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2022 (12) TMI 32 - AT - Income TaxDeduction u/s. 80- IA - Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.- quantum of deduction as apparent, two components, i.e., the sales (revenue) and the cost of sales - HELD THAT:- Integral to the concept of accrual of income is the concept of prudence and conservatism, the fundamental accounting assumptions which would preclude accounting as income anything beyond that is reasonably certain for realisation. Surely, any price beyond the cost that the sugar division would otherwise, i.e., but for its purchase from the power division, have to incur, cannot be said to have its basis in economic reality - an actual receipt at the proposed rate (of Rs. 6.28 per unit), where so, would stand to substitute this rate, which thus in any case gets based on actuals. This would also meet the assessee’s charge, assuming so, that the market price, in view of the controlled market, does not actually represent an equilibrium of demand and supply forces. Second component of the profit is ‘cost of sales’. As the sale is to be adopted on ‘arm’s length basis’, i.e., as two independent entities would transact, the cost would also include both direct and indirect costs. The principal raw material, bagasse, is stated in the Notes to the Accounts, to be purchased at Rs. 35 per Qtl., i.e., the prevailing market price, which, where so, merits acceptance. The administration (indirect) cost is stated to the proportioned on sale basis, which is again reasonable, though would require to be modified with reference to the sale value of power (to sugar division) as finally adopted. Further, as it appears, no separate books of account have been maintained for the two businesses, with Shri Bardia informing that the old turbine was regarded as a part of sugarcane division, and depreciation thereon allocated thereto which, again needless to add, would be with reference to the assets employed with the two divisions, allocating the depreciation of common assets on some reasonable basis. We, accordingly, allowing the assessee’s plea in principle, i.e., that the power division constitutes an ‘eligible business’ u/s. 80IA(1), on the profit of which therefore deduction thereunder is exigible, restore the matter for determination of the quantum of deduction, on which there has been no examination and, consequently, findings by both the Revenue authorities, back to the file of the AO. The matter, in fact admits of no dispute in principle, with the assessee itself per its Notes to the Accounts clarifying that the inter-unit transfers have been recorded at prevailing market prices, so that all that survives is the verification of it’s claims. It is open for the assessee (or for that matter the Revenue) to make out a case inconsistent or in disagreement, wholly or partly, with what stands stated by us toward the same, of course meeting the law as explained herein, and in which case it shall be incumbent on the AO to consider and adjudicate the same, besides being obliged to do so in accordance with law by issue definite finding/s of fact and observing the principles of natural justice.
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