2007 (8) TMI 381 - AT - Income Tax

Summary

Issues Involved:
1. Part disallowance of deduction under section 80-I/80-IA.
2. Allocation of fuel cost between gas and steam units.
3. Applicability of sections 80-I(6), 80-I(8), and 80-IA(9).
4. Consideration of commercial accounting practices versus Income-tax Act.
5. Admissibility of additional evidence (certificate from IIT Delhi).
6. Scope of rectification under section 254(2) of the Income-tax Act.
7. Review of Tribunal's order based on alleged factual and legal infirmities.

Detailed Analysis:

1. Part Disallowance of Deduction under Section 80-I/80-IA:
The primary issue was the part disallowance of deduction under section 80-I/80-IA. The assessee, engaged in the generation of electricity using gas, claimed deductions which were partially disallowed by the Assessing Officer. The Assessing Officer argued that the hot gases used by the steam turbines had a commercial value and should be accounted for as fuel costs, thereby reducing the eligible deduction. The Tribunal, however, held that no expenditure was incurred by the assessee for hot gases utilized in the steam turbine, and thus, no notional expenses should be debited. The Tribunal directed the Assessing Officer to allow the deduction without allocating any expenditure of the gas unit to the steam unit.

2. Allocation of Fuel Cost between Gas and Steam Units:
The Tribunal examined whether the fuel cost incurred by the gas units should be allocated to the steam units. The assessee argued that the hot gases were waste products that could not be sold or stored and were utilized in generating electricity due to advanced technology. The Tribunal agreed with the assessee, noting that there was no evidence that such hot gas could be sold in the open market and that the steam turbine did not consume any fuel except the waste hot gases from the gas turbine. Therefore, the allocation of fuel costs to the steam unit was not warranted.

3. Applicability of Sections 80-I(6), 80-I(8), and 80-IA(9):
The Tribunal considered the applicability of sections 80-I(6), 80-I(8), and 80-IA(9). The Assessing Officer had relied on these sections to justify the allocation of expenses. However, the Tribunal concluded that these provisions did not support the allocation of expenses as done by the Assessing Officer. The Tribunal held that the profits of each industrial undertaking should be determined as if it were the only source of income, and there was no market value for the hot gases to justify a transfer price between the units.

4. Consideration of Commercial Accounting Practices versus Income-tax Act:
The department contended that the Tribunal's order was infirm as it determined profits based on commercial accounting practices rather than the Income-tax Act. The Tribunal, however, maintained that the allocation of expenses was not justified under the Income-tax Act, as there was no market value for the hot gases and no evidence that they could be sold.

5. Admissibility of Additional Evidence (Certificate from IIT Delhi):
The department argued that the Tribunal incorrectly considered a certificate from IIT Delhi as additional evidence. The Tribunal had used this certificate to support its conclusion that the hot gases had no commercial value. The Tribunal found that the certificate was relevant and supported the assessee's claim that the hot gases were waste products with no market value.

6. Scope of Rectification under Section 254(2) of the Income-tax Act:
The Tribunal emphasized that the scope of rectification under section 254(2) is limited to mistakes that are obvious or patent. The Tribunal found that the department's contentions required a review of the order, which is not permissible under section 254(2). The Tribunal cited relevant case law to support its position that a review of the order was beyond the scope of rectification.

7. Review of Tribunal's Order Based on Alleged Factual and Legal Infirmities:
The department sought a review of the Tribunal's order, alleging factual and legal infirmities. The Tribunal noted that similar contentions had been raised before the High Power Committee on Dispute, which had rejected the department's request to contest the appeal. The Tribunal concluded that the department's application for review was not permissible, as it would amount to doing indirectly what could not be done directly.

Conclusion:
The Tribunal dismissed the miscellaneous application filed by the department, concluding that there was no mistake in its original order that warranted rectification under section 254(2). The Tribunal held that the department's contentions were an attempt to review the order, which is not allowed under the law. The Tribunal's decision to allow the deduction under sections 80-I and 80-IA without allocating any expenditure of the gas unit to the steam unit was upheld.