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TMI Blog2011 (12) TMI 604X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded in paras 4 to 6 of his order and as under : "4. During the course of appellate proceedings the learned Authorised Representative submitted as under : 'That the appellant had filed its return of income on 30th Nov., 2006 declaring total income of Rs. 34,37,748 and claimed deduction under s. 80-IA of IT Act, 1961 on captive power plant at Rs. 1,72,31,805. That during the assessment proceeding as desired by the learned AO the appellant filed audit report in Form 10CCB for claiming deduction under s. 80-IA on captive power plant as the return was filed electronically and no papers or enclosures were allowed/possible. That the appellant during the assessment proceedings vide its letter dt. 30th Dec., 2008 revised the claim of deduction under s. 80-IA on the captive power plant (CPP). The claim was required to be revised because deduction under s. 80-IA was wrongly calculated by applying wrong rate of depreciation @ 25 per cent (on plant and machinery) whereas during the year under appeal the correct rate of depreciation was 15 per cent (in accordance with IT Rules, 1962). The claim was revised only to bring it in conformity with the correct rates of depreciation. A copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficial to the Revenue, and not to correct it when it is beneficial to the assessee. This approach does not fit into the quasi-judicial status granted to the AO and the assessment proceedings. Under the above facts and circumstances it is prayed that the revised claim of deduction under s. 80-IA may kindly be accepted and allowed." Thereafter the learned CIT(A) allowed the issue in favour of the assessee by giving his finding in para 7 of his order as under : "I have considered the facts of the case and submission of the learned Authorised Representative and found that the appellant originally claimed deduction under s. 80-IA of the Act at Rs. 1,72,31,805 in the return of income filed on 30th Nov., 2006, but later on during the course of assessment proceedings the appellant revised the claim under s. 80-IA to Rs. 2,46,75,216 on the ground that the appellant wrongly claimed depreciation @ 25 per cent on plant and machinery of captive power plant instead of 15 per cent allowable as per Act. Thus the eligible profit for claim under s. 80-IA of the Act raised to Rs. 2,46,75,216 (after reducing the depreciation to 15 per cent) instead of Rs. 1,72,31,805 (after claiming depreciation @ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ionment of common expenses as per s. 80-IC. 8. The brief facts in this respect are that during the year the assessee has claimed deduction under s. 80-IA of Rs. 1,72,31,805 on captive power plant at Panoli (Gujarat) for generating electricity which was used in the process of manufacturing of agro chemicals and polymers unit at Panoli. In the power generation plant the gas was purchased from the Gujarat Gas Ltd. from which electricity is generated and used in various plants. From the perusal of balance sheet, P&L a/c and depreciation chart furnished by the assessee it was noticed that many expenses of common nature were not apportioned among the unit claiming deduction and the principal unit. The AO asked the assessee to explain as to why the expenses should not the apportioned on the basis of turnover between the captive power plant and principal unit. The assessee furnished explanation vide letter dt. 31st Dec., 2008 and extracted in the order on pp. 3 to 7. 9. The AO further observed that the basis on which the assessee was asked for the apportionment of expenses was as per s. 80-IC(7) which specifies that provisions contained in sub-s. (5) and sub-ss. (7) to (12) of s. 80-IA s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... independent industrial undertaking. The assessee cannot literally ignore the explicit provision of s. 80-IA units as discussed above. Hence on the basis of above discussion the common expenses were being apportioned between the captive power plant unit and the principal unit. The apportionment of expenses was being done on the basis of turnover ratio. The turnover of both the units was Rs. 33,779 lacs (Rs. 32,679.13 + Rs. 1,100.86). The share of principal unit in the turnover was Rs. 32,679.13 lacs and that of captive power plant unit was Rs. 1,100.86 lacs. Thus the turnover of the two units came out in the ratio of 97:3. thus the expenses would also be apportioned in the same ratio i.e. 97:3 among principal unit and captive power plant unit as under : Pre-apportionment Post-apportionment Particulars Total expenses P. Unit CPP Unit P. Unit CPP Unit Rent 2,28,98,209 2,28,96,209 2,000 2,22,11,263 6,86,946 Travelling and conveyance 4,46,47,424 4,46,47,424 4,33,08,001 13,39,423 Legal and professional 86,91,873 86,91,873 84,31,117 2,60,756 Communication 1,22,21,140 1,22,21,140 1,18,54,506 3,66,634 Audi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant in the preceding assessment year, i.e. asst. yr. 2005-06 but the appellant had exercised the option under s. 80-IA(2) for deduction for ten years starting from the asst. yr. 2006-07. The captive power plant is a gas based power plant and utilizes natural gas which it purchases from Gujarat Gas Ltd. and generates the electricity which is supplied to and used at other plant of the appellant situated at Panoli itself. The operations of the captive power plant are simple, as it does not require elaborate infrastructure to run a traditional manufacturing facility/or coal/furnace oil based captive power plant. The gas is supplied by pipeline to the plant directly which is measured by a meter installed at the supply line. The appellant does not store any gas as such and therefore there are no hassles of storage and inventory management etc. Traditional logistic arrangements like administrative activity of locating and developing suppliers and procuring inputs etc. are also not required because there is fixed supplier. Since there are no outside customers to sell anything to them, appellant does not require any infrastructure for managing sales or the customers. No elabo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer plant. The head office of the appellant looks after many plants and businesses of the appellant. Such businesses have variety of business models and needs like business and marketing development, brand building as also expansion of business. None of such activity is needed for captive power plant. The learned AO issued notice under s. 142(1) of the IT Act, 1961, dt. 30th Dec., 2008 vide which he had proposed to allocate certain expenses in the ratio of 97:3 (being turnover ratio of the manufacturing unit and the captive power plant), Pre-apportionment Post-apportionment Particulars Total expenses P. Unit CPP Unit P. Unit CPP Unit Rent 2,28,98,209 2,28,96,209 2,000 2,22,11,263 6,86,946 Travelling and conveyance 4,46,47,424 4,46,47,424 4,33,08,001 13,39,423 Legal and professional 86,91,873 86,91,873 84,31,117 2,60,756 Communication 1,22,21,140 1,22,21,140 1,18,54,506 3,66,634 Audit fee 5,02,281 5,02,281 4,87,213 15,068 Insurance-vehicle 7,52,360 7,52,360 7,29,789 22,571 Managerial remuneration 85,49,398 85,49,398 82,92,916 2,56,482 Employees welfare 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ravelling in their region and these expenses of Rs. 4.46 crores relate to such travelling of the staff, and the consultants engaged for various legal matters of the business. The running expenses of the motor cars and various other vehicles and lease rental of vehicles all relating to the pesticides, polymer division of the company and these expenses are incurred by the field staff operating at various branches/depots across the country. No travelling activity is involved with reference to power generation undertaking as stated in our earlier submission due to peculiar facts and circumstances of the case. We do not have to market anything nor chase the suppliers or customers. We do not require to go out travelling for collections of outstanding dues etc. either. In view of this, allocation of these travelling expenses is not warranted. Looking to the nature of captive power plant, where it has single source for raw material (gas) and the entire generation of output is sold for its own units for captive consumption, no travelling, whatsoever, is required for captive power plant operations. The only raw material, i.e. supply of gas and that too is through pipeline and hence procu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er plant has not much operations and the audit fees is normally decided based on the time spent by the auditors. Looking to the nature of business, the time spent by the auditors for captive power plant is negligible not warranting any apportionment, unlike the pesticides division of the company, where the auditors have to visit the various branches/depots of the company. It will be appreciated that the number of vouchers for the unit are very few in comparison to the number of vouchers for the entire company. In, fact, the number of vouchers of the captive power plant will be much less than 1 per cent of the total number of vouchers of the company. (vi) Insurance-vehicle : Your Goodself had proposed an allocation of Rs. 22,000 to captive power plant out of Rs. 7.5 lacs. The reasons for not allocating insurance to captive power plant are the same, as submitted under the head 'Travelling'. (vii) Managerial remuneration : Your Goodself had proposed an allocation of Rs. 2.56 lacs out of Rs. 85.49 lacs on account of managerial remuneration to captive power plant. Since the company is maintaining separate books of accounts and have dedicated staff for operation of captiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al turnover-ratio' which is illegal, unwarranted and bad in law and same deserves to be allowed. Further the above issue is fully covered by your Honour's decision dt. 8th Jan., 2008 in the Appeal No. 561/IT/Udr/2006-07 of Hindustan Zinc Ltd., Udaipur, for the asst. yr. 2004-05 and your Honour's decision in Appeal No. 399/IT/Udr/2006-07 for the asst. yr. 2004-05 in the case of Secure Meters Ltd., Udaipur. The copies of decisions are enclosed herewith for your ready reference. Under the above facts and circumstances of the case, appellant submits that above apportionment made by the said AO is not justified and therefore appellant's claim under s. 80-IA on captive power plant unit deserves to be allowed as claimed in the letter dt. 30th Dec., 2008." 12. After considering the submissions and perusing the material on record, learned CIT(A) found that the AO was not justified in making the addition. The detailed reasons given by learned CIT(A) are recorded in para 12 at pp. 16 to 18 of his order and are as under : "I have considered the facts of the case and submission of the learned Authorised Representative and found that the AO apportioned the expenses on prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Employees welfare 1,06,84,918 1,06,78,918 6,000 1,03,64,370 3,20,548 Depreciation Building 22,11,449 22,11,449 21,45,106 66,343 Vehicle 2,79,954 27,99,548 27,15,562 83,986 Furniture and fixture 8,43,331 8,43,331 8,18,031 25,300 Total 1,14,80,193 11,47,93,931 8,000 11,13,57,874 34,44,057 The concept of the captive power plant took place in the asst. yr. 2005-06 but the appellant has not claimed deduction under s. 80-IA in that year on the option of the appellant as provided in this section but claimed depreciation in the asst. yr. 2005-06. In this case the appellant maintained books of account separately for HO and captive power plant unit. The appellant also prepared P&L a/c separately in respect of HO and captive power plant and furnished along with the return along with audit report in Form No. 10CCB. The appellant debited all the expenses and depreciation in respect of captive power plant unit in P&L a/c of captive power plant unit and similarly the expenses and depreciation in respect of HO debited in the P&L a/c of HO separately. Therefore, the question of apport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rusing the material on record, we find no infirmity in the finding of learned CIT(A). The learned CIT(A) has held that the apportionment made by AO of the expenditure and depreciation of other business assets to captive power plant in ratio of the turnover was not correct. Assessee had claimed deduction under s. 80-IA in respect to captive power plant Plant situated at Panoli for first time in the year under consideration and separate books of account had been maintained by the assessee. The purchases of such unit are from Gujarat Gas Ltd. and electricity generated is supplied to other plants of the assessee. Therefore, there is no requirement of any manpower or other infrastructure. The electricity generated is also supplied to one supplier only and there is no requirement of any administrative expenses. Moreover, the assessee had itself allocated Rs. 1,00,000 towards any missed expenses relating to captive power plant unit. We further noted that allocation of various expenses like rent, travelling, communication, remuneration, depreciation of other units related to captive power plant unit was not justified as they were being directly related to the business of pesticides and pol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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