Income Tax Appellate Tribunal - Hyderabad
Kakatiya Cements, Sugars And ... vs Assessee on 4 January, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'A', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER and
SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
I.T.A. No. 931/Hyd/2011
Assessment year : 2007-08
M/s. Kakatiya Cements, vs. The Additional Commissioner
Sugars and Industries Ltd. of Income-tax, Range-2
Hyderabad Hyderabad.
PAN: AABCK1868J
Appellant Respondent
I.T.A. No. 1051/Hyd/2011
Assessment year : 2007-08
The Assistant Commissioner vs. M/s. Kakatiya Cements,
of Income-tax, Circle-2(1) Sugars and Industries Ltd.
Hyderabad. Hyderabad
PAN: AABCK1868J
Appellant Respondent
Assessee by: Shri A.V. Sadasiva/
Shri M.V. Anil Kumar
Revenue by: Smt. K. Mythili Rani
Date of hearing: 04.01.2012
Date of pronouncement: 10.02.2012
ORDER
PER CHANDRA POOJARI, AM:
These two cross appeals are directed against the order of the CIT(A)-III dated 31.3.2011.
2. The appeal of the assessee as well revenue is filed against the order of the CIT [A] for the assessment year 2007-08. Brief facts of the case are that the assessee company, which is engaged in the business of manufacture of cement and sugar, had filed its return of income for the assessment year 2007-08 on 27.10.2007 showing income of Rs.14,90,81,091/-, after claiming deduction under section 80IA of the Act for an amount of Rs. 11,56,46,378/-
2 I.T.A. Nos. 931 & 1051/Hyd/2011M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== The assessee company is having sugar manufacturing unit along with co-generation plant in Khamam district. It has cement factory in Krishna district. The income from cement and sugar divisions is shown at Rs.10,08,73,179/- and Rs.4,45,00,385/- respectively. In respect of income from power division, shown at Rs.11,56,46,368/-, the assessee company has claimed deduction under section 80IA of the Act. The turnover in respect of this division is shown at Rs.31,33,93,291/-. During the assessment proceedings, the Assessing Officer noted that the assessee company was sanctioned a 17 MW Bagassee co-generation plant by Non- Conventional Energy Development Corporation of Andhra Pradesh (NEDCAP), vide letter dated 09.06.2010 and it has entered into MOU with them on 16.08.2010. As per the said MOU the assessee company has to abide by the regulations of AP Electricity Regulatory Commission (APERC). It was also under obligation to enter into separate agreement with APTRANSCO. The agreement entered into with APTRANSCO on 19.02.2002, provided for captive consumption of 9.05 MW for sugar plant, for consumption of 5 MW in cement plant and for sale of 5.75 MW to APTRANSCO during the season of sugar production. Vide GO MS No.93 of Energy Department dated 18.11.1997, the Government has fixed the power purchase price at Rs.2.25 per unit, with escalation of 5% per annum with 1997-98 as base year. As per the Article-3 of the agreement, the purchase price by APTRANSCO shall be decided by APERC beyond the year 2003-04. The Assessing Officer noted that the turnover shown in respect of power division includes sale of electricity to sugar division shown at Rs.490.48 lakhs, sale of electricity to cement division at Rs.855.06 lakhs, sale of electricity to APTRANSCO at Rs.1345.01 lakhs and sale of steam to sugar division at Rs.484.31 lakhs.
3 I.T.A. Nos. 931 & 1051/Hyd/2011M/s. Kakatiya Cements, Sugars & Industries Ltd.
==========================
3. During the assessment proceedings, the assessee company submitted that before commissioning of co-generation power unit on 12.04.2002, the steam and power requirement of the sugar plant were met through two boilers of capacity 32TPH by 32KG pressure each and steam turbines. After commencement of operation in new co-generation unit in 2002-03, the existing boiler and steam turbine were not put to use and the same were dismantled and sold in 2003-04. Stating that the co-generation plant in their case is a new unit, the assessee has submitted that such undertaking is eligible for deduction under section 80IA of the Act. In this context, it was submitted that the said plant was commissioned after obtaining permission from NEDCAP and obtaining license from APERC for producing electricity. It was further stated that technology and machinery used in such plant are totally different from those used in the old unit. It was further submitted that the operation of the old unit was only restricted to steam production and electricity generation for captive consumption in the sugar plant. However, the Assessing Officer did not accept such submissions of the assessee company. He noted that such power division in the case of the assessee, is formed by splitting of an existing business structure which is manufacturing sugar. He noted that the integral part of producing sugar involves usage of steam which is generated in boilers by burning the bagasse, which is residue obtained on crushing the sugar cane. A part of the steam was converted into electricity in the turbines and the same is used in the plant. Stating that by having this integral part of the business into a separate undertaking, he noted that the assessee has only split the existing business in this case. Referring to the submission of the assessee for installing new machinery in the power plant, he noted that installation of sophisticated and high capacity machinery to produce steam and electricity, in place of existing 4 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== old machinery, cannot be treated as new undertaking within the meaning of section 80IA of the Act. On reference by the assessee for obtaining permission from different authorities for installing such plant, he noted that such permissions are only statutory requirements, which are necessary for commissioning the new machinery. He further noted that by bi-furcating the existing business structure into two units, the assessee has tried to claim to be in a new business of steam. He further noted that there is no market for steam and the same is not a tradable commodity. So far as raising invoices to APTRANSCO is concerned, he noted that the same may be considered as a new client for the existing business. With these observations and referring to the various judgments of the High Courts as mentioned in his order, he held that in the case of the assessee there is no new undertaking and the same is only formed by splitting of existing business and hence, it is not entitled to any deduction under section 80IA of the Act. He thus, rejected such claim of the assessee for deduction under section 80IA of the Act.
4. Further referring to such claim of deduction under section 80IA of the Act in respect of the said power plant, he noted that, if any appellate authority decides that the assessee is entitled to deduction under this section, then the value of steam which is claimed by the assessee at Rs.484.31 lakhs, should be 'nil'. The assessee has shown such amount towards sale of steam to the sugar unit and on that amount has claimed deduction under section 80IA of the Act. However, he noted that having regard to the provisions of clause (a) to section 80IA (4)(iv) of the Act, no deduction can be allowed in respect of steam. Stating that no income can be recognized on steam, he held that the question of deduction under section 80IA of the Act thereon does not arise for the supposed sale of steam to the sugar unit in this case. The 5 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== Assessing Officer further noted that the steam is drawn for sugar plant, after effectively converting the thermal energy in the steam to electricity. Such low pressure (LP) steam has no further value in generating any further electricity. The same is to be treated as a bi-product of the electricity generating unit. Stating that such LP steam cannot be marketed and has no salable value, he held that the value of the same is zero. He observed that the assessee, by using higher valuation, has sought to inflate the claim of deduction under section 80IA of the Act and to reduce the profit of sugar unit by increasing its cost of manufacturing. He further noted that APERC, while fixing the tariff for co-generation units, has not considered any value for the LP steam. Since, there is no sale price for the LP steam output; he noted that the value of the same has to be taken at nil. Further, stating that any cost incurred for producing such steam utilized in sugar unit, has been duly reflected in the tariff fixed for electricity itself, such claim of the assessee for reduction in the cost of manufacturing steam has no basis. Lastly, stating that steam is not a power as envisaged in section 80IA of the Act and the same being merely a bi-product which cannot be said to be income from business of power generation, he held that the value of the same has to be taken as NIL. Further, stating that as the cost of fuel has been fully considered in fixing the tariff of electricity, he held that no separate deduction in the fuel cost can be allowed. With these observations, while rejecting the claim of deduction for an amount of Rs.484.31 lakhs under section 80IA of the Act on that account, i.e., towards alleged selling price of LP steam, he held that since the value of the same is nil, the income of sugar division has to be increased by that amount of Rs.484.31 lakhs.
5. As regards, the price charged for electricity supply to APTRANSCO, sugar division and cement division is concerned, the 6 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== Assessing Officer noted that the assessee has adopted a rate of Rs. 3.48 per unit. Referring to GO.MS No.93 dated 18.11.1997 of Government of Andhra Pradesh, the facts relating to rate that was fixed at Rs.2.25 per unit with 5% escalation per annum with 1997- 98 as base year, formation of APERC on 03.04.1999, subsequent power purchase agreements signed by APTRANSCO with non conventional energy developers and coming into force of the Electricity Act, 2003 empowering the State Electricity Regulatory Commission to fix the tariff, he noted that as per the order passed by APERC on 20.03.2004 fixing tariffs for various sources of energy, the assessee is entitled to a price of Rs.2.67 per unit during the financial year 2006-07. However, after referring to the dispute raised by South Indian Sugar Mills Association to such rate fixed by APERC and discussing the chronological events of the litigations at various stages including the Hon'ble Apex Court, on that account, he noted that the same has not reached the finality and in the meantime the APTRANSCO has been paying the charges as per new tariff fixed by the APERC order along with 50% of the differential amount between the old and the new tariffs. However, he held that such differential amount has not accrued to the assessee. In this regard, referring to the decision of the Hon'ble Apex Court in the case of Godhra Electricity Company Ltd., vs. CIT reported in 225 ITR 746 and in the case of CIT vs. Hindustan Housing and Land Development Trust Ltd., reported in 161 ITR 524, he held that such differential amount received by the assessee, cannot be considered towards income in the case of the power unit. Stating that the rate of Rs.2.67 per unit should be considered as price of electricity per unit, and computing the selling price of power supplied to sugar unit, cement unit and APTRANSCO, on that basis, he held that the total income of the power unit gets reduced by Rs.10,70,44,888/-. However, he noted that as the sale of power and steam to sugar unit are to be 7 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== considered a part of existing business, no deduction is available on the same. He further noted, in case of sale of power to sugar unit, the cost of producing that amount of electricity needs to be reduced.
6. The Assessing Officer further noted that the assessee has claimed consumption of 1,26,170 MT Bagasse during the year, which has been valued at Rs.750 per MT i.e., at Rs.946.28 lakhs. The same has been shown as turnover in the sugar division and has been claimed as expenditure in the power division. He further noted that the assessee has shown total bagasse consumption at 164164 MT in their calculation. However, under sugar division the sale of bagasse is shown only at 126170 MT. The assessee has accounted such difference as trash purchased from farmers directly from their fields. Such amount was claimed directly debiting to profit and loss account in the power division. However, the Assessing Officer noted that the assessee could not produce any evidence in the form of purchase bill or payment voucher to substantiate such claim regarding purchase of trash from farmers. He noted that since the assessee has shown total sugar cane crushed during the year at 484313 MT, the bagasse generation there from is approximately l/3rd of such quantity, which works out to 161438 MT. In the absence of any vouchers produced by the assessee for purchase of trash from farmers, the Assessing Officer held that the entire requirement of bagasse was internally met by the assessee from its sugar unit. Under the circumstance, while stating that the assessee has not purchased any trash from the farmers during the previous year and further stating that the balance bagasse of 37994 MT was obtained from the sugar unit, he held that the value of the same amounting to Rs.2,84,94,500/- (37994 X 750), has to be considered towards undisclosed income in respect of the sugar unit. With the above discussions, the 8 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== Assessing Officer computed the income from sugar division at Rs.13,28,43,574/-, income from cement division at Rs.12,07,50,567/- and income from power unit at Rs.86,01,490/-, and he completed the assessment by determining total income of the assessee company at Rs.26,59,03,160/-.
7. Aggrieved by the order of the Assessing Officer, the assessee went an appeal before the first appellate authority. The assessee company has raised mainly four issues. Firstly, the Assessing Officer was not justified in holding that the power division is not a new unit and thus not entitled to deduction under section 80IA of the Act. Secondly, the Assessing Officer is not justified in adding a sum of Rs.4,84,31,300/- towards profit in respect of sugar division. Thirdly, he is not justified in adding a sum of Rs.2,84,95,500/- towards income in respect of sugar division for bagasse not accounted for. Fourthly, the Assessing Officer erred in making additions of Rs.1,14,16,389/- and Rs.1,98,77,388/- to the profits of sugar and cement division being the difference between the tariff determined by the assessee and the rate recommended by APERC.
8. The first appellate authority confirmed the action of the Assessing Officer on the first three issues namely, power unit is not eligible for deduction under section 80IA of the Act, Sale of steam is not eligible for deduction under section 80IA of the Act and disallowance of cane trash purchase. However, the CIT [A] allowed the appeal of the assessee on the issue with regard to the power tariff. Thus, he partly allowed the appeal of the assessee. The assessee is in appeal before us for all the grounds decided against it by the CIT [A] and the department is in appeal before us with regard to the relief given by CIT [A] on the issue of power tariff to be charged for the supply of electricity.
9 I.T.A. Nos. 931 & 1051/Hyd/2011M/s. Kakatiya Cements, Sugars & Industries Ltd.
==========================
9. Now, we will take up the appeal of the assessee. The first issue in the appeal of the assessee is whether the power division is a new unit or not and whether the profit from the above division is entitled to deduction under section 80IA of the Act or not?. Before the first appellate authority, the assessee company while objecting to denial of deduction under section 80IA of the Act, it was submitted that the assessee under license obtained from APERC commenced a distinct industrial undertaking for generation of power. It was submitted that the premises of the undertaking is distinct for the sugar unit. Loan was obtained at concessional rate from government agencies like IREDA for installing the power plant. It was submitted that the Assessing Officer was not justified in stating that the power plant was not a distinct unit. It was further submitted that he was not correct in stating that the new power plant in this case was a business derived from splitting of the existing business. Referring to the decision of Hon'ble Apex Court in the case of Textile Machinery Corporation Limited vs. CIT reported in 107 ITR 195, it was submitted that the power plant in the case of the assessee is a separate and distinct undertaking, eligible for deduction under section 80IA of the Act. Objecting to such observation of the assessing officer that the power division in the case of the assessee is formed by division of the existing business structure, it was submitted that he has not given any finding as to which business structure is split. He merely stated that since the existing business is manufacture of sugar, which includes the usage of steam and part of the steam is converted into electricity in the business, the assessee has split the existing business structure. Further, objecting to his observation that the integral part of the business is divided into a separate undertaking, it was stated that having regard to the decision in the case of Textile Machinery Corporation Limited (supra), the said power plant in the case of the assessee has to be treated as a new 10 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== and separate industrial undertaking and deduction under section 80IA of the Act has to be allowed in respect of profit derived by that undertaking. After elaborate discussion by the CIT [A] in his order, he held that the assessee is not entitled to deduction under section 80IA of the Act in respect of profit of the said power plant. Hence, he concluded that denial of claim of deduction under section 80IA of the Act in respect of such plant by the assessing officer in the assessment order is justified.
10. The learned counsel for the assessee submitted that the assessee company under license obtained from APERC commenced a distinct industrial undertaking for the generation of power. The premises of the undertaking are distinct from the sugar unit. Separate technology is used and loan was obtained at concessional rate from government agencies like IREDA. The assessing officer in a pre-determined manner considered that the power plant was not a distinct unit though all government authorities including the Electricity Regulatory Authority considered it as such. The assessing officer has come to a wrong conclusion that the new power plant was a business derived from splitting the existing business. The facts are however contrary to his findings. The true principle as laid down by the Apex Court, in the case of Textile Machinery Corporation Ltd., Vs. CIT [supra], directly applies to the facts of the case. In the instant case, the true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new an identifiable undertaking separate and distinct from the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. The assessing officer was incorrect to hold that only from 2002-03 on putting up the new co- generation plant, the old turbines and boilers were not being used.
11 I.T.A. Nos. 931 & 1051/Hyd/2011M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== They were dismantled and sold off in 2003-04. Installation of sophisticated and high capacity machinery to produce steam and electricity in place of existing old technology machinery cannot be treated as new undertaking. The answer is found in the findings of the Assessing Officer itself. The Assessing Officer agrees that from 2002-03, a new co-generation plant was put up and he also agrees that installation of sophisticated and high capacity machinery to produce steam and electricity has taken place in the place of existing old technology. What he has not stated though agreed to by him is that the new machinery and plant have been installed under separate license and premises. In similar circumstances, the Apex Court in the case of Textile Machinery Corp. Ltd Vs CIT [supra] has pointed out to this aspect of the matter in following words:
"The new activity may produce the same commodities of the old business or it may produce some other distinct marketable products, even commodities 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 least a minimum of ten persons with the aid or power and a minimum of twenty persons without the aid of power have been employed. Such a new industrially recognizable unit of an assessee cannot be said to be reconstruction of his old business since there is no transfer of any assets of the old business to the new undertaking which takes place when there is reconstruction of the old business"
11. In fact, it has spelt out all the requirements of a new industrial undertaking in a positive manner as against the definition, which had only stressed the prohibitions, in following words.
"No hard and fast rule can be laid down. Trade and industry do not run in earmarked channels and particularly so in view of manifold scientific and technological developments. There is great scope for expansion of trade and industry. The fact is that an 12 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== assessee by establishment of a new industrial undertaking expands his existing business, which he certainly does, would not, on that score, deprive him of the benefit under section 15C. Every new creation in business is some kind of expansion and advancement. The true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. No particular decision in one case can lay down an inexorable test to determine whether a given case comes under section 15C or not. In order that the new undertaking can be said to be not formed out of the already existing business, there must be a new emergence of a physically separate industrial unit which may exist on its own as a viable unit. An undertaking is formed out of the existing business if the physical identity with the old unit is preserved."
12. It is submitted that the Assessing Officers wrongly finds that the division is formed by division of the existing business structure. He has not given a finding as to which business structure is split. He merely states that since the existing business is manufacture of sugar which includes the usage of steam and a part of the steam is converted into electricity in the business, the assessee has split the existing business structure. He comes to a wrong finding that the integral part of the business is hived into a separate undertaking. There is no physical transfer of the old business to the new business or has the old business has been actually been split up. The assessee under license from NEDCAP and permission from APERC commissioned a distinct industrial undertaking for the generation of Power. The crucial question revolves around the provisions of Section 80IA (3) of the Act is that the eligible unit should not have been formed by the splitting up or the reconstruction of a business already in existence. The prohibition is with respect to the formation of the new undertaking in the manner clarified in the sub-section. He also relied on judgment of the Apex Court in the case of Bajaj Tempo Ltd. Vs CIT 13 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== reported in 196 ITR 188 for the above proposition wherein it was held as under:
"The limited question is whether the assessee which has been found by Tribunal to be a new company could be denied the benefit as visualised in s. 15C(1) because of operation of cl. (i) of sub-s. (2). It is a restrictive clause. It denies benefit which is otherwise available in sub-s. (1). A provision in a taxing statute granting incentives for promoting growth and development should be construed liberally. The section, read as a whole, was a provision, directed towards encouraging industrialisation by permitting an assessee setting up a new undertaking to claim benefit of not paying tax to the extent of six per cent in a year on the capital employed. But the legislature took care to restrict such benefit only to those undertakings which were new in form and substance, by providing that the undertaking should not be, 'formed ' in any manner provided in cl.
(i) of sub-s. (2) of s. 15C. Each of these requirements, namely, formation of the undertaking by splitting up or reconstruction of an existing business or transfer to the undertaking of building. raw material or plant used in any previous business results in denial of the benefit contemplated under sub-s. (1). Since a provision intended for promoting economic growth has to be interpreted liberally the restriction on it, too, has to be construed so as to advance the objective of the section and not to frustrate it, but that turned out to be the, unintended, consequence of construing the clause literally, as was done by the High Court for which it cannot be blamed, as the provision is susceptible of such construction if the purpose behind its enactment, the objective it sought to achieve and the mischief it intended to control is lost sight of. One way of reading it is that the clause excludes any undertaking formed by transfer to it of any building, plant or machinery used previously in any other business. No objection could have been taken to such reading but when the result of reading in such plain and simple manner is analysed then it appears that literal construction would not be proper. Taking facts of this case as illustration, the inherent fallacy surfaces. The ITO found that tools and implements worth Rs. 3,500 used in earlier business were transferred to it. They comprised of machines which were of very minor nature, But for one spotwelling machine the cost of which was Rs. 1,500, 14 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== the other 13 items were of value of Rs. 100, Rs. 200. Rs. 300 or at most Rs. 400. On plain reading the effect of such transfer was operation of the clause and denial of benefit to the assessee. But that would be denial of very purpose for which the provision was enacted. The legislature by cl. (i) of sub-s. (2) of s. 15C intended to control any attempt or effort to abuse the benefit intended for new undertaking by change of label. The intention was not to deny benefit to genuine new industrial undertaking but to control the mischief which might have otherwise taken place. The result was. however, just the contrary. Any use of building or plant or machinery. howsoever nominal either because of compulsion or inadvertence or sheer necessity fell in the mischief and the Departmental authorities, bound as they were with the provisions of the section. refused to grant exemption.
Initial exercise, therefore, should be to find out if the undertaking was new. Once this test is satisfied then cl. (i) of s. 15C(2) would be applied reasonably and liberally in keeping with spirit of s. 15C(1). Words of a statute are undoubtedly the best guide. But if their meaning gets clouded then the Courts are required to clear the haze. Sub-s. (2) advances the objective of sub- s. (1) by including in it every undertaking except if it is covered by cl. (i) for which it is necessary that it should not be formed by transfer of building or machinery. The restriction or denial of benefit arises not by transfer of building or material to the new company but that is should not be formed by such transfer. This is the key to the interpretation. The formation should not be by such transfer. The emphasis is on formation not on use. Therefore, it is not every transfer of building or material but the one which can be held to have resulted in formation of the undertaking. Even if the undertaking is established by transfer of building, plant or machinery but it is not formed as a result of such transfer the assessee could not be denied the benefit. 'Form' according to the dictionary has different meanings. In the context in which it has been used it was intended to connote that the body of the company or its shape did not come up in consequence cit transfer of building, machinery or plant used previously for business purpose. Use of the negative before word 'formed' further strengthens it. In other words. building, machinery or plant used previously in other business should not result in the undertaking being 15 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== formed by it. The transfer to take out the new undertaking out of purview of sub-s. (1) must be such that but for transfer the new undertaking could not have come into being. On facts found by the Tribunal, the part played by taking the building on lease was not dominant in formation of the company. The High Court was, therefore, not justified in answering the question in favour of the Revenue. In the facts and circumstances of the case the assessee was entitled to partial exemption under s. 15C of the Act - Capsulation Services P. Ltd. vs. CIT (1973) 91 ITR 566 (Bom) :
TC2SR.576 and Phagoo Mal Sant Ram vs. CIT (1969) 74 ITR 734 (P&H) : TC25R.559 approved to the extent they hold that, 'previously used in any other business' cannot be construed so narrowly as to confine it to building of the assessee only but Capsulation Services P. Ltd. vs. CIT (supra) disapproved to the extent it took the view that if a new undertaking is established in a premises taken on lease then it always amounts to formation of the undertaking by transfer of the building previously used."
13. He also relied on the judgement in the case of CIT vs. Hindustan General Industries Ltd., 137 ITR 188 (Del) wherein held that where the assessee sets up a new factory and only an insignificatn portion of plant and machinery from previous business is utilised and the integrity of earlier unit is not affected, the new unit cannot be said to be reconstruction, splitting up or transfer of assets of existing business, hence entitled to deduction u/s. 84.
14. It is submitted that the assessing Officer found that though the undertaking was a new undertaking, because it amounts to a splitting up or reconstruction of existing business and benefit of Section 80IA of the Income Tax Act, 1961 should be denied. But he does not give a finding that the new undertaking was formed by the splitting up or reconstruction of the existing business. The Hon'ble Supreme Court in the Bajaj Tempo case emphasis on the formation of the new undertaking place in the prohibited manner as described in Section 15C(2) of the Income Tax Act, 1922 which 16 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== is in parimateria with Section 80IA (3) of the Income Tax Act, 1961. Even though this decision in the case of Textile was concerned with the clause dealing with reconstruction of existing business but the expression 'not formed' was construed to mean that the undertaking should not be a continuation of the old but emergence of a new unit. Therefore, even if the undertaking is established by transfer of building, plant or machinery, it is not formed as a result of such transfer the assessee could not be denied the benefit.
15. It is submitted that a new undertaking for manufacture of power with steam as by-product was formed out of fresh funds, in a separately identifiable premises, under a separate license with manifold increase in capacity with new machinery and buildings without transfer of any portion of the old buildings or machinery which pre-existed. In fact the old turbine of 2.5MW, were allowed to be used as a stand-by. The power and steam produced earlier was part of the sugar unit and could service only the sugar unit and hence was at best by-product of the sugar units manufacturing facility. The new unit has power as the main product and apart from servicing the captive consumption in the sugar unit also service the cement units power requirements, which the old captive power plant was not doing and the surplus power is being supplied to APTRANSCO in terms of a wheeling agreement. The pricing of power is also subjected to the various power tariff prescriptions. It can be clearly seen that the new undertaking is therefore not formed by the splitting up of the old undertaking. The old undertaking for the manufacture of power still exists. There is no case also made out by the assessing officer that the new undertaking is formed by the splitting up of the existing business. For this proposition, he relied on the judgment of the Delhi High Court in the case of CIT Vs Hindustan General 17 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== Industries reported in 137 ITR 851. It is submitted that the integrity of the sugar division does not suffer and in fact as in the Delhi High Court case referred above, there has been any finding that the sugar unit and the power unit were doing only what the old sugar unit has been doing. The facts are that captive power unit still existed as a stand by and an additional new power generating unit was setup with capacity of 17MW Bagasse cogeneration plant. Hence this is not a case of 'splitting up'. The assessing officer refers to the judgment of the Kerala High Court in the case of Chembra Peak Estates Ltd Vs CIT reported in 85 ITR
401. This case is clearly distinguishable from the present case. In that case the Tribunal found that there was a 'splitting up' of the business on the facts of that case. The High Court found that Section 84 of the Income Tax Act, 1961 applies to 'industrial undertaking' and not to a 'business' and hence denied exemption to the assessee. Further in that case both the old and new units were manufacturing tea. In the present case, the sugar unit had power as a by-product and a new industrial undertaking with power as the main product was set up by the assessee. The High Court also did not have occasion to consider whether the 'new industrial undertaking' was formed by the splitting of the existing business as explained by the Hon'ble Supreme Court in Bajaj Tempo's case. Therefore, he concluded that the lower authorities are not correct in denying the deduction under section 80IA of the Act.
16. The learned Departmental Representative submitted that the assessee company has set up a power plant for generating electricity which has been utilized in the sugar plant and the cement plant and the surplus generated from the same has been sold to APTRANSCO. Further, the low power steam, which is a bi- product of the said plant, has been utilized in the sugar plant. However, the fact remains that for generating both steam and 18 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== electricity, the assessee was already having boilers and steam turbines which, after commissioning of said power plant, were dismantled and sold off in 2003-04. Thus, it is fact that for its main business of manufacturing sugar, the assessee was earlier having necessary plant/undertaking for producing steam and electricity. Under this circumstance, by setting up of the said power plant later, it cannot be said that the assessee has established a new industrial undertaking within the meaning of the section 80IA of the Act. In fact, having regard to the provisions of section 80IA(3) of the Act, it cannot be said that the said plant in the case of the assessee was a new industrial undertaking within the meaning of that section. The said power plant in the case of the assessee, has been formed from by mere splitting up of the existing business and some reorganization of the affairs in this case. Hence, the assessee is not entitled to deduction under section 80IA of the Act in respect of the profit derived from that power plant, notwithstanding sale of some electricity from that plant to APTRANSCO during the previous year relevant to the assessment year under consideration. The assessee has claimed for such deduction under section 80IA of the Act mainly relying on the decision of Hon'ble Apex Court in the case of Textile Machinery Corporation Limited vs. CIT supra. However, the said decision is not applicable to the present case of the assessee. In that case the matter relates to reconstruction of business already in existence with reference of provisions of section 15C of the Act. Thus, the issue involved for consideration in that case, is totally different from the issue involved in the present case. Here, the assessing officer, after analyzing the facts of the case has given a finding that setting up such power plant in the case of the assessee, is merely splitting up of existing business. This issue regarding splitting up of the business already in existence, was not there before the Hon'ble Supreme Court in that case. Since in the instant case, the 19 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== said power plant set up and commissioned by the assessee, amounts to mere splitting up of the business already in existence, having regard to the reasons stated by the lower authorities and having regard to the decision of Hon'ble Kerala High Court in Chembra Peak Estates Ltd., vs. CIT (85 ITR 401), the assesee compnay is not eligbile to claim deduciton under section 80IA of the Act. He submitted that the judgement of Supreme Court in the case of Textile Machinery Corporation Ltd. Has no application to the facts of the case. Though the assessee has set up a new power plant for generating electricity, which has been utilised in the sugar plant and surplus generated from the same has been sold to APTRANSCO. Further the low power steam, which is a bi- product of the said plant was generating both steam and electricity, the assessee was already having boiler and steam turbine which after commencing of the said power plant were dismantled and sold off in 2003-04. Thus, for its main business of manufacturing sugar, the assessee was earlier having necessary plant for producing steam and electricity. Being so, by setting up of the said power plant, it cannot be said that the assessee has established a new industrial undertaking within the meaning of section 80IA of the I.T. Act. It is only has been formed from by mere splitting up of the existing business and re-organisation of the affairs of the assessee. The judgement relied on by the assessee's counsel in the case of Textile Machinery Corporation, the issue relates to re-construction of business already in existence with reference to provisions of section 15C of the Act. In that case, the assessee a heavy engineering concern manufacturing boilers, machinery parts, wagons, etc., set up two new units, a steel foundry and a jute mill division. The steel foundry division started manufacturing some casting which the assessee was previously buying from the market, but the same were used by the existing division of the assessee. Raw-materials 20 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== were supplied to the jute mill division by the boiler division of the assessee and aftger machining and forging, the parts were given back by the jute mill division to the boiler division. After carefully considering the facts of that case, the Tribunal noted that the existing business of the assessee consisted of manufacturing boilers, wagons, etc., and for that purpose the assessee was purchasing the parts, forgings and castings from outside and that the business of the new units was to manufacture these very parts and therefore, it could not be said that the new undertakings were fromed out of the existing business to come within the mischief of section 15C(2)(i). Under such facts, later, the SupremeCourt held that for the reconstruction of an existing business there must be transfer of assets of the existing business to the new industrial undertaking. Thus, the issue involved for consideration in that case, is totally different from the issue involved in the present case. Here, the Assessing Officer, after analysing the facts of the case has given a finding that setting up such power plant in the case of the assessee is merely splitting up of existing business. Thus, he distinguished the judgement of Supreme Court.
17. We have considered the rival submissions and perused the materials available on record. We find that the assessee company under license obtained from APERC commenced a distinct industrial undertaking for the generation of power. It is an undisputed fact that the premises of the undertaking are distinct from the sugar unit. Separate technology is used and loan was also obtained at concessional rate from government agencies like IREDA. The lower authorities are not correct in holding that the power plant was not a distinct unit although all government authorities including the Electricity Regulatory Authority considered it as such. The true principle as laid down by the Apex Court, in the case of Textile Machinery Corporation Ltd., Vs. CIT 21 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== [supra], directly and squarely applies to the facts of the case. In the instant case, the true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new an identifiable undertaking separate and distinct from the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. The lower authorities agrees that from 2002-03, a new co-generation plant was put up and also they agrees that installation of sophisticated and high capacity machinery to produce steam and electricity has taken place in the place of existing old technology. Thus, they impliedly agree that the new machinery and plant have been installed under separate licence and premises. Even though the decision of Textile machinery [supra] was concerned with the clause dealing with reconstruction of existing business but the expression 'not formed' was construed to mean that the undertaking should not be a continuation of the old but emergence of a new unit. Therefore, even if the undertaking is established by transfer of building, plant or machinery, it is not formed as a result of such transfer, in our considered view; the assessee could not be denied the benefit. We also find that a new undertaking for manufacture of power with steam as by-product was formed out of fresh funds, in separately identifiable premises, under a separate license with manifold increase in capacity with new machinery and buildings without transfer of any portion of the old buildings or machinery which pre-existed. The power and steam produced earlier was part of the sugar unit and could service only the sugar unit and hence was at best by-product of the sugar unit manufacturing facility. The new unit had power as the main product and apart from servicing the captive consumption in the sugar unit also serviced the cement unit power requirements, which the old captive power plant was not 22 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== doing and the surplus power is being supplied to APTRANSCO in terms of an agreement. The pricing of power is also subjected to the various power tariff prescriptions. It can be clearly seen that the new undertaking is therefore not formed by the splitting up of the old undertaking. The old undertaking for the manufacture of power still exists. There is no case also made out by the lower authorities that the new undertaking is formed by the splitting up of the existing business. The leaned DR refers to the judgment of the Kerala High Court in the case of chembra Peak Estates Ltd Vs CIT reported in 85 ITR 401 which is clearly distinguished by the learned counsel for the assessee as referred above. Further, the Supreme Court in the case of Textile Machinery Corporation (cited supra) wherein the Supreme Court categorically held that new unit established by the assessee for manufacturing articles used as intermediate products in the old division, which the assessee was buying from the market earlier, is not reconstruction of business already in existence. To constitute reconstruction, there must be transfer of assets of the existing business to the new industrial undertaking. In our opinion, generation of power unit is separate and distinct undertaking for which separate approval was obtained and recognised by the IREDA and it cannot be said that spllitting of existing business structure. Therefore, in our considered opinion, the lower authorities are not correct in denying the deduction under section 80IA of the Act. Hence, we decide this issue in favor of the assessee company and against the Revenue.
18. The next issue in the appeal of the assessee relates to addition of an amount of Rs.4,84,31,300/- [being sale of steam by power division towards income in respect of sugar division. The assessee has claimed such amount towards income in respect of the power division. Further, it has claimed such amount as 23 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== expenditure in respect of sugar division. It is the assessee's claim that the same is expenditure in case of sugar division, from supply of low power steam from power plant. However, the assessing officer for the reasons discussed at length, especially in para 6.4 and 6.5 of his order rejected such claim of the assessee company and holding that the value of such LP steam in this case is nil, and he has held that the income of sugar division, shall be enhanced by Rs.484.31 lakhs. On appeal, the CIT [A] sustained the aforesaid addition in respect of sugar division and confirmed the action of the assessing officer.
19. The learned counsel for the assessee submitted that fuel consumed by the power unit is used to hit water and produce steam to operate the turbines and generate electricity. The steam which is neutral is transferred at a low pressure to the sugar unit. During crushing season, additional fuel cost is incurred for generating steam and the steam price charged to the sugar unit takes into account the incremental fuel cost. It was stated that the actual profit on such activity was Rs.11.43 lakhs which should have been the maximum amount which should have been disallowed. However, the assessing officer reduced the credit side of the profit and loss account of the power unit without reducing the corresponding cost on debit side. It was submitted that the assessing officer was not justified in disallowing claim of deduction under section 80IA of the Act on value of such steam and also was not justified in making addition of an amount of Rs.4,84,31,300/- to the income in respect of the sugar unit.
20. The learned Departmental Representative submitted that the lower authorities are rightly noted that the value of such LP steam, which is a bi-product of the said power plant, should be taken as NIL. The assessee company never claimed such income from utilization of LP steam in the preceding years. From the 24 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== annual report for the year 2006-07 of the assessee company filed, it is clear that such value towards LP steam, showing as income under power division, has been shown for the first time in the current year at Rs.484.31 lakhs. There was no such income shown for the previous year 2005-06. Under this circumstance, it clearly shows that the assessee admits that the said LP steam obtained from the power plant has no value i.e., its price is zero. However, for the current year, relevant Asst. Year 2007-08, when the assessee has claimed deduction under section 80IA of the Act for the first time, it has shown such an amount towards value of that low power steam. However, when the assessee has never claimed/shown any income towards LP steam during the earlier years, such claim made for the current year cannot be accepted. Hence, such claim of the assessee company is to be rejected. Since, the assessee company has shown such income by claiming such amount as expenditure in respect of the sugar division, the lower authorities were justified in adding the said amount to the income of the sugar division.
21. We have considered the rival submissions and perused the materials available on record. We find that the lower authorities did not dispute that the profit credited to Profit and Loss Account in respect of steam is only Rs. 11.43 Lakhs. Thus, even assuming that steam is not power as held by the Assessing Officer, at best the department could have treated only Rs. 11.43 lakhs as ineligible profits for the purpose of claiming the deduction under section 80IA of the Act. To hold otherwise, would be a gross error as the expenditure debited to the profit and loss account of the power unit is still being retained by the department while making the computation. The CIT [A] also agrees that steam has no value as no price was charged for the same in the earlier year but ignores the fact that in the absence of gross total income in the 25 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== earlier year no exemption could have been claimed. Therefore, we direct that only Rs.11.43 lakhs is to be treated as ineligible profits for the purpose of deduction under section 80IA of the Act and for the balance sale amount of steam to sugar division, the assessee company is eligible for deduction under section 80IA of the Act. For this proposition, we place reliance on the order of the Tribunal in the case of DCW Ltd.vs. Addl. CIT, ITA No. 126/Mum/2008, AY 2003-04 dated 29th January, 2010 reported in 42 DTR (Mumbai) (Trib.) 369 at page 383 para 18.8 which reads as under:
"18.8 the next item of miscellaneous income is the income from sale of steam produced by the assessee. Briefly the facts and nature of steam are that the captive power undertaking also has waste heat recovery boiler, which is part of the power undertaking.
The power generated by the running of diesel generating set is used in the manufacture of caustic soda. Runniong of diesel generating sets produce heat, which is recovered from the waste heat recovery boiler in the form of steam. During the year ended March, 2002, the total quantity of steam generated is 1,02,295 MT. The said steam is used as power for the manufacture of PVC and limenite and 6,240 MT was used towards internal consumption. Durng the year 66,900 MT of steam was consumed in the manufacture of PVC and 29,065 MT was consumed in the manufacture of limenite.
18.9 The submission of the learned Authorised Representative of the assessee is that since power in the form of steam was generated by the capitve power plant and consumed in the manufacture of PVC and limenite, therefore, the assessee is entitled for deduction under s. 80IA. Further, the learned Authorised Representative submitted that on identical set of acts, the Department filed SLP before Hon'ble Supreme Court against the judgement of Hon'ble Madras High Court in Tax Case No. 1773 of 2008 and vide judgement dt. 6th November, 2008, the Apex Court, dismissed the Department's appeal againstg the decision of Tribunal holding that the assessee was entitled to claim deduction under s. 80-IA of the Act on the value of steam used for capitve consumption by the assessee. CIT vs. Tanfac ndustries Ltd., SLP(C) No. 26 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== 18537 of 2009 (319 ITR 8 and 9). In the light of above discussion, we find that steam produced by the assessee is eligible unit is a by-product and income from sale of steam is the income derived from industrial undertaking, therefore, deduction under s. 80-IA is allowable. We, accordingly, set aside the order of CIT(A) on this issue and the claim of the assessee is allowed."
22. The ground raised by the assessee with regard to deduction u/s. 80IA in respect of sale of steam to the sugar unit is partly allowed.
23. The next issue relate to addition of Rs.2,84,95,500/- made towards income in respect of sugar division for value of bagasse not accounted for in that division. The assessee company has shown consumption of bagasse at 164164 MT in the power division. However, in the sugar division, it has shown sale of bagasse for 126170 MT only. In support of claim of such consumption of bagasse in power division, the assessee company has submitted that the difference in such figures is on account of purchase of cane trash during the year from the farmers. However, in absence of any evidence for such claim of purchase of trash produced by the assessee company, the assessing officer rejected such claim. Since, in the sugar division the assessee has shown sugar cane consumption at 48313 MT, while holding bagasse generation would be at l/3rd of such quantity, he held that almost the entire consumption of 164164 MT of bagasse in the power division was met from production of such bagasse in the sugar plant. Under the circumstance, while rejecting such claim of the assessee company for purchase of cane trash during the year, he held that the value of such balance quantity of bagasse, which was made available from the sugar plant, has to be added to the income of the assessee company under that division i.e., sugar division. Accordingly, he made such addition of Rs.2,84,95,500/-
27 I.T.A. Nos. 931 & 1051/Hyd/2011M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== to the income of the assessee company under that division for bagasse not accounted by them. On appeal, the CIT [A] confirmed the action of the assessing officer and confirmed the aforesaid addition.
24. The learned counsel for the assessee submitted that bagasse which is raw material being fuel used in power division, is produced as a bi-product in the sugar unit, during the process of manufacture of sugar. It was stated that the quantity of bagasse consumed in the power unit is accounted for on day to day basis in the records of power unit. Bagasse is transferred by the sugar unit to the power unit and such transfer to the power unit, are credited as income in the books of the sugar unit. It was further stated that trash is purchased separately and weighed on a weigh bridge and separate weighment slips are prepared. It was further submitted that for purchase of trash payments are made by cheques to the farmers. It was further submitted that the weighment slips and bank payment vouchers for purchase of bagasse were produced before the assessing officer. However, the same were not considered by him. It is submitted that the lower authorities was not justified in rejecting the claim of purchase during the year and confirming the addition amounting to Rs.2,84,95,500/- to the income of sugar division.
25. The learned Departmental Representative submitted the assessee has not correctly disclosed the production of bagasse actually made during the year from consumption of 484313 MT of sugar cane. From the records of earlier years in the case of the assessee, it was found that the bagasse generation was almost at l/3rd of the quantity of consumption of sugar cane. From the annual report of the year 2003-04, it is seen that the quantity of sugar cane consumed is shown at 260836 MT and internal consumption of bagasse was shown at 84088 MT. From the 28 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== annual report for the year 2004-05, it is seen that the sugar cane consumption was 188013 MT and the internal consumption of bagasse was shown at 78577 MT. Further, as per the annual account for the year 2002-03, the sugar cane consumption was 517614 MT and the internal consumption of bagasse was shown at 188648 MT. From the above, it is thus seen that the bagasse generation from sugar division was l/3rd of such quantity of cane consumption and it is justified in holding that the bagasse generation during the current year was at l/3rd quantity of the cane consumption shown at 484313 MT. Under this circumstance, and in absence of any purchase voucher or bill produced by the assessee during the assessment proceedings, the department justified in holding that the entire requirement of bagasse consumption in the power plant, was met from the sugar division and thus rightly added the said amount of Rs.2,84,95,500/- to the income of the sugar division. Hence, such addition is to be sustained.
26. We have considered the rival submissions and perused the materials available on record. It appears that the assessee company has produced Weighment slips, bank vouchers for payments of cane trash as well as ledger accounts before the assessing officer which is evidenced by the copy of the covering letter addressed to the assessing officer, placed in the paper book. In fact, the assessee company, in the licensing conditions, is allowed to use only "Bagasse, canetrash and conventional fuel like coal etc to the extent of admissibility as per MNES guide lines for the year 2000- 2001. The fact that all details were furnished to the assessing officer by Assessee Company is not considered by CIT (A). He simply ignored the documentary evidence. Separate books are maintained and scrutilized by the assessomg officer in respect of three divisions of the assessee company. There is no evidence 29 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== that instead of cane trash bagasse has been consumed. Since it is the assessee case that the profits of the power division are exempt under section 80IA of the Act, it does not make sense for the assessee company to reduce profits of the power division by recording spurious purchases of cane trash. Non recording of expenditure actually goes to increase exempted profits. This clearly points to the genuineness of the assessee's case. The method of accounting followed by the assessee in respect of the sugar and power divisions are the same from year to year. In fact, the sugar division is subject to Central Excise supervision and records are maintained under the Central Excise and Salt Act, 1944. Further the sugar and cement divisions are statutorily required to maintain records under the cost accounting/Audit rules as applicable. Therefore the records should be complete according to all statutory requirements and hence there is no warrant for the department to make any addition without considering the evidence produced by the assessee on this count. After considering the totality of the facts and circumstances, we feel it appropriate to re-examine the issue on the basis of evidence and records maintained by the assessee. Accordingly, we set aside this issue to the file of the Assessing Officer to reconsider the same in the light of our above observations. This ground raised by the assessee is partly allowed.
27. Now, we will take up the appeal of the revenue. The main issue relates to addition of Rs.1,14,16,389/- and Rs. 1,98,77,388/- made to the profits of sugar and cement division by the assessing officer in the assessment. The learned Departmental Representative relied on the order of the assessing officer and filed written submission wheren it was stated that the assessee's plant load factor is below 55%. In such a case, the APERC has fixed the cost at Rs. 1.55 per unit and the variable cost is fixed at Rs. 1.12 30 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== per unit. Thus the cost of power per unit comes to Rs. 2.67 per unit which is rightly adopted by the Assessing Officer for the purposes of assessment. Though the assessee has contested the same before the appellate for a and interim relief is afforded to him @ Rs. 3.48 per unit, the issue has not attained finality and is pending for disposal before the Supreme Court. As such, the cost of power should be held @ Rs. 2.67 per unit only. The CIT(A) erred in applying the decisions cited in CIT vs. RCP (216 ITR 602) and KCP vs. CIT (245 ITR 421) which facts are distinguishable from the present case. By adopting higher rate of power,the assessee has increased the expenditure and thus the profit chargeable to tax was reduced. It is, therefor,e requiresed that the addition made by the Assessing Officer by adopting the rate of power @ Rs. 2.67 per unit be sustained.
28. The learned counsel for the assessee submitted that the tariff to be charged by the power unit for electricity supply to APTRANSCO, sugar and cement division was adopted @ 3.48 per unit. The same is as per interpretation of all power units in the industry of the G.O of the Government of Andhra Pradesh No.93 dated 18.11.1997. However, the tariff according to APERC was Rs.2.67 per unit. It was stated that such tariff rate fixed by APERC was disputed by the sugar mills association of South India. and when the matter was carried to the appellate tribunal, the latter vide order dated 02.06.2006 decided the same in favour of the assessee and thus the tariff was restored to Rs.3.48 per unit. Stating that the said order of the Appellate Tribunal was rendered in the assessment year in question, it was submitted that the assessee was justified in taking the price at the said amount of Rs.3.48 per unit and computing income in respect of power division on that basis. It was further stated that the department was not justified in taking the price at the rate of Rs.2.67 per unit 31 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== and thus making the said additions to the income of the sugar and cement divisions. It was further submitted that the facts in the decisions in Godhra Electricity Co. Ltd., vs CIT (supra) and in CIT vs. Hindustan Housing & Land Development Ltd., (supra), relied on by the assessing officer, are different and hence, those decisions are not applicable to the case of the assessee. With these submissions and referring to the decision of Hon'ble A.P. High Court in CIT vs. KCP Ltd., 216 ITR 602 and of Hon'ble Supreme Court in KCP Ltd., vs. CIT in 245 ITR 421, the learned counsel for the assessee prayed that the said additions made may be deleted.
29. We have considered the rival submissions and perused the materials available on record. We find that the issue is squarely covered by the decision of the bench of this Tribunal in ITA No. 1748/Hyd/2008 in the case of Sri Balaji Bio-Mass Power Pvt. Ltd., Hyderabad for the assessment year 2005-06 vide order dated 31.1.2011 held as follows:
"8. We have considered the rival submissions. There is no dispute with regard to the material facts of the case. The only question that arises for consideration is whether the differential amount of sales, viz., worked out at Rs.3.48/- per unit as per the Power Purchase Agreement applying which invoices for supply of power to APTRANSCO were raised and Rs. 3.18/- applying which in terms of the interim orders of the Hon'ble A.P. High Court, invoices of the assessee were settled by the APTRANSCO and accounted for by the assessee in the books of account, can be treated as the income of the assessee for the assessment year 2005-
06. We find that the CIT(A) has given elaborate reasoning before concluding that the income worked at the rate of Rs.3.48/- per unit of power supplied had neither accrued to the assessee nor was receivable during the previous year and therefore, no corresponding debt in respect of the differential amount stood created in the book of the purchaser, i.e., APTRANCO. Merely based on the invoices raised, income cannot be deemed to accrue to the assessee when the differential income was subject matter of litigation, and there is no certainty of the assessee being entitled to such income, unless it succeeds in such litigation. Even if an assessee succeeds ultimately in the litigation, a debt enforceable against the other party does not get created, unless a claim in that behalf was raised before the same 32 I.T.A. Nos. 931 & 1051/Hyd/2011 M/s. Kakatiya Cements, Sugars & Industries Ltd.
========================== being barred by limitation. It is for this reason that an assessee, to keep the issue alive, has to raise the claim against the other party within the period of limitation, which in its view is due to it according to the terms of the contract, so as to get an enforceable right for the recovery of the amount as and when it succeeds in the litigation. In this view of the matter, though invoices raised constitute fundamental record for maintenance of accounts in the normal course, as observed by the Assessing Officer, that logic does not hold good when the subject matter was under
dispute and was under litigation before the judicial fora, including the jurisdictional High Court and Hon'ble Supreme Court during the relevant points of time. Assessee's method of accounting only the amount which was not subject matter of litigation and which in fact was received by it from the APTRANSCO in terms of the interim order of the A.P. High Court, was in conformity with the Accounting Standard 9 and the ratio laid down by the Apex Court, among others, in the case of law discussed by the CIT(A) in the impugned order, and also in the case law relied upon by the assessee before us. In this view of the matter, we find no infirmity in the order of the CIT(A), which is accordingly confirmed and the grounds of appeal of the Revenue are rejected."
30. In view of the above order of the Tribunal, we are inclined to hold that the power tariff rate should be considered at Rs. 2.67 per unit instead of Rs. 3.48 per unit as decided by the Tribunal in the case of Shri Balaji Bio-Mass Power Project Ltd. (supra). Accordingly, we allow the ground taken by the Revenue. However, in the event of tariff rate reached finality by the judgement of higher judicial forum, the Assessing Officer is directed to consider the same and decide accordingly.
31. In the result, the appeal of the assessee is partly allowed and the Revenue appeal is allowed.
Order pronounced in the open court on 10th February, 2012.
Sd/- Sd/-
(ASHA VIJAYARAGHAVAN) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated the 10th February, 2012
33 I.T.A. Nos. 931 & 1051/Hyd/2011
M/s. Kakatiya Cements,
Sugars & Industries Ltd.
==========================
Copy forwarded to:
1. M/s. Kakatiya Cements, Sugars and Industries Ltd., c/o.
M/s. M. Anandam & Co., Chartered Accountants, 7A, Surya Towers, S.P. Road, Secunderabad.
2. The Addl. CIT, Range-2, Hyderabad
3. The Asst. CIT, Circle-2(1), 8-B, I.T. Towers, A.C. Guards, Masab Tank, Hyderabad.
4. The CIT(A)-III, Hyderabad.
4. The CIT-II, Hyderabad.
5. The DR - A Bench, ITAT, Hyderabad tprao