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2024 (2) TMI 883 - AT - Income TaxDeduction u/s 80IA - profit of Generation of electricity - notional income from savings in Low Sulphur Heavy Stock (LSHS) due to steam generation by the assessee's captive power plant. - HELD THAT - We observe that assessee has a captive power plant which co-generates power and steam. The captive power plant of Visakh refinery is based on co-generation of power and steam leading to more energy efficient use of fuel as compared to conventional power plants. It is also brought to our notice the captive power plant includes two gas turbo generators and two heat recovery steam generators. The Steam is generated in the heat recovery steam generators by using hot exhaust gases from gas turbo generators. Each heat recovery steam generator has a capacity of generating 27 Tons per hour steam. It is brought to our notice that the captive power plant is not only to generate electricity but also based on co-generation of power and steam. In this operation steam generation is unavoidable. The steam generation in the captive power plant is a newly established industrial undertaking which is accepted as a separate unit by itself. Assessee utilized the electricity generated by it for the captivate purpose and the steam generated by the same plant was also utilized for captive consumption in the generation of electricity as well as in refinery. Therefore, the expenditure incurred by the assessee in this particular captive power plant to the extent of material consumption of ₹. 7213.97 lakhs and direct and indirect expenditure including material consumption of ₹. 8557.03 lakhs. From the above expenditure assessee was able to generate power to the value of ₹. 6023.93 lakhs and value of steam LSHS to the extent of ₹. 3505.43 over and above utilized for power generation, which were transferred to refinery which is recognized in the books as saving in LSHS. Therefore, the claim of the assessee to the extent of additional steam generated by the assessee in this plant are transferred to the refinery. Therefore, the assessee has to adjust the transfer value of steam to the refinery otherwise are to be adjusted in the value of material consumption, by doing so the net result will be the net profit in this operation. The facts brought to us which is similar to the facts in the A.Y.2002-03 2010 (6) TMI 56 - BOMBAY HIGH COURT in which the Hon ble Bombay High Court has considered the same issue and decided the issue in favour of assessee Deduction u/s 80IB - inclusion of marketing margin - AO disputed the fact that the margin derived by the marketing division is nothing but the notional profit derived by the market division which is nothing but the administration operation - HELD THAT - We observe that this issue under consideration is not a new issue raised during the current assessment year. This is an issue raised in the earlier year also. The Coordinate Bench in A.Y.2005-06 wherein the revenue has raised similar issue in its appeal before the ITAT and the Coordinate Bench has dealt with the issue and allowed the claim of the assessee as directed to accept the appellant s claim of profit from the VERP II for the purpose of deduction u/s 80 IB. Nature of expenses - sundry expenses and other charges - break-up of this amount shows that an amount has been included therein towards construction expenses under Marketing Division, this expenditure is in addition to the repairs and maintenance charges pertaining to Marketing Division - HELD THAT - We observe from the record which is submitted before Assessing Officer and Ld. CIT(A) that assessee has submitted a detailed break-up of the various construction expenditures carried in the various retail outlets across country. The assessee has given a detailed break-up before the authorities for claiming of the above said expenditures, these expenditures are incurred by the assessee in the outlets which is spread across the country and such construction expenses are repairs of the outlets therefore these are revenue in nature and which is nothing but the running expenditure to be carried on by the assessee to upkeep the various outlets in the various locations in the country. Therefore, we hold that the above expenditure claimed by the assessee is allowable expenditure. By incurring these expenditures there is no creation of new assets. Accordingly, we are inclined to accept the findings of the Ld.CIT(A). Accordingly, ground raised by the revenue is dismissed.
Issues Involved:
1. Maintainability of cross objections by the assessee. 2. Deletion of disallowance of deduction under section 80IA. 3. Deletion of disallowance of deduction under section 80IB. 4. Deletion of disallowance of construction expenses. Summary: 1. Maintainability of Cross Objections: The revenue argued that the cross objections filed by the assessee were not maintainable as the CIT(A) had not given any finding on the jurisdictional issue. The assessee contended that the CIT(A) had decided the issue on merit. The Tribunal decided not to go into the jurisdictional issue and kept the ground raised by the assessee in cross objections open. Consequently, the cross objections filed by the assessee were dismissed. 2. Deletion of Disallowance of Deduction Under Section 80IA: The revenue challenged the deletion of disallowance of deduction under section 80IA amounting to Rs. 9,72,33,000/-. The Assessing Officer had disallowed the deduction on the grounds that the generation of electricity resulted in a loss and the profit shown was due to notional income from savings in Low Sulphur Heavy Stock (LSHS). The CIT(A) allowed the claim based on the Bombay High Court decision in the assessee's own case for A.Y. 2002-03. The Tribunal, after considering the facts and the decision of the Bombay High Court, upheld the CIT(A)'s decision and dismissed the revenue's ground. 3. Deletion of Disallowance of Deduction Under Section 80IB: The revenue challenged the deletion of disallowance of deduction under section 80IB amounting to Rs. 578,46,06,000/-. The Assessing Officer disallowed the deduction on the grounds that the marketing margin included in the claim was not attributable to the industrial undertaking. The CIT(A) allowed the claim based on the decision of the Coordinate Bench of Mumbai in the assessee's own case. The Tribunal, after considering the facts and the decision of the Coordinate Bench, upheld the CIT(A)'s decision and dismissed the revenue's ground. 4. Deletion of Disallowance of Construction Expenses: The revenue challenged the deletion of disallowance of construction expenses amounting to Rs. 5,10,13,674/-. The Assessing Officer treated the expenses as capital in nature. The CIT(A) allowed the claim of the assessee, holding that the expenses were for maintenance and repair activities and were revenue in nature. The Tribunal, after considering the detailed break-up of expenses and the nature of the expenditures, upheld the CIT(A)'s decision and dismissed the revenue's ground. Conclusion: All appeals filed by the revenue were dismissed, and the cross objections filed by the assessee were also dismissed.
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