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TMI Blog2009 (3) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... om wind energy generation. The AO applied the provisions of Expln. (baa) to s. 80HHC to this amount for the reasons given in his order as under: "It is seen from the details filed along with the return of income that 90 per cent of income from wind energy generation was not excluded from the business profits for the purpose of calculating deduction under s. 80HHC. The income from wind energy generation during the year 2003-04 was Rs. 14,82,673. The assessee had stated that the electricity generated by the wind energy converter owned by the company, is surrendered to the TNEB, which in turn is set off against the payments to be made to the TNEB. Regarding miscellaneous income also the assessee stated that the income from the sale of wasters scraps must be treated as incidental business income only. The substantive part of s. 80HHC clearly states that the deduction will be in respect of 'profit derived' by the assessee from the export of goods or merchandise. Therefore, inclusion of job receipts, wind energy receipts and other miscellaneous income will distort the eligible deduction. The Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. vs. CIT (2003) 183 CTR (SC) 99 : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion period will run concurrently for a period of one year-April to March and that the unutilized banked energy could not be carried forward to the next banking period. - that the total electricity charges debited in the P L a/c was Rs. 1,76,13,033 which included the aforesaid figure of Rs. 14,82,673. - that the windmill was generating less than 10 per cent of the electricity that was required by the assessee for its manufacturing activity. - that the electricity charges was one of the components of manufacturing cost out of which less than 10 per cent was met by installing the windmill. - that the generation of electricity in the windmill was an integral part of the manufacturing activity of the assessee. - that it was for the assessee to decide as to how to arrange the different components of manufacturing cost. - that by installing a windmill the assessee had split the electricity charges of Rs. 1,76,13,033 into two components-one component of Rs. 14,82,673 was provided by its own windmill and the balance was taken from TNEB. - that while making entries in the books of account Rs. 14,82,673 was shown on the credit side as well as on the debit side, as contra items. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be remembered that the profit from business is equal to 'sale price minus cost', and consequently each component of business profit has an element of turnover, as reduced by the corresponding cost. Therefore, the above formula will break down and will give a distorted result in a case where the gross profit has a component which has no element of turnover, like receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature. This happens because such receipts are credited in the P L a/c separately, without being included in the turnover. 8.5 The law of proportion, on which the above formula is based, will not apply to such situations because the presumption, that the business profit is directly proportional to the turnover, no more holds good. In order to get over this difficulty, the only logical solution was to keep such receipts away from the operation of the formula. This is precisely what was done by introducing the cl. (baa) in the Explanation to s. 80HHC, which reads as under: "(baa) 'profits of the business' means the profits of the business as computed under the head 'Profits and gains of business or profession' as reduced b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -- Interest and financial charges: ----------------------------------------------------- Fixed loans 63,258 ----------------------------------------------------- Others 11,95,390 ----------------------------------------------------- Depreciation 24,29,513 ----------------------------------------------------- Other expenses 5,05,61,524 ----------------------------------------------------- 10,56,92,187 ----------------------------------------------------- Add/Less: Decrease/increase in stock 2,82,652 ----------------------------------------------------- 10,59,74,839 ----------------------------------------------------- Profit for the year 1,21,45,850 ----------------------------------------------------- 10.1 It is seen that there are two major items included in the total 'expenditure' shown at Rs. 10,56,92,187-one: under the head raw material shown at Rs. 4,32,06,596, and two: under the head electricity and fuel show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctrical energy in the factory and not to sell it to TNEB, as can be seen from the agreements dt. 20th Nov., 1994 and 21st Aug., 2000 entered into with the TNEB. 13.1 It cannot be the case of the AO that the assessee should buy its entire requirement of electricity from the TNEB. The assessee has the liberty to choose its business model. In a complex manufacturing process it is the assessee who decides as to what to produce in the factory, what to buy and what to outsource. The AO cannot justifiably claim to put himself in the arm-chair of the businessman and assume the role to decide how to do the business having regard to the circumstances of the case. The AO has to put himself in the shoes of the assessee and see how a prudent businessman would act. He should not look at the matter from his own viewpoint but from that of a prudent businessman. 13.2 The Supreme Court, in the case of S.A. Builders Ltd. vs. CIT (A) (2006) 206 CTR (SC) 631 : (2007) 288 ITR 1 (SC), held that the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman, that the IT authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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