2014 (4) TMI 1229 - AT - Income Tax

Deduction u/s 80IA on the profits of the power generation unit - allocation of losses - cost of steam is what is to be allocated between the power plant and the rice mill - Held that - From the assessee s reply it is evident that there is loss of heat in the process. This loss has to be allocated between power generation unit and rice milling unit. Assessee s argument that loss cannot be shared is not an acceptable proposition. Hence go on to allocate these losses equally between the power generation unit and rice milling unit. Thus, the loss allocated to power generation unit is worked out to 5.05%. This coupled with the heat used for power generation of 10.70% works out to 15.75%. Thus, the percentage of rice husk utilization for power generation is pegged at 15.75% instead of 10% as calculated by the assessee. Thus AO is directed to reallocate the profits from power generation unit after allocating 15.75% of the expenditure of boiler unit towards power generation instead of 10% as taken by the assessee. Once we come to our conclusion that 10% of the steam is utilized by the power generation plant, then all the cost i.e. attributable and relatable to the generation of steam has to be allocated only on that basis. The cost of steam cannot be segregated into that which is incurred up to a particular point and cost incurred after a particular point. This to our mind is not logical. Thus the allocation made by the assessee to our mind is justified. Hence, we allow this ground of the assessee. Report u/s 10CCB within time is not mandatory - Held that - This issue is covered in favour of the assessee and against the revenue by the decisions of the Hon ble Delhi High court in the case of CIT Vs. CONTIMETERS ELECTRICALS Pvt. Ltd. 2008 (12) TMI 4 - HIGH COURT DELHI . Adoption of husk consumption rate - CIT(A) held that the assessing officer had not pointed out errors nor rejected the data as per the records maintained by the assessee, before taking up comparable cases such as M/s. Sudha Agro Oils and Gautam Solvents for coming to such conclusions - Held that - We find that this conclusion of the Ld. CIT(A) is as per law for the reason that no estimates can be made without rejection of the books of accounts and without pointing out errors in those books of accounts. When the assessee is maintaining detailed records of husk consumption, electricity production, etc., the assessing officer has to point out errors in these records, reject the same and then only go for comparable cases. As the assessing officer has not done the same, CIT(A) is right in his finding. Non-maintenance of separate books of accounts for power generation business - dis-entitle the assessee for making the claim u/s 80IA - Held that - As pointed out that in the assessment year 2009-10 the assessing officer, on the very same set of facts, accepted that books of accounts maintained by the assessee on the ground that they fulfill the requirements of separate books of accounts as the purpose of having separate books of accounts, is to enable the assessing officer to ascertain the profits from power generation business. When this objective is fulfilled and when the assessing officer in the subsequent year holds so, we are of the considered opinion that the finding of the Ld. CIT(A), which is in consonance with circular no.1 of 13 dated 17.1.2013 issued by the CBDT requires to be upheld. Allocation of husk cost - Held that - Allocation of husk @10% is reasonable, suffice to say that consistent with the view taken on this issue for the earlier assessment year, we allow this ground of the assessee. Disallowance u/s 40(a)(ia) - expenditure is paid during the year and not payable as at the end of previous year - Held that - Case of Merilyn Shipping and Transport Vs. ACIT 2012 (4) TMI 290 - ITAT VISAKHAPATNAM has since been suspended and the Hon ble Kolkata High Court in the case of CIT Vs. Crescent Export Syndicate 2013 (5) TMI 510 - CALCUTTA HIGH COURT held that the law laid down in the case of Merilyn Shipping and Transport (Supra) is not a good law. Further, it was held that the provisions of S.40(a)(ia) are applicable even when the expenditure is paid during the year and not payable as at the end of previous year.-

Summary

Issues Involved:
1. Capitalization of interest expenditure.
2. Disallowance of bank expenses.
3. Disallowance of expenditure debited to the bank.
4. Addition towards godown rent.
5. Addition towards gunnies.
6. Addition u/s 40(a)(ia).
7. Addition due to default on 43B payments.
8. Disallowance of 80IA deduction for the power plant.
9. Allocation of administrative expenses.
10. Filing of 10CCB report.
11. Acceptance of additional evidence.
12. Non-maintenance of separate books of accounts.
13. Disallowance of audit expenses u/s 40(a)(ia).
14. Disallowance of paddy purchases.

Detailed Analysis:

1. Capitalization of Interest Expenditure:
The assessing officer added Rs. 8,81,163/- for the capitalization of interest expenditure on new assets (new driers) put to use during the accounting year relevant for the A.Y. 2008-09.

2. Disallowance of Bank Expenses:
The assessing officer disallowed Rs. 7,59,177/- as bank expenses relating to plant & machinery and Rs. 7,740/- as expenditure debited to the bank.

3. Addition towards Godown Rent and Gunnies:
The assessing officer made additions of Rs. 2,29,600/- towards godown rent and Rs. 2,00,000/- towards gunnies.

4. Addition u/s 40(a)(ia) and 43B Payments:
The assessing officer added Rs. 2,41,238/- under section 40(a)(ia) for non-deduction of tax at source and Rs. 7,272/- for default on 43B payments.

5. Disallowance of 80IA Deduction for Power Plant:
The main contention revolved around the allocation of husk cost between the power plant and the rice mill. The lower authorities allocated 15.75% of husk expenses to the power plant instead of 10% as claimed by the assessee. The Tribunal found the allocation of 10% by the assessee to be justified, as it was based on the technical data provided by Triveni Engineering and Industries Ltd., which indicated that 10% of the steam is utilized by the power generation plant.

6. Allocation of Administrative Expenses:
The CIT(A) applied the decision of the Pune Bench of the Tribunal in the case of Khinvasara Investment Pvt. Ltd. Vs. JCIT, which allocated administrative expenses based on the turnover of the rice mill and power plant. The Tribunal directed the assessing officer to adopt the same method for the assessment year 2008-09.

7. Filing of 10CCB Report:
The CIT(A) held that filing the 10CCB report within the stipulated time is not mandatory. This decision was upheld by the Tribunal, citing precedents from the Delhi High Court and Karnataka High Court, which supported the non-mandatory nature of timely filing for claiming deductions under section 80IA.

8. Acceptance of Additional Evidence:
The CIT(A) admitted additional evidence in the form of technical data from Triveni Engineering and Industries Ltd., which was not submitted before the assessing officer. The Tribunal found no infirmity in the CIT(A)'s acceptance of this additional evidence, as it was crucial for determining the correct allocation of husk costs.

9. Non-maintenance of Separate Books of Accounts:
The assessing officer's view that non-maintenance of separate books of accounts for the power generation business would disqualify the assessee from claiming deductions under section 80IA was rejected. The Tribunal upheld the CIT(A)'s finding that the books maintained by the assessee were sufficient for determining the profits from the power generation business.

10. Disallowance of Audit Expenses u/s 40(a)(ia):
The CIT(A) applied the decision of the Visakhapatnam Special Bench of the Tribunal in the case of Merilyn Shipping and Transport Vs. ACIT, which was later suspended. The Tribunal reversed the CIT(A)'s decision, following the Calcutta High Court's ruling that provisions of section 40(a)(ia) apply even when the expenditure is paid during the year.

11. Disallowance of Paddy Purchases:
The CIT(A) deleted the disallowance made by the assessing officer for paddy purchases, as the assessing officer neither disputed the fact of purchase nor pointed out any discrepancies. The Tribunal upheld this deletion, as the findings were not controverted by the revenue.

Conclusion:
The Tribunal allowed the assessee's appeal in part, upholding the allocation of 10% husk cost to the power plant and directing the assessing officer to adopt the same method for administrative expenses. The revenue's appeal was dismissed, with the Tribunal finding no merit in the grounds raised, including the mandatory nature of filing the 10CCB report and the acceptance of additional evidence. The disallowance of audit expenses u/s 40(a)(ia) was reversed, following the Calcutta High Court's ruling.