Income Tax Appellate Tribunal - Ahmedabad
N.R. Agarwal Industries Ltd.,, Vapi vs Assessee on 21 June, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
'A' BENCH - AHMEDABAD
(BEFORE SHRI G. C. GUPTA, VP AND SHRI A. MOHAN ALANKAMONY, AM)
ITA No.341, 342, 343 and 344/Ahd/2012
(A.Y.: 2007-08, 2008-09, 2009-10 and 2010-11)
M/s. N. R. Agarwal Industries Ltd., Vs The D. C. I. T., Cent. Cir-3,
Plot No.169, II Phase, Aayakar Bhavan,
GIDC Vapi 396195 Surat
PA No. AAACN 7721 N
(Appellant) (Respondent)
ITA No.390, 391, 392 and 393/Ahd/2012
(A.Y.: 2007-08, 2008-09, 2009-10 and 2010-11)
The D. C. I. T., Cent. Cir-3, Vs M/s. N. R. Agarwal Industries Ltd.,
Aayakar Bhavan, Plot No.169, II Phase,
Surat GIDC Vapi 396195
PA No. AAACN 7721 N
(Appellant) (Respondent)
Assessee by Shri J. P. Shah and
Shri Ashwin Parekh, AR
Department by Shri Shelly Jindal, CIT DR
Date of hearing: 21-06-2013
Date of pronouncement: 26-07-2013
ORDER
PER A. MOHAN ALANKAMONY: These appeals filed by the assessee and by the revenue are directed against the common order of the learned CIT(A)-II, Ahmedabad dated 12-06-2012, in appeal No. IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 2 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd. CIT(A)-II/CC.3/229 to 232/2011-12, passed u/s 250 read with section 143(3) and 153(A) of the IT Act, for the assessment years 2007-08 to 2010-11. Facts of the case being similar and the issues involved therein being identical, all these appeals were heard, considered together and the same are being disposed off by this common order for the sake of convenience.
IT (SS) A No.341 to 344/Ahd/2012 (Assessee's appeal for AY 2007-08 to 2010-11)
2. First, we shall take up the appeals of the assessee. Though the assessee has raised numbers of elaborate grounds in each relevant assessment year, vide letter dated 20-06-2013, the assessee has furnished concise grounds of appeal for each assessment year, the same are reproduced herein under for reference:
Assessment Year 2007-08 "1. The learned C.I.T.(A) erred in holding without giving opportunity to the assessee that the assessee will be entitled to deduction u/s. 80IA (4) on the profit that remains after reducing the interest expenditure of Rs.29,70,234/-.
2. The learned C.I.T.(A) erred in holding that the assessee had computed the excess value of LP steam by Rs.56,71,681/- and thereby claimed the excess deduction u/s 80IA (4) of the Act. The computation made by the C. I. T. (Appeals) resulting into excess of Rs.56,71,681/- is incorrect.
3. The C. I. T. (Appeals) erred in holding that 80IA (4) relief will be reduced by deemed brought forward loss.
IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 3 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd.
4. The C. I. T. (Appeals) erred in enhancing income chargeable to tax by Rs.41,61,167/- by holding that the assessee has diverted expenditure to first half of F. Y. 2006-07.
5. The C. I. T. (Appeals) erred in enhancing income chargeable to tax by Rs.1,16,03,400/- by holding that the assessee has claimed excess coal consumption in Unit III to reduce income chargeable to tax.
6. The C. I. T. (Appeals) ought to have granted telescoping effect of giving the deduction of added expenditure from added income."
Assessment Year 2008-09 "1. The learned C.I.T.(A) erred in holding without giving opportunity to the assessee that the assessee will be entitled to deduction u/s. 80IA (4) on the profit that remains after reducing the interest expenditure of Rs.11,09,755/-.
2. The learned C.I.T.(A) erred in holding that the assessee had computed the excess value of LP steam by Rs.1,43,01,776/- and thereby claimed the excess deduction u/s 80IA (4) of the Act. The computation made by the C. I. T. (Appeals) resulting into excess of Rs.1,43,01,776/- is incorrect.
3. The C. I. T. (Appeals) erred in holding that 80IA (4) relief will be reduced by deemed brought forward loss.
4. The C. I. T. (Appeals) erred in enhancing income chargeable to tax by Rs.65,43,504/- by holding that the assessee has claimed excess coal consumption in Unit III to reduce income chargeable to tax."
5. The C. I. T. (Appeals) ought to have granted telescoping effect of giving the deduction of added expenditure from added income."
IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 4 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd.
Assessment Year 2009-10 "1. The learned C.I.T.(A) erred in holding the assessee had computed the excess value of LP steam by Rs.6,39,99,459/- and thereby claimed the excess deduction u/s 80IA (4) of the Act. The computation made by C. I. T. (Appeals) resulting into excess of Rs.6,39,99,459/- is incorrect.
2. The C. I. T. (Appeals) erred in holding that 80IA (4) relief will be reduced by deemed brought forward loss.
3. The C. I. T. (Appeals) erred in enhancing income chargeable to tax by Rs.3,51,65,000/- by holding that the assessee claimed excess coal consumption in Unit III to reduce income chargeable to tax.
4. The C. I. T. (Appeals) ought to have granted telescoping effect of giving the deduction of added expenditure from added income.
5. The C. I. T. (Appeals) ought to have granted depreciation on furniture at the residence of the Managing Director.
6. The C. I. T. (Appeals) erred in enhancing the income by holding that the assessee has claimed excess coal consumption of Rs.2,02,24,750/- in Unit II."
Assessment Year 2010-11 "1. The learned C.I.T.(A) erred in holding the assessee had computed the excess value of LP steam by Rs.6,48,81,794/- and thereby claimed the excess deduction u/s 80IA (4) of the Act. The computation made by C. I. T. (Appeals) resulting into excess of Rs.6,48,81,794/- is incorrect.
2. The C. I. T. (Appeals) erred in holding that 80IA (4) relief will be reduced by deemed brought forward loss.
3. The C. I. T. (Appeals) erred in enhancing income chargeable to tax by Rs.2,43,27,693/- by holding that IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 5 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd.
the assessee has claimed excess coal consumption in Unit III to reduce income chargeable to tax.
4. The C. I. T. (Appeals) ought to have granted telescoping effect of giving the deduction of added expenditure from added income.
5. The C. I. T. (Appeals) ought to have granted depreciation on furniture at the residence of the Managing Director."
3. The above concise grounds of the assessee are further consiced and summarized issue-wise herein below for adjudication:-
ISSUE NO.1:- Disallowance of proportionate Interest expenses for the loan extended by the assessee to its 80IA Unit while computing the profit yearned by the 80IA unit. (Grounds No. 1 for A. Y. 2007-08 and 2008-09).
ISSUE NO.2:- Disallowance of deduction u/s 80IA (4) of the Act towards the claim of LP Steam. (Ground No.2 for assessment year 2007-08 and 2008-09 and ground No.1 of assessment year 2009-10 and 2010-11).
ISSUE NO.3:- Set off of loss worked out by the AO in co-gen power plant against the profit of paper unit. (Ground No.3 for assessment year 2007-08 & 2008-09, Ground N0.2 for assessment years 2009-10 and 2010-11).
ISSUE NO.4:- Enhancement of income chargeable to tax of Rs. 41,61,167/- by the learned CIT(A) holding that the assessee has diverted expenditure to first half in F.Y.2006-07 (Ground No.4 of AY 2007-08).
ISSUE NO.5:- Enhancing the income chargeable to tax by the learned CIT(A) by holding that the assessee had claimed excess coal consumption in Unit III to reduce income chargeable to tax (Ground No.5 of A. Y. 2007-08, Ground No.4 of A. Y. 2008-09, Ground No.3 of A. Y. 2009-10 and Ground No.3 of A. Y. 2010-11).
IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 6 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd.
ISSUE NO.6:- Allowing telescoping effect by giving the deduction of added expenditure from added income (Ground No.6 for AY 2007-08, and ground No.5 for AY 2008-09, ground No.4 for AY 2009-10 and 2010-11).
ISSUE NO.7:- Granting depreciation on furniture and fixtures provided at the residence of Managing Director (Ground No.5 for AY 2009-10 and 2010-11.
ISSUE NO.8:- Enhancing the income chargeable to tax by the learned CIT(A) holding that the assessee had claimed excess coal consumption in Unit II to reduce income chargeable to tax (Ground No.6 of A. Y. 2009-10).
ASSESSEE's APPEAL ITA No.341/Ahd/2012 for AY 2007-08, ITA No.342/Ahd/2012 for AY 2008-09, ITA No.343/Ahd/2012 for AY 2009-10 and ITA No.344/Ahd/2012 for 2010-11
4. ISSUE NO.1:- Disallowance of proportionate interest expenses for the loan extended by the assessee to its 80IA Unit while computing the profit earned by the 80IA unit (Grounds No. 1 for A. Y. 2007-08 and 2008-09):- During the course of assessment proceedings u/s 143(3) of the Act pursuant to search action u/s 132 of the Act it was observed by the learned AO that the assessee had extended interest bearing funds to its 80IA units, however, did not charge such interest to the unit while arriving at the profits earned by it, thereby inflating the profits of the 80 IA units of the assessee for which the assessee had claimed deduction. Therefore, the learned AO made addition by charging proportionate interest to the IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 7 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd. assessee's 80IA units while computing deduction u/s 80 IA of the Act. When the matter cropped up before the learned CIT(A), the learned CIT(A) subscribed to the ratio adopted by the learned AO, however, re-worked the disallowance of interest at Rs.29,70,234/- and Rs.11,09,755/- for the assessment year 2007-08 and 2008-09 respectively.
4.1 The learned AR argued before us stating that the assessee had substantial capital which is much more than the loan extended to the 80 IA units and, therefore, the learned AO was not justified in disallowing the proportionate interest while computing profits of the 80 IA units. The learned AR had, further, relied in the decision of the case in CIT Vs Reliance Utilities and Power Ltd., reported in 313 ITR 340, wherein it was held that where the assessee has own funds or interest free funds then the presumption would be that such loans extended by the assessee would be from its own funds/interest free funds. Further, on perusing the balance sheet of the assessee for the assessment year 2007-08 and 2008-09, it is apparent that the share capital and reserves and surplus of the assessee aggregated to Rs.37,52,71,973/- and Rs.43,15,86,742/- respectively. Therefore, following the ratio laid down by the Hon'ble High Court, (supra), we hereby delete the addition of Rs.29,70,234/- for the assessment year 2007-08 and Rs.11,09,755/- for the assessment year 2008-09 made on account of disallowance of interest since the term loan obtained by the assessee company from outside source is comparatively much less than own Capital & IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 8 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd. Reserves. Thus, the ground No.1 for both the assessment year 2007- 08 and 2008-09 are allowed in favour of the assessee.
5. ISSUE NO.2:- Disallowance of deduction u/s 80IA (4) of the Act towards the sale of LP Steam to the assessee's ancillary units. (Ground No.2 for assessment year 2007-08 and 2008-09 and ground No.1 of assessment year 2009-10 and 2010-11):- The learned AO observed that the assessee was inflating the profit of the its 80 IA units by sale of low pressure steam to the assessee's ancillary units by claiming it as power and adopting high rate of electricity per unit for the Low pressure steam sold to the ancillary units. The learned AO further observed that the assessee was using the Low Pressure Steam generated by its 80 IA units for drying up of paper sheets and not for generating electricity. Only the High Presser Steam generated by the assessee was used for producing electricity. Since, the assessee was utilizing the Low Pressure Steam generated by it as a raw material for producing paper sheets and not for generating electricity, the learned AO disallowed the claim of the assessee for deduction u/s 80IA of the Act for the profits generated out of the sale of Low Pressure Steam to its ancillary units. Further, the learned AO was of the view that steam is not power and, therefore, the assessee is not entitled to deduction u/s 80IA of the Act for the revenue earned by it from the steam generated. When the matter reached the learned CIT(A), the learned CIT(A) following the decisions of various higher authorities held that steam generated during the process of generating electricity unit in Captive Power IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 9 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd. Plants is by-product and, therefore, is eligible for deduction u/s 80IA of the Act. However, since the method of calculation of LP steam worked out by the learned AO which was, further, modified by the learned CIT(A) was not acceptable to the assessee, the assessee has raised this ground.
5.1 The learned AR submitted before us that one more opportunity may be given for presenting all the details before the revenue for the correct calculation of the cost of LP steam supplied to the ancillary units of the assessee. The learned DR pointed out to the grounds raised by the revenue in its appeal that "steam" is not "power" for claiming deduction u/s 80 IA of the Act as the intention of the legislature was to provide deduction to the industrial undertaking producing electricity. The learned DR further argued that all the decisions of the higher judiciaries cited by the assessee and relied on by the learned CIT(A) were with respect to sale of steam produced by Captive Power Plants as by-products, but, in the assessee's case, the LP steam produced was not by-product of the Captive Power Plant but the co-gent plant of the assessee was specially designed to produce LP steam for the consumption of its ancillary units. Since this issue in the Revenue's appeal that "Steam" is not "Power", is held in favour of the Revenue on page 22 Para 19.1 herein below, this ground raised by the assessee has become infructuous and, therefore, it is dismissed as such.
6. ISSUE NO.3:- Set off of loss worked out by the AO in co- gen power plant against the profit of paper unit. (Ground No.3 IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 10 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd. for assessment years 2007-08 & 2008-09, Ground N0.2 for assessment years 2009-10 and 2010-11):- From the order of the learned CIT(A) it is evident that the learned CIT(A) has directed the learned AO to reduce the income of the eligible undertaking viz., power plant claiming deduction u/s 80IA of the Act by brought forward business losses of that undertaking, if any, in view of the specific provisions of section 80IA(5) of the Act, by placing reliance in the case of ACIT V/s Goldmine Shares and Finance (P).Ltd. reported in 113 ITD 209. Since the learned AR has not produced any contrary decisions, we do not have any reason, but, to confirm the order of the learned CIT(A) on this issue. It is ordered accordingly. Thus the grounds raised for the relevant assessment years are dismissed.
7. ISSUE NO.4:- Enhancement of income chargeable to tax of Rs. 41,61,167/- by the learned CIT(A) holding that the assessee has diverted expenditure to first half in F.Y.2006-07 relevant to assessment year 2007-08 (Ground No.4 of AY 2007-08):- During the course of appellate proceedings, the learned CIT(A) had noticed that the coal consumption for generation of electricity and steam in Unit-I and Unit-II when compared with the coal consumption of generation of electricity and steam in Unit - III there was a huge discrepancy. Such discrepancy was also persistent in the subsequent assessment years. When queried by the learned CIT (A), the Managing Director of the appellant company made submissions without producing any documents, vouchers or evidence. The annual account of the company though reflected the relevant data were not IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 11 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd. supported by any documentary evidence or computations. After a detailed analysis and based on the available data, the learned CIT(A) worked out the details and made computation, resulting in, an addition of Rs. 41,61,167/-.
7.1 The learned AR argued before us that the company was maintaining accounts and other data in SAP (ERP) and, therefore, all the relevant data were available which was not examined by the learned CIT(A). The learned AR, further, submitted that one more opportunity may be provided to the assessee to present all the requisite data before the Revenue.
7.2 Though the learned DR strongly objected to the submission of learned AR, he had finally agreed for the matter to be remitted back to the file of learned CIT(A) for denova consideration, provided, the assessee assures that all the requisite materials will be produced before the Revenue promptly for the speedy disposal of the case.
7.3 After hearing both the sides and perusing the materials on record, we find that the assessee had not co-operated with the learned CIT(A) during the appellate proceedings satisfactorily by producing all the relevant materials. However, the learned CIT(A), after detailed examination of the issue based on the available documents, arrived at the conclusion that the balance cost attributed to HP Steam used in electricity generation in Unit-III would be Rs.41,61,167/-, for which, addition has to be made. In this regard, we are of the view that the casual attitude of the assessee requires to be IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 12 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd. discouraged for not co-operating before the Revenue. However, in the interests of justice, we remit the matter back to the file of the learned CIT(A) to look into the issue afresh, after obtaining remand report from the learned AO. Further, we direct the assessee to co- operate with the revenue in its proceedings by producing all the relevant documents and details of information generated by the ERP solutions/SAP for speedy disposal of the case. It is ordered accordingly.
8. ISSUE NO.5:- Enhancing the income chargeable to tax by the learned CIT(A) by holding that the assessee had claimed excess coal consumption in Unit III to reduce income chargeable to tax (Ground No.5 of A. Y. 2007-08, Ground No.4 of A. Y. 2008- 09, Ground No.3 of A. Y. 2009-10 and Ground No.3 of A. Y. 2010-
11):- During the course of appellate proceedings, the assessee had shown its inability to provide the data for generation of steam for the assessment year 2007-08 and 2010-2011. Further, the assessee had shown its inability to submit the details of steam generated by its Unit III and also did not submit the basis for arriving at the steam generated and their internal technical calculation. Further, the data of steam generated provided by the assessee on the basis of internal technical calculation was not supported by any cogent evidence such as log books etc. Hampered by the insufficient data provided to the learned CIT(A) by the assessee; the learned CIT(A) after elaborate consideration, calculated the assessee's excess coal consumption shown in Units which do not have the benefits of 80 IA of the Act, IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 13 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd. which was correspondingly reduced by the assessee in the Unit having 80 IA benefits. Based on the above, the learned CIT(A) made the additions as detailed below for the relevant assessment years:-
Sr. No. Assessment year Amount (Rs.)
01 2007-08 1,16,03,400
02 2008-09 65,43,504
03 2009-10 3,51,65,000
04 2010-11 2,43,27,693
8.1 The learned AR submitted before us that the assessee is maintaining records in SAP (ERP) and, therefore, all the relevant data are available along with supporting documents. The learned AR further requested that one more opportunity may be given to the assessee to present its case before the revenue.
8.2 The learned DR stoutly objected to the submission of the assessee, however, conceded in the same manner as in the earlier issue (supra).
8.3 After hearing both the sides and perusing the materials on record before us, we hereby decide the issue as held in Para 7.3 of this order hereinabove and, accordingly, remit back the issue to the file of the learned CIT(A) for fresh consideration, after obtaining remand report from the learned AO and with further directions as specified herein above in Para 7.3 (supra).
IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 14 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd.
9. ISSUE NO.6:- Allowing telescoping effect by giving the deduction of added expenditure from added income (Ground No.6 for AY 2007-08 and AY 2008-09, ground No.4 for AY 2009-10 and 2010-11):- This issue is directly related to the issue No.5 stated herein above which we have remitted back to the file of the learned CIT(A). The learned AR argued before us stating that telescopic benefits to the corresponding Unit should be given while shifting the expenditure for coal consumption from one Unit to the other. Since the issue with respect to allocation of coal consumption to all the units discussed in issue No.5 supra is remitted back to the file of learned CIT(A), this issue of telescoping becomes infructuous and dismissed as such. However, we must say that this issue has to be looked into keeping in view of the overall accounting procedures and method followed by the assessee coupled with the actual facts of the case Viz., total purchases of coal made by the assessee, actual consumption of coal by each unit and closing stock of coal by maintenance of coal consumption log book for all the relevant Units by taking help of the ERP solutions installed by the appellant company. It is held accordingly.
10. ISSUE NO.7:- Granting depreciation on furniture provided at the residence of Managing Director (Ground No.5 for AYs 2009-10 and 2010-11):- During the course of the search, Mr. Rajendra Agarwal, the Managing Director of the assessee company had disclosed Rs.50 lacs as undisclosed expenditure of the company under the head "furniture and fixtures" for the expenditure incurred for IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 15 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd. providing furniture and fixtures at his residence. Thereafter, the assessee company had claimed depreciation @ 10% for a period of six months which works out to Rs.2,50,000/- for the relevant assessment year and Rs.4,75,000/- for the subsequent assessment year 2010-11. The learned AO disallowed the claim of depreciation on such furniture and fixtures since the expenses incurred was for the residential house owned by the Managing Director of the assessee company.
10.1 On appeal, the learned CIT(A) confirmed the order of the learned AO. The learned AR argued before us stating that this expenditure was incurred for the purpose of business since it was a perquisite offered to the Managing Director of the assessee company. The learned DR could not controvert the submissions of the learned AR. After hearing both the sides and perusing the materials on record, we find strength in the submissions of the learned AR. Providing furniture at the residential house of the Managing Director of the assessee company, is nothing but perquisite offered to the Managing Director by the assessee company and, therefore, the same has to be taxed as such in the hands of the Managing Director and at the same time, the assessee company should be allowed depreciation for such assets since it is put to use during the course of the business of the assessee company. Therefore, the grounds related to this issue are allowed in favour of the assessee. It is ordered accordingly.
IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 16 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd.
11. ISSUE NO.8:- Enhancing the income chargeable to tax by the learned CIT(A) by holding that the assessee had claimed excess coal consumption in Unit II to reduce income chargeable to tax (Ground No.6 of A. Y. 2009-10):- Facts of this issue are identical to Issue No.5 discussed earlier in this order. The only difference is with regard to excess consumption of coal in Unit II as against Unit III. Both the parties agreed to follow the decision held for Issue No.5 discussed supra, and accordingly, we hereby remit back the issue also to the file of the learned CIT(A) for fresh consideration after obtaining remand report from the learned AO and with further directions as specified herein above in Para 7.3.
12. In the result, all the appeals of the assessee are partly allowed for statistical purposes as indicated above.
(Revenue's appeal) ITA No.390, 391, 392 and 393/Ahd/2012 (A.Y.: 2007-08, 2008-09, 2009-10 and 2010-11)
13. The surviving common grounds for all the relevant assessment years mentioned herein-above (except the figures) raised by the revenue are taken from the assessment year 2007-08 and they are reproduced herein under for reference:-
"1. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.2,00,000/- made on account of inflation of purchases without considering the fact that the purchase parties were IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 17 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd.
not maintaining the stock register and their books of accounts were rejected at the time of assessment u/s 153C of the I. T. Act.
2. The Ld. CIT(A) has erred in law and fact in deleting the interest disallowance of Rs.1,75,27,159/-:-
a) On the basis of additional evidences submitted before him and without giving opportunity to the AO in contravention of the provisions of Rule 46A of the I. T. Rules.
b) Without considering the fact that the assessee's case falls within the ambit of section 14A of the I. T. Act.
3. On the facts and circumstances of the case, the Ld. CIT(A) erred in law and on the facts in allowing the deduction claimed by the assessee u/s 80IA (4) (iv) of the I. T. Act of Rs.1,09,06,211/- without considering the fact that:
a) At the time of search, the assessee did not maintain separate books of accounts as per section 80IA(4) of the I. T. Act.
b) The audit reports of the power unit submitted later on during the assessment proceedings are unreliable.
c) The decision of Hon. ITAT, Ahmedabad in the case of DCIT Vs Jai Chemical Inds. Is not applicable in this case because the AO has not presumed that no separate books of accounts have been prepared.
d) At the time of search on 16/07/2009, Shri Santosh Zagade (DGM), Shri Ramesh Iyer (CFO) and during post search proceedings the IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 18 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd.
Managing Director Shri Rajendra Agarwal on 29/07/2009 admitted that no separate audit or separate books of accounts have been maintained in respect of total claim of deduction in respect of power as well as steam.
e) The log books maintained for electricity generation and steam generation found during the course of search, cannot be considered as a books of accounts of the eligible unit.
f) "Steam" is not "Power" for claiming deduction u/s. 80IA (4) (iv) (a) in view of the accompanying clauses of this section viz. 80 IA (4) (iv) (b) and 80 IA (4) (iv) ( c) of the I. T. Act as the intention of the legislature was to provide deductions to the industrial undertakings producing "electricity".
g) The sale of steam cannot be treated as profit "derived" from the industrial undertaking eligible for deduction u/s. 80 IA (4) of the I. T. Act in view of the judgment of the Apex Court in the cases of Cambay Electric Supply Industrial Company (113 ITR 84), Sterling Foods (237 ITR 579) and Pandian Chemicals Ltd. (262 ITR 278).
Without prejudice to the above
4) The Ld. CIT(A) has erred in law and on facts in allowing assessee's claim u/s. 80IA (4) in the alternative working of the deduction by the AO
a) by relying upon the additional evidences supplied by the assessee during appellate proceedings and without granting any opportunity to the AO before working out the cost allocation to the Low pressure steam (LP Steam) produced on an entirely new formula, thereby, violating the provisions of rule 46A of the I. T. Rules.
IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 19 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd.
b) by directing him to charge the sale rate of electricity generated at the rate charged by the GEB from other customers at the rate of Rs.5.32 per unit instead of Rs.2.62 per unit adopted by the AO.
c) by relying upon various judgments of the tribunals which stated that sale rate should be the rate at which electricity is sold by GEB to other consumers, in spite of the fact that these judgments did not apply in this case, since the AO has adopted the sale rate of electricity to its own unit at the average rate at which co-gen plants in Gujarat sell the power to the GEB.
d) by not considering the fact that the rate of electricity generation @ Rs.5.32 by the GEB includes the generation cost, the distribution cost, the transmission cost and other subsidy costs and these costs are not borne by the assessee while generating power from its co-gen plant and therefore, the Ld. CIT(A) ought to have taken the rate of generation @ Rs.2.62 per unit as adopted by the AO."
14. In addition to the above common grounds, the revenue in its appeal in IT(SS) A No.393/Ahd/2012 for the assessment year 2010- 11 has raised the following two other grounds viz. grounds No.2 and 4 as per appeal form No.36:
"2. The Ld. CIT(A) has erred in law and on fact in allowing the interest expenses of Rs.6,00,000/- as no nexus was established between the unaccounted disclosed income of Rs.50,00,000/- and its application in renovation of the bungalow. IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 20 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd.
4. The Ld. CIT(A) has erred in law and facts in deleting the entire addition of Rs.86,19,041/- as the assessee had already booked all the expenses related to this unrecorded sales."
15. Ground No.1: Estimated addition of Rs.2 lacs for all the relevant assessment years on account of inflation of purchases of waste papers from various vendors: - During the course of the assessment proceedings, it was observed by the learned AO that the assessee had purchased waste papers from two suppliers viz. Mahavir Sales Corporation and Paper Sales Corporation who were also assessed u/s 153C of the Act. It was, further, noticed by the learned AO that these suppliers were not maintaining stock registers and were unable to identify the list of their clients. Hence, the learned AO rejected their books of account and assuming the possibility of inflation of purchases by the assessee made an estimated addition of Rs.2 lacs for all the relevant assessment years.
15.1 The learned CIT(A) deleted the addition for the following reasons:-
(a) The Assessing Officer has not pointed out any specific purchases as non-genuine.
(b) The appellant/assessee had maintained all the evidences of purchases made along with delivery challans, weigh bridge receipts etc.
(c) The appellant/assessee had also produced the suppliers in response to summons issued u/s 131 of the Act.
IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 21 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd.
(d) The rejection of books of account of the suppliers cannot be made as a basis for estimating addition in the hands of the appellant/assessee.
(e) Payments to all these suppliers were made by cheque and all the purchases were accounted.
16. The learned DR supported the order of the learned AO, whereas the learned AR relied on the order of the learned CIT(A).
17. After hearing both the parties, perusing the materials on record and considering the facts and circumstances of the case, we find that the learned CIT(A) has made elaborate finding and he is quite justified by allowing the issue in favour of the assessee. In this situation, we do not find it necessary to interfere with his order. Accordingly, this ground raised by the revenue is dismissed for all the relevant assessment years.
18. Ground No.2 Deleting the interest disallowed by the learned AO since interest bearing loan was extended to 80IA Units of the assessee: - Since, we have allowed the ground raised by the assessee in the assessee's appeal, even for the partial disallowance sustained by the learned CIT(A) on the same issue, which is discussed at Issue No.1 (supra page 6 Para 4), this ground raised by the revenue has become redundant, and, therefore, we dismiss the same for all the relevant assessment years.
IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 22 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd.
19. Ground No.3 (a) to 3 (e):- In the ground No.3, sub-clause (a) to (e) relates to maintenance of books of account:- Learned DR argued in support of the learned AO and re iterated the stand of the AO. On the other hand, the learned AR submitted before us that all the relevant records were maintained in SAP/(ERP) by the assessee and agreed for the case to be remitted back in order to provide one more opportunity to the assessee to present all the relevant documents, books of account maintained in SAP etc. Considering the submission of the learned AR, and facts and circumstance of the case, we also feel it to be appropriate that for such verification the matter is required to be remitted back to the file of the learned CIT(A) for de novo consideration and accordingly remit back these issues to the file of the learned CIT(A) with a direction to consider these issues afresh after obtaining remand report from the learned AO and pass appropriate order as per law and merit. These grounds of appeal of the revenue viz. 3 (a) to 3 (e) are treated as allowed for statistical purpose.
19.1 Ground No.3 (f) and 3(g):- In these grounds the revenue has claimed that in the assessee's case "steam" cannot be considered as "power" and, therefore, the profit derived from sale of steam cannot be given benefit u/s 80IA (4) of the Act. The learned AO in his alternate stand has held that steam is not power and, therefore, not eligible for deduction u/s 80 IA (4) of the Act for the following reasons:-
IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 23 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd.
(i) Deduction under Section 80IA (4) is meant for generation and distribution of power and steam which is used for drying up the paper cannot be considered as power. The production of steam is only a by-product which is used for its manufacturing activity and is only an intermediary raw material for manufacturing process.
(ii) The prime purpose of section 80 IA(4) was to give impetus to power sector and steam is only an intermediary raw material which is used for the process of paper manufacturing, therefore, it is not power.
(iii) There is no direct nexus of sale of steam with the essential activity of industrial undertaking being generation of power. Reliance was placed on decisions of Hon'ble Apex Court in the cases of Pandian Chemicals Limited 262 ITR 278, Cambay Electric Supply Industrial Company 113 ITR 84 and CIV v/s Sterling Food 237 ITR 579 and held that for claiming deduction on any income, it is the burden of the appellant to establish that income has immediate and direct nexus with essential activity of industrial undertakings.
(iv) Had the appellant not been into paper processing unit, steam would have been either un-utilized or remained non-saleable commodity and even in that case, steam would not have attracted deduction under Section 80IA.
(v) The deduction is also not allowable for the reason that the appellant has generated power for captive purpose and referring to the decision of Hon'ble Chennai I. T. A. T. in the case of Chettinad Cement Corporation Limited (ITA No.1026/MDS/2005) which held that deduction is only when separate business undertaking is put for generation and distribution of power and the same is not available when business enterprise is simply putting up captive power plant to meet in-house requirement."
IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 24 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd.
(We find that this decision cited by the learned AO cannot be sustainable in the light of the decision rendered by the Hon'ble Madras High Court in the case Tamilnad Petroproducts Ltd. Vs ACIT reported in 338 ITR 643 wherein it was held that "profits or gains" derived by in-house consumption would also be eligible for deduction u/s 80IA of the Act and accordingly, we reject this argument of the learned AO.) 19.2 The learned CIT(A) allowed the claim of the assessee stating that steam is power and, therefore, eligible for deduction u/s 80 IA of the Act relying on the following decisions:-
(i) DCIT Vs Maharaja Shree Umaid Mills Ltd., 120 TTJ 711
(ii) DCW Limited, 132 TTJ 442
(iii) Sial SBEC Bioenergy Ltd, 83 TTJ 886 19.3 The learned DR agreed before us that in the above mentioned judgments, it has been held that for the generation of steam in co-
generation plant, benefit of section 80IA of the Act should be granted. However, the learned DR further pointed out that in all the above decisions the profit derived from the sale of steam was given benefit of Section 80 IA of the Act because steam was the residue by- product of the co-generation plant. The learned DR stated that, from the facts of the present case before us the co-generation plant of the assessee was so designed in order to produce steam in substantial quantity for the benefit of the ancillary object of the assessee company for manufacturing its main product viz., paper, and, therefore, steam was not residue by-product of the co-generation IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 25 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd. plant, but dual product viz. High Pressure Steam generated for producing electricity and Low Pressure Steam for consumption as raw material for manufacturing paper. Further, the learned DR referred to the principles for interpretation of Statute relying on the decision in the cases of K. P. Varghese Vs. I. T. O. (131 ITR 597) (SC), American Hotel and Lodging Association Education Institute Vs CBDT (289 ITR 46) (Del.), Delhi Flour Mills Co. Ltd. Vs CIT (95 ITR
151) (Del.), Soorajmull Nagarmull Vs. CIT (190 ITR 418) (Cal.), CIT Vs. M. K. Vaidya (224 ITR 186) (Kar.) and CIT Vs. Venkatswara Hatcheries Pvt. Ltd. (273 ITR 174) (SC). The learned DR also referred to the Budget Speech of the Hon'ble Finance Minister dated 27th February, 1993 Part - B, Para 57 and 58 wherein it was stated:-
"57. Electricity is a critical input for the future growth of our economy. I therefore propose to introduce a five-year tax holiday in respect of profits and gains of new industrial undertakings set up anywhere in India for either generation or generation and distribution of power. The five-year tax holiday will begin from the year of generation of power.
58. The five-year tax holiday, in both these cases, will be part of section 80-IA of the Income-tax Act. At the end of the five-year period, these units will be entitled to the existing deduction under section 80-IA for the remaining period."
With the above mentioned submissions, the learned DR argued that the intention of the legislature was explicit and unambiguous that the benefit of section 80IA would be available only for units producing and distributing electricity and not for producing any other form of power. The learned DR, therefore, pleaded that the assessee should not be given benefit of section 80 IA of the Act with respect to sale of IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 26 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd. steam because Low Pressure Steam generated by the assessee's Unit is neither residue by-product nor power as construed by the decisions of the higher judiciary and the Act, but it is a product specially manufactured for the consumption of paper unit of the assessee.
19.4 The learned AR stoutly opposed to the contention of the learned DR and cited the decision of the case CIT Vs TANFAC Industries Ltd., Tamilnadu Petroproducts Ltd. Vs ACIT - 13 Taxmann.com 139 (Mad. HC) and the other cases mentioned supra, wherein it was held that the value of steam used for captive consumption by the assessee is eligible for deduction u/s 80IA of the Act. It was, therefore, prayed that deduction may be granted u/s 80 IA of the Act for the value of the steam produced by the assessee.
20. After hearing both the sides and perusing the materials on record, we find that this issue needs consideration. The representative of the assessee company had himself admitted before the learned CIT(A) that the co-generation plant of the assessee is not a simple captive power plant, but it is co- generation plant where Low Pressure Steam is not generated by default, but is generated by design. Thus, it is evident from the facts of the case that the captive power plant of the assessee is not a plant for generating electricity alone, but it is so designed to generate Low Pressure Steam as well in substantial quantity. Therefore, the Low Pressure Steam produced by the assessee's plant is not residue by-product, but a product by itself. On further perusing the facts, it IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 27 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd. emerges that the assessee company had utilized more quantity of steam in its overall operation with respect to manufacturing of paper than generation of electricity. The quantity of HP Steam and LP Steam produced during the various years are reproduced herein for reference:-
Assessment 2007-08 (*) % 2008-09 (*) % 2009-10 (*) % 2010-11 (*)% Year A Total 78044 100% 186493 100% 227827 100% 233973 100 quantity of steam generated B Less: Low 46090 59% 114490 61% 136547 60% 154616 66% Pressure Steam extracted for paper drying.
(A- High 31954 41% 72003 39% 91280 40% 79357 34%
B) Pressure
Steam
utilized for
generating
electricity
(*) % of HP Steam and LP Steam from the total steam produced.
21. Thus, it is evident from the above that the assessee was utilizing 60% of steam produced for drying of paper in the paper industry and only 40% was used for generating power/electricity. It was further argued by the learned DR that in all the cases referred to by the learned AR in support of his contentions; the fact was that the LP steam generated from the operation of co-generation plant was residue by-product and, therefore, not applicable to the facts of the case before us. The learned DR distinguished the cases cited by the learned AR as follows:-
IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 28 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd.
(i) DCIT Vs Maharaja Shree Umaid Mills Ltd., 120 TTJ 711.
While arguing this case, the learned AR has specifically stated as follows:-
"In the present case of undertaking, power generation unit of the assessee was conceived ab initio to have the system of waste heat recovery for generation of steam of required pressure which could also be made available for the operations of 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 by-product of plant or generation of electricity."
The steam produced by the plant in this case was by-product. Moreover, the speech of the Hon'ble Finance Minister was not before the ITAT, Jaipur Bench or before the other benches of the Tribunal for consideration where-in the Hon'ble Finance Minister had expressed the intention for introducing the relevant amendments to section 80 IA of the Act, the relevant part of the speech is reproduced (at the cost of repetition) herein-below for reference:-
"57. Electricity is a critical input for the future growth of our economy. I therefore propose to introduce a five-year tax holiday in respect of profits and gains of new industrial undertakings set up anywhere in India for either generation or generation and distribution of power. The five-year tax holiday will begin from the year of generation of power.
58. The five-year tax holiday, in both these cases, will be part of section 80-IA of the Income-tax Act. At the end of the five-year period, these units will be entitled to the existing deduction under section 80-IA for the remaining period."
(ii) DCW Ltd. Vs Addl. CIT - 37 SOT 322. The relevant portion of the judgment of the Mumbai bench of the IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 29 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd.
Tribunal is reproduced herein below for reference wherein it could be construed that the steam produced by the plant was by-product:-
"18.9 ......In the light of above discussion, we find that the 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."
(iii) Sial SBEC Bionergy Vs DCIT (Del) 83 TTJ 866- In this case the questioned framed by the Tribunal was that -
"whether the steam generated by the assessee which rotates the turbine and in the end generate electricity when taken out and used for other purposes, is a form of power and thus a power or not ?"
The Bench held that "the residue by-product being the steam is eligible for deduction u/s 80 IA of the Act."
(iv) CIT Vs M/s. TANFAC Industries Ltd., Tax Case (Appeal) No.1773 of 2008 order dated 06-11-2008 of the Hon'ble Madras High Court:-
Further in this case the learned DR distinguished that, the assessee was a manufacturer of Fluorine Based Chemicals wherein gas was captively consumed and benefits u/s 80 I of the Income Tax Act was claimed. The question post before the Hon'ble Madras High Court was that:-
"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee is entitled to deduction under section 80-I of the Income Tax Act, in respect of captive consumption of AHF Gas as well as sale of by-product is valid in law?"
IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 30 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd.
The Hon'ble Madras High Court following the decision of the Hon'ble Gujarat High Court in the case CIT Vs Ahmedabad Manufacturing and Calico Printing Co. Ltd., 162 ITR 760, wherein it was that the assessee would be entitled to the deduction under section 80- I of the Income Tax Act, 1961 irrespective of whether the product is sold in the open market or is used by the assessee itself. On appeal by the revenue, against this order, the Hon'ble Apex Court dismissed the SLP (Civil) ... 9004/2009 on 27-07-2009 in the case CIT, Madras Vs TANFAC Industries Ltd.
From the above, it was argued by the learned DR that the issue before the Hon'ble higher judiciary was deduction u/s 80 I of the Act i.e. in respect of profits and gains of industrial undertaking after a certain date, in regard to the captive consumption of gas in a chemical manufacturing undertaking. Therefore, it was pointed by the learned DR that the facts of the case are different from the facts of the relevant case before the bench for consideration and, hence, do not have any precedent value.
(v) Tamilnadu Petroproducts Ltd. Vs ACIT - 13 Taxmann.com 139 (Mad. HC):-
In this case, cited by the learned AR, learned DR stoutly argued stating that the issue was not as to whether steam could be considered as power, but the issue was whether the notional profits on account of power generated from the assessee's own captive power plant and utilized for its own business are entitled for deduction u/s 80 IA of the Act, wherein the Hon'ble Madras High Court held that IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 31 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd.
"the captive power plants are entitled for such deduction." The learned AR could not controvert to the submission of the learned DR and further the decision of the case was not produced before us.
22. From the above, it is evident that in all the above mentioned cases the Tribunal allowed the benefit of section 80 IA of the Act with respect to the residue by-product of steam generated by the co- generation plant in the process of generating electricity. Moreover, the factual aspect is that the co-generation plants are installed in any industry as per the required specification of the concerned industry. The operational process of the co-generation plant is, by heating the water stored in the boilers using fuel, whereby steam is produced, which is condensed at high pressure and when the same is injected into the turbines fitted with the dynamo rotates the turbines, resulting in generation of electricity. There are various types of co-generation plants available which can either produce electricity or both, electricity as well as steam. When the industry requires only electricity, then, such co-generation plants are installed wherein the wastage by way of low pressure steam is either nil or minimal. When the industry demands steam as its raw material for other process, then the co- generation plant is designed in such a manner so as to produce electricity as well as the requisite quantity of steam. Thus, the co- generation plant ends up producing two products i. e. electricity and low pressure steam. Considering the above facts and the facts and circumstances of the case before us, it is evident that the co- generation plant installed in the assessee's factory produces two IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 32 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd. products viz. 60% low pressure steam and 40% high pressure steam generating electricity. When steam held under pressure is released, it contains force which is capable of rotating the turbine as discussed herein above. In the assessee's case, by using coal as fuel, two types of steams are generated one being high pressure steam at 495 degree centigrade having steam enthalpy of 815.95 K. CAL/Kg., which is the input for electricity generation and the other being low pressure steam of 270 decree centigrade having steam enthalpy of 718.4 K. CAL/Kg drawn from the plant for utilizing in the paper drying machine for producing paper. These arguments taken up by the learned DR before us were not before the learned CIT(A) for consideration which has to be adjudicated on merits and require through examination including the Budget Speech of the Hon'ble Finance Minister. Therefore we remit this issue back to the file of the learned CIT(A) to consider the matter afresh keeping in view of the additional arguments taken up by the learned DR before us and decide after allowing due hearing to both the parties.
23. Ground No. 4(a):- Since, we have remitted back the issue whether steam could be considered as power for the benefit of section 80 IA of the Act; this issue of allocation of cost is pre-mature at this stage for adjudication. However, from the facts of the case if such allocation is warranted, then, as agreed by the learned AR, the same can be done so, by drawing information from the specifications of the co-generation plant and the relevant meter recordings embedded in the plant and with the various other records and data IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 33 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd. maintained by the assessee manually and as well as by SAP, needless to mention that the adaptability of the data contained in the SAP/ERP will further depend on the reliability of the systems/software audit conducted.
24. Ground No.4 (b) to (d):- The revenue is aggrieved by the order of the learned CIT(A) for adopting the rate of electricity produced by the assessee at Rs.5.32 per unit as against Rs.2.62 per unit adopted by the learned AO. Though various contentions were raised by the learned DR on this issue as pointed out by the learned AR, this issue is squarely covered by the decision of the jurisdictional Hon'ble Gujarat High Court in the case Godavari Power & Ispat Ltd. reported in 133 ITD 502 which the learned CIT(A) has respectfully followed. Therefore, we do not find it necessary to interfere with the order of the learned CIT(A) on this issue. This ground raised by the revenue is, accordingly, dismissed.
25. After hearing both the sides, we, hereby admit the two additional grounds raised by the revenue for the assessment year 2010-11 in IT(SS)A No.393/Ahd/2012 in the interest of justice and taken up for adjudication herein below.
26. Ground No.1:- In this ground the revenue is aggrieved by the order of the learned CIT(A) for allowing interest expense of Rs.6,00,000/- against the unaccounted disclosed income of Rs.50,00,000/- used for renovation of the bungalow. During the course of search, it was revealed that the assessee had renovated the bungalow owned by the Managing Director of the Company Mr. IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 34 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd. Rajendra Agarwal incurring an expenditure of Rs.50 lacs. This amount was added as unaccounted expenditure in the hands of the assessee. Presuming that this amount was utilized by the assessee company from its interest bearing funds; the learned AO disallowed the interest expense of Rs.6.00 lacs being 12% on Rs.50.00 lacs. When the matter cropped up before the learned CIT(A), the learned CIT(A) made a clear finding that no borrowed funds were used by the assessee company for incurring such expenditure since the entire amount was admitted as unaccounted income. Accordingly, the learned CIT(A) deleted the addition of Rs.6.00 lacs. We fully subscribe to the finding of the learned CIT(A) and do not find it necessary to interfere with his findings. Thus, this ground of the revenue is dismissed.
27. Ground No.2:- Addition based on shortage of stock for Rs.86,19,041/-. During the course of search, it was noticed by the learned AO that there was a shortage of stock to the tune of Rs.86,19,041/- as compared to the books of accounts which led to the presumption that goods have been sold clandestinely and not accounted for while as the entire expenditure related to these sales have been charged to profit & loss account. Therefore, the learned AO made an addition of Rs.86,19,041/- to the income of the assessee company. When the matter reached the learned CIT(A), the learned CIT(A) after examination, held that this amount was disclosed IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 35 M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd. as a part of total disclosure of Rs.7,61,80,000/- by the assessee company.
28. We have heard the rival parties and perused the materials on record on this issue. Though both the parties advanced various arguments in support of the respective claim, no material was brought on record before us to arrive at a logical conclusion. Therefore, we remit this issue also back to the file of the learned CIT(A) and direct him to pass appropriate order on merits and law, after obtaining remand report from the learned AO. Accordingly, this ground raised by the revenue is allowed for statistical purpose.
29. In the result, the assessee's appeals as well as the revenue's appeals are partly allowed for statistical purpose.
Order pronounced in the open Court on 26-07-2013 Sd/- Sd/-
(G. C. GUPTA) (A. MOHAN ALANKAMONY)
VICE PRESIDENT ACCOUNTANT MEMBER
Lakshmikanta
Lakshmikant Deka/--
a Deka/
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Asstt. Registrar, ITAT, Ahmedabad
IT (SS) A No.341, 342, 343 and 344/Ahd/2012 (AY: 2007-08 to 2010-11) 36
M/s. N. R. Agarwal Industries Ltd. Vs DCIT, CC-3, Surat IT (SS) A No.390, 391, 392 and 393/Ahd/2012 (AY: 2007-08 to 2010-11) DCIT, CC-3, Surat Vs M/s. N. R. Agarwal Industries Ltd.
1. Date of dictation: direct on computer - 01-07-13/09-07-13/11-07-13/15-07-13/19-07-13
2. Date on which the typed draft is placed before the Dictating Member: 15-07-2013/19-07-136 other Member:
3. Date on which approved draft comes to the Sr. P. S./P.S.:
4. Date on which the fair order is placed before the Dictating Member for pronouncement:
5. Date on which the fair order comes back to the Sr. P.S./P.S.:
6. Date on which the file goes to the Bench Clerk:
7. Date on which the file goes to the Head Clerk:
8. The date on which the file goes to the Assistant Registrar for signature on the order:
9. Date of Despatch of the Order: