TMI Blog2016 (8) TMI 1353X X X X Extracts X X X X X X X X Extracts X X X X ..... essee - Held that:- The borrowed fund was directly used by the assessee for its power divisions. There was no ambiguity with regard to the interest expenses claimed by the assessee in their divisions. The AO has allocated the cost his premise and conjuncture. Case of case of Liberty India vs. CIT (2009 (8) TMI 63 - SUPREME COURT) followed. Deduction u/s 80HHC shall be worked out after adjusting the profit eligible amount of deduction under section 80 IA - Held that:- We find that issue is covered in favour of Revenue and against the assessee in its own case wherein as considered in the light of the provisions of section 80IA(9) of the Act which provides that where any amount of profits or gains of an undertaking or of an enterprise in the case of an assessee is claimed and allowed under the said section for any assessment year, the deduction to the extent of such profits or gains shall not be allowed under any other provision of Chapter VIA. The deduction for the profits under section 80IA has been allowed in respect of the power undertakings. Most of the energy generated therein has been captively used for manufacture of goods profits whereof are part of profits of business. - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his separate order dated 20.02.2007 and 28.02.2006 respectively for assessment year 2003-04. Shri Soumen Adak, Ld. Authorized Representative appeared on behalf of assessee and Shri G Mallikarjuna, Ld. Departmental Representative appeared on behalf of Revenue. 2. All the appeals are heard together and deem it appropriate to dispose all of them by this common order. At the very outset, we observe a delay of just one day in the filing of its appeal by Revenue, which though stands suitably explained as per accompanying affidavit by the concerned official of the Revenue. The appeal was accordingly admitted, and the hearing proceeded with. First we take up assessee s appeal in ITA 305/Kol/2008. 3. The assessee has raised the following grounds of appeal :- 1(a) That on the facts and in the circumstances of the case, Ld. CIT(Appeals) was not justified and erred in holding that tax or levy is snot be included in the computation of Transfer Price of power for computation of deduction u/s 80- IA in respect of power generating unit. 1(b)That on the facts and in the circumstances of the case, Ld. CIT(Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance of EPB credit in computing deduction u/s. 80HHC without appreciating the fact that the appellant has not been granted any deduction under proviso to section 80HHC(3) and hence issuance of enhancement notice tantamount to double disallowance. 7. That on the facts and circumstances of the case, and without prejudice to Ground No.6 here-in above, the Ld. CIT(Appeals) was not justified and erred in holding that DEPB receipt which falls under section 28(iv) also needs to be reduced from the Profit of the Business in terms of Explanation (baa) to section 80HHC. 8. That on the facts and circumstances of the case, and without prejudice to Ground No.6 7 here-in above, the Ld. CIT(Appeal) was not justified in not considering the fact that only profits on transfer of DEPB falls within the ambit of section 28(iiid) of the Act. 9. That on the facts and circumstances of the case, the Ld. CIT(Appeals)was not justified and erred in not deleting interest levied u/s. 234D of the Act as th same is bad in law. 10. That the appellant craves leave to add, amend, modify, rescind, supplement or alter any of the grounds stated herein-above either before or at the time of hearing of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s power units generated by its power plants which was utilized for captive consumption at a price at which the assessee had to buy from KEB. However, the AO disregarded the same by holding that it should be price at which the assessee sales its power to KEB. The contentions of AO for observing so are as under : 1) In the past the assessment was framed taking the unit rate at which power was sold to the KEB. 2) As per section 80-IA of the Act the market value is the price that such goods or services would ordinarily fetch in the open market. 3) The assessee in the instant case is itself a buyer and seller of electricity as it is utilized for captive consumption. So the open market rate for buying the power cannot be accepted. It has necessarily to be closed market rate. 4) The selling rate of KEB for the power is higher because it suffers distribution losses though the assessee in the instant case does not suffer any distribution loss. 5) The assessee sales power to third parties at a price ranging between 3.30 to 3.60 per unit and the same price should be accepted. In view of above the AO has taken the sale price of the power at which the electricity was sold to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are far more lucrative, or rather a significant multiple of the profits of any efficient business of generating and selling electric power run by any power company even as renowned as National Thermal Power Corporation (NTPC). By the same yardstick, NTPC or any other such company would have been the most profitability of the world. In fact, adopting the price as indicated in the order for earlier years gives ridiculous figures of profitability of the Power Division, and it is a moot point whether it can be laid down as law to determine the price of captive use of power so as to result in absurd results. However, following the decision in the earlier years, I direct that in respect of electricity consumed in its own units, the transfer price would be the price charged from it by Sate Electricity Bard less the tax/duty component in the SEB bill. Being aggrieved by the order of ld. CIT(A) - assessee came in second appeal before us on the ground that the element of tax and duty should not be excluded from the value of the electricity. Revenue is also in appeal before us on the amount of relief granted by the ld. CIT(A) for adopting buying rate from the Electricity Board. 7. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to income-tax, the market value of any agricultural produce which has been raised by the assessee and utilized as a raw material in such business shall be deducted at the prevalent market value. This principle has been considered and upheld by the Supreme Court in the case of Thiru Arooran Sugars Ltd. vs. CIT (1977) 142 CTR 9 (SC); (1997) 227 ITR 432 (SFC). Therefore, we direct the assessing authorit9y to work out the profits on the basis of the price of the power generated by the assessee at the average of the annual landed cost of electricity purchased by the assessee from Karnataka State Electricity Board during the impugned previous year. It may be determined on the basis of payment details available from the bills issued by the Karnataka State Electricity Board, during the year under consideration. 7.3 In the case of Jindal Steel Power Ltd. (supra) the assessee was receiving ₹ 2.32 per unit for the electricity supplied by it whereas State Electricity Board was selling it at ₹ 3.72 per unit. It computed transfer price under s4ection 80IA (8) of the Act at ₹ 3.72 per unit the rate at which the State Electricity Board supplied power to the industrial c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regular and sustained basis. In terms of the agreement with KSEB it was allowed to sell the surplus power banked with it subject to the condition that such surplus would lapse at the end of the monsoon year. The assessee had therefore to dispose of its such surplus banked power which remained after its own use on ad hoc basis to avoid loosing the benefit altogether. In terms of the provisions of section 80IA(8) such transfer price has to be taken at the market value of such goods which the Explanation to the said sub section defines to mean the price that such goods would ordinarily fetch in the open market. It cannot be disputed that the amount charged by KSEB for supply of the power to the assessee is the price which is ordinarily charged in the open market. This issue also came up for consideration in several decisions of the Tribunal in the undernoted cases:- (i) Assam Carbon Products Ltd vs. ACIT (2006) 100 TTJ 224 (Kol) (ii) JCIT vs. Cipla Ltd. (2005) 2 SOT 617 (Mum) (iii) West Coast paper Mills Ltd. vs. JCIT (2006) 100 TTJ 883 (Mum) (iv) Addl. CIT vs. Jindal Steel 7 Power Ltd. (2007) 16 SOT 509 (Del) Furthermore, it appears that during the subsequent assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35 CCH 135 (Ahd-Trib). In view of the above, it is submitted that the later decision be preferred, since the same has more precedence value. Further, the iss9ue is now covered in favour of the assessee by the decision of Hon ble Gujarat High Court in CIT vs. Shah Alloys Ltd. (Tax AP/2092-2094/2010 dtd. 22.11.2011), wherein it has been held that electricity duty shall form part of the market value at which electricity is transferred by CPP unit while computing deduction u/s. 80IA. Departmental SLP has been dismissed by the Apex Court in SLP No. 11106 of 2012 dtd. 16.07.2012 and again in SLP No. 13348 of 2012 dtd. 15.10.2012). IT is a settled principle that in absence of any contrary decision of the high courts, the decision of non-jurisdictional Tribunal / or Special Bench. [refer Rajamahendri Shipping Oil Field Services Ltd. vs. Addl CIT (2012) 51 SOT 242 (Vizag CIT vs.s Godavari Devi Saraf (1978) 113 ITR 589 (Bom). On the other hand the ld. DR vehemently supported the order of the authorities below. 11. From the above discussion, we find that order of the ITAT Mumbai Bench for the earlier years was based on the order of West Coast Paper Mills Ltd. (supra) which has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices and that, transfer of electricity, therefore, would not be covered under sub-section (8) of Section 80IA of the Act. However, in so far as the Tribunal s reasoning to adopt the market value of the goods at ₹ 5.40 ps. Per unit is concerned, we find no error. Undisputedly, GEB supplied the electricity to its consumers at th9e same rate. This, therefore, was a market value of the electricity supplied by the CPP unit to the general unit. The fact that this amount of ₹ 5.40 ps. Comprises of a component of 8 paise, which was electricity duty, to our mind, would make no difference in so far as the market value is concerned. To a consumer, the price being paid remains 5.40 ps. Per unit. The act that the seller retains only ₹ 5.32 ps. Out of the aid collection and passes on 8 paise per unit to the Government in the form of electricity duty, to our mind, would make no difference. This question, is therefore, not required to be considered. Respectfully follow the judgment of Hon ble Gujarat High Court in the case of Shah Alloys Ltd. (supra) we allow assessee s ground. 12. The next issue raised by the assessee in ITA No. 305/Kol/2008 A.Y 03-04 its grounds of appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... error from the total other expenses claimed by the assessee. Being aggrieved by the order of ld. CIT(A) both assessee and Revenue came in appeal before us. 15. First we take up the issue of the assessee. The assessee is against the confirmation of AO order to the extent of ₹ 1,52,86,662/-. 16. The ld. AR before us submitted that while determining profit and gains derived from power generating unit, the assessee duly debited the entire expenditure which have direct and immediate nexus with the power generating unit. Thus, further allocating of any other expenditure does not arise. Ld.AR further submitted that on the perusal of the expenditure allocated, it could be seen that the expenditure incurred by the HO and electrode division does not have any direct and immediate nexus with the power generating unit and hence cannot be considered for allocation for determining profits of the unit eligible for tax holiday. He stated that the use of the expression derived from as used in Sec. 80IA(1) signifies that only income / expenditure directly and inextricably related to eligible undertaking should be considered in computing profit of the eligible undertaking. Indirect expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r side than the production cost of the assessee. The borrowed fund was directly used by the assessee for its power divisions. There was no ambiguity with regard to the interest expenses claimed by the assessee in their divisions. The AO has allocated the cost his premise and conjuncture. In this connection we rely in the judgment Hon ble Supreme Court of India in the case of Liberty India vs. CIT (2009) 317 ITR 218 (SC). The relevant extract of the order is reproduced below : The IT Act broadly provides for two types of tax incentives, namely, investment linked incentives and profit linked incentives. Chapter VI-A which provides for incentives in the form of tax deductions essentially belong to the category of profit linked incentives . Therefore, when s. 80-IA/80-IB refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives. What attracts the incentives under s. 80-IA/80-IB is the generation of profits (operational profits). It is for this reason that Parliament has confined deduction to profits derived from eligible businesses mentioned in sub-ss. (3) to (11A) (as they stood at the relevant time). One more aspect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allocation of other expenses in computing profit for the purpose deduction u/s 80IA on the basis of assessee s claim without appreciating the fact mentioned in the assessment order and without giving finding as to how these expenses are included twice or not allocable. We have already decided the issue in favor of assessee vide para no. 18 of this order as stated above. Hence, both issue raised by Revenue stand dismissed. 20. The next issue raised by the assessee in ground no. 3 is that the ld. CIT(A) erred in confirming the order of the AO by holding that the deduction under section 80HHC shall be worked out after adjusting the profit eligible amount of deduction under section 80 IA of the Act. 20.1 At the outset, we find that issue is covered in favour of Revenue and against the assessee in its own case in ITA No.949/Kol/2005 dated 06.12.2007, wherein the Tribunal has held as under:- 10.1 The claim of the assessee that the business profits for computation under section 80HHC of the Act should not be reduced by the amount of profits for which deduction has been allowed under section 80IA of the Act has to be considered in the light of the provisions of section 80IA( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 20/04/07. Accordingly, we restore the issue to AO to examine whether there is any nexus between the receipts and payments and if he so finds then to take only 90% of net amount of such rent and interest for deduction from business profits for computation under section 80HHC of the Act. Ground Nos. 1(a) and 4(b) in the assessee s appeal are accordingly restored to AO with the directions aforesaid and order of CIT(A) on the issue is set aside. Respectfully following the decision of the co-ordinate Bench we set aside the order of Ld. CIT(A) and remit the matter back to the file of AO with a direction as contained. Assessee s ground is allowed for statistical purpose. 23. The next issue raised by the assessee in grounds no. 5 is that ld. CIT(A) erred by holding that sales tax incentive received under the west Bengal Incentive Scheme 1993 for an amount of ₹ 89,44,090/- as revenue in nature. 24. At the outset, we find that coordinate Bench has decided this issue against the assessee in assessee s own case (supra) and relevant extract is reproduced below:- 16.1 However the Calcutta High Court in the case of CIT vs. Chhindwara Fuels reported in (2000) 245 ITR 9 he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the ld. CIT(A) face value of the DEPB and any profit arose there on the transfer of the DEPB, both will be reduced by 90% as per the provisions of section of explanation (baa) to the section 80HHC of the Act if the assessee has the turnover exceeding ₹ 10 Crores. Being aggrieved by the order of ld. CIT(A) the assessee came in appeal before us. The ld. AR before us submitted that the face value of the DEPB is covered under the section 28(iiib) of the Act and not under the section 28(iiid) of the Act. On the other hand the ld. DR vehemently supported the order of the authorities below. 28. We have heard the rival contentions perused the materials available on record. At the outset we find that the Section 28(iiid) of the Act talks about the profit derived on the transfer of DEPB and the face value accrued to the assessee for the DEPB is covered by the provisions of section 28(iiib) of the Act. Hence we conclude that the face value of the DEPB is covered under the provisions of section 28(iiib) of the Act. In this connection we find support from the Judgment of Apex Hon ble Supreme Court in the case of Topman Exports Vs. CIT (2012) 342 ITR 29 (SC). The relevant extrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of s. 28, he would not get the benefit of addition to export profits under third or fourth proviso to sub-s. (3) of s. 80HHC, but he would get the benefit of exclusion of a smaller figure from profits of the business under Expln. (baa) to s. 80HHC and there is nothing in Expln. (baa) to s. 80HHC to show that this benefit of exclusion of a smaller figure from profits of the business will not be available to an assessee having an export turnover exceeding ₹ 10 crores. In other words, where the export turnover of an assessee exceeds ₹ 10 crores, he does not get the benefit of addition of ninety per cent of export incentive under cl. (iiid) of s. 28 to his export profits, but he gets a higher figure of profits of the business, which ultimately results in computation of a bigger export profit. The High Court, therefore, was not right in coming to the conclusion that as the assessee did have the export turnover exceeding ₹ 10 crores and as the assessee did not fulfill the conditions set out in the third proviso to s. 80HHC(3), the assessee was not entitled to a deduction under s. 80HHC on the amount received on transfer of DEPB and with a view to get over this dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . That on the facts and circumstances of the case and without prejudice to Ground No. 2 here-in above, the Ld. CIT(Appeals) was not justified in not considering the act that only profits on transfer of DEPB falls within the ambit of section 28(iiid) of the Act. 4.0 That the appellant craves leave to add, amend, modify, rescind, supplement or alter any of the grounds stated here-in-above either before or at the tme of hearing of the appeal. 31. At the outset, we find that the issue raised by assessee in ground No.2 3 on merit in ITA 305/Kol/2008 has already been decided in its favour vide para-28 of this order. Hence, we allow both the grounds of assessee s appeal in terms of above. 32. Coming to technical issue raised by assessee in Ground No. 1 in this appeal regarding the validity of the order passed by AO u/s. 154 of the Act. We find this issue has already been decided in favour of assessee on merit. Therefore, we are not inclined to adjudicate this technical issue raised by the assessee. Hence, this ground of assessee is dismissed as infructuous. 33. Last ground of assessee s appeal is general in nature and does not require any separate order. 34. In the resul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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