TMI Blog2012 (2) TMI 483X X X X Extracts X X X X X X X X Extracts X X X X ..... on for value of bagasse not accounted for in that division - Held that:- Separate books are maintained and scrutilized by the assessomg officer in respect of three divisions of the assessee company. There is no evidence that instead of cane trash bagasse has been consumed. Since it is the assessee case that the profits of the power division are exempt under section 80IA of the Act, it does not make sense for the assessee company to reduce profits of the power division by recording spurious purchases of cane trash. Non recording of expenditure actually goes to increase exempted profits. This clearly points to the genuineness of the assessee’s case. The method of accounting followed by the assessee in respect of the sugar and power divisions are the same from year to year. In fact, the sugar division is subject to Central Excise supervision and records are maintained under the Central Excise and Salt Act, 1944. Further the sugar and cement divisions are statutorily required to maintain records under the cost accounting/Audit rules as applicable. Therefore the records should be complete according to all statutory requirements and hence there is no warrant for the department to make an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see co-generation 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 the said MOU the assessee company has to abide by the regulations of AP Electricity Regulatory Commission (APERC). It was also under obligation to enter into separate agreement with APTRANSCO. 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. Vide GO MS No.93 of Energy Department dated 18.11.1997, the Government has fixed the power purchase price at ₹ 2.25 per unit, with escalation of 5% per annum with 1997-98 as base year. As per the Article-3 of the agreement, the purchase price by APTRANSCO 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 sugar division shown at ₹ 490.48 lakhs, sale of electricity to cement division at ₹ 855.06 lakhs, sale of electricity to APTRANSCO at ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chinery. He further noted that by bi-furcating the 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 concerned, 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 order, he held that in the case of the assessee there is no new undertaking and the same is only formed by splitting of existing business and hence, it is not entitled to any deduction under section 80IA of the Act. He thus, rejected such claim of the assessee 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 is entitled to deduction under this section, then the value of steam which is claimed by the assessee at ₹ 484.31 lakhs, should be nil . The assessee has shown such amount towards sale of steam to the sugar u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CO, sugar division and cement division is concerned, the Assessing Officer noted that the assessee has adopted a rate of ₹ 3.48 per unit. Referring to GO.MS No.93 dated 18.11.1997 of Government of Andhra Pradesh, the facts relating to rate that was fixed at ₹ 2.25 per unit with 5% escalation per annum 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 force of the Electricity Act, 2003 empowering the State Electricity Regulatory Commission to fix the tariff, he noted that as per the order passed by APERC on 20.03.2004 fixing tariffs for various sources of energy, the assessee is entitled to a price of ₹ 2.67 per unit during the financial year 2006-07. However, after referring to the dispute raised by South Indian Sugar Mills Association to such rate fixed by APERC and discussing the chronological events of the litigations at various stages including the Hon'ble Apex Court, on that account, he noted that the same has not reached the finality and in the meantime the APTRANSCO has been paying the charges as per new tariff fixed by the APERC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nternally met by the assessee from its sugar unit. Under the circumstance, while stating that the assessee has not purchased any trash from the farmers during the previous year and further stating that the balance bagasse of 37994 MT was obtained from the sugar unit, he held that the value of the same amounting to ₹ 2,84,94,500/- (37994 X 750), has to be considered towards undisclosed income in respect of the sugar unit. With the above discussions, the Assessing Officer computed the income from sugar division at ₹ 13,28,43,574/-, income from cement division at ₹ 12,07,50,567/- and income from power unit at ₹ 86,01,490/-, and he completed the assessment by determining total income of the assessee company at ₹ 26,59,03,160/-. 7. Aggrieved by the order of the Assessing Officer, the assessee went an appeal before the first appellate authority. The assessee company has raised mainly four issues. Firstly, the Assessing Officer was not justified in holding that the power division is not a new unit and thus not entitled to deduction under section 80IA of the Act. Secondly, the Assessing Officer is not justified in adding a sum of ₹ 4,84,31,300/- towar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le for deduction under section 80IA of the Act. Objecting to such observation of the assessing officer that the power division in the case of the assessee is formed by division of the existing business structure, it was submitted that he has not 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 is converted into electricity in the business, the assessee has split the existing business structure. Further, objecting to his observation that the integral part of the business is divided into a separate undertaking, it was stated that having regard to the decision in the case of Textile Machinery Corporation Limited (supra), the said power plant in the case of the assessee has to be treated as a new and separate industrial undertaking and deduction under section 80IA of the Act has to be allowed in respect of profit 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra] has pointed out to this aspect 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 which 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 that 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 cannot 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 against the definition, which had only stressed the prohibitions, 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 for expansion of tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w company could be denied the benefit as visualised in s. 15C(1) because of operation of cl. (i) of sub-s. (2). It is a restrictive clause. It denies benefit which is otherwise available in sub-s. (1). A provision in a taxing statute granting incentives for promoting growth and development should be construed liberally. The section, read as a whole, was a provision, directed towards encouraging 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 in form and substance, by providing that the undertaking should not be, formed ' in any manner provided in cl. (i) of sub-s. (2) of s. 15C. Each of these requirements, namely, formation of the undertaking by splitting up 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 benefit contemplated under sub-s. (1). Since a provision intended for promoting economic growth has to be interpreted liberally the restriction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) by including in it every undertaking except if it is covered by cl. (i) for which it is necessary that it should not be formed by transfer of building or machinery. The restriction or denial of benefit arises not by transfer 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 building or material but the one which can be held to have resulted in formation of the undertaking. Even if the undertaking 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 benefit. 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 company or its shape did not come up in consequence cit transfer 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 other business sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed' 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 undertaking is established by transfer of building, plant or machinery, it is not formed as a result of such transfer the assessee could not be denied the benefit. 15. It is submitted that a new undertaking for manufacture of power with steam as by-product was formed out of fresh funds, in a separately identifiable 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. In fact the old turbine of 2.5MW, were allowed to be used as a stand-by. The power and steam produced earlier was part of the sugar unit and could service only the 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 consumption in the sugar unit also service the cement units power requirements, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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 electricity, the assessee was already having boilers and steam turbines which, after commissioning of said power plant, were dismantled and sold off in 2003-04. Thus, it is fact that for its main business of manufacturing sugar, the assessee was earlier having necessary plant/undertaking for producing steam and electricity. Under this circumstance, by setting up of the said power plant later, it cannot be said that the assessee 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 that the said plant in the case of the assessee was a new industrial undertaking 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 the affairs in this case. Hence, the assessee is not entitled to deduction under section 80IA of the Act in respect of the profit derived from that power plant, notwithstanding sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness and re-organisation of the affairs of the assessee. The judgement relied on by the assessee s counsel in the case of Textile Machinery Corporation, the issue relates to re-construction of business already in existence with reference to provisions of section 15C 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 were supplied to the jute mill division by the boiler division of the assessee and aftger machining and forging, the parts were given back by the jute mill division to the boiler division. After carefully considering the facts of that case, the Tribunal noted that the existing business of the assessee consisted of manufacturing boilers, wagons, etc., and for that purpose the assessee was purchasing the parts, forgings and castings from outside and that the business of the new units was to manufacture these very parts and therefore, it could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business 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 undertaking is established by transfer of building, plant or machinery, it is not formed as a result of such transfer, in our considered view; the assessee could not be denied the benefit. We also find that a new undertaking for manufacture of power with steam as by-product was formed out of fresh funds, in separately identifiable 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 and could service only the sugar unit and hence was at best by-product of the sugar unit manufacturing facility. The new unit had power as the main product and apart from servicing the captive consumption in the sugar unit also serviced the cement unit power requirements, which the old captive power plant was not doing and the surplus power is being supplied to APTRANSCO in terms of an agreement. The pricing of power is also s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision 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 electricity. The steam which is neutral is transferred at a low pressure to the sugar unit. During crushing season, additional fuel cost is incurred for generating steam and the steam price charged to the sugar unit takes into account the incremental fuel cost. It was stated that the actual profit on such activity was ₹ 11.43 lakhs which 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 without reducing the corresponding cost on debit side. It was submitted that the assessing officer was not justified in disallowing claim of deduction under section 80IA of the Act on value of such steam and also was not justified in making addition of an amount of ₹ 4,84,31,300/- to the income in respect of the sugar unit. 20. The learned Departmental Representative submitted that the lower authorities are rightly noted that the value of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sugar division, the assessee company is eligible for deduction under section 80IA of the Act. For this proposition, we place reliance on the order of the Tribunal in the case of DCW Ltd.vs. Addl. CIT, ITA No. 126/Mum/2008, AY 2003-04 dated 29th January, 2010 reported in 42 DTR (Mumbai) (Trib.) 369 at page 383 para 18.8 which reads as under: 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 undertaking. The power generated by the running of diesel generating set is used in the manufacture of caustic soda. Runniong of diesel generating sets produce heat, which is recovered from the waste heat recovery boiler 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 submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see company for purchase of cane trash during the year, he held that the value of such balance quantity of bagasse, which was made available from the sugar plant, has to be added to the income of the assessee company under that division i.e., sugar division. Accordingly, he made such addition of ₹ 2,84,95,500/- to the income of the assessee company under that division for bagasse not accounted by them. On appeal, the CIT [A] confirmed the action of the assessing officer and confirmed the aforesaid addition. 24. The learned counsel for the assessee submitted that bagasse which is raw material being fuel used in power division, is produced as a bi-product in the sugar unit, during the process of manufacture of sugar. It was stated that the quantity of bagasse consumed in the power unit is accounted for on day to day basis in the records of power unit. Bagasse is transferred by the sugar unit to the power unit and such transfer to the power unit, are credited as income in the books of the sugar unit. It was further stated that trash is purchased separately and weighed on a weigh bridge and separate weighment slips are prepared. It was further submitted that for purchase of tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee company, in the licensing conditions, is allowed to use only Bagasse, canetrash and conventional 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 considered by CIT (A). He simply ignored the documentary evidence. Separate books are maintained and scrutilized by the assessomg officer in respect of three divisions of the assessee company. There is no evidence that instead of cane trash bagasse has been consumed. Since it is the assessee case that the profits of the power division are exempt under section 80IA of the Act, it does not make sense for the assessee company to reduce profits of the power division by recording spurious purchases of cane trash. Non recording of expenditure actually goes to increase exempted profits. This clearly points to the genuineness of the assessee s case. The method of accounting followed by the assessee in respect of the sugar and power divisions are the same from year to year. In fact, the sugar division is subject to Central Excise supervision and records are maintained under the Central Excise and Sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer units in the industry of the G.O of the Government of Andhra Pradesh No.93 dated 18.11.1997. However, the tariff according to APERC was ₹ 2.67 per unit. It was stated that such tariff rate fixed by APERC was disputed by the sugar mills association of South India. and when the matter was carried to the appellate tribunal, the latter vide order dated 02.06.2006 decided the same in favour of the assessee and thus the tariff was restored to ₹ 3.48 per unit. Stating that the said order of the Appellate Tribunal was rendered in the assessment year in question, it was submitted that the assessee was justified in taking the price at the said amount of ₹ 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 of ₹ 2.67 per unit 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 (supra) and in CIT vs. Hindustan Housing Land Development Ltd., (supra), relied on by the assessing officer, are different and hence, those decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able right for the recovery of the amount as and when it succeeds in the litigation. In this view of the matter, though invoices raised constitute fundamental record for maintenance of accounts in the normal course, as observed by the Assessing Officer, that logic does not hold good when the subject matter was under dispute and was under litigation before the judicial fora, including the jurisdictional High Court and Hon ble 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 Standard 9 and the ratio laid down by the Apex Court, among others, in the case of law discussed by the CIT(A) in the impugned order, and also in the case law relied upon by the assessee before us. In this view of the matter, we find no infirmity in the order of the CIT(A), which is accordingly confirmed 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 cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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