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2015 (9) TMI 1001 - ITAT HYDERABAD

2015 (9) TMI 1001 - ITAT HYDERABAD - TMI - Addition on difference in the valuation of banked energy - change in method of valuation - CIT(A) deleted the addition - Held that:- Keeping in view the ratio of the said decision of Hon’ble Supreme Court in the case of CIT vs. Bilhari Investment (P) Limited (2008 (2) TMI 23 - SUPREME COURT), which is squarely applicable to the facts involved in the assessee’s case, the Ld. CIT(A) accepted the method followed by the assessee for valuation of banked powe .....

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A.No.1468/Hyd/2013, ITA.No.1469/Hyd/2013 - Dated:- 28-8-2015 - SHRI P.M. JAGTAP AND SMT. P. MADHAVI DEVI, JJ. For The Revenue : Mr. Ramakrishna Bandi For The Assessee : Mr. C.S. Subrahmanyam and Mr. V. Sivakumar ORDER PER P.M. JAGTAP, A.M. One of the two issues involved in these two appeals filed by the Revenue is common and the same therefore have been heard together and are being disposed of by a single consolidated order. First, we shall take-up the appeal filed by the Revenue for A.Y. 2007- .....

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nd Electricity Generating Unit in Tamilnadu. It was already having a Wind Power Generation Unit in Andhra Pradesh and had entered into Power Purchase Agreement with Transmission Corporation of Andhra Pradesh Limited. A survey under section 133A was carried out on 13.03.2007 in the business premises of the assessee. Subsequent to the survey, the return of income for the year under consideration was filed by the assessee on 31.10.2007 declaring total income of ₹ 35,97,73,410. During the cour .....

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f ₹ 3.10 per unit. When the assessee was called upon by the A.O. to explain it s stand in the matter, the following explanation was offered by the assessee. "The power generated from month to month is evacuated to APCPDCL. Then, APCPDCL, out of the power generated, adjusts a portion of the generated units against the power consumption for each month and the balance of units remaining unadjusted from the consumption represents units of power' retained by the APCPDCL. The appellant .....

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d at the end of the year at cost or market value whichever is lower. For a business of power generation banked units represents the closing stock which are accordingly valued at cost being the lower of the two. The profit arrived at by valuing opening stock and closing stock at cost in compliance with the Accounting Standards reflects the true economic profit made by the enterprise. The appellant requested for acceptance of the method of valuation consistently followed for banked units which als .....

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saction was completed as per the power purchase agreement and the value of such banked units for the purpose of recognizing the revenue should be taken at the agreement price of ₹ 3.10 per unit. Accordingly, adopting the said rate, the value of banked energy units of 22,25,874 was worked by the A.O. at ₹ 69,00,209 as against ₹ 15,80,371 taken by the assessee and the difference of ₹ 53,19,838 was added by him to the total income of the assessee in the assessment completed .....

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dition to manufacture and sale of cement, also operates power generating units. The power so generated is sold as per the power purchase agreement that the appellantcompany entered into with APCPDCL. The appellant company also utilizes power for its manufacturing activity in the, cement manufacturing unit. While billing the appellant for power consumed, APCPDCL gives credit for the power sold to it under the power purchase agreement. However, APCPDCL adjusts only a portion of the generated units .....

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valuation adopted in respect of the banked units. The appellant explained that the power generated from month to month is evacuated to APCPDCL. Then APCPDCL, out of the power generated, adjusts a portion of the generated units against the power consumption for each month and the balance of units remaining unadjusted from the consumption represents units of power retained by the APCPDCL. The appellant explained that from the total power generated in a year the units remaining unadjusted are consi .....

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eration banked units represents the closing stock which are accordingly valued at cost being the lower of the two. The profit arrived at by valuing opening stock and closing stock at cost in compliance with the Accounting Standards reflects the true economic profit made by the enterprise. The appellant requested for acceptance of the method of valuation consistently followed for banked units which also accords with accounting standards. 5. However, the Assessing Officer opined that once power ge .....

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the appellant cannot be stored like other commodities. It is for this reason that the power generated is evacuated into grid in accordance with the agreement entered into with APCPDCL. Once the power so evacuated is utilized by the appellant for its cement plant, (subject to payment of wheeling charges and banking charges) the appellant realizes the sale value to the extent of units adjusted against the consumption by the cement plant. It is of utmost importance to note that APCPDCL itself ackn .....

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n consistently followed over the past several years, may be upheld and the addition of ₹ 53,19,838/- made by the Assessing Officer may be deleted. 7. It is submitted that the method of accounting for unbilled units has been consistently followed by the assessee over the years and has been accepted by the Department. In the light of the fact that there has been no change either on the facts or in any other circumstances of the case, it is submitted that the A.O. is not correct in imposing a .....

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electricity in its cement manufacturing unit, and the AO is not correct in making addition of ₹ 53,19,838 which may be directed to be deleted. 4. The Ld. CIT(A) found merit in the submissions made on behalf of the assessee and deleted the addition made by the A.O. on account of difference in the valuation of banked units observing that the method of valuation of banked units having been consistently followed by the assessee in the past years and the same having been accepted by the depart .....

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involved in the year under consideration vis-à-vis the earlier years, the A.O. was not correct in changing the method of valuation consistently adopted by the assessee for valuation of banked power units. Accordingly, relying on the decision of Hon ble Supreme Court in the case of CIT vs. Bilhari Investment (P) Limited 299 ITR 1 (SC), the Ld. CIT(A) deleted the addition made by the A.O. by changing the method of valuation of banked power units in the year under consideration. Aggrieved b .....

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contentions and also perused the relevant material on record. It is observed that although 22,25,874 banked energy units produced by Hydel Power Unit A.P. during the period from 22.03.2007 and 31.03.2007 and included in the closing stock were valued by the assessee at ₹ 0.71 per unit as against the market price of ₹ 3.10 per unit, the basis of such valuation was duly explained by it before the A.O. as well as before the Ld. CIT(A). As specifically pointed out by the assessee before t .....

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also placed by the assessee on the decision of Hon ble Supreme Court in the case of CIT vs. Bilhari Investment (P) Limited (supra) wherein it was held that the method of accounting adopted by the assessee having been consistently followed over the past several years, the same would not result in distortion of profits. Keeping in view the ratio of the said decision of Hon ble Supreme Court in the case of CIT vs. Bilhari Investment (P) Limited (supra), which is squarely applicable to the facts inv .....

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the impugned order of the Ld. CIT(A) giving relief to the assessee on this issue. The same is therefore upheld and the appeal of the Revenue for A.Y. 2007-2008 is dismissed. 7. Now we shall take-up the appeal of the Revenue for A.Y. 2008-2009 being ITA.No.1469/ Hyd/2013 which is directed against the order of Ld. CIT(A)-V, Hyderabad dated 31.07.2013. The grounds raised by the assessee in this appeal are as under : i. The order of the Ld. CIT(A) is erroneous in law and on facts of the case. ii. T .....

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