2011 (5) TMI 945 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility for deduction u/s 80-IA of the Income-tax Act, 1961 for power units used for captive consumption.
2. Consideration of notional depreciation of earlier years for set off before computing relief u/s 80-IA.
3. Establishment of separate and distinct undertakings for claiming deduction u/s 80-IA.

Summary:

1. Eligibility for deduction u/s 80-IA for power units used for captive consumption:
The assessee's grievance was the denial of deduction u/s 80-IA for two power units, TG-3 Boiler 4 and TG-4 Boiler 5, used for captive consumption. The A.O. held that profit from power used for captive consumption was not eligible for deduction u/s 80-IA, relying on the decision in Prasad Production (P) Ltd. v. DCIT (98 ITD 212). However, the CIT(A) allowed the deduction for wind farm units but denied it for TG-3 Boiler 4 and TG-4 Boiler 5, considering them integral to the main production process. The Tribunal, referencing the jurisdictional High Court's decision in CIT v. Thiagarajar Mills Ltd., concluded that captive consumption of power generated by the assessee's own plants qualifies for deduction u/s 80-IA.

2. Consideration of notional depreciation of earlier years:
The CIT(A) accepted the assessee's argument that notional depreciation of earlier years should not be considered for set off before computing eligible deduction u/s 80-IA, relying on the jurisdictional High Court's decision in Velayudhaswamy Spinning Mills v. ACIT (231 CTR 368).

3. Establishment of separate and distinct undertakings:
The CIT(A) required the assessee to establish that the power generation was from a distinct and separate undertaking for claiming deduction u/s 80-IA. While the CIT(A) accepted the wind farms as separate undertakings, it did not consider TG-3 Boiler 4 and TG-4 Boiler 5 as separate due to their location within the main site. The Tribunal, however, held that the location within the main premises does not disqualify the units from being considered separate undertakings. The Tribunal emphasized that the power generated, whether from inside or outside the premises, should be eligible for deduction u/s 80-IA, referencing the jurisdictional High Court's decision in Tanfac Industries Ltd. v. CIT, which allowed deduction for steam-based power generation used captively.

Conclusion:
The Tribunal allowed the assessee's appeals, granting deduction u/s 80-IA for power generated from TG-3 Boiler 4 and TG-4 Boiler 5 units used for captive consumption, aligning with the jurisdictional High Court's interpretations.