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As per the Hon'ble Madras High Court in the case of CIT, Madurai Vs. Thiagarajar Mills Ltd. Kappalur (Tax appeal no. 68 to 70/2010 dt. 07.06.2010) has held as follows:-

"In section 80IA(i) also no restriction has been imposed as regards the deriving of profit or gain in order to state that such profit or gain derived only through an outside source alone would make eligible for the benefits provided in the said section.

Therefore, it is true and correct law and also the intention of legislature, in holding that captive consumption of the power generated by the assessee from its own power plant would enable the respondent/assessee to derive profit and gains by working out the cost of such consumption of power in as much as the assessee is able to save lo the extent which would certainly be covered by S.80IA(1). When such will be the out come out of own consumption of the power generated, and gained by the assessee by setting up its own power plant, we do not find any lack of merit in the claim of the respondent/assessee when it claimed by relying upon S.80IA(1) of the Income Tax Act by way of deduction of the value DCIT Vs. Vishal Fabrics Pvt. Ltd.

It is evident from the above that the company has valued the sale of power steam to Process Division is below the cost of the Process Division.

Considering the above if the company had not installed the CPP the company could have incurred the cost of Rs.14.12 Cr. for manufacturing of textiles.

5. The basis idea of introduction of section 80IA(IV) is to promote the power generating units for empowerment of national power policy DCIT Vs. Vishal Fabrics Pvt. Ltd.

A.Y. 2011-12 of government. Hence for claiming exemption under section there has to be profit or gain from the generation of any form of power which being used in captive consumption or sold outside is not intention of the legislature. Ami there is no intention from the legislature that gain on out side sale only will be entitled lo claim exemption. The company has derived the profit front sale of steam power by selling at Rs. 1.15 Kg. to Process Division of the company i.e. inter division transaction. The company has maintained the separated sets of books of account for calculation of cost and profit/loss from the activity which is qualify u/s. 80IA(iv) of the Act. As the steam generated by the power unit is not tradable in the state, that does not mean that company cannot earn the reasonable profits from the activity by following cost plus method and the company has added margin of 25% to cost of steam power of Rs. 0.92/- per unit and sale at Rs. 1.15 per Kg. to process division. The selling price per unit of steam is Rs. 1.15 is reasonable mid justifiable on the following grounds.

(vi) The A.O. therefore held "In view of the above the profit of Rs. 2,70,69,861/- claimed in respect of sale of steam to process is disallowed".

3. Thereafter, assessee preferred appeal before the ld. CIT(A) against the disallowance of Rs.2,70,69,861/- while computing the deduction u/s.80IA(4) of the Act. Ld. CIT (A) allowed the appeal of the assessee with following observation:

"It is therefore, the profit element embedded in production and captive consumption of steam for textile processing is included in the ultimate profit resulted from sale of textile. This profit may be more than the profit in other activities of textile division or may be less. But, the profit from such activity is there and it will always be higher than the cost. The question of disintegration of such profit is based on proper comparable such as chartered Engineer certificate or from the comparison of profit margin by electricity generating companies then the same has to be accepted. This further reaffirms as held by me earlier that such profit is also reflected by the saving cost in ultimate production of final product through such captive consumption.

(iv) The Hon'ble Supreme Court in the case of Tata Iron & Steel Co.

Ltd. and others vs. State of Bihar in 48 ITR 123 which is considered as land mark case in respect of apportionment of profit particularly from the captive consumption of a product to produce another product held that -

"That even in cases where the profit resulting from an ultimate activity is brought to tax, there could be an apportionment if there were an exemption in respect of the profits resulting from distinct activities at earlier stages is illustrated by the provisions of the Indian Income-tax Act itself. Thus, in the case of, say, a sugar mill, which grows its own cane, in the absence of any exemption for the income derived from agriculture, i.e., from the production of the cane, the entire profit of the mills from the sale of the sugar would have to be included in the taxable profits under section 10 of the Income-tax Act. But section 4(3)(viii) exempts agricultural income as defined in section 2(1). The result, therefore, is that there is a disintegration or dichotomy of the 'incomes, profits or gains of the business and of agricultural income, so that there has to be an apportionment between the two in order to determine the taxable income of an assessee. It is on account of this situation that section 59(2) of the Income-tax Act provides for rules being made for prescribing the manner in which and the procedure by which incomes derived in part from agriculture and in part from business shall be arrived at. . . ," (p. 139)"