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2010 (1) TMI 1175 - AT - Income TaxDeduction u/s 80IA - Interest income earned on margin money deposited with the bank for obtaining Letter of Credits LCs - assessee has been purchasing raw-materials and banks required the assessee to make deposits for covering the amount of LCs - AO noted that the assessee has two units; one is General Unit which is entitled to deduction u/s 80IA @ 30% whereas the other Unit called Captive Power Plant CPP unit which is entitled to 100% deduction u/s 80IA. AO held that interest income is not entitled to deduction u/s 80IA in view of the decision of the Hon ble Supreme Court in the case of Pandian Chemicals Ltd. vs. CIT 2003 (4) TMI 3 - SUPREME COURT . HELD THAT - This issue has been decided by the Tribunal in favour of the assessee in the AY 2001-02 relying on the decision in the case of Karnal Co-operative Sugar Mills Ltd. 1999 (4) TMI 7 - SC ORDER held that so far as interest received on opening of Letter of Credit is concerned the same falls within the definition of profits and gains derived by an undertaking or an enterprise from any business as referred to in sub-section (4) of section 80IA and therefore entitled to deduction u/s 80IA. Respectfully following the judgment we decide the issue in favour of the assessee. Accordingly this ground of the assessee is allowed. Deducting loss incurred in the General Unit against the income derived by CPP Unit - AO reduced the loss incurred in General Unit against the income earned in CPP Unit and thereby reduced the available deduction u/s 80IA in CPP Unit - HELD THAT - This issue has been decided against the assessee by the Tribunal in AY 2001-02. Relying on the latest decision of Hon ble Supreme Court in the case of Synco Industries Ltd. 2008 (3) TMI 13 - SUPREME COURT held that gross total income of the assessee has first got to be determined after adjusting losses etc. and if the gross total income of the assessee is nil the assessee would not be entitled to deductions under Chapter VI-A - This ground of the assessee is rejected. Deduction u/s 80IA - adjustment of electricity price charged by CPP Unit from General Unit - CPP Unit is generating electricity and supplying to General Unit as well as other consumers. CPP Unit charged rate at 5.40 paise per unit from General Unit whereas the AO restricted the same to 5.32 paise per unit and accordingly restricted the deduction u/s 80IA - HELD THAT - In the case of ACIT vs. Jindal Steel Power Ltd. 2007 (6) TMI 308 - ITAT DELHI held that the market rate postulated by section 80IA(viii) shall be the price at which the assessee purchases electricity from the Electricity Board. Respectfully following the decision we hold that the market value for electricity would be the one at which it is supplied by GEB to other assessees inclusive of duty. Therefore the rates taken by the assessee for the purpose of supplying electricity from CPP Unit to General Unit is upheld. The assessee succeeds on this point. Netting of interest income against the expenditure - assessee has earned interest on deposits made with the banks for opening LCs. It has also incurred an expenditure on loan borrowed for the purpose of business - HELD THAT - Once interest income earned from fixed deposits kept with the bank in respect of margin money for availing LC facilities would be business income as per our decision for the Assessment Year 2002-03 and thereafter any interest spent on earning such interest income would be reduced. For the purpose of finding out the nexus of interest expenditure with the interest income earned on margin money kept with the bank for availing LC facilities and thereafter doing netting we restore the matter to the file of the AO. We make it clear that the onus is on the assessee to establish the nexus of interest income earned with the particular Unit and thereafter netting of interest expenditure with the interest income earned in respect to that Unit. AO after making necessary verification allow netting. This ground of assessee is allowed but for statistical purpose.
Issues Involved:
1. Deduction under Section 80IA for Captive Power Plant (CPP). 2. Interest income on margin money deposits. 3. Deduction of loss in the general unit from the income derived by CPP. 4. Computation of the amount of deduction under Section 80IA for CPP. 5. Adjustment of electricity price charged by CPP Unit from the General Unit. Issue-wise Detailed Analysis: 1. Deduction under Section 80IA for Captive Power Plant (CPP) The assessee argued that the computation of the deduction under Section 80IA for the CPP should be separate from the general unit. The CIT(A) had deducted the loss in the general unit from the income derived by the CPP, which the assessee contested. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in Synco Industries Ltd. vs. Assessing Officer, which mandates that the gross total income must include all inter-head and intra-head adjustments, including losses from other units. Thus, the Tribunal rejected the assessee's claim for a separate computation of the deduction. 2. Interest Income on Margin Money Deposits The assessee claimed a deduction under Section 80IA for interest income earned on margin money deposits for obtaining Letters of Credit (LCs). The AO and CIT(A) denied this deduction, citing the Supreme Court's decision in Pandian Chemicals Ltd. vs. CIT, which held that such interest income is not derived from the industrial undertaking. However, the Tribunal reversed this decision, following its earlier ruling in favor of the assessee for Assessment Year 2001-02. The Tribunal referenced the Supreme Court's decision in CIT vs. Karnal Co-operative Sugar Mills Ltd., which allowed interest earned on deposits for LCs as incidental to the acquisition of assets. Thus, the Tribunal allowed the assessee's claim for deduction under Section 80IA for interest income on margin money deposits. 3. Deduction of Loss in the General Unit from the Income Derived by CPP The AO had reduced the loss incurred in the general unit from the income earned by the CPP unit, thereby reducing the available deduction under Section 80IA. The CIT(A) upheld this decision, referencing Section 80AB, which requires the deduction to be available on net income after adjusting losses. The Tribunal upheld the CIT(A)'s decision, citing the Supreme Court's ruling in Synco Industries Ltd. vs. Assessing Officer, which mandates that the gross total income must include all adjustments, including losses from other units. Thus, the Tribunal rejected the assessee's claim. 4. Computation of the Amount of Deduction under Section 80IA for CPP The assessee argued that the computation of the deduction under Section 80IA for the CPP should not include the loss from the general unit, as the CPP was entitled to a 100% deduction while the general unit was entitled to only 30%. The Tribunal rejected this argument, following its earlier ruling for Assessment Year 2001-02, which upheld the AO's and CIT(A)'s decisions to include the loss from the general unit in the computation of the deduction for the CPP. 5. Adjustment of Electricity Price Charged by CPP Unit from the General Unit The AO had restricted the rate at which the CPP unit charged the general unit for electricity to Rs. 5.32 per unit, instead of the Rs. 5.40 per unit charged by the CPP unit. The CIT(A) upheld this adjustment, stating that the rate should exclude the electricity duty of 8 paise per unit. The Tribunal reversed this decision, following its earlier ruling in favor of the assessee for Assessment Year 2002-03 and the ITAT Delhi Bench's decision in ACIT vs. Jindal Steel & Power Ltd. The Tribunal held that the market value for electricity should be the rate at which the Gujarat Electricity Board (GEB) supplies electricity, inclusive of duty. Thus, the Tribunal allowed the assessee's claim for the higher rate of Rs. 5.40 per unit. Conclusion: - For Assessment Year 2002-03, the appeal is partly allowed. - For Assessment Years 2003-04 and 2004-05, the appeals are partly allowed and partly allowed for statistical purposes. The Tribunal's order was pronounced in the open court on 08-01-2010.
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