Income Tax Appellate Tribunal - Delhi
Orient Abrasives Ltd.,, New Delhi vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'F' : NEW DELHI
BEFORE SHRI I.P.BANSAL, JM AND SHRI R.C.SHARMA, AM
ITA No.85/Del/2010
Assessment Year : 2007-08
Dy.Commissioner of Vs. M/s Orient Abrasives Limited,
Income Tax, 1307, Chiranjiv Tower,
Circle-13(1), 43, Nehru Place,
New Delhi. New Delhi - 110 019.
PAN No.AAACO0221C.
(Appellant) (Respondent)
Appellant by : Shri V.K.Tiwari, CIT-DR.
Respondent by : Shri Salil Aggarwal, Advocate.
ORDER
PER R.C.SHARMA, AM :
This is an appeal filed by the Revenue against the order of CIT(A) dated 1.10.2009 for the AY 2007-08, in the matter of order passed u/s 143(3) of the IT Act.
2. Following four grounds have been taken by the Revenue :-
"1. That the ld.CIT(A) erred in law and on facts and circumstances of the case in granting the deduction of Rs.4,69,94,249/- claimed by the assessee u/s 80IA, of the Income Tax Act, 1961 disallowed by the assessing officer.
2. That the ld.CIT(A) erred in law and on facts and circumstances of the case in allowing depreciation on the assets of Power Division as per the special rates applicable for power generating units as per Income Tax Act, 1961.
3. That the ld.CIT(A) erred in law and on facts and circumstances of the case in allowing depreciation @ 100% on "Dust Collector" for the Abrassive Grain division instead of 25% allowed by assessing officer.
2 ITA-85/Del/2010
4. That the ld.CIT(A) erred in law and on facts and circumstances of the case in deleting the addition of Rs.2,89,417/- made by assessing officer on account of surrender value of keyman insurance policy."
3. At the outset, learned AR placed on record the order of the Tribunal in assessee's own case for AY 2004-05 dated 30.8.2009 and order for AY 2002-03, 2005-06 & 2006-07, dated 30.11.2009, wherein exactly similar issue was considered by the Tribunal and decided in favour of the assessee. Copies of these orders were also handed over to the learned DR to file his objection if any with regard to assessee's contention.
4. We have gone through the order of the Tribunal in assessee's own case for the earlier assessment years and found that issue with regard to disallowance of claim of deduction u/s 80IA is covered by the order of the Tribunal dated 13.8.2009 vide page 6 para 2.4 which reads as under:-
"2.4 We have considered the facts of the case and the submissions made before us. We find that both the issues stand covered by the order of the Tribunal in the case of West Coast Paper Mills Ltd. (supra), in which it was held that -(i) the assessee is entitled to deduction u/s 80-IA in respect of power generated by it for captive consumption by the other unit; and (ii) the CIT(Appeals) had correctly arrived at transfer price on the basis of average price paid by the assessee during the whole year to Karnataka State Electricity Board minus certain extraneous charges such as electricity duty etc., which was not connected with the business of the assessee. It may be mentioned that the learned CIT(Appeals) had directed the AO to allocate indirect expenses on a pro-rata basis for the purpose of computation of profits of the power generating unit. This finding was also upheld in that order. The operative portion is contained in paragraphs 9 and 10 on pages 266 to 269, which are reproduced below for the sake of ready reference:-
"We have carefully considered the rival submissions and have gone through records, including the voluminous paper book filed by the assessee. The assessee although engaged in the manufacture and sale of paper and paperboards, multi-layer boards, etc. was also into the business of power generation right from the assessment year 1996-97. The findings in 3 ITA-85/Del/2010 impugned order are clearly unassailable. The assessee has from time to time right from the assessment year 1996-97 set up four such units to facilitate its power requirement in the paper plant at Dandeli in Karnataka State. The assessee as the records show, made substantial capital outlays for this purpose. This only confirms that the assessee was in the business of generation of power. Now the question is whether the assessee's claim for deduction under section 80-IA of the Act could be denied merely on the ground that these DG units were catering to the captive power requirement. As the Assessing Officer puts it, if the assessee has not realized any revenue by selling the power to outsiders, can the assessee be held to be entitled to deduction under section 80-IA of the Act? The Assessing Officer was of the view that it is only an inter-division transfer and there was no revenue realized by it and consequently there was no derivation of profit or income in the business of industrial undertaking. The questions raised by the Assessing Officer have all been answered by the Supreme Court in the case of Orient Paper Mills Ltd. [1989] 176 ITR
110. This decision of the Supreme Court does not bring out the facts. It has only affirmed the decision of the Calcutta High Court in CIT Vs. Orient Paper Mills Ltd. [1974] 94 ITR 73. The facts could only be found in this judgment of the Calcutta High Court. The assessee in that case owned a paper bill. It set up a plant for the manufacture of caustic soda an essential chemical for use in the process of manufacture of paper. The assessee obtained a separate licence for the manufacture of caustic soda and the plant was housed in a separate building. The Income-tax Officer in that case held that the caustic soda plant was ancillary to the main manufacturing unit and no part of caustic soda was sold to any outsider and, therefore, no relief could be claimed by the assessee under section 15C of the 1922 Act. The material produced in the plant was used for captive consumption. Before the Tribunal it was contended by the Revenue that the language used in section 15C was "profit and gain derived from an industrial undertaking". Unless the profits arose by the sale of the product of the new plant, no profit could be said to have been derived. The argument was that profit should be directly derived and not indirectly or deemed to be derived. The Tribunal did not accept these submissions of the Revenue and proceeded to grant the relief. The Hon'ble Calcutta High Court confirmed the order of the Tribunal and the apex court has dismissed the appeal of the Revenue by taking support from its own decisions in Textile Machinery Corporation Ltd. Vs. CIT [1977] 107 ITR 195 and 4 ITA-85/Del/2010 CIT Vs. Indian Aluminium Co. Ltd. [1977] 108 ITR 367. Therefore, the stand of the Assessing Officer cannot be accepted. Again the Calcutta High Court was faced with the same set of facts in the case of CIT Vs. Hindustan Motors Ltd. [1981] 127 ITR 210. The assessee in that case was engaged in the manufacture of motor cars. It established certain ancillary units. The Assessing Officer repeated his findings on the same line as he did in the case of Orient Paper Mills Ltd. [1974] 94 ITR 73 (Cal.) and denied the relief under section 80E of the 1961 Act. The Calcutta High Court held that the assessee was entitled to such relief irrespective of whether the ancillaries manufactured were sold by the assessee to outsiders or were used by it for its own manufacture of cars. Similarly, the Bombay High Court in CIT Vs. Sahney Steel and Press Works P. Ltd. [1989] 177 ITR 354, the Assessing Officer denied similar claim under section 80J of the Act on the ground that the new unit was manufacturing articles to be used as raw material for the existing business of the assessee. The Bombay High Court held that the fact that the new unit manufactured articles used in the existing business of the assessee was not relevant and the assessee was held to be entitled for relief under section 80J of the Act. In the light o these decisions, we are of the opinion that the claim of the assessee cannot be denied only on the ground that the DG sets manufactured the power only for the captive consumption of the assessee. It may be stated that the Tribunal in the assessment years 1997-98 and 1998-99 has already granted relief in respect of Unit Nos. I and II which were established for the purpose of captive consumption. Moreover, the provision of section 80-IA(8) itself says that where any goods of service of the eligible business are transferred to any other business carried on by the assessee and the consideration, if any for such transfer is recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of transfer, then for the purpose of deduction under that section, the profit and gains for such transferred business shall be computed as if the transfer has been made at market value as on that date. In other words, the provisions of section 80-IA themselves provide an answer and give a solution where there is a captive consumption of the finished goods of the eligible units. In the light of these discussion the order of the Commissioner of Income-tax (Appeals) granting 80-IA relief in respect of DG Units I, II, III and IV cannot be found fault with. The other consideration that the assessee has not operated these units by itself but got them operated through outsiders and, therefore, the assessee is not entitled for section 80-IA relief in our 5 ITA-85/Del/2010 view, is not a right approach. Such consideration, in our opinion, is not relevant consideration. Keeping in view the purpose and intent of relief under section 80-IA, such consideration, in our opinion, is not germane from the provision of section 80-Iaof the Act.
That leaves us with the issue relating to the rate to be adopted for the unit of power generated and supplied to the paper division, which would impact the profit to be determined for the purpose of section 80-IA of the Act. The assessee adopted the rate at which the KSEB supplied power to industrial user which the Assessing Officer considered to be purely a notional rate and has no semblance of reality. These rates, according to the Assessing Officer, were unrealistic as KSEB is not expected to purchase power from the assessee and it is also unrealistic to expect KSEB to purchase power from the assessee at a future date at the same rate on which it supplies power to the other industrial users and it is also not the fact that the assessee has sold any power to the KSEB in any future year. The CIT(Appeals) asked the assessee to submit an alternative calculation based on the average actual per unit cost of power purchased from the KSEB by the paper division. According to this calculation, the average price for the unit of power consumed worked out to Rs. 4.74 per unit. The assessee as asked to furnish copies of electricity bills received for one month on a sample basis. On an examination of the bills, the Commissioner of Income-tax (Appeals) directed the Assessing Officer to examine the electricity bills on which the assessee has based its working of the transfer price and recalculate the price to be adopted after excluding the elements of tax or levy which may form part of the total amount billed. After excluding such amount, the price per unit of power would be determined which would be adopted as the transfer price of the power generated by the assessee. The other important issue which the Commissioner of Income-tax (Appeals) found that in the profit and loss account of the industrial undertaking there is no mention about indirect costs such as managerial remuneration, administrative overheads, etc., which also needs to be considered for the purpose of arriving at the profit of the eligible unit. On these findings, both the assessee and the Revenue are aggrieved. The grievance of the Revenue is that the deduction under section 80-IA should not be on the average rate of actual consumption of the electricity from the KSEB when the assessee itself has sold electricity to the TNSEB at the rate of Rs. 2.62 per unit. The assessee's grievance is that the Commissioner of Income-tax (Appeals) was not justified in 6 ITA-85/Del/2010 holding that the element of tax should not be included in the computation of transfer price and he also erred, according to the assessee in directing to give a pro-rata allocation of indirect expenses of the company for the purpose of computation of the profit of the power generating units. We have considered the submissions of the parties on this issue and are unable to find any merit in them. The Assessing Officer's adoption of the rate at which it sold the power to TNSEB cannot be accepted since the units themselves are working at Dandeli in the State of Karnataka and the cost of generation of power in Tamil Nadu and Karnataka is different. Apart from that, the assessee has paid to the KSEB for purchase of the power and the Commissioner of Income-tax (Appeals) has correctly come to a reasonable conclusion that the transfer price should be on the basis of average price paid by the assessee during the whole year to the KSEB minus certain extraneous charges such as electricity duty, etc., which is not connected with the business of the assessee. Therefore, the Commissioner of Income-tax (Appeals) has correctly and reasonably directed the allocation of the indirect expenses for the purpose of arriving at the income of the eligible unit and we decline to disturb such direction of the Commissioner of Income-tax (Appeals). Accordingly, the grounds raised both by the assessee and the Revenue should be taken to have been rejected."
The case of the ld. counsel was that all indirect expenses except the salary of Managing Director had been considered. That, according to us, is a matter of details to be worked out by the AO. Thus, it is held that the assessee is entitled to deduction u/s 80-IA and the transfer price has to be worked out on the basis of directions given by the Tribunal in the case of West Coast Paper Mills Ltd. (supra). The AO is directed to compute the transfer price accordingly after giving an opportunity of being heard to the assessee. Thus, while ground nos. 1 and 2 are dismissed, ground no. 3 is treated as partly allowed for statistical purposes."
5. Ground No.2 with regard to allowing claim of depreciation on assets of Power Division as per the special rates applicable for power generating units, is dealt by the Tribunal at page 7 para 3 which reads as under:-
"3. Ground no. 4 is against the deduction of depreciation on power division as per special rates applicable to power generating units, mentioned in the Income-tax Rules, 1962. No error could be indicated by the learned DR in this regard in the 7 ITA-85/Del/2010 order of the learned CIT(Appeals). The power generating unit has been considered as a separate unit for the purpose of working out its profits. Therefore, special rate applicable to power generating units will be applicable to it. Thus, this ground is also dismissed."
6. With regard to ground taken for allowing depreciation at 100% on dust collector for the abrasive grain division, the issue has been dealt by the Tribunal in its order dated 20.11.2009 at page 14, para 17 which reads as under:-
"17. On merit of allowability of depreciation @ 100% on dust collector, the Commissioner of Income Tax (Appeals) has given a specific finding on page 3 of his order that various evidences furnished before him goes to prove that the said equipments installed are air pollution control equipment and the same have been installed with the intention to conform to requirements of Gujarat Pollution Control Board and the ld.DR of the Revenue could not point out any specific defect in this finding of the Commissioner of Income-tax (Appeals) and hence we find no reason to interfere with the order of the CIT(A) on this issue in both the years. Ground no.5 of the Revenue is also rejected in both the years."
7. The ground with regard to deletion of addition made by the AO on account of surrender value of keyman insurance policy has been dealt by the Tribunal in its order dated 13.8.2009 at pages 8 & 9 para 4.3 which reads as under:-
"4.3 We have considered the facts of the case and rival submissions. We find that as per provisions contained in section 145, the income under the head "profits and gains of business or profession" has to be computed in accordance with system of accounting followed by the assessee, which is mercantile in this case. The assessee had accounted for the receipts of insurance policies on accrual basis. However, at the time of filing the return adjustments were made to declare the income from this source on receipt basis. There could be a view that the words "any sum received" used in section 28(vi) have to be read in the context of system of accounting employed by the assessee, which is mercantile in this case. However, we find that the legislature has used the words "any sum, whether received or receivable, in cash or kind" in section 28(va) as distinguished from the words "any sum received" used in
8 ITA-85/Del/2010 section 28(vi). Therefore, it could possibly be argued on the side of the assessee that in respect of items, which are deemed to be business income u/s 28, the actual language of the provision should be taken into account. This would support the case of the assessee. In view of the aforesaid, it is clear that two views may be possible in this matter. Therefore, we choose to follow the interpretation which is in favour of the assessee. It is the claim of the assessee that this amount of Rs. 15,75,739/- has been included in the income for assessment year 2005-06. The details of the amount of Rs. 68,61,000/- offered for taxation in that year are not available. Therefore, the AO is directed to verify whether this sum has been offered for taxation in assessment year 2005-06 and if yes, this amount may be deducted in computation of total income."
8. As the facts and circumstances during the year under consideration are in pari-materia, respectfully following the order of the Tribunal in assessee's own case, we uphold the order of the CIT(A) on all the four grounds strictly in terms of order passed by the Tribunal in assessee's own case dated 30.8.2009 and 30.11.2009. The directions issued by the Tribunal with regard to taxability of surrender value of keyman policy is to be followed as given in para 4.3 at pages 8 & 9 of order dated 13.8.2009. We direct accordingly.
9. In the result, the appeal of the Revenue is dismissed in terms indicated hereinabove.
Decision pronounced in the open Court on 8th March, 2010.
Sd/- Sd/-
(I.P.BANSAL) (R.C.SHARMA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 08.03.2010.
VK.
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
Deputy Registrar
9 ITA-85/Del/2010