2024 (11) TMI 76 - AT - Income Tax

Disallowances of the deduction claimed u/s 80IA - assessee has two units one for manufacturing of paper and another for generation of power - case of the Assessing Officer is that the assessee has claimed deduction u/s 80IA with respect to the steam cost supplied to the paper unit by considering it as income in the books of the account of the assessee, thereby enhancing the profit of the power plant which is eligible for deduction u/s 80IA and claiming the same as cost in the hands of the Paper unit HELD THAT - AO has resorted to value the steam based on the Director s Report annexed to the financial statements, wherein the average cost of various raw materials i.e., husk, fire wood, saw dust, chipper dust was disclosed. AO proceeded to compute the average cost based on these disclosures and arrived at a cost of Rs. 1200/- per ton of fuel consumption for the purpose of generation of steam. The main contention of AR is that as per the Companies Act, 1956 only material cost for the power consumption is disclosed in the Directors Report annexed to the financial statements whereas the stores and spares and other overheads consumed in the process of generation of steam are not disclosed. There is merit in the argument of AR that apart from the main fuel cost certain other overheads in the form of stores and spares and other overheads are required for the purpose of generation of steam. Further we also find from the submissions of the Ld.AR that the Assessing Officer has allocated 39% of the basic fuel cost whereas assessee has allocated 49% of the total fuel cost. We also find that the AO has not considered the consumption of stores and spares and other overheads as claimed by the Ld.AR. In our considered view, if the other costs are considered for the computation of the average cost of fuel consumption used for the purpose of generation of steam the rate of Rs. 1500/- per ton of fuel adopted by the assessee-company is reasonable. Therefore, the disallowances u/s 80IA of the Act could not be justified. We are therefore inclined to allow the deduction u/s 80IA as claimed by the assessee, thereby allow the ground raised by the assessee.

Summary

Issues:
Appeal against orders of the Commissioner of Income Tax (Appeals) for A.Y. 2010-11 & 2012-13; Disallowance of deductions under section 80IA of the Income Tax Act, 1961; Disallowance of expenditure under section 40A(7); Valuation of steam cost for paper unit; Allocation of fuel cost; Consideration of stores and spares in cost calculation.

Analysis:
For A.Y. 2010-11, the assessee, a Company engaged in paper manufacturing and power generation, filed an appeal against the CIT(A)'s order disallowing deductions under section 80IA. The Assessing Officer disallowed various expenses including remuneration and capital expenditure. The main issue was the valuation of steam cost supplied to the paper unit. The AR argued that the cost of stores and spares was not considered in the valuation. The AR contended that the disallowances made by the Assessing Officer should be deleted. The Departmental Representative supported the Assessing Officer's valuation based on the Director's Report. The Tribunal found merit in the AR's argument that stores and spares costs were not considered, and the allocation of fuel cost was higher by the assessee. The Tribunal held that the disallowance under section 80IA was not justified, allowing the deduction claimed by the assessee.

In the case for A.Y. 2012-13, the issues and facts were identical to A.Y. 2010-11. The decision taken for the earlier year was applied mutatis mutandis, and the appeal was partly allowed. Both appeals were partly allowed based on the findings and reasoning in the A.Y. 2010-11 case. The Tribunal pronounced the order on 24th October 2024, partly allowing both appeals filed by the assessee.

This judgment primarily focused on the disallowance of deductions under section 80IA of the Income Tax Act, specifically related to the valuation of steam cost for the paper unit. The Tribunal analyzed the arguments presented by the AR and the Departmental Representative, ultimately finding in favor of the assessee due to the failure to consider stores and spares costs in the valuation. The decision for A.Y. 2012-13 mirrored that of A.Y. 2010-11, resulting in both appeals being partly allowed by the Tribunal.