TMI Blog2022 (12) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... the profit is cost of sales . As the sale is to be adopted on arm s length basis , i.e., as two independent entities would transact, the cost would also include both direct and indirect costs. The principal raw material, bagasse, is stated in the Notes to the Accounts, to be purchased at Rs. 35 per Qtl., i.e., the prevailing market price, which, where so, merits acceptance. The administration (indirect) cost is stated to the proportioned on sale basis, which is again reasonable, though would require to be modified with reference to the sale value of power (to sugar division) as finally adopted. Further, as it appears, no separate books of account have been maintained for the two businesses, with Shri Bardia informing that the old turbine was regarded as a part of sugarcane division, and depreciation thereon allocated thereto which, again needless to add, would be with reference to the assets employed with the two divisions, allocating the depreciation of common assets on some reasonable basis. We, accordingly, allowing the assessee s plea in principle, i.e., that the power division constitutes an eligible business u/s. 80IA(1), on the profit of which therefore deduction the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties, and perused the material on record. 3.1 If the assessee did not indeed furnish the bills and vouchers vide which it claims to have purchased the plant and machinery during the relevant year, the only consequence thereof would be the disallowance of deprecation claimed thereon; the investment therein being duly reflected in the assessee s accounts, which thus also bear the source of payment therefor, none of which, finding mention in the assessee s accounts, has been doubted by the Assessing Officer (AO). So, however, there being nothing on record to exhibit the said furnishing, even if online, of purchase bills and vouchers, the assessee was called upon to adduce the same. This is as an absence thereof would entail disallowance of depreciation, even as endorsed by the ld. CIT(A) in his order. It, therefore, becomes incumbent to record a finding in its respect. In the very least, the matter would therefore require being restored to the file of the AO to observe the principle of natural justice. On the next date of hearing, Sh. Bardia would refer to the assessee s letter dated 16/12/2019 vide which, in response to the AO s requisition vide letter dated 21/11/2019 in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r hand, is that as despite repeated reminders no approval was forthcoming, it operated the power plant without the said approval, which was essentially for injecting the power produced into the power grid, i.e., for supply in the 33KV line laid for the purpose. The plant was run below capacity at 5 MW, i.e., as required for it s sugar division. Necessary evidence toward the same stands furnished before the ld. CIT(A), being at PB pgs.1-38, who has allowed the assessee s claim for deduction u/s. 80-IA on that basis. 5. We have heard the parties, and perused the material on record. 5.1 The assessee had been allowed an in-principle approval for setting-up a 12.8 MW power plant by the Ministry of Commerce Industry, GoI, for producing power from the bagasse generated on it s sugar production. The in-principle approval by MPPMCL dated 30/10/2015 for purchase of power (12.8 MW) from the assessee was for validity up to 31/03/2016, which was later extended up to 31/7/2017. However, no approval for injecting the power so generated in the 33 KV lines installed for transmission into the power grid (power distribution network) was allowed. The assessee, accordingly, operated the power p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the said supply was given and, in fact, despite the assessee moving the Hon ble jurisdictional High Court for the same under it s writ jurisdiction. Apart from the fact that no such rate stands actually allowed to it, the said rate is, as admitted before us, an incentivized rate by the Government of the day toward, as explained by Sh. Bardia, a changeover from fossil fuel based to renewal energy based power generation. No industry would, Sh. Bardia would continue, set-up a power plant, which the assessee does by investing over Rs. 40 cr. in plant and machinery, if the Government had not offered such a rate. That the said rate did not materialize, is another matter. The said rate, he further clarified on being queried thereon, which was initially up to 31/3/2016, stood extended up to, firstly, 31/7/2016, and, later, up to 19/8/2021, i.e., till the announcement of the new tariff (at rs. 5.71 per unit), for which reference was made by him to new tariff policy (for renewable energy) of August, 2021, to take effect from the date of its issue afore-stated, in substitution of the earlier policy of 2013. 5.3 We find the argument as misconceived, both on facts and in law. Toward the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds or services is a specified domestic transaction referred to in section 92BA. (10) Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom. Provided that in case the aforesaid arrangement involves a specified domestic transaction referred to in section 92BA, the amount of profits from such transaction shall be determined having regard to arm's length price as defined in clause (ii) of section 92F. Definitions of certain terms relevant to computation of arm's length price, etc. 92F . In sections 92, 92A, 92B, 92C, 92D and 92E, unless the context otherwise requires- (i) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arded as the rate at which the assessee s sugar division is to be billed by it s power division for power consumption. Even as observed by the Bench during hearing, the imperatives which led the Government to formulate a policy for promotion of power generation from renewable energy sources, announcing, assuming so, attractive rates, or which led to the withdrawal thereof, explained to us as the onslaught of thermal power units producing cheaper power which seems a contradiction inasmuch as thermal power is also a fossil fuel based, is an irrelevant circumstance and a consideration extraneous to valuing the goods and services in arriving at the profit on the supply thereof for captive consumption u/s. 80-IA, which is to be sans any ulterior consideration, but guided solely by the market conditions; the market price signifying an equilibrium of demand and supply forces. 5.3 The interpretation of the provision of s.80IA apart, it is even otherwise trite law that it is only the real, as opposed to, hypothetical income, that is to be subject to tax, and toward which we may refer to some decisions, viz. UCO Bank v. CIT [1999] 237 ITR 889 (SC); Godhra Electricity Co. Ltd. v. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n principle, i.e., that the power division constitutes an eligible business u/s. 80IA(1), on the profit of which therefore deduction thereunder is exigible, restore the matter for determination of the quantum of deduction, on which there has been no examination and, consequently, findings by both the Revenue authorities, back to the file of the AO. The purpose of the afore-discussion is not to foreclose or predetermine the matter, but to explain the clear law impinging on the matter. The matter, in fact admits of no dispute in principle, with the assessee itself per its Notes to the Accounts clarifying that the inter-unit transfers have been recorded at prevailing market prices, so that all that survives is the verification of it s claims. It is open for the assessee (or for that matter the Revenue) to make out a case inconsistent or in disagreement, wholly or partly, with what stands stated by us toward the same, of course meeting the law as explained herein, and in which case it shall be incumbent on the AO to consider and adjudicate the same, besides being obliged to do so in accordance with law by issue definite finding/s of fact and observing the principles of natural justic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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