2014 (2) TMI 1186 - AT - Income Tax

Entitlement to benefit of deduction u/s 80IA - CIT(A) allowed benefit on power division on the premise that the same constitutes an independent unit de hors its existing sugar plant - Held that - The issue in dispute is squarely covered by the decision of the ITAT in assessee s own case for preceding AYs 2007-08 to 2009-10 2012 (2) TMI 483 - ITAT HYDERABAD wherein observed that the Tribunal while considering the issue of disallowance of assessee s claim of deduction u/s 80IA by AO on the allegation that the power generation unit is a continuation of the old business and has been set up by splitting up of business in existence, negatived the finding of AO and allowed assessee s claim of deduction observing that even if the undertaking is established by transfer of building, plant or machinery, it is not formed as a result of such transfer, in our considered view; the assessee could not be denied the benefit. We also find that a new undertaking for manufacture of power with steam as by-product was formed out of fresh funds, in separately identifiable premises, under a separate license with manifold increase in capacity with new machinery and buildings without transfer of any portion of the old buildings or machinery which pre-existed. To constitute reconstruction, there must be transfer of assets of the existing business to the new industrial undertaking. In our opinion, generation of power unit is separate and distinct undertaking for which separate approval was obtained and recognised by the IREDA and it cannot be said that splitting of existing business structure. Therefore, in our considered opinion, the lower authorities are not correct in denying the deduction under section 80IA of the Act. - Decided in favour of assessee. Deduction u/s 80IA claimed by assessee on cost of steam sold to sugar unit - CIT(A) delted addition - Held that - The issue in dispute is squarely covered by the decision of the ITAT in assessee s own case for preceding AYs 2007-08 to 2009-10 2012 (2) TMI 483 - ITAT HYDERABAD lower authorities did not dispute that the profit credited to Profit and Loss Account in respect of steam is only ₹ 11.43 Lakhs. Thus, 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. However, the calculation of value of the steam produced by the power plant has to be determined after considering the cost and production record of respective unit and thereafter quantification of deduction has to be done in accordance with the order of the Tribunal cited supra. This issue is remitted back to the file of the Assessing Officer with a direction to the assessee to furnish necessary records for the purpose of determining the value of the steam produced and transferred to sugar unit. - Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Entitlement of the assessee to the benefit of deduction under section 80IA of the IT Act for its power division.
2. Deletion of addition related to the assessee's claim of sale of steam by the Power Division to the Sugar Division.

Issue-wise Analysis:

1. Entitlement to Deduction under Section 80IA:

The primary issue revolves around whether the assessee's power division qualifies as an independent unit eligible for deduction under section 80IA of the IT Act. The Revenue contended that the captive steam generation plant is an integral part of the sugar division and not a new unit for power generation as per section 80IA. The Assessing Officer denied the deduction, arguing that the new undertaking merely continued the earlier business of producing steam and electricity without forming a new unit.

The CIT(A), however, allowed the deduction, referencing ITAT Hyderabad's decisions in the assessee's own case for AY 2007-08 and 2008-09, which concluded that the power plant was a distinct and independent unit. The ITAT upheld the CIT(A)'s decision, noting that the premises and technology of the power division were distinct from the sugar unit, and the new undertaking was established with new machinery and separate licenses. The ITAT emphasized that the new unit was not formed by splitting up the old unit and was recognized by government authorities, including the Electricity Regulatory Authority.

2. Deletion of Addition Related to Sale of Steam:

The second issue concerns the deletion of an addition related to the sale of steam by the Power Division to the Sugar Division. The Assessing Officer argued that steam is not considered power under section 80IA and is merely a by-product, assigning it a value of nil. Consequently, the income of the sugar division was increased by the value of the steam.

The CIT(A) directed the Assessing Officer to calculate the value of the steam produced as per the ITAT's directions for AY 2008-09. The ITAT upheld this direction, referencing its previous decisions where it was determined that only the actual profit from steam, which was Rs. 11.43 lakhs, should be treated as ineligible for the deduction under section 80IA. The ITAT instructed the Assessing Officer to determine the value of the steam produced and transferred to the sugar unit based on the cost and production records provided by the assessee.

Conclusion:

The ITAT concluded that the assessee's power division is eligible for the deduction under section 80IA, affirming the CIT(A)'s decision. Additionally, the ITAT remitted the issue of the value of steam back to the Assessing Officer for recalculation based on the records furnished by the assessee, allowing the Revenue's appeal partly for statistical purposes. The judgment was pronounced in the open court on 05/02/2014.