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TMI Blog2017 (10) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax ( Appeals )- I, Vadodara [ the CIT ( A ) ] erred in fact and in law in confirming the action of the Deputy Commissioner of Income tax, Circle - 1 ( 1 ) , Baroda ( the AO ) in not allowing deduction u / s . 80IA ( 4 ) of the Income Tax Act, 1961 ( the Act ) amounting to Rs . 41,22,107 /- on the Captive Power Generation Plant ( COGEN ). ii . The learned CIT ( A ) erred in fact and in law in confirming the action of the AO in re - computing the profits of the undertakings by adjusting the sales value of the power produced and supplied by the undertakings . iii . The learned CIT ( A ) erred in fact and in law in confirming the action of the AO in disallowing the claim on the ground that profit of COGEN units is unreasonable and on a higher side . iv . The learned CIT ( A ) erred in fact and in law in confirming the action of AO in charging interest u / s . 234D of the Act . v . The learned CIT ( A ) erred in fact and in law in confirming the action of the AO in initiating penalty proceeding u / s 271 ( l )( c ) of the Act . 3. The relevant facts as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness of generation of Electricity being eligible business to claim deduction u / s 80IA of the Act . c . The undertaking has obtained approval from the prescribed authority as per Rule 47A of Indian Electricity Rules, 1956 to engage in the business of generation of power for Captive Consumption . Copy of approval letter is attached marked as Annexure - 10 . d . The undertakings are not formed by splitting up or reconstruction of business already in existence . The undertakings are not formed by the transfer of machinery or plant previously used for any purpose . e . The assessee got audited its books of account in respect of above undertakings by obtaining audit report in the prescribed form No . 10CCB dated . The assessee has filed audited books of account along with above report obtained from Chartered Accountants certifying the correctness of claim of deduction . For your kind reference audited accounts of the said undertakings along with notes to accounts and report in Form No . 10CCB is enclosed marked as Annexure 11 . 4 . Based upon the above we submit that the assessee has fulfilled all the necessary and applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Plants to other undertakings of the company have been valued at market price, being landed price of the power procured by the Company from Dakshin Gujarat Vij Company Limited ( DGVCL ). Computation of the same is attached as Aniiexure - 12 . ii . The above computation of price is as per the meaning of market value as defined in Explanation to Section 80 IA ( 8 ) of the Act . iii . We submit to your kind office that in our case we have valued the units transferred at the price at which we have purchased the electricity from DGVCL . Here we invite your kind attention to the decision of ITAT Delhi Bench in case of Addl . C1T vs . Jindalsteel and Power Ltd . ( 16 SOT 509 ). In this case, the Tribunal has held that the market value shall be price at which the assesses purchases electricity from the electricity board and not the one which is fixed by the legislative mandate . In our case we have applied the provision of section 801A ( 8 ) and accordingly computed the selling price . 7 . Vide Para No . 27 ( iii ) your office has asked us why the salable market price should not be taken in our case for determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same is influenced by the various conditions of agreement entered into by various power manufacturing companies and GUVNL and therefore ceases to be the price in the open market . 10 . To support the above contention we also relied upon following decisions : a . ThiruAarron Sugars Limited 2271TR 432 ( SC ) b . West Coast Paper Mills Ltd . Vs . JCIT [ 2006 ] 100 TT ] 433 ( Bom ) c . Assam Carbon Products Ltd . Vs . ACIT [ 2006 ] 100 TT ] 224 ( Cat ) d ) Jindal Steel and Power Ltd . Vs . Addl . C1T [ 2006 ] 10 SOT 106 ( Del ) 11 . The ratio of all the above judgment is summarized as under : i . Price sold to Government or other authorities under compulsion cannot be considered as the market value as these cannot be termed as price in open market . Therefore, the rate at which Power is sold to the State Electricity Authority ( SEA ) cannot be considered to be the market value ii . it would be more relevant to consider the rate at which the Power is supplied to the consumers placed in similar circumstances by the SEA; iii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be taken as market rate for the purpose of computing deduction u / s . 80IA in respect of Captive Power Plant of the assessee . 3.4 The submission of the assessee were considered by the learned AO but not found to be accepted and deduction u/s.80IA(4) to be tune of ₹ 41,22,107/- were disallowed. 4. Against the said order, assessee preferred first statutory appeal before the learned CIT(A) who partly allowed the appeal of the assessee. 5. We have gone through the relevant record and impugned order. Learned AR cited an order of our own Co-ordinate Bench in ITA No.2313/Ahd/2014 for Asst. Year 2009-10, in which Hon ble Bench held that is reproduced as under: 47 . Ground No . 2 ( i ) concerns the claim of deduction u / s . 80IA ( 4 ) towards captive power plant . Assessee claimed deduction amounting to Rs . 40,78,793 /- u / s . 80IA on this account which was denied by the Assessing Officer . The commissioner of Income Tax ( A ) , however, granted relief to the assessee . Revenue is in appeal against the aforesaid action of the Commissioner of Income Tax ( A ). 48 . As pointed out on behalf of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Respectfully following the decision of our Co-ordinate Bench, we allow the appeal of the assessee. 10. Now we take up the Grounds of the department in ITA No.282/Ahd/2015 for Asst. Year 2011-12. i . ( a ) On the facts and in the circumstances of the case and in law, the ld . CIT ( A ) erred in treating the expenditure of Rs . 92,15,447 /- on dies and tools as revenue expenditure instead of capital expenditure without appreciating that these parts of the machinery in view of the nature of business of the assessee wherein the assessee has to keep the dies for certain specification and design and , they do not lose its identity after utilization . i . ( b ) The ld . CIT ( A ) erred in deleting the addition on the ground that these are having short life without appreciating that useful life of the assets may be criteria for prescribing the rate of depreciation, but it cannot be regarded to be criteria for deciding whether the expenditure on the asset is revenue or capital nature . ii . On the facts and in the circumstances of the case and in law, the Ld . CIT ( Appeals ) erred in deleting the addition of Rs . 25,41,611 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sagar Alloy Metal Industries PU-349 ALLOYS STEEL FORGED BAR 238,201 30/06/2010 Sagar Alloy Metal Industries PU-551 FORGED ROUND STEEL BAR 299,888 30/06/2010 Sandeep PU-519 STEEL BAR 475,450 Enterprises 31/08/2010 Sagar Alloy Metal Industries PU-955 HOT DIE STEEL 183MM 231,156 31/08/2010 Sandeep Enterprises PU- 1030/JV2 62 STEEL BAR 242MM 117,976 31/08/2010 Sagar Alloy Metal Industries PU-956 HOT DIE STEEL 284MM 325,648 31/08/2010 Sagar Alloy Metal Industries PU-1020 HOT DIE STEEL 284MM 355,061 30/09/2010 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L FORGED BAR 510,458 28/02/2011 Reform Tools Dies PU-2812 EXTRUSION DIE-ART NO. 2002856/M, 2002857/M, 2002858/M 128,000 31/03/2011 Foshan Nanhai Grand Champion Trading Ltd. PU-2970 SOLID DIE AND HOLLOW DIE 172,221 31/03/2011 Sagar Alloy Metal Industries PU- 2943/JV3 8 ALLOYS STEEL FORGED BAR 212,610 31/03/2011 Sandeep Enterprises PU-2928 STEEL BAR 783,588 Total 1,02,42,245 11.2 The assessee was therefore, asked vide questionnaire dated 24.09.2013 and also vide order sheet entry dated 27.01.2014 to show cause as to why the above mentioned items should not be treated as capital expenditure. 11.3 Assessee s reply was that we have debited stores, tools and dies consumed of ₹ 2,18,53,523/- to the Profit Loss account. The sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Commissioner of Income Tax ( A ) in this regard whereby the relief was granted to the assessee . 23 . We notice that the Commissioner of Income Tax ( A ) has made thread - bare analysis of the factual aspects, concerning the issue with which we fully agree . The Commissioner of Income Tax ( A ) observed in nutshell that there was no creation of any new asset which is capable of working independently . No enduring benefit has been derived by the assessee by such expenditure . We notice that the Commissioner of Income Tax ( A ) has found that the expenditure has been incurred to preserve and to maintain an already existing assets . On these broad facts, the Commissioner of Income Tax ( A ) concluded that the expenditure incurred by the assessee are in the nature of current repair allowable as revenue expenditure . We find merit in the rationale adopted by the Commissioner of Income Tax ( A ). Therefore, we decline to interfere with such findings of Commissioner of Income Tax ( A ). 24 . Consequently ground no . 2 of Revenue's appeal is dismissed . 13.2 So far Ground No.3 is concerned that CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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