TMI Blog2011 (12) TMI 604X X X X Extracts X X X X X X X X Extracts X X X X ..... the deduction as claimed originally. The detailed written submissions were filed before learned CIT(A) which have been recorded in paras 4 to 6 of his order and as under : 4. During the course of appellate proceedings the learned Authorised Representative submitted as under : 'That the appellant had filed its return of income on 30th Nov., 2006 declaring total income of ₹ 34,37,748 and claimed deduction under s. 80-IA of IT Act, 1961 on captive power plant at ₹ 1,72,31,805. That during the assessment proceeding as desired by the learned AO the appellant filed audit report in Form 10CCB for claiming deduction under s. 80-IA on captive power plant as the return was filed electronically and no papers or enclosures were allowed/possible. That the appellant during the assessment proceedings vide its letter dt. 30th Dec., 2008 revised the claim of deduction under s. 80-IA on the captive power plant (CPP). The claim was required to be revised because deduction under s. 80-IA was wrongly calculated by applying wrong rate of depreciation @ 25 per cent (on plant and machinery) whereas during the year under appeal the correct rate of depreciation was 15 per cent (in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self or pointed out by the assessee. It is not only illegal but also inequitable for the AO to correct the depreciation claim if it is beneficial to the Revenue, and not to correct it when it is beneficial to the assessee. This approach does not fit into the quasi-judicial status granted to the AO and the assessment proceedings. Under the above facts and circumstances it is prayed that the revised claim of deduction under s. 80-IA may kindly be accepted and allowed. Thereafter the learned CIT(A) allowed the issue in favour of the assessee by giving his finding in para 7 of his order as under : I have considered the facts of the case and submission of the learned Authorised Representative and found that the appellant originally claimed deduction under s. 80-IA of the Act at ₹ 1,72,31,805 in the return of income filed on 30th Nov., 2006, but later on during the course of assessment proceedings the appellant revised the claim under s. 80-IA to ₹ 2,46,75,216 on the ground that the appellant wrongly claimed depreciation @ 25 per cent on plant and machinery of captive power plant instead of 15 per cent allowable as per Act. Thus the eligible profit for claim under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT(A), we confirm the finding of learned CIT(A) on this issue. 7. Remaining issue is against deleting the addition of ₹ 34,36,058 made by AO on account of apportionment of common expenses as per s. 80-IC. 8. The brief facts in this respect are that during the year the assessee has claimed deduction under s. 80-IA of ₹ 1,72,31,805 on captive power plant at Panoli (Gujarat) for generating electricity which was used in the process of manufacturing of agro chemicals and polymers unit at Panoli. In the power generation plant the gas was purchased from the Gujarat Gas Ltd. from which electricity is generated and used in various plants. From the perusal of balance sheet, P L a/c and depreciation chart furnished by the assessee it was noticed that many expenses of common nature were not apportioned among the unit claiming deduction and the principal unit. The AO asked the assessee to explain as to why the expenses should not the apportioned on the basis of turnover between the captive power plant and principal unit. The assessee furnished explanation vide letter dt. 31st Dec., 2008 and extracted in the order on pp. 3 to 7. 9. The AO further observed that the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use of the HO services by the captive power plant unit is inevitable in order to arrive at the assumption that profit has to be calculated as if the captive power plant unit was an independent industrial undertaking. The assessee cannot literally ignore the explicit provision of s. 80-IA units as discussed above. Hence on the basis of above discussion the common expenses were being apportioned between the captive power plant unit and the principal unit. The apportionment of expenses was being done on the basis of turnover ratio. The turnover of both the units was ₹ 33,779 lacs (Rs. 32,679.13 + ₹ 1,100.86). The share of principal unit in the turnover was ₹ 32,679.13 lacs and that of captive power plant unit was ₹ 1,100.86 lacs. Thus the turnover of the two units came out in the ratio of 97:3. thus the expenses would also be apportioned in the same ratio i.e. 97:3 among principal unit and captive power plant unit as under : Pre-apportionment Post-apportionment Particulars Total expenses P. Unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, therefore, the addition of above amount to the expenses would reduce the income eligible for deduction, at the same time the income of the principal unit would increase in the same proportion, thus leading to increase in the taxable income of the assessee by ₹ 34,36,058. 10. Detailed submissions were filed before learned CIT(A) which have been discussed by learned CIT(A) in para 11 of his order as under : 11. During the course of appellate proceedings the learned Authorised Representative submitted as under : 'That the learned AO has discussed the above issue at pp. 3 to 12 of the assessment order and restricted the claim of deduction under s. 80-IA by apportioning the so-called common expenditure and depreciation of other business units to the captive power plant unit in 'total turnover ratio' amounting to ₹ 34,44,058 calling them 'common expenses', which is unjustified, unwarranted and bad in law due to following facts. That during the year under appeal the appellant had claimed deduction under s. 80-IA of the IT Act, 1961 amounting to ₹ 1,72,31,805 for captive power plant situated at Panoli. The year under consideration is the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he head quarters or any building, machinery or equipment installed there is required to operate the captive power plant is illogical, because the captive power plant does not require corporate entity related expenses or expenses in connection with obtaining any business from anybody, there being only one consumer and one supplier. Further the appellant company kept separate books of account for the captive power plant and the same have been duly audited and audit report in Form 10CCB has been submitted with the return of income (copy enclosed). The requirement of the law is that the profit of power generation unit is to be computed as if that is a standalone business. Therefore, what one has to see is as to whether the eligible undertaking can stand and function on the basis of expenses shown after considering the nature and extent of business. That on perusal of the audit report in Form No. 10CCB along with P L a/c of the aforesaid unit your Honour would appreciate, eligible undertaking has shown all the expenses relatable to it including the depreciation on the plant and machinery of the captive power plant, interest liability in respect of loans taken for the captive power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,06,78,918 6,000 1,03,64,370 3,20,548 Depreciation Building 22,11,449 22,11,449 21,45,106 66,343 Vehicle 2,79,954 27,99,548 27,15,562 83,986 Furniture and fixture 8,43,331 8,43,331 8,18,031 25,300 Total 1,14,80,193 11,47,93,931 8,000 11,13,57,874 34,44,057 In compliance to the above notice the appellant filed reply vide letter dt. 31st Dec., 2008 objecting to the proposed allocation of various indirect expenses of the manufacturing unit to the power generation undertaking. The head-wise submissions are reproduced hereunder : (i) Rent : During the year under reference the total expenses on account of rent is ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... require to go out travelling for collections of outstanding dues etc. either. In view of this, allocation of these travelling expenses is not warranted. Looking to the nature of captive power plant, where it has single source for raw material (gas) and the entire generation of output is sold for its own units for captive consumption, no travelling, whatsoever, is required for captive power plant operations. The only raw material, i.e. supply of gas and that too is through pipeline and hence procurement/ transportation of raw material, warranting travel by the staff of captive power plant is not there. (iii) Legal and professional : During the year there were no legal disputes with anybody relating to power generation unit. No suits were filed by or against the power generation unit. There were no consultancy expenses relating to the captive power plant which were not booked in the accounts of the power generation undertaking. There were no labour disputes or any other dispute with any Governmental or semi-Governmental or any autonomous body relating to captive power plant and hence allocation of those expenses to captive power plant without any full or even partial relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rance-vehicle : Your Goodself had proposed an allocation of ₹ 22,000 to captive power plant out of ₹ 7.5 lacs. The reasons for not allocating insurance to captive power plant are the same, as submitted under the head 'Travelling'. (vii) Managerial remuneration : Your Goodself had proposed an allocation of ₹ 2.56 lacs out of ₹ 85.49 lacs on account of managerial remuneration to captive power plant. Since the company is maintaining separate books of accounts and have dedicated staff for operation of captive power plant, the directors do not get involved in the day to day operations of the plant or any operational decision-making. At no point of time, there will be any involvement of the directors in the running of the captive power plant as hardly any policy matters are involved in running the power generation undertaking. Neither it was postulated nor it was desirable to have any customers, nor was it possible to have another supplier of the input/feedstock. In view of this the apportionment of managerial remuneration to captive power plant is not warranted. (viii) Employees welfare : Your Goodself had proposed to allocate ₹ 3.2 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stified and therefore appellant's claim under s. 80-IA on captive power plant unit deserves to be allowed as claimed in the letter dt. 30th Dec., 2008. 12. After considering the submissions and perusing the material on record, learned CIT(A) found that the AO was not justified in making the addition. The detailed reasons given by learned CIT(A) are recorded in para 12 at pp. 16 to 18 of his order and are as under : I have considered the facts of the case and submission of the learned Authorised Representative and found that the AO apportioned the expenses on principal unit and captive power plant unit on the ground that the assessee was claiming deduction under s. 80A in respect of captive power plant but there were certain services and amenities which were used by s. 80-IA unit in order to enable to carry out day to day functioning and the financial management or related activities. These services were being provided by the HO of the assessee. The HO was not a separate profit centre in the books of the assessee and it not charging any sum for s. 80-IA units for the services provided by them. The HO should have charged market value in respect of services provided for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 52,360 7,52,360 7,29,789 22,571 Managerial remuneration 85,49,398 85,49,398 82,92,916 2,56,482 Employees welfare 1,06,84,918 1,06,78,918 6,000 1,03,64,370 3,20,548 Depreciation Building 22,11,449 22,11,449 21,45,106 66,343 Vehicle 2,79,954 27,99,548 27,15,562 83,986 Furniture and fixture 8,43,331 8,43,331 8,18,031 25,300 Total 1,14,80,193 11,47,93,931 8,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned Departmental Representative placed strong reliance on the order of the AO. Pages 9 to 11 of the order of AO were read also. Provisions of s. 80-IA(8) were also relied upon. 14. On the other hand, the learned counsel of the assessee placed reliance on the order of learned CIT(A). Brief written note was also filed. Reliance was placed on various case laws mentioned in the brief note. It was also submitted that in respect to deduction under s. 80-IA on captive power plant unit, separate books of account have been maintained by assessee. Whatever the expenses have been claimed on this account, it has been recorded in P L a/c prepared separately. Even to cover up certain leakage, assessee has further apportioned ₹ 1,00,000 of other unit in this unit. 15. We have heard rival submissions and considered them carefully. After considering the submissions and perusing the material on record, we find no infirmity in the finding of learned CIT(A). The learned CIT(A) has held that the apportionment made by AO of the expenditure and depreciation of other business assets to captive power plant in ratio of the turnover was not correct. Assessee had claimed deduction under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal expenses of the assessee; (ii) it should have been laid out or expended wholly and exclusively for the purposes of the business or profession; and (iii) it should have been expended in the previous year; and (b) on the fact whether all the ventures carried on by him constituted one indivisible business or not; if they do the entire expenditure will be a permissible deduction, but if they do not, the principle of apportionment of the expenditure will apply, because there will be no nexus between the expenditure attributable to the venture not forming an integral part of the business and the expenditure sought to be deducted as the business expenditure of the assessee. Held, reversing the decision of the High Court, that in view of the fact that a perusal of the question itself disclosed that income from various ventures was earned in the course of one indivisible business, the impugned order upholding the apportionment of the expenditure and allowing deduction of only that proportion of it which was referable to the taxable income, was unsustainable. The ratio of the decision of Hon'ble apex Court is squarely applicable in the facts of the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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