2012 (2) TMI 483 - AT - Income Tax

Deduction under section 80IA - Held that - Even assuming that steam is not power as held by the Assessing Officer at best the department could have treated only 11.43 lakhs as ineligible profits for the purpose of claiming the deduction under section 80IA of the Act. To hold otherwise would be a gross error as the expenditure debited to the profit and loss account of the power unit is still being retained by the department while making the computation. The CIT A also agrees that steam has no value as no price was charged for the same in the earlier year but ignores the fact that in the absence of gross total income in the earlier year no exemption could have been claimed. Therefore we direct that only 11.43 lakhs is to be treated as ineligible profits for the purpose of deduction under section 80IA of the Act and for the balance sale amount of steam to sugar division the assessee company is eligible for deduction under section 80IA of the Act. Addition made towards income in respect of sugar division for value of bagasse not accounted for in that division - Held that - Separate books are maintained and scrutilized by the assessomg officer in respect of three divisions of the assessee company. There is no evidence that instead of cane trash bagasse has been consumed. Since it is the assessee case that the profits of the power division are exempt under section 80IA of the Act it does not make sense for the assessee company to reduce profits of the power division by recording spurious purchases of cane trash. Non recording of expenditure actually goes to increase exempted profits. This clearly points to the genuineness of the assessee s case. The method of accounting followed by the assessee in respect of the sugar and power divisions are the same from year to year. In fact the sugar division is subject to Central Excise supervision and records are maintained under the Central Excise and Salt Act 1944. Further the sugar and cement divisions are statutorily required to maintain records under the cost accounting/Audit rules as applicable. Therefore the records should be complete according to all statutory requirements and hence there is no warrant for the department to make any addition without considering the evidence produced by the assessee on this count. After considering the totality of the facts and circumstances we feel it appropriate to re-examine the issue on the basis of evidence and records maintained by the assessee. Accordingly we set aside this issue to the file of the Assessing Officer to reconsider the same in the light of our above observations. This ground raised by the assessee is partly allowed. We are inclined to hold that the power tariff rate should be considered at 2.67 per unit instead of 3.48 per unit as decided by the Tribunal in the case of Shri Balaji Bio-Mass Power Project Ltd. (2011 (1) TMI 1405 - ITAT HYDERABAD). Accordingly we allow the ground taken by the Revenue. However in the event of tariff rate reached finality by the judgement of higher judicial forum the Assessing Officer is directed to consider the same and decide accordingly.

Issues Involved:
1. Eligibility for deduction under section 80IA of the Income Tax Act for the power division.
2. Addition of Rs. 4,84,31,300/- towards profit in respect of the sugar division for the sale of steam.
3. Addition of Rs. 2,84,95,500/- towards income in respect of sugar division for bagasse not accounted for.
4. Addition of Rs. 1,14,16,389/- and Rs. 1,98,77,388/- to the profits of sugar and cement division due to the difference in power tariff rates.

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 80IA:
The primary issue was whether the power division constituted a new industrial undertaking eligible for deduction under section 80IA of the Income Tax Act. The assessee argued that the power plant was a distinct industrial undertaking with separate premises, technology, and concessional loans from government agencies. The Assessing Officer (AO) contended that the power plant was formed by splitting the existing business of sugar manufacturing, thus not qualifying as a new undertaking. The Tribunal found that the power division was distinct, with separate premises and technology, and not formed by splitting the existing business. It cited the Supreme Court's decision in Textile Machinery Corporation Ltd. vs. CIT, concluding that the power division was a new and identifiable undertaking. Therefore, the Tribunal ruled in favor of the assessee, allowing the deduction under section 80IA.

2. Addition of Rs. 4,84,31,300/- for Sale of Steam:
The AO added Rs. 4,84,31,300/- to the income of the sugar division, arguing that the value of low-pressure (LP) steam supplied by the power division to the sugar division should be nil. The assessee claimed this amount as income for the power division and an expense for the sugar division. The Tribunal noted that the profit on steam was only Rs. 11.43 lakhs, and even if steam was not considered power, only this amount should be disallowed. It directed that the balance sale amount of steam should be eligible for deduction under section 80IA, allowing the ground partly in favor of the assessee.

3. Addition of Rs. 2,84,95,500/- for Bagasse Not Accounted:
The AO added Rs. 2,84,95,500/- to the income of the sugar division, asserting that the entire bagasse consumption in the power division was met from the sugar division, rejecting the assessee's claim of purchasing cane trash. The Tribunal found that the assessee had produced weighment slips, bank vouchers, and ledger accounts as evidence, which were not considered by the AO. It noted that the method of accounting was consistent and records were maintained under statutory requirements. The Tribunal set aside this issue for re-examination by the AO, directing reconsideration based on the evidence and records.

4. Addition of Rs. 1,14,16,389/- and Rs. 1,98,77,388/- for Power Tariff Rates:
The AO adopted a power tariff rate of Rs. 2.67 per unit, while the assessee used Rs. 3.48 per unit based on an interim order. The Tribunal referred to its decision in Sri Balaji Bio-Mass Power Pvt. Ltd., holding that income should be recognized based on the amount actually received and not the disputed higher rate. It ruled that the power tariff rate should be Rs. 2.67 per unit, as per the interim orders, allowing the revenue's ground. However, it directed the AO to reconsider if the tariff rate reached finality by a higher judicial forum.

Conclusion:
The Tribunal partly allowed the assessee's appeal, granting eligibility for deduction under section 80IA for the power division and directing a partial allowance for the sale of steam. It set aside the issue of bagasse not accounted for, for re-examination. The revenue's appeal was allowed regarding the power tariff rate, with a direction for reconsideration if the rate reached finality by a higher judicial forum.

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