2016 (2) TMI 459 - AT - Income Tax

Deduction under sec. 80IA rejected - whether the assessee generates and sells the electricity or utilizes it for its manufacturing of other goods for sale - CIT(A) allowed the claim - Held that - The emphasis for grant of relief is on the manufacture of one or more of the item enumerated in Schedule VI. Whether the items mentioned in Schedule- VI are manufactured and sold by the assessee as such or utilized by the assessee in the manufacture of other goods for sale will not make any difference for grant of relief under sec. 80I. We are of the view that the Learned CIT(Appeals) was justified in accepting the claimed deduction with this finding that it does not make difference whether the assessee generates and sells the electricity or utilizes it for its manufacturing of other goods for sale. The Assessing Officer had simply used the steam pressure for allocation of the cost which cannot be a basis. It was contended that measurement has to be done in terms of energy which has to be measured in kcl. In absence of any reason given by the Assessing Officer as to why the formula used by the assessee was wrong, we are of the view that Learned CIT(Appeals) has rightly accepted the above contention of the assessee that observation of the Assessing Officer that the assessee had allocated cost in proportion to temperature was not correct. CIT(Appeals) has dealt with the issue and observed that the perusal of the submissions of the assessee shows that it had computed its calculation at 85% of the efficiency itself. The assessee considering the efficiency at 8% to 86% had computed the power transferred to paper unit at 39,06,143 units, clearly demonstrating that the assessee himself had computed the efficiency by reducing the same to 85 to 86% and therefore, the Assessing Officer was not justified in further reducing the same by another 15%. In absence of specific rebuttal of the above facts by the Revenue before the ITAT, we do not find reason to interfere with the findings of the Learned CIT(Appeals) in this regard The Assessing Officer agreed with the view that State Electricity Board, selling price was ₹ 4.50 per unit and if that be the case then provisions of sec. 80IC(8) cannot be ignored whereby the profit has to be computed by applying the market rate. The market rate has to be the price at which power is being sold in the open market. If the assessee bought power from UP State Electricity Board, it would be have been required to pay ₹ 4.50 per unit. Considering these submissions, the Learned CIT(Appeals) has come to the conclusion that the Assessing Officer was not justified in reducing the per unit price to ₹ 3 per unit as against ₹ 4.50 per unit. In this regard, the cl has also taken strength from the decision of Mumbai Bench of the ITAT in the case of DCW Ltd. vs. ACIT (2010 (1) TMI 939 - ITAT, Mumbai). The First Appellate Order is comprehensive and reasoned one we are not inclined to interfere therewith. The same is upheld. - Decided in favour of assessee

Summary

Issues:
1. Justification of deduction under sec. 80IA despite no actual profit in power unit.
2. Acceptance of cost formula based on energy ratio over steam pressure ratio.
3. Acceptance of efficiency at 85-86% and rejection of further 15% reduction.

Analysis:
1. The primary issue in this case was the justification of allowing a deduction under sec. 80IA despite the absence of actual profit in the power unit. The Assessing Officer contended that profit from power generation was not correct and that the deduction should be disallowed. However, the assessee argued that the benefit of deduction under sec. 80IA is available to those who generate power, even if not distributed to third parties. The ITAT concurred with the assessee's argument, citing relevant case law supporting the entitlement to deduction for notional income from captive electricity consumption.

2. The second issue revolved around the acceptance of a cost formula based on energy ratio rather than steam pressure ratio. The Assessing Officer disagreed with the cost allocation method used by the assessee, which was based on energy measured in kcal. The ITAT upheld the decision of the Learned CIT(Appeals) in accepting the assessee's method, emphasizing that the allocation of costs should be based on energy measurement rather than steam pressure ratios.

3. The third issue involved the acceptance of an efficiency rate of 85-86% and the rejection of a further 15% reduction by the Assessing Officer. The ITAT found that the assessee had already factored in the efficiency rate in its calculations, reducing it to 85-86%. As the Assessing Officer's reduction was not justified, the ITAT upheld the decision of the Learned CIT(Appeals) in accepting the assessee's efficiency calculation.

In conclusion, the ITAT dismissed the Revenue's appeal, upholding the First Appellate Order that allowed the claimed deduction under sec. 80IA for the assessee. The judgment provided a detailed analysis of each issue raised by the Revenue, citing relevant legal provisions and case law to support the decision in favor of the assessee.