2018 (1) TMI 1667 - AT - Income Tax

Deduction u/s. 80IA - deduction in respect of the Captive Power Plant established by it - HELD THAT - In earlier years on the basis of such valuation, deduction u/s.80IA (4)(iv) of the Act were allowed from A.Y. 06-07. In our considered opinion, assessee is therefore on the principle of consistency, eligible for such deduction. Further as required assessee filed a certificate inform 10CCB from a charted accountant for claim and therefore the reasonableness and valuation of steam is certified through that certificate is eligible deduction Also gone through the assessment order in details in that there is a finding of the AO in Page No.9 Para ii, wherein she has stated that 80IA(4) is an allowable deduction on steam and there is no dispute on it, steam has already been held to be power within the meaning of Section 80IA(4) of the Act. When on one hand AO herself is accepting that steam is eligible for deduction and on the other hand she is disallowing the deduction, it itself is contradictory, when once the AO is of the opinion that deduction is available on steam then no disallowance should have been made only on assumptions basis. The assessee has submitted several decisions in support of its contention and same are stated therein, the steam was transferred at a higher price. Further assessee has submitted engineer certificate at Page No.10 of Paper Book in which also the cost of generation of steam can be considered in the range of ₹ 1.16/- to 1.24/- per kg of steam. Further the saving in cost due to Captive production also cannot be ruled out which has been elaborated discussed by the ld. CIT(A). Relying on various decision in support of the claim made by the assessee and acceptance by the AO that steam is a form of power and eligible for deduction and for the basis of deduction relying on the engineers certificate as well different case laws held. CIT(A) has rightly deleted the addition and profit margin kept by the assessee in Captive consumption is fair and reasonable - Decided against revenue.

Summary

Issues Involved:
1. Legality of the Commissioner of Income-Tax (Appeals) directing to allow the claim of deduction u/s.80IA of the Act.
2. Examination of the selling price as per section 80IA(8) and its proviso.
3. Whether the Commissioner of Income-Tax (Appeals) should have upheld the order of the Assessing Officer.

Issue-wise Detailed Analysis:

1. Legality of the Commissioner of Income-Tax (Appeals) Directing to Allow the Claim of Deduction u/s.80IA of the Act:
The primary issue was whether the assessee's claim of deduction under section 80IA for ?2,70,69,861/- was justified. The assessee had a Captive Power Plant (CPP) and claimed deductions for the steam generated and transferred to its process division. The Assessing Officer (A.O.) argued that the selling price of steam was arbitrarily set at ?1.15 per Kg, while the actual cost of production was ?0.92 per Kg. The A.O. contended that steam is not a commercial commodity as it cannot be sold in the market due to its non-transportability and lack of market value. Therefore, the selling price should be the cost of production, disallowing the profit derived from the sale of steam.

The assessee argued that steam is essential for textile processing and has a commercial value. They supported their claim with an engineer's certificate and referenced various judicial precedents, including the case of CIT, Madurai Vs. Thiagarajar Mills Ltd., which allowed deductions for captive consumption of power. The Commissioner of Income-Tax (Appeals) accepted the assessee's arguments, stating that the profit from captive consumption is reflected in the ultimate profit from the sale of textiles and should be included in the deduction under section 80IA.

2. Examination of the Selling Price as per Section 80IA(8) and its Proviso:
The A.O. argued that since steam is not a tradable commodity, its market value cannot be determined, and thus, the cost of production should be considered as the selling price. The assessee countered this by stating that the steam's selling price at ?1.15 per Kg was reasonable and justified based on the cost-plus method. They provided examples of other companies and judicial precedents where similar deductions were allowed.

The Commissioner of Income-Tax (Appeals) found the assessee's valuation method reasonable and consistent with previous years' assessments, where similar deductions were allowed. The Commissioner also emphasized the principle of consistency and the liberal interpretation of incentive provisions, as held by the Supreme Court in various cases like Bajaj Tempo Ltd. Vs CIT.

3. Whether the Commissioner of Income-Tax (Appeals) Should Have Upheld the Order of the Assessing Officer:
The A.O. disallowed the deduction, arguing that the assessee's method of valuing steam was arbitrary and not based on market value, as required by section 80IA(8). The Commissioner of Income-Tax (Appeals) disagreed, stating that the assessee's method of valuation was reasonable and supported by an engineer's certificate. The Commissioner also noted that the A.O. had accepted that steam qualifies as power under section 80IA(4), which contradicts the disallowance of the deduction.

The Tribunal upheld the Commissioner of Income-Tax (Appeals)'s decision, emphasizing the principle of consistency and the reasonableness of the assessee's valuation method. The Tribunal also noted that the A.O. had accepted steam as a form of power eligible for deduction under section 80IA(4), and therefore, no disallowance should have been made based on assumptions.

Conclusion:
The Tribunal dismissed the department's appeal, upholding the order of the Commissioner of Income-Tax (Appeals) to allow the assessee's claim of deduction under section 80IA. The Tribunal found the assessee's valuation method reasonable, supported by an engineer's certificate, and consistent with previous years' assessments. The Tribunal emphasized the principle of consistency and the liberal interpretation of incentive provisions, as held by the Supreme Court.