TMI Blog2015 (3) TMI 794X X X X Extracts X X X X X X X X Extracts X X X X ..... e justified and cannot be said to be deliberate or motivated. Moreover even if an assessee gives (sells) his goods free of cost to other, there is no provision in the IT Act to tax its sale value' as income on presumptive basis. Legally speaking since no income has accrued & neither any payment has actually been received by the appellant company, making addition in respect of estimate price of steam amounts to taxing of notional income which is not permissible. Thus addition deleted. - Decided in favour of assessee. Deduction u/s 80IA - 50% of receipts from UPSEB - whether are eligible for computation of deduction u/s 80-IA - CIT(A) holding that steam is one of the form of power and as is eligible for deduction u/s 80-IA - Held that:- Similar issue has been decided by the ITAT in favour of appellant in AY 99-00 and AY 01-02. In the said years, the ITAT has followed its order for AY 00-01 and has held that AO was not justified in reducing the amount received by appellant from the gross receipt eligible for deduction u/s 80- IA. However, because the entire addition in respect of sale of steam was deleted this alternate ground becomes infructuous and hence treated as dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ton for varying periods. During this year however the steam was supplied free of cost. The AO therefore proposed to treat the sale proceeds of exhaust steam work out at the rate of ₹ 236 per ton claimed income from the appellant in the same was as in earlier years. In response to show cause notice the appellant made written submissions by letter dated 3/2/06 and therefore by letter dated 13/3/06. The contents of letter dated 13/3/06 have been reproduced by the AO on page 4 of the assessment order. Since the said letter gives gist of history of this issue but same is reproduced in this order also even at the cost of repetition: - 1. Receipts from steam during A Y 2000-01 were recognized in the books @ ₹ 236 per ton. However, due to revision of rates, in AY 01- 02 a reversal entry was passed in the books reducing the receipts excess accounted for in AY 2000-01. 2. In the assessment proceedings for AY 2000-01 the assessee company claimed that the receipts be reduced by ₹ 3,82,59,074 since the rate of steam with retrospective effect had been revised to ₹ 75 per ton. 3. The Assessing Officer rejected this claim of the assessee company by observing in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be estimated and. taxed on account of steam in the present assessment year. The proposed estimated income of steam computed @ ₹ 236/ per tone is Unjustified and against the principles laid dqwn::-by the Supreme Courtend various High Courts including the terrttortetjuqids! High court. 2.2 As can be seen the appellant agreed that in the earlier years steam was sold @ ₹ 236 per ton and that rate was retrospectively changed to ₹ 75 per ton. However with effect from Oct., 2001 SSL has refused to make any payment towards supply of steam: Since there was uncertainty about realization of any sale price of supply of steam the appellant did not recognize the value following the Accounting Standard 9 as notified u/s 145(2) of the I. T. Act. Since there was no right to receive any amount for supply of steam and neither was any amount actually received there cannot be any income from sale of steam. It was contended that only the real income can be taxed under II provision. The AO did not accept the explanation submitted by the appellant on the ground that the steam definitely a value and the appellant was recognizing the receipts from sale of steam in earlier years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied: ₹ 0.52/per unit of electrical energy, ie electricity ₹ 40 per tonne of thermal energy, ie steam 2.4 The fixed fee of ₹ 19.75 million per month included 50% of income received from sale of surplus electricity to UPSEB. Therefore, it was provided in clause 7.11 that 50% of such reetization from UPSEB would be returned to SSL. As per Article 18 of the Conversion Contract the said agreement was to be approved by PICUP who had given loan of ₹ 8 crores of SSL. PICUP strongly objected to payment terms as per Conversion Contract and did not give its approval. In view of PICUP's objection re-negotiation of the payment terms were proposed between the appellant SSL. Pending the negotiations, interim arrangement dtd 26/8/99 for payment was agreed to. According to this, ₹ 236 per ton was to be paid for steam and supply to SSL. For electrical energy the same rate as for UPSEB was to be charged by appellant from SSL. For some period the appellant raised the bills and SSL made payment these for supply of steam as per this arrangement. However even this arrangement was objected to by PICUP on the ground that accepted rate of return justified in power ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (They have been reproduced by AO also on page 3 of assessment order as part of appellant's reply). It was therefore, stated that the appellant was fully justified in not recognizing any sale proceeds of steam applied to SSL. The main contention was that only real income can be taxed under the IT Act. Notional income on estimated basis cannot be brought to tax. In support of this legal. .contention also the appellant relied on a few judicial decisions. Therefore according to appellant the income estimated by AO from supply of steam to SSL and at the rate of 236 per ton was highly unjustified and against the judicial principles. Without prejudice, it was also stated that the AO has not giving justification for adopting the rate or steam at the rate of 236 per metric ton when only ₹ 75 was chargeable by the appellant as per the revised interim arrangements made with SSL. It was mentioned by the appellant that the addition made in earlier years when the rate of steam was reduced from ₹ 236 per metric ton to ₹ 75 per metric ton was deleted by ITAT in AY 00-01 whose order has been followed by the CIT(A) in A Ys 01-02 order dtd 26/7/04 and 99-00 order dtd 4/1/06. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from sale of steam. The point to be noted is that the income from any contract (sale) can be said to accrue as per agreed terms of such contract. If there is any dispute by either party the accrual of income (of expenditure in the hands of other party) will be subject to the outcome of such dispute accordingly contingent. Normally the income in such cases can be said to accrue in the year in which the dispute is resolved other party acknowledges the debt. Even in such cases some party may choose to recognize its income or liability as accrued according to facts circumstances whereby it is certain to be able to enforce the terms of contract. However, the appellant did not recognize any revenue from sale of steam in current year according to AS-9, since SSL had categorically refused to make any payment for supply of steam. Therefore, non-recognition of any accrual of income from supply of steam does not appear to be unjustified. 2.9 It may be noted that normally if some buyer refuses to make payment for goods supplied to it; the seller would immediately stop supply of goods. However the appellant did not stop supply of steam to SSL even in the face of clear declarati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey terms to any of the company. However transaction of exchange of bagasse water for power steam is for mutual benefit and convenience. 2.11 Even if we look at things from a different perspective, the income of one company will be a deductible expenditure for the other and between the two there is no tax gain from this transaction. The income in the case of appellant is eligible to 100% deduction u/s 80-IA also. Hence no allegation of tax planning can be attributed in this transaction which appears to be wholly for business considerations. It may not be out of place to reproduce hereunder a part of letter dated 2/11/02 written by SSL to the appellant company. The sugar and power generation project are for all practical purposes two limbs of a single project one cannot survive without the other. In 1994, when the construction of the sugar plant was first taken up, the power generation facility was an integral part of the project and owned by this Company itself. Subsequently in 1995 air Liquide offered to invest substantial monies in the power project and for doing so insisted that the power project be transferred to and owned by a separate company, independent from SS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t company proposed to be made a subsidiary of SSL (and in fact has already become so). Looked from this angle, the transaction is between the holding and subsidiary company. Therefore in my opinion action of the appellant company in not charging for steam supplied to SSL is quite justified and cannot be said to be deliberate or motivated. Moreover even if an assessee gives (sells) his goods free of cost to other, there is no provision in the IT Act to tax its sale value' as income on presumptive basis. Legally speaking since no income has accrued neither any payment has actually been received by the appellant company, making addition in respect of estimate price of steam amounts to taxing of notional income which is not permissible. In view of this the addition of ₹ 9,93,41,508 (Rs 8,49,44,188 after rectification) is deleted. Unquote 2.5. On the basis of the findings of the CIT(A) for earlier years as well as the decision of the ITAT in the assessee's own case for earlier years, it is clear that this issue is squarely covered in favour of the appellant and the and the facts in this year are similar to those in the earlier years. The assessing officer has also not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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