2022 (12) TMI 32 - AT - Income Tax

Deduction u/s. 80- IA - Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.- quantum of deduction as apparent, two components, i.e., the sales (revenue) and the cost of sales - HELD THAT - Integral to the concept of accrual of income is the concept of prudence and conservatism, the fundamental accounting assumptions which would preclude accounting as income anything beyond that is reasonably certain for realisation. Surely, any price beyond the cost that the sugar division would otherwise, i.e., but for its purchase from the power division, have to incur, cannot be said to have its basis in economic reality - an actual receipt at the proposed rate (of Rs. 6.28 per unit), where so, would stand to substitute this rate, which thus in any case gets based on actuals. This would also meet the assessee s charge, assuming so, that the market price, in view of the controlled market, does not actually represent an equilibrium of demand and supply forces. Second component of the profit is cost of sales . As the sale is to be adopted on arm s length basis , i.e., as two independent entities would transact, the cost would also include both direct and indirect costs. The principal raw material, bagasse, is stated in the Notes to the Accounts, to be purchased at Rs. 35 per Qtl., i.e., the prevailing market price, which, where so, merits acceptance. The administration (indirect) cost is stated to the proportioned on sale basis, which is again reasonable, though would require to be modified with reference to the sale value of power (to sugar division) as finally adopted. Further, as it appears, no separate books of account have been maintained for the two businesses, with Shri Bardia informing that the old turbine was regarded as a part of sugarcane division, and depreciation thereon allocated thereto which, again needless to add, would be with reference to the assets employed with the two divisions, allocating the depreciation of common assets on some reasonable basis. We, accordingly, allowing the assessee s plea in principle, i.e., that the power division constitutes an eligible business u/s. 80IA(1), on the profit of which therefore deduction thereunder is exigible, restore the matter for determination of the quantum of deduction, on which there has been no examination and, consequently, findings by both the Revenue authorities, back to the file of the AO. The matter, in fact admits of no dispute in principle, with the assessee itself per its Notes to the Accounts clarifying that the inter-unit transfers have been recorded at prevailing market prices, so that all that survives is the verification of it s claims. It is open for the assessee (or for that matter the Revenue) to make out a case inconsistent or in disagreement, wholly or partly, with what stands stated by us toward the same, of course meeting the law as explained herein, and in which case it shall be incumbent on the AO to consider and adjudicate the same, besides being obliged to do so in accordance with law by issue definite finding/s of fact and observing the principles of natural justice.

Summary

Issues Involved:
1. Addition under Section 69 for Rs. 411.98 lacs.
2. Deduction claimed under Section 80-IA for Rs. 253.43 lacs.

Issue-wise Detailed Analysis:

1. Addition under Section 69 for Rs. 411.98 lacs:
The first issue concerns an addition under Section 69 of the Income Tax Act, 1961, for Rs. 411.98 lacs related to the purchase of plant and machinery. The assessment order noted that the assessee failed to furnish purchase bills and vouchers and could not establish the source of payment. However, the Commissioner of Income Tax (Appeals) [CIT(A)] allowed the assessee's claim, noting that the bills and vouchers had been submitted online and the source of payment was reflected in the audited accounts. The Tribunal observed that if the bills and vouchers were not furnished, the consequence would be the disallowance of depreciation, not an addition under Section 69, as the investment was reflected in the accounts. The Tribunal found that the bills and vouchers were indeed submitted online, as verified by the assessee's counsel. The Revenue failed to substantiate its claim of non-submission. Consequently, the Tribunal ruled in favor of the assessee, clarifying that no case for an addition under Section 69 was made out, and the only possible consequence would be the non-allowance of depreciation, which was not pursued by the Revenue.

2. Deduction claimed under Section 80-IA for Rs. 253.43 lacs:
The second issue pertains to the maintainability of the deduction claimed under Section 80-IA for Rs. 253.43 lacs. The Assessing Officer (AO) disallowed the deduction based on the assessee's letter seeking approval for commissioning and trial run of the power plant, indicating no approval was granted. The assessee argued that it operated the power plant without the said approval for captive consumption due to non-receipt of approval despite repeated reminders. The CIT(A) allowed the deduction based on evidence provided by the assessee. The Tribunal agreed with the CIT(A) that the assessee was eligible for the deduction as the power plant was operated for captive consumption, but noted that the CIT(A) should have remitted the matter back to the AO for determining the quantum of deduction. The Tribunal highlighted that the revenue booked was at an incentivized rate proposed by the government, which did not materialize. The Tribunal emphasized that the market price should be considered for determining the quantum of deduction, not the incentivized rate. The Tribunal restored the matter to the AO for determining the quantum of deduction, ensuring compliance with the law and principles of natural justice. The Tribunal clarified that the discussion on the quantum of deduction should not prejudice either side and was aimed at facilitating the determination in accordance with the law.

Conclusion:
In conclusion, the Tribunal ruled in favor of the assessee on the first issue, dismissing the addition under Section 69, and partially allowed the Revenue's appeal on the second issue, remitting the matter back to the AO for determining the quantum of deduction under Section 80-IA. The Tribunal emphasized adherence to the principles of natural justice and the clear law impinging on the matter. The order was pronounced in open court on November 29, 2022.