2023 (9) TMI 735 - AT - Income Tax

Profit of eligible unit by on account Baggase Purchase u/s 80-IA(8) r.w.s. 80-IA (10) - Assessee s manufacturing unit has sold bagaase to assessee s power unit at Rs. 1600/- per metric ton. - - price charged by Khandsari manufacturing unit of Baggase to Power Unit is as per the Market rate prevailing in the relevant area and quality of Baggase - HELD THAT - It is an admitted position that assessee s manufacturing unit has sold bagasse to its power unit at Rs. 1600/- per metric ton. As observed that bagasse has been sold by the assessee to Independent Third Parties at Rs. 1400/- per metric ton. In the assessment order and in the ld.CIT(A) s order, both these authorities have not given any reason, why the rate at which assessee has sold bagasse to independent parties shall not be considered as market rate for the purpose of section 80IA(8). We are of the opinion that when assessee has sold bagasse to third parties at Rs. 1400/- per metric ton, the said rate of Rs. 1400/- per metric ton is market rate qua assessee. Because, the same bagasse is sold to third party by the assessee and to its own unit. Therefore, the quality of the bagasse sold to third party by the assessee and to its own unit is same. Thus most appropriate market rate is the rate at which assessee itself has sold bagasse to third parties. As observed that assessee has sold bagasse at Market Rate to its eligible unit. Therefore, AO has erred in recalculating the profit of eligible unit i.e. power unit, as per section 80IA(8). Therefore, the Assessing Officer is directed to delete the addition made on account of difference in the rate of bagasse - Assessee appeal allowed.

Summary

Issues Involved:

1. Reduction of profit of the eligible unit by Rs. 39,30,800/- on account of Bagasse Purchase under section 80-IA(8) read with section 80-IA(10).
2. Reduction of profit of the eligible unit by Rs. 1,76,320/- on account of interest allocation under section 80-IA(10).

Summary:

Issue 1: Reduction of profit on account of Bagasse Purchase:

The Assessee filed a return of income for A.Y. 2013-14, declaring total income at Rs. 98,86,924/-. The case was selected for scrutiny, and the Assessing Officer (AO) observed that the Assessee claimed a deduction under section 80IA amounting to Rs. 97,39,747/-. The Assessee's manufacturing unit sold "bagasse" to its power unit at Rs. 1600/- per metric ton. The AO compared this rate with the rate provided by Kadwa Sahakari Sakhar Karkhana Ltd., which was Rs. 2874/- per metric ton, and other suppliers, concluding that the market rate was Rs. 2000/- per metric ton. Consequently, the AO recalculated the profit and made an addition of Rs. 39,30,800/-.

On appeal, the ld. CIT(A) upheld the AO's decision. However, the Assessee argued before the Tribunal that it sold "bagasse" to third parties at Rs. 1400/- per metric ton and to its power unit at Rs. 1600/- per metric ton, indicating no intent to reduce the profit of the manufacturing unit. The Tribunal noted that the internal Comparable Uncontrolled Price (CUP) should be used rather than external CUP. The Tribunal concluded that the Assessee sold "bagasse" at market rate to its eligible unit and directed the AO to delete the addition made on account of the difference in the rate of "bagasse". Therefore, Ground No. 1, 1.1, and 1.2 of the Assessee were allowed.

Issue 2: Reduction of profit on account of interest allocation:

At the outset, the Assessee's representative submitted that Ground No. 2 was not pressed. Consequently, Ground No. 2 was dismissed as not pressed.

General Ground:

Ground No. 3, being general in nature, required no adjudication and was dismissed.

Conclusion:

The appeal of the Assessee was partly allowed, with the Tribunal directing the deletion of the addition made on account of the difference in the rate of "bagasse". The order was pronounced in the open Court on 25th April, 2023.