TMI Blog2014 (4) TMI 1250X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the Pune Bench of the Tribunal in the case of Khinvasara inwarsa Investment Pvt. Ltd. Vs. JCIT [ 2006 (6) TMI 198 - ITAT PUNE-A] while adjudicating the very same issue for the assessment year 2009-10. We direct the assessing officer to adopt the same for the impugned assessment year 2008-09 and allow this ground of the assessee Allocation of husk @55% to the power plant as made by the assessing officer - HELD THAT:- This issue is covered in favour of the assessee and against the revenue as relying on CONTIMETERS ELECTRICALS PVT. LTD. [ 2008 (12) TMI 4 - HIGH COURT DELHI] and ACE MULTITAXES SYSTEMS PVT. LTD. [ 2009 (1) TMI 260 - KARNATAKA HIGH COURT] Adoption of husk consumption rate - HELD THAT:- CIT(A) held that the assessing officer had not pointed out errors nor rejected the data as per the records maintained by the assessee, before taking up comparable cases such as M/s. Sudha Agro Oils and Gautam Solvents for coming to such conclusions. We find that this conclusion of the Ld. CIT(A) is as per law for the reason that no estimates can be made without rejection of the books of accounts and without pointing out errors in those books of accounts. When the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lyn Shipping and Transport (Supra) is not a good law. Further, it was held that the provisions of S.40(a)(ia) are applicable even when the expenditure is paid during the year and not payable as at the end of previous year. Disallowance made of certain expenditure - HELD THAT:- Assessee produced the details of payments made to the sundry creditors which were also produced before the AO. In almost all the cases some amount out of the purpose consideration was paid before March and the balance payable was paid in the month of April. AO neither disputed the fact of purchase of paddy nor pointed out any instances of either quantitative difference or rate difference. Test-check made by AO by recording sworn statements of three of the creditors also turned out in favour of the assessee. Under these circumstance AO is not correct in making an adhoc disallowance only because confirmation letters are not produced without finding any other discrepancy either in the purchases or in the names and addresses of the sundry creditors. - ITA No.48/Vizag/2012, ITA No.63/Vizag/2012, ITA No.325/Vizag/2012, ITA No.342/Vizag/2012 - - - Dated:- 28-4-2014 - SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 2,84,529/- 2. Disallowance of excess rent claimed ₹ 1,35,000/- 3. Disallowance of expenditure u/s 14A ₹ 1,61,573/- 4. Disallowance of freight expenditure u/s 40A(3) ₹ 14,00,986/- 5. Addition on a/c of valuation of gunny bags ₹ 2,00,000/- 6. Disallowance of paddy purchases ₹ 11,02,376/- 7. Disallowance out of 80IA 5. Aggrieved the assessee carried the matter in appeal. The first appellate authority for both the assessment years granted part relief. On the issues where the first appellate authority upheld either fully or partly, the findings of the assessing officer, the assessee has filed the appeals. On those issues where the first appellate authority granted relief the revenue has filed appeals. We first take up the assessee s appeal in ITA No.48/Vizag/2012 for the assessment year 2008-09. 6. Groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the calorific value of husk and not 10.7%. b) Secondly, the loss of 10.09% before the husk is converted to steam is a normal loss that gets absorbed into the value of steam generated in the boiler. The cost of steam that enters at the inlet of the Turbine is inclusive of all such losses that take place prior to this event and hence no separate allocation is required. Assuming that the steam is not internally generated but purchased from outside even then the cost of steam relatable to the turbine would be only 10.7% of the cost of steam. Therefore, the learned CIT(A) missed out this important aspect and committed a grave error in allocating the normal loss in the generation of steam in the ratio of 50:50. c) The argument of the learned DR that burning of husk is necessary process for generation of power and therefore a major part of the loss has to be absorbed by Power Plant is completely erroneous. In fact, the burning of husk and generation of steam is an inevitable process for running the para boiled rice mill and but for the consumption of a part of the steam by the Power Plant the entire cost of steam ought to have been borne by the Rice Mill. To put it in other terms, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the same yardstick should be applied for the assessment year 2008-09 by following the very same decision of Pune bench of the Tribunal. 9. The Ld. DR on the other hand argued that the burning of husk is a necessary process for generation of power and therefore major part of the loss has to be absorbed by the power plant. He submitted that the CIT(A) has rightly placed reliance on technical data provided by the supplier of the turbine and as per this data, the loss of heat while steam passes through the turbine is 10.7%. He referred to the heat of steam at the inlet of the turbine and the heat of steam at the outlet of the turbine and pointed out that the loss is only (777.5 K.cal/kg. (-) 694.3 K.cal/kg.) 83.2 K.Cal/kg. and submitted that the percentage works out to 10.7% and submitted that the basis of allocation of husk cost was made on this basis. However, he argued that the heat loss of 10.09%, prior to the husk becoming steam, has to be allocated between the rice mill and power plant equally. He argued that the CIT(A) has rightly arrived at these figures on verification of the accounts and thus it has to be upheld. On the issue of allocation of administrative expenses, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... %. The Ld. CIT(A) at page 14 in last para observed as follows: The undisputed fact is that the assessee requires steam for both power generation and rice milling. Assessee by using back pressure turbine technology is utilizing the same steam both for the purpose of power generation and for the purpose of rice boiling / drying. As long as this fact is not disputed and as long as it is not stated that the steam which is let out after the power generation is not used for any other purpose, it is reasonable to allocate the expenditure on steam generation to both power plant and rice milling plant. Even if it is argued that power plant is to be seen as separate unit and the entire consumption of husk should be treated as utilized for the purpose of power generation, it cannot be disputed that steam in this case is a byproduct of power generation and the same is capable of being utilized by rice plant. As the husk generated by rice miller is an input for the power plant, similarly steam generated by the power plant is an input for rice mill. If entire husk is treated as input cost of power generation unit the assessee is entitled to claim the sale value of steam as income and this in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verted into heat energy. There is loss of heat at the time of burning and loss of heat in the boiler and loss of heat in power generation. These losses have to be considered while allocating the expenditure based on total heat of the system. Assessee did not consider any of these losses. It can be seen that assessee's calculation starts with total heat at turbine inlet which is taken at 777.5 calories. Thus these calculations presuppose that paddy husk of calorific value of 777.5 is used and the entire heat directly goes into turbine. This is not practically possible. If 777.5 calories of heat is required at the turbine inlet much more paddy husk has to be burnt. To put it simply, if 1 Kilo calorie of heat is required one has to burn raw-material having total heat of more than 1 kilo calorie, as there will be heat loss while burning, boiling transmission of steam. There is no furnace which converts the heat of raw-material into cent percent heat for boiling. Similarly there is no boiler which converts 100% heat given to steam. This means that there are heat losses at every stage before the steam comes into turbine inlet. In view of the above assessee is not correct in calculati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oposition. Hence, I go on to allocate these losses equally between the power generatio unit and rice milling unit. Thus, the loss allocated to power generation unit is worked out to 5.05%. This coupled with the heat used for power generation of 10.70% (as already discussed) works out to 15.75%. Thus, the percentage of rice husk utilization for power generation is pegged at 15.75% instead of 10% as calculated by the assessee. Thus AO is directed to reallocate the profits from power generation unit after allocating 15.75% of the expenditure of boiler unit towards power generation instead of 10% as taken by the assessee. To sum-up, it is held as under: (a)The profits from power plant are in principal eligible for deduction under 80IA. (b)The comparison drawn between Sudha Agro Oil and the assessee's plant and the consequential estimation of husk utilization by the power plant is not correct. (c)Assessee's apportionment of expenditure of husk utilization on the basis of thermal calculations is held to be principally correct. (d)The thermal calculations given by the assessee do not reflect the correct picture of apportionment in so far as they did not take into a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny valid base, and hence the same is not correct, 3. The CIT(A) failed to take cognizance in respect of the technical specifications and differential parameters like turbine inlet heat, turbine outlet heat and heat drop etc., of the assessee-company with that of the details supplied by M/s. Triveni Engineering Industries and furnished by the assessee before the CIT(A) which play a typical role in utilization of husk. 4. The CIT(A) is not correct in holding that the filing of 10CCB report is not mandatory and that it can be filed at any time during the assessment proceedings. 5. The CIT(A) ought to have held that the stringency and mandatory requirement of filing of the audit report in 10CCB was not met by the assessee and hence the claim of exemption u/s.80IA is not maintainable. 6. The CIT(A) ought to have drawn support in this regard from the decision of Hon ble P H High Court in the case of CIT Vs. Jaideep Industries reported in 180 ITR 81 wherein it was held that audit report u/s.SOJ was a mandatory requirement. Since the provisions of 80J and 80IA are akin, the CIT(A) ought to have drawn support from this decision to hold that the filing of 10CCB report is a mandat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked him to give his comments on the same. As the assessing officer remained silent on the merits of this additional evidence, the CIT(A) examined the same and came to the said conclusions. We find no infirmity in this act of the Ld. CIT(A). Thus, ground no.7 is dismissed. 23. Ground no.8 is also on the issue of adoption of husk consumption rate. The CIT(A) held that the assessing officer had not pointed out errors nor rejected the data as per the records maintained by the assessee, before taking up comparable cases such as M/s. Sudha Agro Oils and Gautam Solvents for coming to such conclusions. We find that this conclusion of the Ld. CIT(A) is as per law for the reason that no estimates can be made without rejection of the books of accounts and without pointing out errors in those books of accounts. When the assessee is maintaining detailed records of husk consumption, electricity production, etc., the assessing officer has to point out errors in these records, reject the same and then only go for comparable cases. As the assessing officer has not done the same, CIT(A) is right in his finding. We uphold the same and dismiss the ground no.8.. 24. Ground no.9 is on the issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.7 is dismissed as general in nature. 30. In the result, the appeal of the assessee is allowed in part. 31. ITA 342/Vizag/2012 is revenue s appeal for the assessment year 2009- 10 on the following grounds: 1. The CIT(A) erred both in law and on facts of the case. 2. The CIT(A) ought not to have remanded the issue of disallowance of audit expenses of ₹ 80,000/-u/s.40(a)(ia) for non-deduction of tax at source in view of the fact that provisions of section 40(a)(ia) shall apply to all payments covered by Section 194C whether or not they have already been paid or remained payable at the end of the relevant financial year and in view of the fact that the department contested the decision of ITAT, Visakhapatnam Special Bench in the case of Merilyn Shipping Transport and the issue is not yet become final. 3. The CITCA) failed to appreciate the fact that mere confirmation by three creditors cannot be a basis for accepting the genuineness of entire expenditure coupled with the fact that assessee produced self-made vouchers in proof of payment wherein the signature/thumb impression of the farmers has been obtained. 4. The CIT(A) erred in utilizing the comparable ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Merilyn Shipping and Transport Vs. ACIT. This decision has since been suspended and the Hon ble Kolkata High Court in the case of CIT Vs. Crescent Export Syndicate in order dt.3rd April, 2013 held that the law laid down in the case of Merilyn Shipping and Transport (Supra) is not a good law. Further, it was held that the provisions of S.40(a)(ia) are applicable even when the expenditure is paid during the year and not payable as at the end of previous year. 34. Respectfully following the decision of the Calcutta High Court, we reverse this decision of the CIT(A) and allow the ground of the revenue. 35. Ground no.3 is against the deletion of disallowance made of certain expenditure. The Ld. CIT(A) at para 3.6 considered the said disallowance of paddy purchases. He held as follows: I have considered the arguments of the assessee. Assessee produced the details of payments made to the sundry creditors which were also produced before the AO. In almost all the cases some amount out of the purpose consideration was paid before March and the balance payable was paid in the month of April. AO neither disputed the fact of purchase of paddy nor pointed out any instances ..... X X X X Extracts X X X X X X X X Extracts X X X X
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