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TMI Blog2009 (5) TMI 623X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of payment etc., he relied upon his order passed in assessment years 2001-02 and 2003-04. He deleted all the disallowances except disallowance of Rs. 24,000 in respect to Veda Bhawan for conducting vedic education classes for employees. 3. The learned counsel for the assessee contended that such payments were made in assessment years 1997-98 and 2002-03. In both these years, the payments have been allowed to the assessee. Learned DR was unable to controvert the contentions of the learned counsel for the assessee. 4. We have duly considered the rival contentions and gone through the records carefully. Learned CIT (Appeals) has not discussed the facts independently in this year. For confirming the disallowance, he simply relied upon his order in assessment years 2002-03 and 2001-02. In both these years, the disallowance has been deleted by the Tribunal. Assessee has placed on record copies of the ITAT's orders in assessment years 1997-98 and 2002-03 wherein such issues have arisen. According to the ITAT, the donations made to Veda Bhawan or vedic classes are required to be considered as welfare activity for the employees and expenses incurred on such activity is an eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year-wise figures of cumulative profit/loss with respect to each of the meter as under :- Meter No. Profit/(losses) for undermentioned Meter Connection Number as per Audited Accounts attached. 225 KW each 400KW 250 KW each SC 174 225KW each SC 250 750KW each SC 336 Year ended A.Y. (Rs. In Lakhs) 31-3-1994 1994-95 (682.02) 31-3-1995 1995-96 (626.23) (552.21) 31-3-1996 1996-97 4.07 (566.06) (472.53) 31-3-1997 1997-98 (8.86) (116.40) (422.67) (992.90) 31-3-1998 1998-99 89.35 63.74 9.03 (45.48) 31-3-1999 1999-2000 176.20 131.39 52.32 7.93 31-3-2000 2000-01 281.05 241.32 117.52 64.44 (1094.06) 31-3-2001 2001-02 268.66 216.77 118.02 77.38 189.84 31-3-2002 2002-03 337.95 293.94 184.54 135.86 219.38 31-3-2003 2003-04 303.06 274.44 163.56 127.40 203.42 Cumulative Profit 143.25 (11.07) (250.21) (625.37) (481.42) 6. During the accounting period relevant to assessment year 2003-04, the assessee has computed cumulative pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nit is one single undertaking and, therefore, assessee cannot segregate the units in different meters. Each meter cannot be a separate unit. If the cumulative position of the entire power generating unit is considered then carry forward of losses on all the meters put together would wipe out the profit and no deduction will be admissible to the assessee in this year. ****** (iii)The profit computed by the assessee is on the basis of the rates charged by the TNEB after deducting wheeling charges. Whereas according to the Assessing Officer, transfer prices should be fixed at the rate of at which TNEB would purchase the powers from the producer of electrical energy using WEGs because the power generated by the assessee is being consumed by it in its cement plant. Apart from the above specific reasons, the Assessing Officer has observed that electricity generated by the assessee was supplied to TNEB which further supplied to the assessee in its cement plant and for this arrangement the TNEB deducted wheeling charges. The individual meters put up by the assessee were for the purpose of regulating the power supply to the TNEB. Therefore, they cannot be treated as independent unit. (iv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... powers which was set up on or after 1-4-1993 are entitled to tax holidays as set out in section 80-IA of the Act. Such undertaking would be eligible for the deduction for a period of ten consecutive years, the selection of years would be at the discretion of assessee. However, it can only be chosen out of the initial 15 years from the date of commencement of operation. After appraising us with the statutory provisions, he pointed out that each WEGs installed by the assessee-company is a "stand alone" piece of plant capable of generating electrical energy and is liable to be treated as a separate undertaking set up for the generation of power, the power generated by each of them is capable of being measured individually. The assessee for convenience of operation had attached more than one WEG to a meter and is computing the profit based on the meter reading of each of the outgoing meter connected to the grid feeding the electrical sub-station of T & EB. Thus, according to the learned counsel for the assessee, the Assessing Officer has erred in holding that activity of electricity generation in each WEG is to be considered as a common activity and cannot be bifurcated on the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f each meter have been placed on the record. On the strength of these audited accounts, he pointed out that Assessing Officer in the past never objected for preparing the accounts of each meter. On the strength of Hon'ble Supreme Court's decision in the case of Textile Machinery Corpn. Ltd. v. CIT [1977] 107 ITR 195 . He contended that each WEG is to be considered as independent and separate undertaking. He pointed out that this decision was rendered by the Hon'ble Supreme Court in the context of section 15C of the 1922 Act which is similar to section 80-IA of the Income-tax Act, 1961. In this case, the Hon'ble Supreme Court has held that a new activity launched by the assessee by establishing new plant and machinery by investing substantial fund may produce the same commodities of the old business or it may produce some other distinct marketable product, even commodity which may feed the old business. These products may be consumed by the assessee in his old business or may be sold in the open market. One thing is certain that the new undertaking must be an integral unit by itself where articles are produced. The learned counsel for the assessee pointed out that this decision was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profit. According to the ld. counsel, this analogy is totally contrary to the proposition laid down by the Hon'ble Supreme Court in the case of Thiru Arooran Sugars Ltd. (supra). The learned counsel for the assessee further relied upon the decision of Hon'ble Delhi High Court in the case of CIT v. DCM Sri Ram Honda Ltd. [2009] 176 Taxman 49 to buttress his contention that captive power generation amounts to manufacturing activity. 13. On the other hand, learned DR relied upon the orders of revenue authorities below. She reiterated the stand taken up by the Assessing Officer that the whole wind farm is to be treated as a single unit and not the each meter. 14. We have considered the rival contentions and gone through the record carefully. With the assistance of learned representatives, we perused section 80-IA as it was existing on 1-4-1991 as well as on 1999. We have also gone through the Circular No. 657, dated 30-8-1993 and Circular No. 779, dated 14-9-1999. 15. From bare reading of the section as well as Circulars, it would reveal that where gross total income of an assessee includes any profit and gain derived from any business of an industrial undertaking or an enterpri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose by the assessee. Thus, Assessing Officer has not pointed out any violation to the conditions stipulated in sub-section (3) of section 80-IA. Similarly, the Assessing Officer nowhere pointed out any violation by the assessee in fulfilling the conditions provided under section 80-IA. The area of dispute between the assessee and the Assessing Officer is that power generation is not the main business of the assessee. We have taken cognizance of section 80-IA. Learned DR was unable to point out any clause in this section which contemplates that in order to claim deduction under section 80-IA, an assessee should carry out that activity as its main business. 18. The other reasons pointed out by the Assessing Officer is that each meter cannot be treated as a separate unit. The learned counsel for the assessee demonstrated before us that each meter may not amounts to a separate unit but each of the WEG installed by the assessee-company is a (stand alone), piece of plant and machinery capable of generating electric energy. The powers generated by the each of them is capable of being measured individually. Any single WEG is switched off or stop to work due to certain mechanical defect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for the computation of profits in the case of the assessee where any goods or services are transferred by the assessee to any other business carried on by him. Since basically the energy produced by the assessee is for self-consumption. In order to determine the market value which assessee can fetch for the electricity produced by it in the open market is a quite difficult question to determine because the electricity is such an item which is in the domain of electricity Board and they have monopoly over power distribution in the State. Normally, the boards have dual rate system, one for purchase of electricity from producer and a higher one for its distribution. The dispute is that section 80-IA(8) provides for the arm's length price. Whether the assessee can take credit in the computation of eligible profit of the undertaking for the energy produced and consumed by it, the higher rate at which it would have to purchase, if it had not produced it for the captive consumption. In other words, had the assessee not produced this much electricity it would have to purchase the electricity for its cement plant at the rate charged by the State Electricity Board. Can those rates be cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer. The only reference brought by Assessing Officer is the electricity purchased by Rajasthan Electricity Board but how one can ignore that electricity purchased by the assessee or any other consumer do not indicates the market price of an item at the relevant date. The Assessing Officer is not able to bring out any circumstance that assessee is showing higher charges for the electricity supplied to its cement plant. Therefore, taking into consideration all the facts and circumstances, we allow this ground of appeal and held that assessee is eligible for grant of deduction under section 80-IA on the profit shown on each meter. Its profit is to be computed by applying the rate of electricity charged by TNEB from its cement plant. The Assessing Officer shall look into the other requirements i.e., the year and the rate of deduction, while computing the deduction admissible to the assessee. 21. In ground No. 3, the grievance of assessee relates to inclusion of excise duty and sales tax in the turnover of the business while computing deduction under section 80HHC. The learned counsel for the assessee at the very outset submitted that with regard to the issue relating to exclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en explained by the Hon'ble Supreme Court in the case of CIT v. Sterling Foods [1999] 237 ITR 579. This interest income has not been derived from the eligible business for granting the deduction under section 80HHD. All these aspects have been considered by the ITAT in earlier years. The findings of the ITAT in assessment year 2001-02 wherein CIT (Appeals) has denied the benefit to the assessee was considered by the ITAT in ITA No. 4139/Delhi/04. The findings of the ITAT on this issue read as under :- "5. Ground No. 3: This ground runs as under : 'That the learned CIT (Appeals) has grossly erred in holding that the interest receipts by the appellant company are to be excluded from the "profit of the business" while calculating the deduction available to the assessee-company under section 80HHD of the Income-tax Act, 1961.' 5.1 The learned counsel for the assessee submitted that interest income can be quantified while calculating deduction available under section 80HHD. 5.2 The assessee-company had shown interest amounting to Rs. 82,47,107 on surplus funds. The submissions of the company in this regard were as under: 'The entire amount of the interest receipts of Rs. 82,47,104 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (2) bears to the total receipts of business carried on by the assessee. Thus for computing the deduction what is relevant is to consider the profits of the business as computed under "profits and gains of business or profession". There is no provision in section 80HHD to reduce the profit so computed by receipts like interest etc. Since the interest income has been considered as part of business income computed under the heads "Profits and gains of business or profession", the Assessing Officer was not justified in reducing the interest income while computing the profits of the business. Thus, the action of learned CIT (Appeals) needs no interference'." Since the CIT (Appeals) in the present year simply followed the findings of his predecessor in assessment year 2001-02 that finding has already been set aside by the ITAT and the claim of the assessee has been allowed therefore, respectfully following the order of the ITAT, we allow this ground of appeal and direct the Assessing Officer to consider interest income for the deduction admissible under section 80HHD of the Act. 24. In ground No. 5, the grievance of assessee relates to disallowance of Rs. 36,452. The brief facts of t ..... 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