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2015 (9) TMI 493 - ITAT HYDERABAD

2015 (9) TMI 493 - ITAT HYDERABAD - TMI - Claim for deduction under section 80IA disallowed - profits and gains derived by the assessee from the sale of sludge/waste oil - CIT(A) deleted addition - Held that:- Profits and gains derived from such business considered to include the sale of sludge, which is the product of the business undertaken by the assessee i.e., manufacture of power and the sludge is generated out of such activity and is held to be directly attributable to the business activit .....

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mt. P. Madhavi Devi, JM. This appeal filed by the Revenue is directed against the Order of the Ld. CIT(A), Tirupati dated 20th February, 2015 for the A.Y. 2010-2011 and arises out of the assessment completed under section 143(3) of the I.T. Act, 1961. 2. Briefly stated, assessee is a company engaged in the business of generation and supply of power and it filed its return of income on 28.09.2010 for the year under consideration, admitting total income of ₹ 5,69,35,280. During the course of .....

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disallowed the claim for deduction under section 80IA to the extent of ₹ 78,92,135, which is sale consideration of the sludge and waste oil. Aggrieved by the order of the A.O. the assessee preferred an appeal before the CIT(A) raising 15 grounds. The Ld. CIT(A) partly allowed ground Nos. 2 to 5 and 9 to 12 for statistical purposes and the Ld. CIT(A) allowed ground Nos. 6 to 8 relating to the sale of sludge and waste oil, arising from the business of power generation, as eligible for deduc .....

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9;derived from' between the profits and gains and the industrial undertaking but not5 any nexus that is not direct but only incidental as held by the Hon'ble Supreme Court. 4. Any other ground that may be urged at the time of hearing." 3. Ground Nos. 1 and 4 are general in nature and therefore, need no adjudication. Now the only question before us is, whether the income generated from sale of sludge/waste oil is part and parcel of income derived from power generation process of the .....

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erived from the business of electricity generation. Therefore, the assessee is not eligible for deduction of such income. He further argued that sale of sludge is only incidental to assessee's business and there is no direct nexus between the profits and gains. The learned D.R. strongly relied on the decision of Hon'ble Supreme Court in the case of CIT vs. Pandian Chemicals Ltd., (2003) 262 ITR 278 wherein it was held that the sale of scrap was not considered as profits and gains of indu .....

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ng at regular intervals as per the specific requirement and the use of lube oil removed from diesel engines used in power generation is of very poor quality called sludge/waste oil, which is the outcome of power generation and for this reason only the Ld. CIT(A) came the conclusion that the assessee is entitled for deduction under section 80IA. The Ld. Counsel further submitted that the lubricating oil is used for maintenance of engines to meet the technical requirements and such lube oil passed .....

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neration and further that the company never manufactured and sold such a product as a separate product. 6.1. He argued further that income generated from sale of sludge and waste oil being related and derived from the power generation process, is eligible for deduction under section 80IA of the Act. The Ld. Counsel for the assessee also contended that the A.O. relied on the decisions of Hon'ble Supreme Court in the case of CIT vs. Sterling Foods (1999) 237 ITR 579 and CIT vs. Pandian Chemica .....

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idental, therefore, the A.O. denied deduction under section 80IA of the Act. The Ld. Counsel for the assessee argued further that there is no requirement of there being a direct nexus between the activity of an industrial undertaking and the profits and gains of business for claiming deduction under section 80IA, whereas under section 80HH, the industrial undertaking had to be the direct source of profit, and not as means to earn profit. The Ld. Counsel also relied on a decision in the case of L .....

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d power supply to Tamilnadu Electricity Board. The claim of the assessee for deduction under section 80IA for the year under consideration was ₹ 51,83,44,409 and the income generated from sale of sludge was at ₹ 78,92,135. However, the A.O. disallowed the claim relatable to the sale of sludge on the ground that sale of sludge is only incidental to the business and there is no direct nexus between the profits and gains of industrial undertaking. For application of words 'derived f .....

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the assessee in support of his contention relied on the decision of Hon'ble Supreme Court in the case of Liberty India vs. CIT (2009) 317 ITR 218 to establish the distinction between the provisions of section 80HH/80I, 80IB and 80IA. In this connection, it is relevant to extract the relevant provisions of section 80IA and section 80HH as under : "Section 80IA: "Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise fro .....

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s section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof." 7.1. From the careful perusal of above provisions, it is noticed that section 80HH refers to the profits and gains derived from an industrial undertaking, whereas, provisions of section 80IA refers to profits and gains derived by an industrial undert .....

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