2008 (8) TMI 421 - AT - Income Tax

Summary

Issues Involved:
1. Deduction under Section 115JA(2)(ii) of the IT Act from the book profit.
2. Separate maintenance of books of account for power generating units.
3. Applicability of Section 80-IA provisions to Section 115JA.
4. Reopening of assessment under Section 148.
5. Requirements for power generating units (local authority permission and sales-tax registration).
6. Treatment of captive power generation in book profit calculation.

Issue-Wise Detailed Analysis:

1. Deduction under Section 115JA(2)(ii) of the IT Act from the book profit:
The Department challenged the CIT(A)'s decision allowing the assessee's claim for deduction under Section 115JA(2)(ii) from the book profit. The Department argued that the CIT(A) did not properly appreciate the facts presented by the AO, which indicated that the assessee did not maintain separate books of account for power generating units, and these units were not functioning independently. The AO contended that the final accounts did not comply with Accounting Standard No. 21 (AS-21) by ICAI, and the CIT(A) erroneously relied on Section 80-IA provisions, which are different from Section 115JA.

2. Separate maintenance of books of account for power generating units:
The assessee argued that it maintained separate and independent books of account for each unit, including power generating units. The assessee's annual report included unit-wise balance sheets and P&L accounts, consolidated for the company. The AO, however, disputed this, claiming that the assessee did not provide sufficient evidence of separate books and that the power units were not independently managed.

3. Applicability of Section 80-IA provisions to Section 115JA:
The Department argued that the CIT(A) wrongly applied the analogy of Section 80-IA to Section 115JA, as the former is a substantive provision granting tax exemptions, while the latter is a fictional provision for calculating MAT. The CIT(A) relied on previous relief under Section 80-IA for the assessee, which was deemed inappropriate by the Department.

4. Reopening of assessment under Section 148:
The AO issued a notice under Section 148 to reopen the assessment, which the assessee objected to. The AO proceeded with reassessment and disallowed the deduction of Rs. 4,40,79,581, arguing that the assessee did not obtain necessary local authority permissions or sales-tax registration for the power generating units.

5. Requirements for power generating units (local authority permission and sales-tax registration):
The AO disallowed the deduction on grounds that the assessee did not have local authority permissions or sales-tax registration for the power generating units. The CIT(A) found this irrelevant, emphasizing that the provisions of Section 115JA(ii) are self-contained and do not require such permissions for calculating MAT.

6. Treatment of captive power generation in book profit calculation:
The CIT(A) allowed the deduction for profits from power generating units, even though the power was used internally and not sold. The CIT(A) referenced the Bombay Tribunal's decision in West Coast Paper Mills Ltd., which permitted claims for captive power plants. The Tribunal upheld this view, stating that the provision in Section 115JA(ii) does not necessitate the sale of power and that the assessee's internal consumption of generated power qualifies for the deduction.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, dismissing the Department's appeal. It concluded that the assessee correctly maintained separate books of account, the provisions of Section 115JA(ii) were appropriately applied, and the AO's objections were unfounded. The Tribunal affirmed that the assessee's internal consumption of generated power met the requirements for deduction under Section 115JA(ii), and the CIT(A)'s order was not infirm. Thus, the appeal of the Revenue was dismissed.