2014 (1) TMI 1289 - AT - Income Tax

Disallowance of proportionate interest expenses u/s 36 of the Act - Loan extended to a unit u/s 80IA of the Act Computation of net profit Held that - The decision in CIT Vs Reliance Utilities and Power Ltd. 2009 (1) TMI 4 - HIGH COURT BOMBAY followed - the addition for the assessment year 2007-08 and 2008-09 made on account of disallowance of interest since the term loan obtained by the assessee company from outside source is comparatively much less than own Capital & Reserves - where the assessee has own funds or interest free funds then the presumption would be that such loans extended by the assessee would be from its own funds/interest free funds - Thus, for both the assessment year 2007- 08 and 2008-09 are allowed in favour of the assessee. Set off of losses in co-gen power plant against the profit of paper unit Held that - The CIT(A) has directed the learned AO to reduce the income of the eligible undertaking viz., power plant claiming deduction u/s 80IA of the Act by brought forward business losses of that undertaking Relying upon ACIT V/s Goldmine Shares and Finance (P).Ltd. 2008 (4) TMI 405 - ITAT AHMEDABAD - Assessee has not produced any contrary decisions, there was no reason to interfere in the order of CIT(A) Decided against Assessee. Enhancement of Income chargeable to tax Expenditures diverted Excess coal consumption in Unit II and Unit III claimed - Held that - The assessee had not co-operated with the CIT(A) during the appellate proceedings satisfactorily by producing all the relevant materials - the CIT(A), after detailed examination of the issue based on the available documents, arrived at the conclusion that the balance cost attributed to HP Steam used in electricity generation in Unit-III would be Rs.41,61,167/-, for which, addition has to be made - the casual attitude of the assessee requires to be discouraged for not co-operating before the Revenue the matter remitted back to the CIT(A) for fresh adjudication Decided in favour of assessee. Depreciation granted on furniture and fixtures of Managing director s residence Held that - Providing furniture at the residential house of the Managing Director of the assessee company, is nothing but perquisite offered to the Managing Director by the assessee company and, therefore, the same has to be taxed as such in the hands of the Managing Director and at the same time, the assessee company should be allowed depreciation for such assets since it is put to use during the course of the business of the assessee company Decided in favour of Assessee. Inflation of purchases of waste papers from various vendors Held that - The Assessing Officer has not pointed out any specific purchases as non-genuine - The appellant/assessee had maintained all the evidences of purchases made along with delivery challans, weigh bridge receipts etc. - The appellant/assessee had also produced the suppliers in response to summons issued u/s 131 of the Act - The rejection of books of account of the suppliers cannot be made as a basis for estimating addition in the hands of the appellant/assessee - Payments to all these suppliers were made by cheque and all the purchases were accounted - The CIT(A) has made elaborate finding and he is quite justified by allowing the issue in favour of the assessee Decided against Revenue. Maintenance of books of accounts Held that - It would be appropriate that for verification of the matter is required - thus, it would be remitted back to the CIT(A) for fresh adjudication Decided in favour of Revenue. Benefit of deduction u/s 80IA(4) of the Act - Treatment of steam Can steam be treated as power or not Held that - The captive power plant of the assessee is not a plant for generating electricity alone, but it is so designed to generate Low Pressure Steam as well in substantial quantity - the Low Pressure Steam produced by the assessee s plant is not residue by-product, but a product by itself - the assessee company had utilized more quantity of steam in its overall operation with respect to manufacturing of paper than generation of electricity. The assessee was utilizing 60% of steam produced for drying of paper in the paper industry and only 40% was used for generating power/electricity - the LP steam generated from the operation of co-generation plant was residue by-product - The co- generation plant ends up producing two products i.e. electricity and low pressure steam - the co- generation plant installed in the assessee s factory produces two products viz. 60% low pressure steam and 40% high pressure steam generating electricity - When steam held under pressure is released, it contains force which is capable of rotating the turbine - By using coal as fuel, two types of steams are generated one being high pressure steam at 495 degree centigrade having steam enthalpy of 815.95 K. CAL/Kg., which is the input for electricity generation and the other being low pressure steam of 270 decree centigrade having steam enthalpy of 718.4 K. CAL/Kg drawn from the plant for utilizing in the paper drying machine for producing paper - The arguments taken up by the revenue were not before the CIT(A) for consideration thus, the matter remitted back to the CIT(A) for fresh adjudication Decided in favour of Assessee. Adoption of rate of electricity produced Held that - The decision in Assistant Commissioner of Income-tax- 1(2), Raipur Versus Godavari Power & Ispat Ltd 2011 (11) TMI 107 - ITAT, BILASPUR - The price charged for such transfer should correspond to the market value of such goods or services on the date of transfer, market value for this purpose means the price that such goods or services would ordinarily fetch in the open market - price at which the State Electricity Board supplies power to its consumers is to be considered to be the market value for transfer of power by the assessee s electricity generating undertaking for captive consumption and not the price at which power is supplied by the assessee to the Board Decided against Revenue. Allowability of Interest expenses Unaccounted disclosed income used for renovation of bungalow Held that - The CIT(A) made a clear finding that no borrowed funds were used by the assessee company for incurring such expenditure since the entire amount was admitted as unaccounted income - the CIT(A) deleted the addition of Rs.6.00 lacs there is no reason to interfere in the findings of CIT(A) Decided against Revenue. Shortage of stock Held that - Both the parties advanced various arguments in support of the respective claim, but no material was brought on record to arrive at a logical conclusion the issue is remitted back to the CIT(A) for fresh adjudication Decided in favour of Revenue.

Summary

Issues Involved:
1. Disallowance of proportionate interest expenses for the loan extended by the assessee to its 80IA Unit.
2. Disallowance of deduction u/s 80IA(4) of the Act towards the claim of LP Steam.
3. Set off of loss worked out by the AO in co-gen power plant against the profit of the paper unit.
4. Enhancement of income chargeable to tax by holding that the assessee has diverted expenditure.
5. Enhancing the income chargeable to tax by holding that the assessee had claimed excess coal consumption in Unit III.
6. Allowing telescoping effect by giving the deduction of added expenditure from added income.
7. Granting depreciation on furniture and fixtures provided at the residence of the Managing Director.
8. Enhancing the income chargeable to tax by holding that the assessee had claimed excess coal consumption in Unit II.
9. Deleting the addition made on account of inflation of purchases.
10. Deleting the interest disallowance.
11. Allowing the deduction claimed by the assessee u/s 80IA(4)(iv) of the I.T. Act.
12. Allowing interest expenses against unaccounted disclosed income used for renovation of the bungalow.
13. Addition based on shortage of stock.

Detailed Analysis:

Issue No. 1: Disallowance of Proportionate Interest Expenses
- The AO observed that the assessee had extended interest-bearing funds to its 80IA units without charging interest, inflating the profits of the 80IA units. The CIT(A) re-worked the disallowance, but the tribunal found that the assessee had substantial capital more than the loan extended to the 80IA units. Following the decision in CIT Vs Reliance Utilities and Power Ltd., the tribunal deleted the addition for both assessment years 2007-08 and 2008-09.

Issue No. 2: Disallowance of Deduction u/s 80IA(4)
- The AO disallowed the claim for deduction on LP Steam, arguing that steam is not power. The CIT(A) allowed the claim but modified the calculation, which was not acceptable to the assessee. The tribunal found that the co-gen plant was designed to produce LP Steam for the paper unit, not as a by-product. The issue was remitted back to the CIT(A) for fresh consideration.

Issue No. 3: Set off of Loss
- The CIT(A) directed the AO to reduce the income of the eligible undertaking by brought forward business losses. The tribunal confirmed the CIT(A)'s order as the AR did not produce any contrary decisions.

Issue No. 4: Enhancement of Income Chargeable to Tax
- The CIT(A) enhanced the income by Rs. 41,61,167/- due to discrepancies in coal consumption. The tribunal remitted the matter back to the CIT(A) for fresh consideration, directing the assessee to cooperate by providing all relevant documents.

Issue No. 5: Enhancing Income by Excess Coal Consumption
- The CIT(A) made additions for excess coal consumption in various units. The tribunal remitted the issue back to the CIT(A) for fresh consideration, directing the assessee to provide all relevant data.

Issue No. 6: Telescoping Effect
- The issue is related to Issue No. 5 and was remitted back to the CIT(A) for fresh consideration, keeping in view the overall accounting procedures and actual facts.

Issue No. 7: Depreciation on Furniture
- The AO disallowed the claim for depreciation on furniture at the Managing Director's residence. The tribunal allowed the claim, considering it a perquisite offered to the Managing Director and directed it to be taxed as such in his hands.

Issue No. 8: Enhancing Income by Excess Coal Consumption in Unit II
- The facts are identical to Issue No. 5. The tribunal remitted the issue back to the CIT(A) for fresh consideration.

Issue No. 9: Deleting Addition on Inflation of Purchases
- The AO made an estimated addition of Rs. 2 lacs for inflation of purchases. The CIT(A) deleted the addition, finding no specific purchases as non-genuine. The tribunal upheld the CIT(A)'s order.

Issue No. 10: Deleting Interest Disallowance
- Since the tribunal allowed the assessee's appeal on this issue, the revenue's ground became redundant and was dismissed.

Issue No. 11: Allowing Deduction u/s 80IA(4)(iv)
- The CIT(A) allowed the deduction, but the tribunal remitted the issue back for fresh consideration, directing the CIT(A) to consider additional arguments raised by the DR.

Issue No. 12: Allowing Interest Expenses
- The CIT(A) deleted the addition of Rs. 6,00,000/- for interest expenses against unaccounted disclosed income. The tribunal upheld the CIT(A)'s order.

Issue No. 13: Addition Based on Shortage of Stock
- The AO made an addition of Rs. 86,19,041/- for shortage of stock. The CIT(A) held that this amount was disclosed as part of the total disclosure. The tribunal remitted the issue back to the CIT(A) for fresh consideration.

Conclusion:
- The appeals of the assessee and the revenue were partly allowed for statistical purposes. The tribunal remitted several issues back to the CIT(A) for fresh consideration, directing both parties to provide all relevant documents and cooperate fully.