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TMI Blog2011 (11) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... , we have consolidated them and adjudicated them in this composite order. Grounds for the AY 2004-05 are considered as representative grounds in both these sets of appeals for adjudication and the same are reproduced as under. 2. The grounds raised in the revenue's appeal for the year 2004-05 read as follows: "On the facts and in the circumstances of the case, Ld. CIT(A) has erred in considering the sale price to be at the rate at which State Electricity Board's sale electricity to its consumers without properly appreciating facts of the case." 3. The ground in the assessee's appeal for the year 2004-05 read as under: "On the fact and in the circumstances of the case, the Ld. CIT(A) grossly erred in confirming the addition of Rs. 83,691/- being the profit earned on sales of Fly Ash Bricks, made by the Ld. A.O. denying the eligibility of deduction u/s 80-IA which is arbitrary, unwarranted and not according to law." ITA Nos. 60, 61 & 62/BLPR/2010 -Revenue's Appeal 4. We shall take up the revenue's appeal i.e. ITA Nos. 60, 61 & 62/BLPR/2010 first. In the opinion of the revenue, the Ld. CIT(A) has erred in considering the sale price to be at the rate at which State Electricity Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (8) and stated that the price tariff reached between the assessee and the SEB is not arrived at in a competitive environment. Therefore, the price determined in such a scenario cannot be equated with the situation where price is determined in normal business environment. He relied on the ratio of the decision of the Tribunal in the case of Jindal Steel & Power Ltd. (supra) Delhi and also Bombay Bench decision in the case of Dy. CIT v. BSES Ltd. [2008] 13 TTJ 227 (Mum.) for the proposition that the price charged by the electricity board to its customers constitutes a market price. He accordingly gave the relief to the assessee. 7. Aggrieved with the same, the revenue is in appeal on this issue for all the three assessment years i.e. 2004-05, 2005-06 & 2006-07 with an identical ground. 8. During the proceedings before us and at the very outset, the Ld. Counsel for the assessee explained the issue and mentioned that the revenue authorities have erroneously applied the provisions of section 80IA(8) of the Act. Referring to the 'market value' the expressions used in the said subsection, Ld counsel for the assessee mentioned that the electricity tariff rate applicable to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the paper book IInd volume. On the first page of the agreement the contract speaks that the assessee requested the CSEB for the infirm purchase. It is not the CSEB or the Govt., who insisted on the assessee for the infirm purchase hence this contract cannot be construed as "Govt. imposed infirm purchase contract".........." 10. We have heard both the parties and perused the orders of the revenue and the papers filed before us. There is no dispute on the basic facts. On hearing the parties, we find the issue for adjudication is if the tariff rate applicable to the sales made to the SEB reflect the market rate for the purpose of section 80IA(8) of the Act. In this regard, we have also perused the para 4.3.1 of the impugned order for facts and line approach of the CIT(A) and in view of its importance, the same is reproduced as under: "Section 80-IA (8) provides that wherein goods or services held for the purpose of eligible business are transferred to any other business carried on by the appellant, the price charged for such transfer should correspond to the market value of such goods or services on the date of transfer. If the price of goods transferred is overstated in comparison ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplies power to its consumers is to be considered to be the market price in respect of the electricity drawn for captive consumption of the assessee's steel division for the purpose of section 80-IA(8) and not the price at which electricity is sold by the assessee to the State Electricity Board. It is for the reason that the power tariff between the assessee and the SEB is not done in a competitive environment. Facts of the assessee's case are exactly same in principle. Therefore, the said decisions of the Tribunal have direct application to the said facts of this case. In view of the above said decision, we are of the opinion that the CIT(A) does not call for any interference on this issue. Accordingly, the relief granted by the CIT(A) is confirmed and therefore, the solitary and common ground raised by the revenue in all the three appeals is dismissed. 12. In the result, the three appeals of the revenue are dismissed. ITA Nos.66, 67 & 68/BLPR/2010 - Assessee's Appeals 13. These are the appeals of the assessee against the order of the CIT(A) cited above and the common issue raised in all of them relates to whether the profits derived on sale of the Fly Ash Bricks is eligible fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same, the assessee is in appeal before us for all the three assessment years with the common ground. 15. During the proceedings before us, Ld counsel made elaborate arguments and mentioned that the Fly Ash generation is part of the manufacturing process of the Electricity Generation, Assessee has an option either to sell the said by-product i.e. Fly Ash to the Cement Manufacturing entities or to use the same as the raw material for manufacturing of Bricks. Assessee opted for the later one. Ld Counsel mentioned that the assessee has a zero tolerance towards the 'waste disposal' of the industrial waste. Therefore, the assessee established a Brick making unit with the said Fly Ash as the raw material and proceeded to manufacture the Fly Ash Bricks. In the books of the assessee the said fly ash was shown as transfer to the Brick making unit and not as sale and hence there is no generation of profits at this point of transfer to Brick making unit Income generation accrued only at the point of sale of the Bricks made out of the said fly ash. The said sales for the AY 2004-05 is Rs. 83,691/-. The figures are different for AY 2005-06 and AY 2006-07. In the factual matrix of the above, Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and therefore, such profits are not 'operational income' of the 'Electricity/Power Generating' Undertaking. It constitutes an 'operational income' of the Brick Manufacturing Division, which is not entitled for deduction u/s 80-IA of the Act. 17. We have heard the parties and perused the orders of the revenue and the paper book filed before us. In the light of the above facts relating to the issue of fly ash generation by the Power generating unit and its use for making of the 'fly ash brick' and earning of income on sale of such bricks as narrated by the parties, we pictorially present the said facts in the following manner. Diagram showing Power Generation Unit producing Electricity and Fly Ash (Solid Waste) - Profits Generation 18. The above diagrammatic representation depicts that the assessee's power unit, the eligible business generating the Coal Based Power Unit and supplying the same for profits to SEB and others after utilizing the power for captive consumption. In the process, the Fly Ash, the solid waste, is yielded. The said solid waste is transferred to Brick Manufacturing unit for use as raw material for manufacturing of the Fly Ash Bricks which are so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned issue. The dictionary meaning of the expression integral includes the following and they are: essential to completeness, built-in, constitutional, constitutive, essential, hardwired, immanent, inborn, inbred, indigenous, ingrain, ingrained, innate, inherent, intrinsic, native, natural etc. In the instant case, the connectivity of the bricks making unit with the power generating unit is only because of the 'fly ash' produced out of the power generating unit Generally, the Fly ash is generated out of the fuel used for electricity generation. Therefore, brick making unit cannot be said be essential for the completeness of the 'power generating unit'. Construction of this brick making unit is neither ingrained nor inherently required too. Regarding the assessee's argument that the said brick making unit is since constructed for meeting the anti-pollution and environment friendly Acts, we find that disposal of fly ash is a pollutant and its disposal is the problem area for the assessee and in this regard, we find that the assessee has option to sell the said pollutant (fly ash) to the other cement or brick making industries. It is not the case that the assessee has to install the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not profits derived from eligible business under section 80-IB: they belong to the category of ancillary profits of such undertaking. Profits derived by way of incentives such as DEPB/ Duty drawback cannot be credited against the cost of manufacture of goods debited in the profit and loss account and they do not fall within the expression "profits derived from industrial undertaking" under section 80-IB." 23. Further, we find that the Special Bench has examined the issue of 'direct nexus'/operational income vs the ancillary income in the context of an appeal in the case of Dy. CIT v. Rajesh Kr Drolia [2011] 12 ITR(Trib) 410 (Kol.) (SB) and held that mere 'commercial connection' is not enough and there is need for 'direct yield' of the impugned profits derived from the undertaking is the requirement for any profits to become eligible for deduction u/s 80IB of the Act. The extract of the HELD portion from Special Bench decision in the case of Rajesh Kr Drolia (supra). Held, that there might be a commercial connection between the profits earned from repairs and maintenance, i.e., after -sales service, and the industrial undertaking but the industrial undertaking itself was not the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; ** (ii) The assessee is earning job work charges as well as repairs and maintenance, which are included in job work charges, no doubt it is established that there is commercial connection between profits earned on account of repairs and maintenance and the industrial undertaking but for that source of profit is not directly from industrial undertaking. The business of industrial undertaking had directly to yield that profit to claim deduction under section 80IB.... (iii) We have considered the case law relied on by both sides noted and discussed, but we find that the provision of section 80-IB of the Act is in pari materia with the provision of sections 80HH and 80-I of the Act, wherein the Hon'ble Apex Court in Sterling Foods [1999] 237 ITR 579 (SC), Pandian Chemicals Ltd.[2003]262 ITR 278 (SC) and Cambay Electric Supply Industrial Co. Ltd. [1978] 113 ITR 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26. Whereas in the instant case, the Impugned profits are earned by the Brick unit, which is a separate unit with a distinct set up and process, separate technology & manpower etc. Such profit being the income of the upstream industries does not constitute an operation income of the power unit. Therefore, any profits of the non-eligible for the purpose of section 80-IA of the Act downstream or upstream units (Fly Ash Brick Units) of the Electricity Generating Units, an eligible unit, are not to be construed as 'derived' from the eligible undertaking and therefore, it does not form part of an 'operational income' of the assessee. Mere flyash or raw material oriented connectivity between the Units for generating Power and manufacturing the Flyash Bricks does not establish direct nexus at the level of sources of the 'profits' of the undertakings, which is the requirement of the law. Such far related connectivity of the sources of profits does not make the Brick Unit as an integral part of the Power Unit. Thus in our opinion, the immediate source or genesis of the impugned profit decides the direct nexus to an eligible undertaking rather than the commercial connectivity of the undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of the 'fly ash brick', which are manufactured out of 'brick making unit' using the 'fly ash' the by-product generated out of the 'power generating unit, the eligible business, constitutes an 'operational income' as fly ash (i.e the pollutant) disposal is an integral part or a part and parcel of the said business of 'power generating unit'. As per the discussion above, we find, that considering the option available to the assessee either to sell the said byproduct, the option the assessee did not prefer in this case, the assessee's decision to opt for the other option to use the said byproduct as raw material for the newly installed brick making unit for producing the bricks and earn the profits thereof, does not make the brick making unit as the integral part of the 'power generating unit'. 29. From the scope of the expression 'derived' used in the said section 80IA(1) of the Act, we find that it is the settled that that to be an eligible profits for deduction u/s 80-IA of the Act, the same has to be derived from an eligible undertaking i.e. power generating unit in this case. It is also settled proposition at the level of the Apex Court that only operation income is an eligib ..... X X X X Extracts X X X X X X X X Extracts X X X X
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