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TMI Blog2019 (4) TMI 550X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowance u/s. 14A - HELD THAT:- It is undisputed fact that assessee has not earned and claimed any exempt income during the year under consideration, therefore, we consider that CIT(A) has rightly deleted the disallowance after following the decision of Jurisdictional High Court of Gujarat in the case of Corrtech Energy Pvt. Ltd. [2014 (3) TMI 856 - GUJARAT HIGH COURT]. Therefore, we do not find any merit in this ground of appeal of the revenue and the same is dismissed. Disallowance of interest u/s. 36(1)(iii) - assessee has given the working of interest capitalized after taking into consideration the capital expenditure incurred for capital asset and the quantum of work in progress from time to time - HELD THAT:- AO has disallowed the interest on all the term loans availed after August, 2010 without considering as to what part of the term loan was applied for the new asset which was already put to use. The assessing officer has not disproved the detailed working of the calculation of capitalization of interest given by the assessee. The term loan was sanctioned in the middle of the year and by that time many purchases for machineries were made by the asssessee by utili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee has further submitted that as per provision of section 5 and section 9 of the income tax act, no part of commission income was received or deemed to be received in India. It was further submitted that section 195 has to read with the provision of section 4, 5 and 9 of the act and if the payment made to nonresident is not at all chargeable to tax in India then no deduction of tax at source is required to be made on such payments. The assessee has also placed reliance on the decision of Hon ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd. vs. CIT (2010) 327 ITR 456 (SC) and CIT vs. Toshoku Ltd. 125 ITR 525 (SC). The assessing officer has not agreed with the submission of the assessee. He was of the view that in the case of the assessee, the income accruing or arising directly or indirectly through or from any source of income in India shall be deemed to accrue or arise in India as per section 9(1)(i) of the act. The assessing officer has stated that commission payment has been made for utilization of their services for procuring order from the overseas companies. The assessing officer was of the view that no doubt the agents must have rendered servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e compliance with the provisions of section 195(2) of the act. With the assistance of ld. representatives, we have gone through the material on record. In this case, the non-residents agents have rendered their services outside India. All the agents have overseas offices and they were not having any permanent establishment in India. As per explanation below section 9(2) state that income of non-resident shall be deemed to accrue or arise in India under clause (v) or (vi) or (vii) of subsection (1) included in the total income of the non-resident whether or not the non-resident has a residence or place of business or business connection in India or the non-resident has rendered services in India. It is clear from the provision that income of the nature of interest or royalty or fees for technical services shall be deemed to accrue or arise in India in the case of non-resident. Therefore, after considering the decision of Hon ble Supreme court in the case of GE India Pvt. Ltd supra, we consider that provision of section 9(1)(i) are not applicable to the case of the assessee. Regarding applicability of section 195 of the act, we observe that once the income is not taxable, there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by revenue 1st and 2nd grounds of appeal of disallowance of commission payment u/s.40(a)(ia) of the act 10. The assessing officer has disallowed the commission paid to foreign agent by holding that the income arising on account commission payable to overseas agents was deemed to accrue or arise in India and was accordingly taxable under the provisions of section 5(2)(b) r.w.s. 9(1)(i) of the income tax act and the assessee has failed to make compliance with provision of sedition 195(2) of the act. The assessing officer has made disallowance of ₹ 24785500/- u/s. 40(a)(ia) of the act. The ld. CIT(A) has deleted the impugned addition stating that similar issue has been decided in the case of the assessee for assessment year 2010-11. 11. We have heard the rival contentions. With the assistance of ld. representatives, we have gone through the material on record and it is noticed that identical issue on similar facts for the assessment year 2010-11 in the case of the assessee vide ITA No. 2693/Ahd/2014 has been adjudicated in favour of the assessee as supra in this order. On careful consideration of the entire fact of the case, we consider that simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21.56 The assessee has objected to the observations of the assessing officer and made the following submissions:- The assessee, vide its letters dated 30.01.2014 further submitted as under: We are giving the figures of Share Capital and Free Reserves, Investment infixed Assets, creditors for Capital Goods. It will be seen that assessee has sufficient funds to finance the CWIP as at 31/03/2010. No Loan was availed during FY 31/03/2010. The figure fo term loan as at 31/03/2009 31/03/2010 may be reused. The increase infixed assets (actually put to use during FY 31/03/2010 may also be considered. It will be seen that all earlier loan are utilized in that year itself. The opening CWIP has been considered while calculating the capitalization of interest of current year. The amount affixed assests put to use capital work in progress month wise has been considered at pro rata interest has been capitalized. Interest on the term loan disbursed during the current year has been considered as that loan gone into financing of the new assests. We avail the reimbursement other actually incurring the expenditure. In A. Y. 04-05 05-06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,82,192 3,82,192 Nov-2010 5,00,00,000 5,00,00,000 3,69,863 3,69,863 Dec-2010 6,25,00,000 11,25,00,000 11,25,00,000 4,39,990 4,39,990 Jan-2011 5,60,72,123 16,85,72,123 2,20,08,231 ^10,06,366 8,74,978 Feb-2011 7,58,03,210 24,43,75,333 8,02,71,855 13,02,711 8,74,799 Mar-2011 10,91,21,292 35,34,96,625 11,55,31,501 20,87,111 14,04,991 Total Interest to be capitalized 50,49,554 Less: Already capitalized by the assessee 32,64,147 Net Interest on borrowed fund to be capitalized 17,85,407 Consequently t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest by taking into account the percentage of CWIP to CAPEX. For example the percentage of capital work in progress to CAPEX was 69% in the month of August, the interest cost has been proportionately distributed in that ratio. It has been similarly done for other months as well. It is an accepted fact that the appellant has not borrowed money for specifically for the assets and therefore, as per the guidelines issued by the ICAI, a copy of which has also been given by the appellant, the allocation of interest shall have to be made by taking into account by applying a capitalisation rate to the expenditure on that asset. The guidelines specifies that the capitalisation rate should be the weighted average of the borrowing cost applicable to the borrowing of the enterprise that is the outstanding during the period. The method of the AO by capitalising the total loan borrowed for CWIP as long as the Cumulative borrowings are less than the CWIP is not correct as there is no specific borrowing for a particular asset and the appellant has also invested its own money before purchase of assets which was subsequently financed. The method adopted by the appellant is as per the guidelines is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and stated that steam was not generation of power and was not profit derived from the industrial undertaking because the deduction u/s. 80IA(iv) was meant for the generation and distribution of power. The assessing officer has referred the decision of ITAT Ahmedabad in the case of M/s N.R. Agricultural industrial Ltd. vs. DCIT dated 26th July, 2013 wherein it is held that steam is not power and not eligible for deduction u/s. 80IA(iv) of the act. The assessing officer has also referred the decision of Hon ble Supreme Court in the case of Pandian Chemical Ltd. vs. CIT (2003) 262 ITR 278 wherein it is held that such business profit that has direct nexus to the essential business activity can qualify for deduction. The assessing officer has further referred the decision of the Supreme Court in the case of Cambay Electronic Supply Industrial Company Ltd. vs. CIT (1978) 1133 ITR 84 wherein it is held that expression attributable was used when the legislature intended to cover the receipt from sources other than the actual conduct of the business. The assessing officer has also stated that in this case the sale of steam would have been liable as deduction u/s. 80IA(iv) if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its case the steam was a byproduct. It also placed reliance on the judgement of honourable High Court of Madras in the case of Tanfac Industries fsupraj. However, the appellant also submitted a calculation for the cost of production of steam utilised for generation of electricity and the steam which was utilised by the appellant for other purposes. The appellant furnished all the details related to the boiler, the value of the steam used by the turbine for generation of electricity and the heat value of the steam which was used by the appellant, for manufacturing of chemicals. The submission given by the appellant was forwarded to the AO vide this office letter dated 15/09/2014. The AO submitted comments on the calculation given by the appellant vide office letter dated 15/10/2014. The comments given by the AO were also given to the appellant and it has also submitted its rejoinder. The relevant extracts of the AO's report as well as the rejoinder submitted by the appellant have been reproduced in the preceding pages. On a careful consideration of the entire facts related to the issue and also considering the additional evidences submitted by the appellant it is noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of steam to the power plant. It has been held by her that steam does not fall within the meaning of power . In this reference she has made reliance on the judgement of honourable ITAT Ahmedabad in the case of N R Agrawal Industries Ltd Vs DCIT dated 26/07/2013. The appellant on the other hand has submitted that the value of steam should be considered for arriving the profit as the scheme is being generated for generation of electricity and after utilising the same for electricity generation the balance steam is1 used for the chemical process. Therefore, it is a byproduct and therefore, the deduction was admissible. On a careful consideration of the facts related to the issue, it is noted that the appellant is generating steam at high-pressure and temperature and the steam is being fed into turbine and the steam which is coming out from turbine is utilised for the chemical process. The details on record to show that the turbine utilised by the appellant for generation of the power is a back pressure turbine. In back pressure turbine the intake is of high-pressure steam which is used for generation of power and the exhaust steam is also at certain pressure so that it can u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m which is utilised by the chemical plant can be determined by distributing the same in proportion to the heat value (Enthalpy) of the inlet steam and the outlet steam of the turbine. As per the details available on record the heat value of the inlet steam at 65 .5 KG/cm2 is 793 kcal per KG whereas the heat value of the output steam at 3.5 KG/cm2 is 653.7 kcal per KG. The quantity of input and output steam remains the same and only the calorific value or the heat value goes down as part of the energy is utilised for generation of power. Accordingly, the expenses can be apportioned in the ratio of enthalpy of the inlet and output steam. The same is worked out as under: - Total enthalpy of the steam coming out of the boiler 793 kcal per KG The enthalpy of the steam coming out of the turbine 653 kcal per KG The enthalpy utilised by the turbine for generation of electricity 139 kcal per KG Percentage of energy utilised in the generation of electricity 17.66% Total expenses for generation .of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, while preparing the profit and loss account and the figures of depreciation therein the total depreciation was claimed without giving effect to the depreciation already claimed in earlier year. During the course of appellate proceedings, it was claimed by the appellant that the depreciation which has already been allowed in earlier year should not be taken into account for calculating the deduction as it was the first year of claim of deduction and this year should be taken as initially for the purpose of provisions of section 80 I-A. The claim of the appellant was also forwarded to the AO and she has objected to the claim relying on the judgement of ITAT Ahmedabad in the case of Goldmine Shares and Finance 113 ITD 209. The appellant on the other hand has placed reliance on various subsequent judgements of ITAT Ahmedabad in which the similar claim has been allowed. The reliance has been placed by the appellant on the Judgements of Honourable ITAT Ahmedabad in the cases of Jivraj Tea and Industries Ltd 42 taxman.com 461, Sadbhav Engineering Ltd 45 taxman.com 333 and Anil H Lad 45 taxman.com 98. On a careful consideration of entire facts of the case of it is noted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the pulp. For the first use, the steam so generated by the chemical recovery boiler has a high temperature and pressure which is then transferred through the inlet 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 stand alone 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rotate the turbine, the turbine then rotates the alternator which generates electrical energy. The steam after being used to rotate turbine is drawn from the turbine outlet and then finally used. In this background, the steam so generated is generated by the industrial undertaking and the receipt would be the receipt from the business of the industrial undertaking within the meaning of section 80-IA which would qualify for this benefit. The assessee, therefore, succeeds on this account also. The observations of the authorities below that it is only the electrical form of energy which qualifies for deduction under section 80-IA, with reference to the provisions of the Electricity Act, was not correct. 22. Similarly, in the decision of Maharaja Shri Umaid Mills Ltd.'s case (supra), the Tribunal held that like electricity, steam is also a form of power which is eligible for relief under section 80- IA(4). The relevant observation and the conclusion drawn by the Tribunal is reproduced below : 5. Considering the above submissions, we find substance in the arguments of the learned authorised representative that like electricity, steam is also a form of power as per t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... team too. Therefore, there is no basis whatsoever for drawing distinction between the two or a room for any confusion between the two propositions. The '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. We also agree with this plea of the learned authorised representative that if the intent of the Legislature remained 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. As per Chambers Twentieth Century Dictionary, steampower ; is a spell of travel by steam power; energy, force, spirit for, using, worked by steam ; to rise or pass off in steam or vapour, or smell; to become dimmed with condensed vapour (often with up); to move by means of steam. As per the Cambridge International Dictionary of English, the steam is the hot gas that is produced when water boils ; steam can be used to provide power, steam turbines of a steam engine/locomotive of the age of st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mostly falls in this year only and the rate of quantity generated has also been mentioned. This generation of steam has been evaluated at a realisable market value by the assessee in its books of account and the assessee has also debited expenditure incurred for the generation of power. Thus, on these facts itself, it cannot be held that the assessee has not undertaken the generation of power in this year. The section provides that the assessee must begin to generate power during the period defined under the statute and the impugned assessment year definitely falls within that period. Lastly, in so far as the observation and the conclusion of the Assessing Officer, which are based on similar reasons as given for units- 1 to 5, the same is also not sustainable as the Tribunal has already decided the issue on these reasoning in favour of the assessee. Thus, we set aside the impugned order passed by the learned Commissioner (Appeals) on this score and hold that the assessee is eligible to claim deduction under section 80-IA with regard to unit-6 also as a standalone power generating undertaking. Ground No. 5 raised by the assessee is thus treated as allowed. Respectfully follo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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