2011 (12) TMI 604 - AT - Income Tax

Revised computation of depreciation and deduction under s. 80-IA on captive power plant - apportionment of common expenses as per s. 80-IC.

Summary

Issues Involved:
1. Consideration of revised computation of depreciation and deduction under Section 80-IA of the Income Tax Act on captive power plant.
2. Deletion of addition made by AO on account of apportionment of common expenses as per Section 80-IC.

Issue-wise Detailed Analysis:

1. Consideration of Revised Computation of Depreciation and Deduction under Section 80-IA:

The Department objected to the direction given to the Assessing Officer (AO) to consider the revised computation of depreciation and deduction under Section 80-IA of the Income Tax Act on the captive power plant. The assessee initially claimed a deduction under Section 80-IA amounting to Rs. 1,72,31,805. During the assessment proceedings, the assessee revised this claim to Rs. 2,46,75,216 due to an error in the depreciation rate applied initially (25% instead of the correct 15%).

The AO did not consider the revised claim, but the Commissioner of Income Tax (Appeals) [CIT(A)] allowed the revised claim, stating that the AO has a duty to determine the tax liability correctly based on all available facts, even if the claim was not made in the original return. The CIT(A) emphasized that the AO should consider all relevant material and make an assessment of the total income or loss of the assessee, determining the sum payable or refundable.

The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the CIT(A)'s findings. The Tribunal agreed that the AO should have considered the revised computation since it was filed before the completion of the assessment and was in accordance with the correct depreciation rate.

2. Deletion of Addition on Account of Apportionment of Common Expenses:

The AO made an addition of Rs. 34,36,058 by apportioning common expenses between the captive power plant and the principal unit based on their turnover ratio, as per Section 80-IC. The AO argued that certain services and amenities provided by the head office (HO) to the captive power plant should be charged at market value to ascertain the true profit of the captive power plant.

The assessee contended that the captive power plant operated independently, with a single supplier and customer, and did not require the extensive infrastructure or services of the HO. The assessee maintained separate books of account for the captive power plant, which were duly audited, and had already allocated Rs. 1,00,000 towards any missed expenses.

The CIT(A) found the AO's apportionment unjustified, noting that the assessee had already debited all relevant expenses and depreciation in the captive power plant's accounts. The CIT(A) referenced previous decisions in similar cases, concluding that no further apportionment was necessary.

The Tribunal upheld the CIT(A)'s decision, agreeing that the apportionment made by the AO was not correct. The Tribunal noted that the assessee had maintained separate books of account and had already allocated a reasonable amount for any missed expenses. The Tribunal also cited the Supreme Court's decision in Rajasthan State Warehousing Corporation vs. CIT, which supported the principle that when an assessee carries on business in various ventures, the entire permissible expenditure in earning the income from that head is deductible if all ventures constitute one indivisible business.

Conclusion:

The Tribunal dismissed the Department's appeal, confirming the CIT(A)'s findings on both issues. The revised computation of depreciation and deduction under Section 80-IA was to be considered, and the addition made by the AO on account of apportionment of common expenses was deleted.