2015 (3) TMI 794 - AT - Income Tax

Addition made on account of the sale value of exhaust steam supplied to SSL - not charging for steam supplied to SSL - transactions between holding and subsidiary company - Held that - The entire project of sugar production plant of SSL as well as the power generation unit of the appellant was in fact part of some project owned by one company. The power generation unit was separated to get investment from French company Air-Liquide, which agreed to join as JV (joint venture) partner. Therefore the transaction of exchange of bagasse & water with power & steam is in fact between two limbs of same project. If the whole project was owned by one company (as in fact it was initially) only the net profit of the entire project would have been taxable. As can be seen in the last paragraph reproduced above from he letter of SSL, the appellant company proposed to be made a subsidiary of SSL (and in fact has already become so). Looked from this angle, the transaction is between the holding and subsidiary company. Therefore in my opinion action of the appellant company in not charging for steam supplied to SSL is quite justified and cannot be said to be deliberate or motivated. Moreover even if an assessee gives (sells) his goods free of cost to other, there is no provision in the IT Act to tax its sale value' as income on presumptive basis. Legally speaking since no income has accrued & neither any payment has actually been received by the appellant company, making addition in respect of estimate price of steam amounts to taxing of notional income which is not permissible. Thus addition deleted. - Decided in favour of assessee. Deduction u/s 80IA - 50% of receipts from UPSEB - whether are eligible for computation of deduction u/s 80-IA - CIT(A) holding that steam is one of the form of power and as is eligible for deduction u/s 80-IA - Held that - Similar issue has been decided by the ITAT in favour of appellant in AY 99-00 and AY 01-02. In the said years, the ITAT has followed its order for AY 00-01 and has held that AO was not justified in reducing the amount received by appellant from the gross receipt eligible for deduction u/s 80- IA. However, because the entire addition in respect of sale of steam was deleted this alternate ground becomes infructuous and hence treated as dismissed for statistical purposes. Thus ground having become infructuous, is dismissed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition made by A.O. on account of the sale value of exhaust steam supplied.
2. Eligibility of 50% of receipts from UPSEB for deduction under Section 80-IA.
3. Eligibility of steam as a form of power for deduction under Section 80-IA.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made by A.O. on Account of the Sale Value of Exhaust Steam Supplied:
The Revenue contested the deletion of an addition of Rs. 6,97,63,106/- made by the Assessing Officer (A.O.) related to the sale value of exhaust steam supplied to SSL. The A.O. had estimated the sale value of steam at Rs. 236 per metric ton based on previous interim arrangements, despite the appellant not recognizing any sale proceeds for the steam supplied during the year due to SSL's refusal to make payments. The appellant argued that only real income could be taxed, and since no payment was received or expected, no income should be recognized. The CIT(A) and ITAT had previously ruled in favor of the appellant, accepting the revised rate of Rs. 75 per metric ton and acknowledging the appellant's adherence to Accounting Standard 9 (AS-9) on revenue recognition. The Tribunal found that the appellant's decision not to recognize any income from the supply of steam was justified due to the mutual agreement between the appellant and SSL, which was further supported by the fact that the steam supplied was part of a barter arrangement where SSL provided bagasse and water free of charge. Consequently, the Tribunal dismissed the Revenue's ground, following judicial discipline and previous rulings.

2. Eligibility of 50% of Receipts from UPSEB for Deduction Under Section 80-IA:
The Revenue challenged the CIT(A)'s decision to include 50% of the receipts from UPSEB for the computation of deduction under Section 80-IA. The appellant contended that this issue was similar to previous years where the CIT(A) and ITAT had ruled in their favor. The Tribunal noted that this ground was an alternative claim related to the same addition contested in the first issue. Since the entire addition regarding the sale of steam was deleted, this ground became infructuous and was dismissed for statistical purposes. The Tribunal followed the previous decisions which held that the A.O. was not justified in reducing the amount received from UPSEB for the purpose of deduction under Section 80-IA.

3. Eligibility of Steam as a Form of Power for Deduction Under Section 80-IA:
The Revenue argued that the CIT(A) erred in holding that steam qualifies as a form of power eligible for deduction under Section 80-IA. The Tribunal found that this issue was covered in favor of the appellant by previous orders of the ITAT in the appellant's own case for earlier years. The CIT(A) had previously ruled that steam is indeed a form of power and eligible for the deduction under Section 80-IA, aligning with the Tribunal's earlier findings. The Tribunal dismissed this ground, reaffirming the CIT(A)'s decision.

Conclusion:
The Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)'s decisions on all contested grounds. The Tribunal's order followed judicial discipline and previous rulings in the appellant's favor, emphasizing that only real income can be taxed and recognizing the mutual agreement between the appellant and SSL regarding the supply of steam. The order was pronounced on March 13, 2015.