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TMI Blog2017 (11) TMI 1480X X X X Extracts X X X X X X X X Extracts X X X X ..... art of existing industrial establishment and the newly established unit itself is an integrated independent unit in which new plant and machinery is put up and that why these is capable of production are classified as newly established undertaking in the given facts and circumstances of the case. Quantum of deduction, the assessee has to take the electricity rate of Maharashtra State Electricity Board and U.P. State Electricity Board as a base for computing the rates. The notional sale value is to be converted from TR to KW, the conversion of the Tons of Refrigeration to Kilowatts being the unit of measurement for electric power, it should be taken at 1 Refrigeration Tonne =3.5168525 KW (rounded off to 3.51 KW). However the details can be verified by the AO at the time of giving effect to this order. Accordingly, this inter-connected issue for claim of deduction under section 80IA of the Act is allowed in favour of assessee. This issue of assessee’s appeals is allowed and that of the Revenue’s is dismissed. Disallowance of distribution expenses - Held that:- As noticed that the issue is common in all the years of the assessee’s appeals and the facts are exactly identical. as conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Yeast, which is in violation of the provision of section 80IB of the Act. 3. On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the disallowance made u/s 80IB of the Act, without appreciating the fact that, even if it is taken that Instant Dry Yeast is a totally new product from the beginning, it is manufactured in an undertaking which already existed prior to 1st October, 1994, which amounts to that the undertaking is established by splitting of the old existing business, within the meaning of provisions of section 80IB of the Act." 3. Brief background and facts are that the assessee manufactures Baker's Yeast at its factories situated at Sandila and Chiplun. The main raw material is sugar cane molasses and other raw materials are urea, phosphoric acid, caustic soda, soda ash, vitamins, antifoaming agent, emulsifier, magnesium sulphate, water etc. Bakers Yeast manufactured by the assessee is sold in three forms (a) Fresh Yeast, (b) Active Dry Yeast and (c) Instant Dry Yeast. Fresh yeast is highly perishable and needs to be stored under continuous refrigeration. Fresh yeast is transported in refrigerated trucks. Instant Dry yeast can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act and assessment completed u/s 143(3) of the Act during the pendency of assessment u/s 153A of the Act is nullity and without jurisdiction. Accordingly, even for AY 2004-05 was not tested on merits. 6. Now, the assessments for AYs 2005-06 and 2006-07 were framed u/s 143(3) r.w.s.153A of the Act and for AYs 2007-08 and 2008-09 were framed u/s 143(3) of the Act. The AO inter alia disallowed the claim of deduction u/s 80IA of the Act of power generation undertakings by following the assessment order of AY 2003-04. Aggrieved, assessee preferred appeal before CIT(A), who restricted the claim of deduction u/s 80IA of the Act as under: - Aggrieved, assessee and revenue preferred these cross appeals for these four assessment years. 7. We find that the AO was of the view that there is no generation of power in the case of the assessee and moreover, the word power is not defined in the Act. The meaning in common parlance should be taken which would mean electricity. According to the AO, steam power and cooling power is not power as per Section 80IA(4)(iv) of the Act. Water that is cooled through the cooling tower is supplied to the assessee's manufacturing process. In any industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he terms power has been interpreted in following cases; Sial SBEC Bioenergy Ltd. ITA No.5461/Del/2003 decided on 26.3.2004. West Coast Paper Mills Ltd. ITA No. 5403/Bom/1999 & 382/Mum/2001 decided on 21.6.2005. West Coast Paper Mills Ltd. ITA No.3187/Mum/2003 decided on 3.4.2006 wherein it is held as under:- One aspect which emerges from the above judicial interpretation is that understanding the definition of power and concept of generation of power is inextricably link with concept of energy. Power means energy in any form available for application to work. Judicially it has been held that steam is a form of power. Energy can only be transformed from one from to another. Energy can neither be created nor can it be destroyed. The assessee it appears in light of the above judicial pronouncement trying to justify that they are producing power." (emphasis supplied) 9. Inspite of noticing several judicial pronouncements on the subject, the AO still concludes the assessee is not producing power, because, according to the AO, power can only mean electricity for the purpose of claiming deduction u/s 80-IA of the Act. The AO has not even stated why the aforesaid decisions ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years." Sub-section 4 refers to the categories of business which an undertaking must carry on to be entitled to the deduction referred to above. Clause (iv) (a) of Sub-section 4 is relevant and reads as under: - "(iv) an [undertaking] which, - Is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, [2006];" 12. He explained that an undertaking which generates 'power' or generates and distributes 'power' is entitled to claim deductions of the profits and gains derived by it from such generation or generation and distribution of power. For A.Y. 2003-04 and 2004-05 it was held by the CIT(A) that Cooling Power and Steam Power generated by the assessee are eligible for deduction u/s 80IA of the Act. These orders also followed by CIT(A) for AY 2005-06 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial interpretation by the ITAT in the case of SIAL SBEC Bioenergy Ltd. vs. DCIT (2004) 83 TTJ 866(Del) has held that 'steam' is a form of 'power' as contemplated in Section 80-IA of the Act. This order is upheld by Hon'ble Bombay High Court reported in (2013) 353 ITR 36. In the case of SIAL SEBC Bioenergy case the assessee earned money from supply of power to SBEC Sugar Ltd and after whatever power was consumed by SBEC Sugar Ltd., the surplus power remaining was supplied to the U.P. State Electricity Board. Apart from the receipts generated through the supply of power, the assessee also received some amount on account of supply of steam to SBEC Ltd. Assessee claimed deduction under Section 80-IA of the Act for these receipts the reason being that they pertain to the supply of power as according to that assessee steam so supplied is a form of power and the same falls within the parameters of Section 80-IA of the Act. On these receipts also the assessee claimed 100% deduction. This steam gives thermal energy which is used in the sugar plant at various stages to heat sugar cane juices for evaporation of water in juices to produce final sugar. According to the assessee, the evaporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essure which could also be made available for operating the textile unit of the assessee. The steam so generated through the attachment of power generation unit, was by using the residual heat being exhausted by the engine while producing electric power. Such steam is thus generated as a bye-product of plant for generation of electricity. In the above case the textile unit would have itself had to generate steam for its use if the same was not available to it from the power generation unit, as was being done there before. It was held by the ITAT in Para 5 that whether scientifically or in general parlance the terms 'Production of Steam' and 'Generation of Steam' or for that matter 'Production of Electricity' and 'Generation of Electricity' are synonymous. The AO in that case (just as in the assessee's case) held that the intention of the legislature under Section 80IA(4)(iv)(b) of the Act is to allow a deduction for generation of electricity only as transmission and distribution as referred to sub-clause (b) are for electricity only. The Tribunal held that sub-clauses (a), ( b), (c) of Section 80IA(4)(iv) provide for the benefit of a deduction in three different sets of undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the following forms: Mechanical (Potential & kinetic), Chemical,Heat, Light,Nuclear, Magnetic, Electrical Almost everything that happens in the world is a result of a change of energy from one form to another". 17. Similarly, he referred to school Physics book: A textbook of Physics by Anita Prasad for Eighth Standard Students, wherein the word Power (energy) has been described in detail and its conversion from one form to another form. Power and energy are almost synonymous. The assessee reproduces below the relevant portion of the chapter on Sources of Energy (Forms of Energy, Energy Resources, Wind Energy) from the popular textbook of Physics prescribed for 8th Standard students. "Energy is the ability of a body to do work. Energy can be transformed from one form to another. There is energy in the Wind that blows and in the water that flows. There is energy in the fuel that we burn and in the food that we eat. Most of the energy can be harnessed for doing useful work. Heat Energy (power): When water is boiled, the water changes to steam. The steam used to do work such as turn turbines and railways engines. i) Light Energy (power): Green plants in the presenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ING POWER FROM COOLING TOWER in the case of assessee. In the case of assessee, the UNDERTAKING concerned is generating "Cooling Power". The power generated by the Cooling Tower is known as Refrigeration Power or Cooling Power. Cooling or Refrigeration Power, as the name suggests, is used in reducing the temperature of an object, whether solid, liquid or gaseous. The assessee generates Cooling Power at its undertakings at Sandila and Chiplun. The temperature of the water is reduced by passing air through the apparatus, i.e. the 'Cooling Tower' in sufficient volumes, at a temperature cooler than that of the incoming hot water such that the particles of water are enveloped by the air and there is a transfer of heat from the water to the air. The air then exits the chamber at a temperature higher than its temperature at the point of entry and the water exits the apparatus at a temperature lower than its original temperature. In other words, air (which is 1/1000th the density of water) acts as the refrigerant to cool the temperature of water. 19. The transformation of thermal energy into cooling power is a technology known and applied for decades. In a Cooling Tower, enthalpy potential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on chillers, where the working medium was ammonia or lithium bromide etc. However there exists many applications where it is desirable for the production of cooling power, but the available heat source is water with low temperature for example 50 C till 90 C from rejected heat from cooling of internal 22. This patent supports the assessee's submission that cooling tower generates cooling power/refrigeration power. Hence, the cooling power generated in a cooling tower is entitled for deduction us 80IAof the Act. The assessee also relied on Patent No: PL838609/ W09908055 on Method of Generating Refrigeration Power which describes the method of production of cooling power. The relevant part of this patent is as under: "The invention relates to a method of producing cooling power for one or more buildings by means of hot district heating water and an absorption aggregate obtaining energy from the district heating network. 23. The assessee has exercised the option and for the first time claimed deduction under Section 80-IA for Generation of Cooling Power at its Cooling Power generation undertaking at Sandila for AY 2003-04 and for later AYs which was well within 15 years from 22. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking at Chiplun began on 01.03.2001. 25. The assessee has separate plant and machinery for its Steam Power generation undertakings which are distinct and separate from the yeast manufacturing factories. The labour used at the steam power generation undertakings is also separate. In this regard the assessee relied on Factory Inspector's certificate dated 08.11.2006. Accordingly the assessee claimed deduction u/s 80IA of the Act for the profits derived from aforesaid undertaking engaged in generation of steam power. The initial year of claim for the assessee's Steam Power generation undertaking at Sandila was AY 2003-04 and the initial year of claim for the assessee's Steam Power generation undertaking at Chiplun was AY 2004-05. He also relied on Government of India, Ministry of Non-Conventional Energy Sources, vide Notification No: F No: 2/1/2005-UICA dated 25.07.2005 encouraged entrepreneurs by providing financial assistance to set up plant for energy/power generation from industrial and commercial waste and effluent. One of the objects of this notification is that production of biogas (source of renewable energy) from industrial waste and also power generation from biogas. By th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t atmospheric pressure. The present invention further relates to methods and devices to provide an environmental steam energy storage zone to transfer hot steam either firstly, into a heated container containing water or food, including dried vegetables or beverages dissolved in water; or, secondly, into a heated container containing vegetables or animal products, which contain molecular water therein." (Copy enclosed at Page No 158 to 169 of the Continuation No 2 of Paper Book No III) 27. The learned Counsel relied on the order of Delhi Bench of the ITAT in the case of SIAL SBEC Bio Energy Ltd. vs. DCIT (2004) 83 TTJ 866 on the issue of meaning the word power and that steam is a form of energy. He also relied on the case of West Coast Paper Mills Ltd 100 TTJ 833 for the proposition that deduction under Section 80-IA of the Act can be given for generation of steam power which is used for captive consumption. Further, the Mumbai Bench of the ITAT in the case of West Coast Paper Mills Ltd. vs. Jt. CIT (2006) 100 TTJ 833 held that the deduction provided in Section 80-IA are available to an assessee who generates power and consumes the power itself. The only condition that needs to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anding counsel for the respondent, would, however, contend that the expression "derived from" should be given restricted meaning in which event the claim of the appellant cannot be countenanced. According to the learned standing counsel, since the business of the appellant is manufacture of petro products and generation of electricity is not its business, it cannot be held that whatever profit earned, even notional profit, by virtue of captive consumption, cannot be construed as profit earned from and out of the income derived from the business undertaking." 7. In our considered opinion, the said contention can have no application to the case on hand. In as much as we dealt with the issue in the light of S.80IA and in particular sub-section (4) of the said section which provides for the benefit even in respect of electricity generation plant established by the assessee and the income derived from such enterprise of the assessee, it will have to be held that the assessee fully complied with the requirements prescribed under S. 80-IA in order to avail of the benefits provided therein. Therefore, the contention based on the interpretation of the expression "derived from" can have n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Direct Taxes dated 03.10.2001 the assessee is not entitled to the deductions. In order to appreciate the above said contention, the relevant portions of the said Circular is extracted here under:- "2. I am directed to say that the Board examined the above matter and are of the view that if an undertaking, which is set up in any part of India for the generation or generation and distribution of power, begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2006, will be eligible for the benefit of deduction u/s 80-IA. In case of a captive power unit, the provisions of law is also the same. 13.There may be a case where a captive power plant is set up by an undertaking which is different from the undertaking making use of the power generated. As long as the two undertakings are distinct and separate and there is an element of commercial profit and gains by the power generating undertaking from the Industrial user, the provisions of the Act with reference to the benefit of deduction under Section 80-IA to such said undertaking, would be available, within the frame work of law and subject to the following: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court rendered in the case of CIT vs Thiagarajar Mills Ltd in Tax Case (Appeal) Nos. 68 to 70 of 2010, in favour of the assesse. Paragraphs 8 to 11 of the decision are reproduced herein below: The contention that only whatever power generated from the sale to an outsider or the Electricity Board and the profit or gain derived by such sale alone can be taken as profit or gains derived by the assessee as mentioned in Section 80-IA(1) of the Income-tax Act, has been rejected by the Tribunal in the order impugned. In our considered view, the Tribunal was well justified in having rejected such a stand of the tax Act, we are also convinced that what are all to be satisfied in order to be eligible for the deduction as provided under sub-section (1) of section 80-IA the assessee should have set up and an undertaking or an enterprise and from and out of such an undertaking or an enterprise set up, any profit or gain is derived, falling under sub-section covered by sub-section(4) of section 80-IA of the Income-tax Act such profit or gain derived by the assessee can be deducted in its entirety for a period of 10 years starting from the date of functioning of the set up. The contention t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... let to run the turbines. This transforms to electrical energy which is supplied to paper division for running of the machines. The second use of steam is independently using it for evaporating the moisture from the paper product or for drying pulp by the assessee. On these facts, whether it can be held that the said undertaking on a standalone basis has been set-up for generation of power or not within the meaning of section 80-IA(4)(iv). The relevant clause (iv)(a) of section 80-IA(4), reads as under : "(a) is set up in any part of India for the generation and distribution of power if it begins to generate power at any time during the period beginning on the first day of April 1993 and ending on 31st day of March 2006." 21. Thus, the statute contemplates "generation of power" or "generation and distribution of power". The moot question before us is, whether the steam generated by the assessee, which rotates the turbine for running of machines used for its manufacturing process and also steam alone, is a form of power or not. The case of the learned Commissioner (Appeals) is that the meaning of power as contemplated in the statute is generation of electricity alone, whereas t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3). This Patent is valid in 96 countries of world including India. The relevant portion of the Patent is as under: "The transformation of thermal energy into cooling power is a technology known and applied for decades, especially with the combustion of propane and other fuel or with the use of steam, in adsorption chillers, where the working medium was ammonia or lithium bromide etc. However there exists many applications where it is desirable for the production of cooling power, but the available heat source is water with low temperature for example 50 C till 90 C from rejected heat from cooling of internal combustion engines or district heating or solar collectors." This patent supports the assessee's claim that ammonia absorption plant (AARP) generates cooling power/refrigeration power. 31. For disallowance of the deduction for Cooling Power produced by AARP, the AO has not mentioned any reasons for this power generation activity under section 80 IA of the Act. Hon'ble Madras High Court in the case of CIT vs Geo Industries & Insecticide (I) Pvt. Ltd. (1998) 234 ITR 541 held that when an assessee makes a claim for consideration of an item for deduction during the course of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the same premises as the yeast producing factory. (b) In IAC vs Dalmiya Cement 37 ITD 335, the Tribunal held that the manufacture of clinkers by a new plant which is used as raw material for production of cement was a separate industrial unit although both cement and clinker units were located at same place. (c) As long as unit and activity is independent and identifiable it can be treated as separate industrial unit. CIT(A) relied on Hon'ble Bombay High Court's judgement in Commissioner of Wealth Tax vs. P. Devashayam 236 ITR 885, Kharwar (J.B.) & Sons 163 ITR 394 and Nazeer Cashew Industries 166 ITR 804. (d) In the assessee's case, the three elements of systematic activity, employment of labour and equipment and production of goods are present and therefore the enterprise could be termed as an undertaking or an industrial undertaking. (e) There is no fetter against using of power generated for self consumption - Mumbai ITAT in case of West Coast Paper Mills 100 TTJ 833. (f) Sub-section 7 of s. 80IA simply says that accounts of eligible undertaking should be audited which has been done for the assessee's power generation undertakings. The audit report is requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submitted separate and duly audited Profit and Loss accounts giving the revenues and expenses from such power generation undertakings at Sandila and Chiplun and also furnished Balance Sheets which give details of assets and liabilities of each power generation undertaking. These details are available at pages no 195 to 473 of the assessee Paper book No I. It has been held that if new a industrial unit is established as a part of an existing industrial establishment and if the newly established unit is itself an integrated independent unit in which new plant and machinery is put up and that by these is capable of production of goods independently, the said unit could be classified as newly established undertaking. 35. The assessee has separate plant and machinery, separate labour for each of its power generation undertakings. In the assessee's case, the three elements of systematic activity, employment of labour and equipment and production of goods are present and, therefore, the Cooling Power and Steam Power generation undertakings have been setup for generation of power. The CIT(A) has correctly held so in the assessee's case. Hon'ble Supreme Court in the case of Textile Machi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any statutory obligation to have a different name and the address obviously has to be the same as the assessee's power generation undertakings are situated in the same premises as the yeast producing factory. The Mumbai Bench of ITAT in the case of West Coast Paper Mills, 100 TTJ 833 observed that Section 80IA of the Act does not speak of the consumption of power and there is no fetter against using the power generated for self consumption. The Bench was of the view that the assessee was eligible for deduction for power generated by the two DG sets, which was used for captive consumption. In taking this view, the Tribunal relied on the decision of the Supreme Court in Textile Machinery Corporation Ltd. vs. CIT regarding exemption under section 15C of the 1922 Act and the Bombay High Court decision in CIT vs Sahney Steel & Press Works (1989) 177 ITR 354. 38. Regarding AO's contention that no separate permission was obtained from Central /State Government/Local Authority for carrying on eligible business, it was argued that as per the provisions of Section 80IA of the Act, there is a mandatory requirement for obtaining approval of Central Government/ Statutory Authority only for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e no separate segment disclosure is required. Further as per the provisions of the Act, for granting a deduction u/s 80IA of the Act only a separate P/ L account and B/S is to be prepared and report from a Chartered Accountant as per Form No 10CCB is also required to be filed and same have been duly filed. The assessee relied on the judgement of the Hon'ble Supreme Court in the case of CIT vs Bongaigaon Refinery and Petrochemical Ltd (349 ITR 352). In this case the AO while framing assessment, under Section 143(3) allowed deduction u/s 80HH and 80I of the Act after examining and being satisfied with the unit-wise profit & loss statement filed by that Assessee. The CIT u/s 263 passed an order holding that the assessee was statutorily obliged to maintain Segregated Accounts for each of the three units unit-wise for claiming deduction under Sections 80HH and 80I of the Act, whereas the assessee had maintained Consolidated Accounts. Against the order of CIT, the matter came by way of appeal to the ITAT, which came to the conclusion that there was no statutory requirement under Section 80HH(5) / 80I(7) of the Act to maintain unit-wise accounts. However, the Tribunal observed that, to pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... according to him, the assessee should have adopted the rates of depreciation in Appendix 1A both for the rate of depreciation and the method i.e. straight-line method of depreciation. But the facts are that the assessee has adopted the rates of depreciation mentioned in Appendix-1 and charged depreciation on the basis of Written Down Value Method and not under Appendix-1A and SLM method. The assessee has for the first time claimed deduction under Section 80-IA of the Act for the AY 2003-04 at its power generation undertakings at Sandila and computed the W.D.V. in respect of the assets of the eligible undertaking by adopting Appendix-1. The Act and the Rules thereunder have not prescribed any specific format in which the assessee should state the option that is adopted for the purpose of charging depreciation while computing the eligible profits under Section 80IA. In the absence of any such specific form of exercising option, the method adopted by the assessee for charging depreciation while computing the eligible profits is justified. The reliance placed by the assessee on the case of Jindal Steel and Power Ltd vs. ACIT (2007) 106 TTJ 943, wherein it was held that: "As per secon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it should be an industrial undertaking. The High Court answered both the issues by holding that theatre is not an industrial undertaking and hence generator installed in the theatre cannot be considered for the purpose of Section 32A of the Act and even otherwise also the generator are not used for the purpose of carrying on business of generation of electricity. Further, assessee relied on order of ITAT in ACIT vs Apollo Tyres Ltd (2013) 33 Taxmann.com 575 (Cochin), wherein it was held that D.G. set power generation units set up for generating power for captive consumption constituted an "undertaking" in terms of sub-section (4)(iv) of Section 80IA of the Act. The relevant portion of the judgement as under: "27. We shall now take up the appeal numbered as I. T. A. 378/Coch/09. The only issue urged in this appeal by the Revenue is whether the learned Commissioner of Income-tax (Appeals) is justified in holding that the DG power generation units I and II installed by the assessee-company for captive power consumption constituted an "undertaking" in terms of sub-section (4)(iv) of section 80-IA of the Act. 28. The Assessing Officer rejected the claim of deduction under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold it to an outsider. It has used the entire steam generated either in the papermaking process or has transferred it to the turbine unit to generate electricity. If electricity used for captive consumption can be eligible for deduction, we see no reasons as to why steam which is also a form of power cannot be eligible for such deduction. Thus there is absolutely not force in the contention of the Revenue merely on the basis of its own appreciation about the maintenance of books of account that no separate undertaking exists. The aforesaid discussion rules out objection No 5 as well as Objection No 6 raised by the Revenue." From the above facts and discussion, it is clear that the very scheme of 80-IA of the Act as also referred and discussed in a catena of judgments was to encourage captively generation of power. There is no bar in the Section on an assessee to produce power at his power division and sell it to its his own manufacturing unit i.e. captive consumption. 45. Further the AO was of the view that the undertaking was formed by transfer of plant and machinery previously used for other business to a power business. But according to CIT(A), although, the equipment has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and assessee had not been able to show any instance of trading in the above two forms of energy. Even if cooling power by way of chilled water is transported it will be transported in the form of water and not energy and hence what is traded is water not power. The assessee explained that the eligible business is defined in sub-section (4). As per sub section (4)(iv)(a) the following business is eligible for deduction u/s 80IA of the Act: "an undertaking which is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2017." 47. The assessee claimed that it generates Cooling Power and Steam Power which are captively consumed. Further, instead of doing the same work by employing electrical power has chosen to generate and sell cooling power and steam power for captive consumption for the production of yeast. Hon'ble Gujarat High Court in CIT vs. Ahmedabad Mfg. & Calico Printing Co. Ltd. [1986] 162 ITR 760, held that the assessee would be entitled for deduction under section 80-I of the Act irrespective of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and distribution lines for steam too. Therefore, there was no basis whatsoever for drawing distinction between the two or a room for any confusion between the two propositions. 'Power' and 'energy' are synonymous, which can be in several types and forms, be it heat, which is steam or mechanical or electrical, wind or be it thermal. If the intent of the Legislature remains to restore the application of the benefit of deduction under section 80-IA to generation of electricity only, it would have been specifically so worded by using the connotation 'electrical power' only rather than the connotation 'power' omnibus. Thus, there is no doubt that like electricity, steam is also a form of power. In the aforesaid circumstances, the decision arrived at by the Commissioner (Appeals) that the assessee was in the business of generation of power and that the steam so generated by the industrial undertaking and receipt from the business of industrial undertaking was within the meaning of section 80-IA was correct. In the result, the revenue's appeal was to be dismissed." 48. In view of the above, it was explained that Section 80IA(8) of the Act provides that in case of captive consumpt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is able to save to that extent which would certainly be covered by Section 80-IA(1). When such will be the outcome out of own consumption of the power generated and gained by the assessee by setting of its own power plant, we do not find any lack of merit in the claim of the respondent/Assessee when it claimed by relying upon Section 80-IA(1) of the Income Tax Act by way of deduction of the value of such units of power consumed by its own plant by way of profits and gains for the relevant assessment years. 12. The learned counsel for the Revenue has also submitted that as per the Circular of the Central Board of Direct Taxes dated 03.10.2001 the assessee is not entitled to the deductions. In order to appreciate the above said contention, the relevant portions of the said Circular is extracted here under:- "2. I am directed to say that the Board examined the above matter and are of the view that if an undertaking, which is set up in any part of India for the generation or generation and distribution of power, begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2006, will be eligible f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciple of law that a Circular can only be made in consonance with the provisions of the enactment and the same cannot be derogatory to the purport sought to be achieved. Hence we are of the opinion that the Circular relied upon by the learned counsel for the Revenue is in fact in favour the assessee and therefore the said contention also cannot be accepted." In case of DCW Ltd. vs. ACIT (2010) 132 TTJ (Mumbai) 442 - it was held that: "Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings - Assessment year 2003-04 - Assessee claimed deduction under section 80-IA from its captive power plant unit - Assessing Officer allowed assessee's claim - On appeal, Commissioner (Appeals) reduced amount of deduction for following reasons: firstly, assessee had taken into account electricity tax levied by State Government while working out market price of electricity for purpose of section 80-IA(8), secondly, certain amount of indirect expenses was to be allocated to C.P.P. unit for calculating eligible profit under section 80-IA and, thirdly, income from sale of sludge and sale of steam was not eligible for deduction under section 80-IA - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IA of the Income-tax Act such profit or gain derived by the assessee can be deducted in its entirety for a period of 10 years starting from the date of functioning of the set up. The contention that profit or gain can be claimed by the assessee only if such profit or gain is derived by the sale of its product or power generated to an outsider cannot be the manner in which the provisions contained in section 80-IA91 can be interpreted. The expression 'derived' used in the said section 80-IA in the beginning as well as in the last part of sub-section(4) makes it abundantly clear that such profit or gain could be obtained by one's own consumption of the outcome of any such undertaking or business enterprise as referred to in sub-section(4) of section 80-IA. The dictionary meaning of the expression 'derive' in the New Oxford Dictionary of English states "obtaining something from a specified source." In section 80-IA(1) also no restriction has been imposed as regards the deriving of profit or gain in order to state that such profit or gain derived only through an outside source alone would make eligible for the benefits provided in the said section. 19. Therefore, there is no difficu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10CCB as above. As regards the quantum of units produced, the Cooling Power is measured in Tonnes of Refrigeration (TR). Based on the actual Cooling Power Generation the assessee records the Tonnes of refrigeration in the logbook which was not disputed either by the AO or the CIT(A). 52. In view of the above it was explained that as per Section 80IA(8) of the Act, where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date. Since Cooling Power which is generated by the assessee at its undertakings Chiplun and Sand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008-09 Rs.3.76 3.76X3.517=Rs.13.22 Rs.8.99 Cooling Power Generation Undertaking at Chiplun AY Price Per Unit of Kw as per Maharashtra State Electricity Board Rate per TR at conversion rate of 1 TR = 3.517 Kw Rate per TR adopted by the Appellant in the computation of deduction Section 80IA in the return 2005-06 Rs.3.61 3.61X3.517=Rs.12.69 Rs.8.17 2006-07 Rs.3.62 3.62X3.517=Rs.12.73 Rs.8.17 2007-08 Rs.4.49 4.49X3.517=Rs.15.79 Rs.8.17 2008-09 Rs.4.52 4.52X3.517=Rs.15.89 Rs.8.99 54. Thereafter, the assessee arrived at the net profit of the Cooling Power generation undertakings after deducting from sales price as above, the expenses directly incurred and the common expenses on a pro-rata basis and claimed the deduction for each undertaking as follows: AY Cooling Power Chiplun Cooling Power Sandila Ammonia Absorption Recovery Plant Sandila (Refrigeration power) 2005-06 Rs.2,03,91,161 Rs.9,46,24,471 Rs.18,17,877 2006-07 Rs.4,43,61,550 Rs.9,39,65,151 Rs.16,47,348 2007-08 Rs.3,84,19,573 Rs.9,74,90,930 - 2008-09 Rs.4,54,17,690 Rs.12,42,10,859 - The assessee claimed that valuation per TR done ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profit of the undertaking to which he added the expenses as claimed by the assessee and arrived at the sales value of the undertaking. He held the profit so computed of ₹ 2,80,04,904 as being eligible for deduction under Section 80IA instead of deduction claimed by assessee of ₹ 3,85,17,595/- for AY 2003-04. 56. The assessee before CIT(A) argued that the data used as above, applies in case where air is not a refrigerant. However in the present case, the refrigerant is air. Conversion Calculator from Rapid Tables.com is applicable, where it clearly show that 1 Tonne of Refrigeration [TR] = 3.5168525 kW (rounded off to 3.52 kW). This is Standard formula for converting 1 TR to KW. Therefore the comparison and reliance on the data in the said article by CIT(A) is totally misplaced. Further the conversion rate of 1 Refrigeration Tonne = 3.5168525 kW is a standard conversion of refrigeration tonnes and is universally recognized as such. This is also evident from report obtained by the assessee from M/s Engineering Services. copy enclosed at Page Nos 73 to 79 of the Continuation No 2 of Paper Book No III. The mathematical derivation of the formula for converting 1 Tonne of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee under Section 80IA of the Act for Cooling Power generated from AARP undertaking. Further in Para 33 he has discussed the quantum of this claim wherein he held that per unit cost of ₹ 15.71 should be restricted to average power cost during the year in Sandila Unit of ₹ 5.32. Therefore, CIT(A) reduced the claim from ₹ 23,31,945 to a loss of ₹ 10,44,728. He held that since net result is negative figure or a loss no deduction would be available. 59. The assessee before us claimed that for the AARP unit the CIT(A) has considered the conversion rate of 1 TR = 1.02kw by relying on article "Refrigeration Chiller Performance Analysis at Various loads" by Henry Manczyk . The assessee claimed that as the rate claimed of ₹ 15.71 is higher than the price at which the U.P. State Electricity Boards have sold electricity which is based on conversion rate of 1TR = 3.517 Kw which comes to ₹ 12.69 and ₹ 12.73 per Tonne of Refrigeration respectively for AY 2005-06 and AY 2006-07 respectively. Hence, the claim be restricted per TR based on Electricity Board's rate which comes to Rs ₹ 12.69 and ₹ 12.73 per Tonne of Refrigeration at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard Rate per Unit adopted by the Appellant in the computation of deduction under Section 80IA in the return 2005-06 Rs.3.61 Rs.2.11 2006-07 Rs.3.62 Rs.2.11 2007-08 Rs.3.92 Rs.5.71 2008-09 Rs.3.76 Rs.5.71 Steam Power Generation Undertaking At Chiplun Unit AY Price Per Unit of Kw as per Maharashtra State Electricity Board Rate per Unit adopted by the Appellant in the computation of deduction under Section 80IA in the return 2005-06 Rs.3.61 Rs.0.82 2006-07 Rs.3.62 Rs.1.08 2007-08 Rs.4.49 Rs.4.34 2008-09 Rs.4.52 Rs.5.71 61. Thereafter, the assessee arrived at the net profit of the steam power generation undertakings after deducting from sales price as above the expenses directly incurred and the common expenses on a pro-rata basis and claimed the deduction for each undertaking as follows: AY Steam Power Chiplun Steam Power Sandila 2005-06 14,58,745 1,15,90,174 2006-07 47,21,189 1,55,35,607 2007-08 33,54,683 3,57,59,313 2008-09 67,90,153 77,70,175 62. But the AO did not accept the computation prepared on the basis of notional sale and by allocating certain expenses from accounts and held that: (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the market price can only be the price of A.P. State Electricity Board (APSEB) because they are the major producers of electricity in the country and also since the assessee itself purchases electricity from APSEB. In view of the above, the assessee argued that that at the most the claim of the assessee can be restricted to the rates at which the State Electricity Board sold electricity to the assessee but the arbitrary reduction of 25% of the sales revenue without pointing out any discrepancy or defect in audited profit & loss account and without stating why the electricity rate as per State Electricity Board cannot be considered is not appropriate and that too when for a few years the assessee has adopted a price less than the State Electricity Board prices. 65. The reliance placed by assessee on the order of ITAT, Chennai Bench in the case of Sri Velayudhaswamy Spinning Mills (P.) Ltd vs DCIT [12 ITR(AT) 353] held that - "Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings - Assessment year 2007-08 - Assessee was a textile manufacturing company - It was having an independent windmill undertaking eligible for deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and non-agricultural income had to be arrived at accordingly - Held, yes" 66. Further, assessee also relied on the following judicial decisions wherein it was held that each unit of power should be valued at the same price at which the State Electricity Board sold electricity: (i) West Coast Paper Mills Ltd. vs. ACIT 33 ITR (T) 560 (Mumbai - Trib.). Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings (Eligible activity/Steam generation) - Assessment year 2005-06 - Whether generation of steam is also a form of power and assessee would be eligible to claim deduction under section 80-IA with regard to its unit set up for generation of steam for its manufacturing process - Held, yes [Para 23] [In favour of assessee] Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings (Computation of deduction) - Assessment years 2002-03 to 2005-06 - Whether transfer of price as contemplated in section 80-IA(8) has to be seen having regard to arm's length condition, i.e., what would be price under uncontrolled transactions in open market - Held, yes - Whether while computing deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 23.13%, 26.41% and that this should be the basis for calculating profits of power generation undertakings. The net profit rates of the assessee's yeast manufacturing business includes the manufacture and sale of yeast and inter-alia, has all expenses such as excise duty, labour, other direct expenses such as cost of raw materials etc. included in it. There is no basis for including all these expenses and the sales revenue on sale of yeast for working out the net profit ratio for power generation undertakings are distinctly different from yeast manufacturing factories. The scheme of Section 80-IA of the Act itself provides for working out the profit on power generation undertaking as a separate industrial undertaking as a stand-alone business dehors any other business. Therefore, there is absolutely no logic in applying the Net Profit rate of the assessee's yeast manufacturing business to the business of generating cooling power and steam power. We have gone through the provision of Section 80IA(5) of the Act, which reads as under:- "(5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to KW, the conversion of the Tons of Refrigeration to Kilowatts being the unit of measurement for electric power, it should be taken at 1 Refrigeration Tonne =3.5168525 KW (rounded off to 3.51 KW). However the details can be verified by the AO at the time of giving effect to this order. Accordingly, this inter-connected issue for claim of deduction under section 80IA of the Act is allowed in favour of assessee. This issue of assessee's appeals is allowed and that of the Revenue's is dismissed. 71. The next common issue in these appeals of assessee is as regards to disallowance of distribution expenses. It is noticed that the issue is common in all the years of the assessee's appeals and the facts are exactly identical. The ground raised by assessee in ITA No. 1634/Mum/2014 for AY 2005-06 i.e. Ground No.3 reads as under: - "3. The CIT(A) erred in confirming the disallowance of distribution expenses amounting to ₹ 25,05,196/- on an ad-hoc basis ignoring the fact that that these expenses are incurred wholly and exclusively for the purpose of business. Further, this disallowance is bad in law and must be quashed because no incriminating material was found during the search." ..... X X X X Extracts X X X X X X X X Extracts X X X X
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