TMI Blog2015 (11) TMI 1805X X X X Extracts X X X X X X X X Extracts X X X X ..... he closing stock to be increased on account of unutilised MODVAT credit, the corresponding opening stock of that year is also to be increased, as the Department has not disputed the fact that the purchases have been debited exclusive of the excise duty element i.e., by adopting net method of purchases. If the value of closing stock is increased by the MODVAT, the purchases should also be increased by a similar amount. Therefore, the issue is squarely covered in favour of the assessee Eligible deduction u/s 80IA - Captive power generation plant - HELD THAT:- Assessing Officer will examine whether the submission of the assessee with respect to the rate taken is correct . If it is found that the rate charged by the suppliers is lower than the rate adopted for sale by the captive power generating units of the assessee, such rate would be taken by the AO for computing the profits of the eligible business, eligible for deduction u/s 80IA. However, if the rate charged by the suppliers is the same as the rate adopted for sale by the captive power generating units of the assessee, such rate adopted should be accepted for the purposes of working out the deduction u/s 80IA - Sec. 45 of T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bate was more than the depreciation claimed by the assessee, the AO disallowed the entire depreciation. 4. The ld.CIT(A) by following the earlier decision of predecessor in appeal No.CAB/I-377/06-07 for the assessment year 2004-05 confirmed the same. Aggrieved by this decision of ld. CIT(A), the assessee is in appeal before us. 5. At the time hearing, the ld. Counsel appearing for the assessee submitted that an identical issue had come up before the co-ordinate Bench of the Tribunal in assessee s own case in ITA no. 664 and 665/Ahd./2008 (AYs:2003 04 and 2004 05) and the Tribunal, vide its order dated 29.06.2012, has decided the issue in favour of the assessee. Therefore, the ld.counsel prayed that by applying the same decision the claim of depreciation as prayed for by the assessee in this year be granted. 6. The ld. DR reiterated the facts of the case and relied on the orders of authorities below. 7. We heard both the parties and perused the material available before us. After considering the rival contentions and perusal of records as well as the order of the co-ordinate Bench of Tribunal in the assessee s own case as relied upon by the ld.Counsel for the assessee, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he construction of jetties. After the capital investment was recovered through such set off, the assessee was required to pay landing and shipping fees at normal rate. The agreement was to remain in force for a period of 25 years or till such time such aggregate of the rebate obtained by the assessee in wharfage charges equaled the amount of construction of the jetties, whichever is earlier. The assessee spent ₹ 14,25,63,02,471, and treated the same as intangible asset under section 32(1) of the Act on the reasoning that it was license and also represent business and commercial right on which the assessee claimed depreciation @ 25%. The Assessing Officer did not agree with the assessee and disallowed the claim. The first appellate authority also confirmed the action of the Assessing Officer. Further, the Commissioner (Appeals) held that the expenditure to be allowed proportionately over a period of 25 years. Being aggrieved, the assessee filed appeal before the Tribunal. The Tribunal, after considering the submissions of the Representatives of the parties, held that by virtue of the terms of agreement, the assessee only acquired the commercial right or license and they are re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e asset, and therefore, the assets are entitled for appropriate depreciation by treating the said expenditure as part of the block of intangible asset is fair, reasonable and in accordance with the amendment provisions of law in this regard. 88. We observe that the terms of agreement of the assessee before us are similar to the terms of agreement which was considered in the case of Reliance Ports Terminals Ltd. (supra) and entered into with GMB. The benefit which the assessee before us is entitled to get on account of construction of jetty are similar to the case considered by the Tribunal, vide its order dated 26th November 2007 (supra). The learned Departmental Representative, during the course of his submissions, has not pointed out any distinguished facts in the case before us viz a viz in the above case of Reliance Ports and Terminals Ltd. (supra). We observe that the decision in above case squarely apply to the facts of the case before us. Therefore, respectfully following the earlier order of the Tribunal dated 26th November 2007 (supra), we hold that the assessee is entitled for depreciation at the rate as applicable on the cost incurred for construction of jetty a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med the action of the AO and gave similar directions to the AO. Hence the assessee is in appeal before us. 10. At the time hearing, the ld.counsel appearing for the assessee submitted that an identical issue had come up before the Ahmedabad Bench of the Tribunal in assessee s own case referred supra and Tribunal vide para 89 to 96 has discussed this issue elaborately and decided the same in favour of the assessee. Therefore, the ld.counsel prayed that by applying the same decision the addition made on account of cenvat credit be deleted. 11. The ld. DR reiterated the facts of the case and relied on the orders of authorities below. 12. We find that the similar issue had come up before the Tribunal in the assessee s own case (referred above) and it has been decided in favour of the assessee. For the sake of convenience, we reproduce the relevant findings of the Tribunal as under: 93. At the time of hearing, the learned Counsel for the assessee submitted that above issue is covered in favour of the assessee by the judgment of Hon'ble Jurisdictional High Court in the case of CIT v/s Mahalaxmi Glass Works Pvt. Ltd., [2009] 318 ITR 116 (Bom.) and also by the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases. If the value of closing stock is increased by the MODVAT, the purchases should also be increased by a similar amount. Therefore, the issue is squarely covered in favour of the assessee by the decision of the Hon'ble Jurisdictional High Court (supra). Hence, ground no.4, taken by the assessee is allowed by deleting the addition of ₹ 91,29,312, made by the Assessing Officer. Consistent with the view taken the Tribunal in the assessee s own case for the preceding year, we decide this issue in favour of the assessee. Accordingly, the order of Ld CIT(A) on this issue is set aside and the AO is directed to delete this addition. 13. Now we shall take up the appeal bearing No.ITA No.3921/Mum/2009 filed by the Revenue, whereinn following issues are urged: a) Deletion of disallowance of ₹ 51,21,254/- out of staff welfare expenses, being the contribution made to various clubs run by staff members; b) Deletion of addition relating to sales tax exemption received from the Government of Gujarat by holding the same as capital receipt; c) Deletion of disalalowance of lease rent charges of ₹ 34,51,96,415/-, which was treated by the AO as finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A), the assessee submitted that an identical issued had been before the Ahmedabad Bench of Tribunal in ITA No.3896/Ahd/2003, 437/Ahd/2007 and 3054/Ahd/2007 (AYs 2000-01 to 2002-03) in which the ld.CIT(A) held that the amount received by the assessee is capital in nature. The ld. CIT(A), after considering the facts of the case, case law relied upon by the parties and the precedent laid down by Special Bench of the Tribunal in DCIT V/s Reliance Industries ltd. (88 ITD 273) and also the decision rendered by the Ahmedabad Bench of the Tribunal in Nirma Ltd (ITA No.175/Ahd/2003), held that the AO was not justified in making the addition of ₹ 60,65,07,100/- and hence directed the AO to delete the above said addition. 20. At the time of hearing, the ld.AR submitted that an identical issue had come up before the co-ordinate Bench of the Tribunal in assessee s own case in ITA no. 664 and 665/Ahd./2008 (AYs:2003 04 and 2004 05), and ITA No.745/Ahd/2008 dated 29.06.2012 and the Tribunal vide para 3 to 8 and 74 to 76 of the order and decided the issue in favour of the assessee. The ld.DR relied upon the order of AO. 21. We find that the issue urged by the revenue has been decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court (cited supra), we uphold the order of the Commissioner (Appeals) and dismiss ground no.1, raised by the Revenue . Consistent with the view taken by the co-ordinate bench of Tribunal, we reject the ground No.3 taken by the Revenue. 26. Now will take the appeal taken by Revenue bearing ITA No.4005/Mum/2013 for assessment year 2006-07, wherein following issues are urged before us: a) Deletion of addition of ₹ 85,97,07,481/- pertaining to Sales tax incentive treating the same as capital receipt; b) Deletion of depreciation claimed by the assessee amounting to ₹ 65,12,000/- on jetties; c) Deletion of addition of ₹ 33,41,58,609/- out of least rent charges treating the same as finance lease. d) Deletion of addition by rejecting the claim made u/s 80IA of the Act in respect of Captive power generation plant. 27. The first issue raised in this appeal pertains to sales tax incentives of ₹ 85,97,07,481/-. We find that this issue is similar to that of the issue raised by the Revenue in ITA No.3921/Mum/2009 considered by us in the earlier paragraphs in AY-2005-06 and the same has been decided in favour of assessee in the earlier pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the profit. The workings made by the AO resulted in negative profit and hence the AO held that the assessee is not eligible to claim deduction u/s 80-IA of the Act and accordingly disallowed the claim of ₹ 86,51,99,227/- made by the assessee. 32. Before the ld.CIT(A), the assessee made detailed submissions and relied upon various case laws which are discussed by the ld.CIT(A) in para 12.1 of his order. The ld. CIT(A) after considering the both parties submissions and case laws relied by both parties vide para 12.2 allowed the claim of the assessee. Being aggrieved by the decision of ld.CIT(A), the revenue is in appeal before us. 33. The ld.DR re-iterated the facts of the case and relied on the order of AO. 34. The ld. AR submitted that an identical issue had come up before Mumbai Bench of the Tribunal in the case of M/s Reliance Industries Ltd in ITA No.536/Mum/2012 (AY-2006-07) dated 29.5.2015 and the Tribunal after discussing each and every aspect of the facts, rulings, case law and findings of lower authorities has confirmed the decision taken by ld.CIT(A) in favour of the assessee. 35. We have considered the rival contentions of the parties on this issue and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible business in the manner provided in the main sub-section presents exceptional difficulty. It is, therefore, clear that the Assessing Officer, in order to invoke the proviso, must form an opinion based on the materials on record that the computation in the manner provided presented exceptional difficulties. It he does not form an opinion, he cannot invoke the proviso to determine the profits gains of the eligible business. It would, therefore, be required to be seen whether the AO has found, based on any material on record, and has brought any evidence or material on record, that the transfer of the goods by the eligible business, i.e. the power generating units, has not been recorded at the market value of such goods. It will also be required to be seen whether the AO has formed any opinion which would justify the invoking of the proviso to sec. 80lA(8), because it is the proviso that the AO has invoked to work out the deduction available to the assessee u/s 80lA. Perusal of the facts on record show that the assessee had disclosed that it had sold/transferred electricity to related concerns and, that, the said transfer had been done at the fair market value of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to why the price of the goods recorded by it corresponds to the market value, the Assessing Officer has not given any specific findings to hold as to why such price does not correspond to the market value of the goods and as to what was the market value of such goods. The assessee has contended that the rate charged to the end user by the State Electricity Board would provide the most appropriate basis to arrive at the market value. Since, the eligible unit is, in effect, transferring the goods to another business which is the end consumer, the cost to the end consumer, is required to be considered and not the tariff at which the 'Independent Power Producers' sell to the 'State Distribution Agency', which in turn sells to the State Electricity Board for further sale to the end users i.e., consumers, at a rate higher than the rate at which the 'State Distribution Agency' had procured the electricity at. Another important aspect which is required to be considered is that the rate at which the 'Independent Power Producers' sell to the State Distribution Agency' under the Electricity Act, 1948 is a regulated rate which is determined on the basis of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been invoked by him. It is also clear that the parameter relating to 16% of capital base is only an exercise for fixation of tariff and is only one of the many parameters taken into consideration for fixing the tariff under the old Electricity Act of 1948. This parameter is for working out the tariff for sale to the Distribution agencies and not for sell to the end consumers and not for computing the profits and gains of the eligible business. In View of the aforesaid reasons, the order of the AO of working out the profits eligible for deduction on the basis of 16% return on capital base cannot be upheld. As regards the submission relating to sec. 80A(6), I find that same submissions were made by the assessee before the Assessing Officer during the course of the reassessment proceedings. I find that the AO has not controverted the submissions of the assessee. I am also of the opinion that since the said sec. 80A(6) has been specifically made retrospective from a specific date, i.e., w.e.f. 01/04/2009, the same would apply only with respect to the A.Y. 2009-10 onwards and would not apply to the A.Y. 2006-07 in question. This is also clear from the fact that the Explanation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne of the players has the compulsive legislative mandate not only in the realm of enforcing buying but also to set the buying tariff in terms of preset statutory guidelines. Therefore, the price determined in such a scenario cannot be equated with a situation where the price is determined in the normal course of trade and competition. Therefore, the price determined as per the Power Purchase Agreement cannot be equated with market value as understood in common parlance. We see no reason for not holding so for the purposes of section 80-IA(8) also. The price at which the power is supplied by the assessee to the Board is determined entirely by the Board in terms of the statutory regulations. Such a price cannot be equated with the market value as understood for the purposes of section 80-IA(8). The price recorded by the assessee at ₹ 3.72 pet unit can be considered to be the market value for the purposes of section 80-IA(8). This is for the reason that the assessee as an industrial consumer is also buying power from the Board and the Board supplies such power at the rate of ₹ 3.72 per unit to its consumers. This is the price at which the consumers are able to procure the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC)9 (1997) 227 ITR 432(SC). Therefore, we direct the assessing authority 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. During the course of the appellate proceedings, the assessee has submitted that the sale price of electricity by the captive generating units varies from ₹ 4.55 per KWH to ₹ 4.52 per KWH and for the sake of uniformity, the same had been taken at the average rate of ₹ 4.54 per KWH for computing the claim u/s 80lA for the power generating units. The working had been done based on the price of electricity charged by Dakshin Gujarat Vij Company, a state owned company which was the only supplier of electricity other than the captive power plants. In view of the decisions of the Hon'ble Tribunals as discussed above, the Assessing Officer will examine whether the submission of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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