2021 (1) TMI 786 - AT - Income Tax

Rectification of mistake u/s 154 - AO disallowed the cost of steam considered as nil value and denied deduction u/s 80IA in respect of the power division due to which in the Sugar Division, the expenditure towards the cost of steam purchased from power division was also disallowed - assessee s contention is that the correct value of the steam is ₹ 1,54,17,891 and not ₹ 1,15,27,642/- which is the value taken by the AO in the consequential order dated 22.07.2014 - HELD THAT - In the order u/s 154, the cost of steam transferred from power division to sugar division has been computed at ₹ 1,59,00,541/- which is more than the prayer of the assessee in application u/s 154. When we enquired whether the computation of the value of steam for this A.Y would have any consequential affect in the subsequent A.Ys, the learned Counsel for the assessee submitted that in the subsequent years, there was no disallowance and these calculations would not in any way affect the computation of income in the subsequent years. Since the relief granted by the Add. CIT u/s 154, was more than the relief claimed by the assessee in its application u/s 154 of the Act, we do not see any prejudice being caused to the assessee. We do not see any reason to interfere with the order of the Add. CIT dated 11.8.2014 u/s 154 of the Act. Penalty u/s 271(1)(c) - disallowance of the deduction u/s 80IA - HELD THAT - After hearing both the parties and in view of our findings in the assessee s appeal against the order of the AO u/s 154, dated 11.8.2014, we find that the computation of the cost of steam was a highly technical and complicated issue and further, the said exercise had been undertaken while passing the consequential order and also during the proceedings u/s 154. In such circumstances, we do not agree with the AO that there is any suppression of income or furnishing of incorrect information. It cannot be treated as a deliberate wrong claim, it is a debatable issue. Therefore, the penalty levied by the AO is set aside and the assessee s appeal is accordingly allowed.

Summary

Issues:
1. Disallowance of deduction u/s 80IA in respect of power division.
2. Computation of the cost of steam transferred from power division to sugar division.
3. Penalty levied under section 271(1)(c) of the Income Tax Act, 1961.

Issue 1: Disallowance of deduction u/s 80IA in respect of power division:
The assessee, engaged in manufacturing cement, sugar, and power generation, filed a return offering income for the A.Y 2009-10. The AO disallowed the cost of steam as nil and denied deduction u/s 80IA for the power division. The ITAT allowed the deduction but held the cost of steam for the sugar division cannot be nil. The AO recalculated the cost of steam transferred to the Sugar Division, leading to an appeal by the assessee. The CIT (A) confirmed the AO's order, prompting the assessee to appeal before the Tribunal. The Tribunal found that the AO's computation was more than what the assessee had sought, causing no prejudice, and dismissed the appeal.

Issue 2: Computation of the cost of steam transferred from power division to sugar division:
The AO computed the cost of steam transferred to the Sugar Division at a certain value, which the assessee sought to rectify through an application u/s 154. The Add. CIT recalculated the value, which was more than what the assessee had requested. The Tribunal noted that the computation did not affect subsequent years and that the relief granted exceeded the assessee's claim. Consequently, the Tribunal found no reason to interfere with the Add. CIT's order, upholding the computation of the cost of steam transferred.

Issue 3: Penalty levied under section 271(1)(c) of the Income Tax Act, 1961:
Due to the dispute over the cost of steam transferred, penalty proceedings were initiated by the AO, alleging suppression of facts and inaccurate particulars of income by the assessee. The CIT (A) upheld the penalty, leading to the assessee's appeal. The Tribunal, after considering the technical and complicated nature of the cost of steam computation, found no suppression of income or furnishing of incorrect information. It deemed the issue debatable and set aside the penalty, allowing the assessee's appeal.

In conclusion, the Tribunal dismissed the appeal regarding the disallowance of deduction u/s 80IA, upheld the computation of the cost of steam transferred, and allowed the appeal against the penalty levied under section 271(1)(c) of the Income Tax Act, 1961.