AND SCRUTILIZED BY THE ASSESSOMG OFF ICER IN RESPECT OF THREE DIVISIONS OF THE ASSESSEE COMPANY. THERE I S NO EVIDENCE I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 29 THAT INSTEAD OF CANE TRASH BAGASSE HAS BEEN CONSUME D. SINCE IT IS THE ASSESSEE CASE THAT THE PROFITS OF THE POWER DIV ISION ARE EXEMPT UNDER SECTION 80IA OF THE ACT, IT DOES NOT MAKE SEN SE FOR THE ASSESSEE COMPANY TO REDUCE PROFITS OF THE POWER DIV ISION BY RECORDING SPURIOUS PURCHASES OF CANE TRASH. NON REC ORDING OF EXPENDITURE ACTUALLY GOES TO INCREASE EXEMPTED PROF ITS. THIS CLEARLY POINTS TO THE GENUINENESS OF THE ASSESSEES CASE. THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IN RE SPECT OF THE SUGAR AND POWER DIVISIONS ARE THE SAME FROM YEAR TO YEAR. IN FACT, THE SUGAR DIVISION IS SUBJECT TO CENTRAL EXCISE SUP ERVISION AND RECORDS ARE MAINTAINED UNDER THE CENTRAL EXCISE AND SALT ACT, 1944. FURTHER THE SUGAR AND CEMENT DIVISIONS ARE ST ATUTORILY REQUIRED TO MAINTAIN RECORDS UNDER THE COST ACCOUNT ING/AUDIT RULES AS APPLICABLE. THEREFORE THE RECORDS SHOULD B E COMPLETE ACCORDING TO ALL STATUTORY REQUIREMENTS AND HENCE T HERE IS NO WARRANT FOR THE DEPARTMENT TO MAKE ANY ADDITION WIT HOUT CONSIDERING THE EVIDENCE PRODUCED BY THE ASSESSEE O N THIS COUNT. AFTER CONSIDERING THE TOTALITY OF THE FACTS AND CIR CUMSTANCES, WE FEEL IT APPROPRIATE TO RE-EXAMINE THE ISSUE ON THE BASIS OF EVIDENCE AND RECORDS MAINTAINED BY THE ASSESSEE. ACCORDINGL Y, WE SET ASIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO RECONSIDER THE SAME IN THE LIGHT OF OUR ABOVE OBSERVATIONS. THIS GROU ND RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 27. NOW, WE WILL TAKE UP THE APPEAL OF THE REVENUE. THE MAIN ISSUE RELATES TO ADDITION OF RS.1,14,16,389/- AND R S. 1,98,77,388/- MADE TO THE PROFITS OF SUGAR AND CEME NT DIVISION BY THE ASSESSING OFFICER IN THE ASSESSMENT. THE LEARN ED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER AND FILED WRITTEN SUBMISSION WHEREN IT WAS STATED THAT THE AS SESSEES PLANT LOAD FACTOR IS BELOW 55%. IN SUCH A CASE, THE APER C HAS FIXED THE COST AT RS. 1.55 PER UNIT AND THE VARIABLE COST IS FIXED AT RS. 1.12 I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 30 PER UNIT. THUS THE COST OF POWER PER UNIT COMES TO RS. 2.67 PER UNIT WHICH IS RIGHTLY ADOPTED BY THE ASSESSING OFFI CER FOR THE PURPOSES OF ASSESSMENT. THOUGH THE ASSESSEE HAS CO NTESTED THE SAME BEFORE THE APPELLATE FOR A AND INTERIM RELIEF IS AFFORDED TO HIM @ RS. 3.48 PER UNIT, THE ISSUE HAS NOT ATTAINED FIN ALITY AND IS PENDING FOR DISPOSAL BEFORE THE SUPREME COURT. AS SUCH, THE COST OF POWER SHOULD BE HELD @ RS. 2.67 PER UNIT ONLY. THE CIT(A) ERRED IN APPLYING THE DECISIONS CITED IN CIT VS. RCP (216 ITR 602) AND KCP VS. CIT (245 ITR 421) WHICH FACTS ARE DISTINGUI SHABLE FROM THE PRESENT CASE. BY ADOPTING HIGHER RATE OF POWER,THE ASSESSEE HAS INCREASED THE EXPENDITURE AND THUS THE PROFIT CHARG EABLE TO TAX WAS REDUCED. IT IS, THEREFOR,E REQUIRESED THAT THE ADDITION MADE BY THE ASSESSING OFFICER BY ADOPTING THE RATE OF POWER @ RS. 2.67 PER UNIT BE SUSTAINED. 28. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TARIFF TO BE CHARGED BY THE POWER UNIT FOR ELECTRIC ITY SUPPLY TO APTRANSCO, SUGAR AND CEMENT DIVISION WAS ADOPTED @ 3.48 PER UNIT. THE SAME IS AS PER INTERPRETATION OF ALL POWE R UNITS IN THE INDUSTRY OF THE G.O OF THE GOVERNMENT OF ANDHRA PRA DESH NO.93 DATED 18.11.1997. HOWEVER, THE TARIFF ACCORDING TO APERC WAS RS.2.67 PER UNIT. IT WAS STATED THAT SUCH TARIFF RA TE FIXED BY APERC WAS DISPUTED BY THE SUGAR MILLS ASSOCIATION OF SOUT H INDIA. AND WHEN THE MATTER WAS CARRIED TO THE APPELLATE TRIBUN AL, THE LATTER VIDE ORDER DATED 02.06.2006 DECIDED THE SAME IN FAV OUR OF THE ASSESSEE AND THUS THE TARIFF WAS RESTORED TO RS.3.4 8 PER UNIT. STATING THAT THE SAID ORDER OF THE APPELLATE TRIBUN AL WAS RENDERED IN THE ASSESSMENT YEAR IN QUESTION, IT WAS SUBMITTE D THAT THE ASSESSEE WAS JUSTIFIED IN TAKING THE PRICE AT THE S AID AMOUNT OF RS.3.48 PER UNIT AND COMPUTING INCOME IN RESPECT OF POWER DIVISION ON THAT BASIS. IT WAS FURTHER STATED THAT THE DEPARTMENT WAS NOT JUSTIFIED IN TAKING THE PRICE AT THE RATE O F RS.2.67 PER UNIT I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 31 AND THUS MAKING THE SAID ADDITIONS TO THE INCOME OF THE SUGAR AND CEMENT DIVISIONS. IT WAS FURTHER SUBMITTED THAT THE FACTS IN THE DECISIONS IN GODHRA ELECTRICITY CO. LTD., VS CIT (S UPRA) AND IN CIT VS. HINDUSTAN HOUSING & LAND DEVELOPMENT LTD., (SUP RA), RELIED ON BY THE ASSESSING OFFICER, ARE DIFFERENT AND HENC E, THOSE DECISIONS ARE NOT APPLICABLE TO THE CASE OF THE ASS ESSEE. WITH THESE SUBMISSIONS AND REFERRING TO THE DECISION OF HON'BL E A.P. HIGH COURT IN CIT VS. KCP LTD., 216 ITR 602 AND OF HON'B LE SUPREME COURT IN KCP LTD., VS. CIT IN 245 ITR 421, THE LEA RNED COUNSEL FOR THE ASSESSEE PRAYED THAT THE SAID ADDITIONS MADE MA Y BE DELETED. 29. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ISS UE IS SQUARELY COVERED BY THE DECISION OF THE BENCH OF THIS TRIBUN AL IN ITA NO. 1748/HYD/2008 IN THE CASE OF SRI BALAJI BIO-MASS PO WER PVT. LTD., HYDERABAD FOR THE ASSESSMENT YEAR 2005-06 VIDE ORDE R DATED 31.1.2011 HELD AS FOLLOWS: '8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE WITH REGARD TO THE MATERIAL FACTS OF THE CA SE. THE ONLY QUESTION THAT ARISES FOR CONSIDERATION IS WHET HER THE DIFFERENTIAL AMOUNT OF SALES, VIZ., WORKED OUT AT R S.3.48/- PER UNIT AS PER THE POWER PURCHASE AGREEMENT APPLYI NG WHICH INVOICES FOR SUPPLY OF POWER TO APTRANSCO WER E RAISED AND RS. 3.18/- APPLYING WHICH IN TERMS OF TH E INTERIM ORDERS OF THE HONBLE A.P. HIGH COURT, INVOICES OF THE ASSESSEE WERE SETTLED BY THE APTRANSCO AND ACCOUNTE D FOR BY THE ASSESSEE IN THE BOOKS OF ACCOUNT, CAN BE TREATED AS THE INCOME OF THE ASSESSEE FOR THE ASSESSMENT YE AR 2005- 06. WE FIND THAT THE CIT(A) HAS GIVEN ELABORATE REA SONING BEFORE CONCLUDING THAT THE INCOME WORKED AT THE RAT E OF RS.3.48/- PER UNIT OF POWER SUPPLIED HAD NEITHER AC CRUED TO THE ASSESSEE NOR WAS RECEIVABLE DURING THE PREVIOUS YEAR AND THEREFORE, NO CORRESPONDING DEBT IN RESPECT OF THE DIFFERENTIAL AMOUNT STOOD CREATED IN THE BOOK OF TH E PURCHASER, I.E., APTRANCO. MERELY BASED ON THE INVO ICES RAISED, INCOME CANNOT BE DEEMED TO ACCRUE TO THE AS SESSEE WHEN THE DIFFERENTIAL INCOME WAS SUBJECT MATTER OF LITIGATION, AND THERE IS NO CERTAINTY OF THE ASSESSEE BEING ENT ITLED TO SUCH INCOME, UNLESS IT SUCCEEDS IN SUCH LITIGATION. EVEN IF AN ASSESSEE SUCCEEDS ULTIMATELY IN THE LITIGATION, A D EBT ENFORCEABLE AGAINST THE OTHER PARTY DOES NOT GET CR EATED, UNLESS A CLAIM IN THAT BEHALF WAS RAISED BEFORE THE SAME I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 32 BEING BARRED BY LIMITATION. IT IS FOR THIS REASON T HAT AN ASSESSEE, TO KEEP THE ISSUE ALIVE, HAS TO RAISE THE CLAIM AGAINST THE OTHER PARTY WITHIN THE PERIOD OF LIMITA TION, WHICH IN ITS VIEW IS DUE TO IT ACCORDING TO THE TERMS OF THE CONTRACT, SO AS TO GET AN ENFORCEABLE RIGHT FOR THE RECOVERY OF THE AMOUNT AS AND WHEN IT SUCCEEDS IN THE LITIGATION. I N THIS VIEW OF THE MATTER, THOUGH INVOICES RAISED CONSTITU TE FUNDAMENTAL RECORD FOR MAINTENANCE OF ACCOUNTS IN T HE NORMAL COURSE, AS OBSERVED BY THE ASSESSING OFFICER , THAT LOGIC DOES NOT HOLD GOOD WHEN THE SUBJECT MATTER WA S UNDER DISPUTE AND WAS UNDER LITIGATION BEFORE THE JUDICIA L FORA, INCLUDING THE JURISDICTIONAL HIGH COURT AND HONBLE SUPREME COURT DURING THE RELEVANT POINTS OF TIME. ASSESSEE' S METHOD OF ACCOUNTING ONLY THE AMOUNT WHICH WAS NOT SUBJECT MATTER OF LITIGATION AND WHICH IN FACT WAS RECEIVED BY IT FROM THE APTRANSCO IN TERMS OF THE INTERIM ORDER OF THE A.P. HIGH COURT, WAS IN CONFORMITY WITH THE ACCOUNTING STANDA RD 9 AND THE RATIO LAID DOWN BY THE APEX COURT, AMONG OT HERS, IN THE CASE OF LAW DISCUSSED BY THE CIT(A) IN THE IMPU GNED ORDER, AND ALSO IN THE CASE LAW RELIED UPON BY THE ASSESSEE BEFORE US. IN THIS VIEW OF THE MATTER, WE FIND NO I NFIRMITY IN THE ORDER OF THE CIT(A), WHICH IS ACCORDINGLY CONFI RMED AND THE GROUNDS OF APPEAL OF THE REVENUE ARE REJECTED.' 30. IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, WE ARE INCLINED TO HOLD THAT THE POWER TARIFF RATE SHOULD BE CONSIDERE D AT RS. 2.67 PER UNIT INSTEAD OF RS. 3.48 PER UNIT AS DECIDED BY THE TRIBUNAL IN THE CASE OF SHRI BALAJI BIO-MASS POWER PROJECT LTD. (SU PRA). ACCORDINGLY, WE ALLOW THE GROUND TAKEN BY THE REVEN UE. HOWEVER, IN THE EVENT OF TARIFF RATE REACHED FINALITY BY THE JUDGEMENT OF HIGHER JUDICIAL FORUM, THE ASSESSING OFFICER IS DIR ECTED TO CONSIDER THE SAME AND DECIDE ACCORDINGLY. 31. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE REVENUE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH FEBRUARY, 2012. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 10 TH FEBRUARY, 2012 I.T.A. NOS. 931 & 1051/HYD/2011 M/S. KAKATIYA CEMENTS, SUGARS & INDUSTRIES LTD. ========================== 33 COPY FORWARDED TO: 1. M/S. KAKATIYA CEMENTS, SUGARS AND INDUSTRIES LTD ., C/O. M/S. M. ANANDAM & CO., CHARTERED ACCOUNTANTS, 7A, S URYA TOWERS, S.P. ROAD, SECUNDERABAD. 2. THE ADDL. CIT, RANGE-2, HYDERABAD 3. THE ASST. CIT, CIRCLE-2(1), 8-B, I.T. TOWERS, A. C. GUARDS, MASAB TANK, HYDERABAD. 4. THE CIT(A)-III, HYDERABAD. 4. THE CIT-II, HYDERABAD. 5. THE DR A BENCH, ITAT, HYDERABAD TPRAO