TMI Blog2024 (2) TMI 883X X X X Extracts X X X X X X X X Extracts X X X X ..... o based on co-generation of power and steam. In this operation steam generation is unavoidable. The steam generation in the captive power plant is a newly established industrial undertaking which is accepted as a separate unit by itself. Assessee utilized the electricity generated by it for the captivate purpose and the steam generated by the same plant was also utilized for captive consumption in the generation of electricity as well as in refinery. Therefore, the expenditure incurred by the assessee in this particular captive power plant to the extent of material consumption of ₹. 7213.97 lakhs and direct and indirect expenditure including material consumption of ₹. 8557.03 lakhs. From the above expenditure assessee was able to generate power to the value of ₹. 6023.93 lakhs and value of steam [LSHS] to the extent of ₹. 3505.43 over and above utilized for power generation, which were transferred to refinery which is recognized in the books as saving in LSHS. Therefore, the claim of the assessee to the extent of additional steam generated by the assessee in this plant are transferred to the refinery. Therefore, the assessee has to adjust the transfer val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smissed. - SHRI ABY T VARKEY, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER For the Appellant : Shri P.J. Pardiwala Ms. Aarti Sathe For the Respondent : Shri Biswanath Das ORDER PER S. RIFAUR RAHMAN (AM) 1. These appeals and cross objections are filed by revenue and assessee respectively, against different orders passed by Learned Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short Ld. CIT(A) ] dated 30.03.2023 for the A.Ys. 2003-04 and 2004-05. CO NOs. 109 110/MUM/2023 2. At the time of hearing, Ld. DR submitted that the cross objections filed by the assessee is not maintainable due to the fact that Ld. CIT(A) has not given any finding on the jurisdictional issue. Therefore, cross objections will not survive. 3. On the other hand, Ld.AR of the assessee submitted that Ld.CIT(A) has decided the issue on merit and he prayed that the Cross Objections may be kept open. 4. Considered the submissions of both the parties, since Ld. CIT(A) has dealt with the issue on merit we are not inclined to go into the jurisdictional issue raised by the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the generation of electricity resulted in loss to the assessee there was no profit and the assessee is not entitled to any deduction under section 80IA of the Act. 9. On enquiry, assessee has submitted before Assessing Officer justifying the claim made by the assessee and the Assessing Officer has summarized the submissions of the assessee as under: - 7.1 The Assessee during the course of regular assessment proceedings has given a detailed note on the operation of the captive power plant which co-generated power and steam. The Assessee submits that the captive power plant of Visakh refinery is based on co-generation of power and steam leading to more energy efficient use of fuel as compared to conventional power plants. The captive power plant includes two gas turbo generators and two heat recovery steam generators. Steam is generated in the heat recovery steam generators by using hot exhaust gases from gas turbo generators Each heat recovery steam generator has a capacity of generating 27 Tons per hour steam. Whenever the gas turbo generator is in operation it is ensured that the corresponding heat recovery steam generator is also put on line to avoid any energy wastage. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able Value of LSHS per MT Rs. 9913.05 Margin included in above Rs. 1602.94 Cost of LSHS Rs. 8310.11 Savings in LSHS due to Steam generation in Gas Turbo Generators 35,05,42,781 7.4 Further, the Assessee submitted that generation of electricity has not resulted in any loss and saving in LSHS by way of generation of steam has been taken into consideration during the assessment proceedings. Thus, after going through a detailed scrutiny and review of the details Assessing officer had accepted the savings in LSHS on account of generation of steam which was shown on the credit side of the profit and loss account. 7.5 The Assessee submits that the deduction has been allowed even in earlier years and attention is invited to the assessment order dated 15 December 1992 where the deduction was allowed in AY 1990-91. Further, a reference was made to the order passed under section 154 of the Act dated 6 April 1999 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rlier assessment years the issue under consideration was already verified and the steam from power plant results in saving of LSHS which is otherwise consumed to generate steam for refinery. He rejected the claim of the assessee by observing as under: - 8.1 As regards the issue having been already examined, this fact has been discussed in detail while disposing of the objections to reopening of the case in speaking order dated 07.02.2022 and hence does not require repetition here. Coming to the factual aspect, it is admitted fact that no actual revenue has been generated from use of the steam generated in power plant. The value of steam has been calculated on the basis of the cost of LSHS that would have been consumed had the steam generated in power plant was not available. The valuation of the steam is a pure guess work undertaken to fictitiously enhance the revenue generated from power plant. A plain reading of section 80IA make it abundantly clear that in order to avail deduction there has to be actual income. The deduction u/s 80IA is not intended for notional income. 8.2 In its submission dated 15.02.2022 and during the course of VC the assessee has reiterated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, Ld. CIT(A) allowed the claim of the assessee by reproducing the decision of the Hon ble Bombay High Court in assessee s own case. 12. Aggrieved, revenue is in appeal before us filing the present appeal. At the time of hearing, Ld. DR brought to our notice findings of the Assessing Officer from Page No. 3 to 7 of the assessment order and brought to our notice the detailed findings of the Assessing Officer. Ld.DR also brought to our notice findings of the Ld. CIT(A) from Page No. 32 to 43 of the Appellate Order and submitted that Ld. CIT(A) has not dealt with the issue in detail as per the detailed findings of the Hon ble Bombay High Court and allowed the claim of the assessee merely relying on the findings of the Hon ble Bombay High Court. He submitted that in order to appreciate the issue under consideration the issue may be remitted back the file of the Ld. CIT(A) for fresh adjudication. 13. On the other hand, Ld. AR brought to our notice Page No. 48 and 49 of the Paper Book which is the Tax Audit Report submitted on the basis of audit under section 80IA of the Act. Ld. AR brought to our notice the above said audit report and he explained the workings stated in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure incurred by the assessee in this particular captive power plant to the extent of material consumption of ₹. 7213.97 lakhs and direct and indirect expenditure including material consumption of ₹. 8557.03 lakhs. From the above expenditure assessee was able to generate power to the value of ₹. 6023.93 lakhs and value of steam [LSHS] to the extent of ₹. 3505.43 over and above utilized for power generation, which were transferred to refinery which is recognized in the books as saving in LSHS. Therefore, the claim of the assessee to the extent of additional steam generated by the assessee in this plant are transferred to the refinery. Therefore, the assessee has to adjust the transfer value of steam to the refinery otherwise are to be adjusted in the value of material consumption, by doing so the net result will be the net profit in this operation. Therefore, the same can be presented as under: - (₹. Lakhs) (₹. Lakhs) 01. Income a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the assessee was correct or otherwise in adopting a particular method for valuation does not fall for determination in these proceedings since the question to which the Court has to address itself is as to whether there was a full and true disclosure by the assessee. The assessee disclosed that it claimed a deduction under s. 80-IA. The computation of profits was disclosed. The break-up was explained. The assessee disclosed that its revenues were determined by taking two components viz. (i) the revenues relating to the generation of electricity and (ii) the saving on the cost of LSHS that was utilized in valuing the steam generation. In these circumstances, the Revenue is not correct in its submission that there was a failure on the part of the assessee to fully and truly disclose all the material facts necessary for the assessment. As a matter of fact we must also note that the submission which has been urged on behalf of the Revenue is that the issue was not considered by the AO when the order of assessment was passed. The question before the Court, however, is whether that in itself would justify the inference that a full and true disclosure was not made. Such an inference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it and not a profit derived out of manufacturing activities. Therefore, the deduction u/s 80IB on marketing margin is not allowable. 21. On enquiry with the assessee, assessee has submitted detailed submissions vide letter dated 13.01.2022, the same is summarized by the Assessing Officer in his order as under:- 10.1 The Assessee during the course of regular assessment proceedings has provided details in respect of Visakh Refinery Expansion Phase II [VREP-II) where deduction 80-IB of the Act has been claimed. The Assessee provided factual details pertaining to the VREP-II unit being commissioned in AY 2000-01 and commercial production started from AY 2001-02 and the expansion resulted in increased capacity from 4.5 MMTPA to 7.5 MMTPA The expanded unit consists of independent units with a separate quid catalyst cracking unit and a crude distillation unit. The Assessee enclosed a technical write up regarding various units contained in the expansion unit along with a flow diagram. Further, the assessee also submitted approvals received from Ministry of Petroleum and Natural gas accepting the refinery unit as an independent unit for the purpose of fixing a separate refinery tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no reason to believe that income escaped assessment and reconsideration of the same issue on the same set of facts will therefore mean only a change of opinion and there is no reason to believe that income has escaped assessment. 10.5 The Assessee has relied on the Bombay High Court in its own case for AY 2002-03 in Hindustan Petroleum Corporation Limited v. DCIT (2010) 328 ITR 534 where a deduction under section 80-IB was made in respect of the VREP-11 project. The assessee had provided details during the course of assessment and clarified that Ministry of Petroleum and Natural Gas had granted approval to treat additional capacity of the expanded project at par with that if new refineries for the purpose of payment of import parity price and the assessee disclosed all the relevant details for deduction under section 80-IB of the Act. Therefore, based on the above submissions and by placing reliance on the aforesaid decisions, the deduction under section 80-IB of the Act ought to be granted to the Assessee. 22. After considering the detailed submissions of the assesse, the Assessing Officer rejected the same and observed as under:- 11.1 The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ributable to as a much wider import than the expression 'derived from' thereby intending to cover receipts from sources other than the actual conduct of the business of the industrial undertaking. In other words, it can be understood to mean that there can be receipts which are incidental to the actual conduct of the business of industrial undertaking yet the same may not fall within the expression of 'derived from' so as to be eligible for the benefits envisaged under Section 80-IA of the Act. 11.5. In view of the above fact and legal position, it is concluded that the Marketing margin doesn't fall under the purview of derived from . The Marketing margin at best falls under the category of attributable to and not derived from manufacturing or production activities. Such profits do not come within first degree source from the eligible business. The nexus between the Marketing margin and the industrial undertaking is not direct but only incidental Accordingly, it is held that assessee's income to the extent of Rs. 10158.56 lakh on account of Marketing margin is not eligible for deduction u/s 80 IB of the IT and hence disallowed. 23. Aggrieved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and material placed on record, we observe that the issue raised by the Assessing Officer in claim of the deduction under section 80IB of the Act is the inclusion of marketing margin of ₹. 10158.56 lakhs. The Assessing Officer disputed the fact that the margin derived by the marketing division is nothing but the notional profit derived by the market division which is nothing but the administration operation. Therefore, the unrelated margin to the eligible unit under consideration is not eligible to be claimed under section 80IB of the Act. However, we observe that this issue under consideration is not a new issue raised during the current assessment year. This is an issue raised in the earlier year also. The Coordinate Bench in A.Y.2005-06 in ITA No.1187/MUM/2009 dated 23.11.2016, wherein the revenue has raised similar issue in its appeal before the ITAT and the Coordinate Bench has dealt with the issue and allowed the claim of the assessee with the following observations: - 52. We have considered the rival contention of the parties and perused the order of authorities below. We have noticed that the AO not disputed the market price of cost of processing VGO in all refine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round No. 2 raised by the revenue is dismissed. 28. Coming to Ground No. 3, relevant facts of the case are, Assessing Officer observed that one of the ground for reopening of the case is that the assessee has claimed an amount of ₹. 131.06 crores towards sundry expenses and other charges in the profit and loss account. The break-up of this amount shows that an amount of ₹. 5,66,81,860/- has been included therein towards construction expenses under Marketing Division. This expenditure is in addition to the repairs and maintenance charges of ₹. 43.28 crores pertaining to Marketing Division. The above said expenditure of ₹. 5,66,81,860/- is of capital nature and hence not allowable as deduction while computing the income from business. 29. In reply, assessee vide letter dated 13.01.2022 submitted as under: - That the head shown as expenses construction' is actually 'M R - Expensed Construction. As er the assessee expenses guidelines, these expenses are incurred for modification, relocating realignment and reinstallation of tanks, pumps, dispensing units, electrical systems etc. to maintain operation at current levels and are charged to &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erpetual' or 'everlasting'. In the case of K.T.M.T.M. Abdul Kayoom Vs. CIT (SC) 44 ITR 689 it has been held that to decide whether an expenditure is capital or revenue in nature what is decisive is the nature of the business. the nature of the expenditure, the nature of the right acquired and their relation, inter se. 14.2 In its submission dated 15.02.2022 and during the course of VC the assessee has reiterated the arguments made in earlier reply dated 13.01.2022 which have been duly dealt in the preceding para and hence not repeated. 14.3 In the impugned case, the expenditure has been incurred for modification, relocating realignment and reinstallation of tanks, pumps, dispensing units, electrical systems etc.. Any expenditure incurred for modification which results in increasing capacity/ efficiency are capitalized in the books of accounts. The assessee has derived benefit of enduring nature by incurring such expenditure. In view of such fact legal provision, the impugned expenditure of Rs. 5,66,81,860/- are considered to be capital in nature and hence disallowed while computing assessee's income from business. This means an addition of Rs. 5,10,13,67 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lets across country. The assessee has given a detailed break-up before the authorities for claiming of the above said expenditures, these expenditures are incurred by the assessee in the outlets which is spread across the country and such construction expenses are repairs of the outlets therefore these are revenue in nature and which is nothing but the running expenditure to be carried on by the assessee to upkeep the various outlets in the various locations in the country. Therefore, we hold that the above expenditure claimed by the assessee is allowable expenditure. By incurring these expenditures there is no creation of new assets. Accordingly, we are inclined to accept the findings of the Ld.CIT(A). Accordingly, ground raised by the revenue is dismissed. 35. In the result, appeal filed by the revenue is dismissed. ITA No. 1995/MUM/2023 (A.Y. 2004-05) 36. Coming to the appeal relating to A.Y. 2004-05, since facts in this case are mutatis mutandis, therefore the decision taken in A.Y. 2003-04 are applicable to this assessment year also. Accordingly, this appeal is dismissed. 37. In the result, appeal filed by the revenue is dismissed. 38. To sum-up, appeals fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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