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I. The deduction Under Section 80IA is allowable on profit and gain derived from any business of an industrial undertaking In the instant case the assessee is generating the electricity through the power of plant unit Nos. 1. 2. 3 & 4 and the same is supplied to their paper division thus the assessee is not doing the business of power generation as it is not sold to any outside parties Thus, no revenue is brought to the unit.

II. Secondly, the power plant is only the a captive power plant installed in order to have continuous supply of power to the main plants in case of power cut. Thus, the captive power of plants are part & parcel of the main plants and therefore are the integral part of the main plant i.e. Paper plant. Assessee has not sold this power to any outside party and even to Karnataka State Electricity Board. In fact, there is no agreement with the Karnataka State Electricity Board for purchase of power by it from the Assessee. Nor any rate has been fixed. Therefore, the Assesee's adoption of rate of which K.S.E.B. supply power to industrial users is purely notional and has no semblance of reality. Further these rates are otherwise also unrealistic as K.S.E.B is not expected to purchase power from the assessee, if at all it does at any feature date, at the same rate at which it supplies power to the industrial users. The assessee has not shown that any power has been sold to KSEB in any future year also till date.

VII. The profit must be derived from business activity related to industrial undertaking as held by the Hon'ble Kerala High Court in the case of CIT v. A. M. Moosa 237 ITR 867.

In the light of the same, the Assessing Officer has reached the conclusion that it cannot be said that the assessee is engaged in the business of generation of power and, hence the assessee's claim for deduction Under Section 80IA in respect of the power unit Nos. I, II, III & IV was disallowed.

3. The learned CIT(A) before whom the dispute was taken, has discussed various claims and contentions of the assessee in this regard. It was argued before the CIT(A) that all the conditions laid down for deduction Under Section 80IA are satisfied. The DG units were a new industrial undertaking involved in the business of generation of power. There is no statutory requirement that the power so generated should be sold to outsider in order to be eligible for deduction. The power produced could be consumed by the assessee's existing units, which is borne out from the provisions of Sub-section (9) of Section 80IA which provides for a method of computation of profit in a case where any goods of an eligible industrial undertaking is transferred to any other business carried on by the assessee. The Sub-section provides that for the purpose of computing the profits of the eligible units the market value of the goods should be adopted. In this connection, reference was placed on the decision of the Supreme Court in the case of CIT v. Orient Paper Mills Ltd. 176 ITR 110 and also the decision of the Calcutta High Court in CIT v. Hindustan Motors Ltd. 127 ITR 210 and also the decision of the Supreme Court in the case of Textile Machinery Corporation Ltd. 107 ITR 195. The learned CIT(A) went on to discuss the technical details of the Unit Nos. I, II, III & IV He considered the investment involved in the installation of these Units and also took opinion of technical people and also considered the units of power generated in each of these undertakings. The CIT(A) came to the view that each of the Units is an industrial undertaking engaged in the generation of power with the aid of power and, according to him, whether a capital unit is entitled for such relief was settled by the apex court in CIT v. Orient Paper Mills Ltd. (supra) and also by the Calcutta High Court in the case of Universal Electric Ltd. 196 ITR 860. wherein an identical issue was involved. He also relied upon the CBDT Circular No. 1116 He also considered the fact that in the assessee's own case for assessment year 1998-99 his predecessor has decided the issue in favour of the assessee. Therefore, in principle, he held that the assessee is eligible for deduction Under Section 80-IA of the Act in respect of the profit derived from the business of generation and distribution of power. Then he addressed to the issue regarding the computation of profits derived from such business of generation and distribution of power. The assessee has worked out the transfer price on the basis of estimated Karnataka State Electric Board (KSEB) rate which would be applicable for the capacity of the captive power unit In the calculation, therefore, price of power produced by the different units were different depending on the capacity of the unit. The Assessing Officer was of the view that the rate adopted by the assessee was purely notional. The learned CIT(A) asked the assessee to submit an alternative claim based on the average actual per unit cost of power purchased from KSEB by the paper division. According to the calculation, the average price for the unit of power consumed worked out to Rs. 4.74 per unit. In the profit and loss account drawn up for the power unit, sale of power to the paper division had been credited to the profit and loss account. The rate charged per unit of power had been calculated as per bills raised by KSEB. The assessee was asked to produce copies of the electricity bills received for one month on a sample basis. On examination of the bills it was found that there were certain items in these bills which are extraneous to the actual price of power such as levies and taxes, electricity duty was levied at the rate 20% on the number of units consumed and the assessee was not required to pay since the power generated is consumed in its own plant and not sold to outsider. According to him, the electricity duty collected from consumers and paid to the Government should, therefore, be reduced from the bill amount for the purpose of calculation of transfer price. The learned CIT(A) found it difficult to quantify the exact price on the basis of a small sample of electricity bill. The Assessing Officer was, therefore, directed 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 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 and the same should be adopted as the transfer price of the power generated by the assessee's power D G Units Another important issue which the learned CIT(A) has addressed himself was with regard to the computation of the profits of the industrial undertaking According to him. an industrial undertaking has to be regarded as an independent business. Therefore, the profit and loss account of the unit has to include all indirect cost s such as management remuneration, administrative overheads, etc. in proportion to the turnover or business of the Unit It was admitted by the assessee that while interest costs and other direct expenses have been debited, certain administrative overheads have not been so included. According to the profit and loss account of the assessee, the following expenses have to be proportionately debited to the profit and loss account of the power units:

5. The learned Departmental Representative addresses on the revenue's grievances at great length and took pain to take us through the findings of the Assessing Officer. The learned Departmental Representative promptly put us through pages 179 to 200 of the assessee's paper-book, which contain photographs of the power generating units of the assessee. The learned Departmental Representative submitted that one of the important conditions Under Section 80IA is that such unit should not be formed by transfer to a new business of machinery or plant previously used for any purpose. Drawing our attention to these photographs, the learned Departmental Representative contended that there is lot of interlinking, interconnection and interlacing of these on several facilities required for the running of these units and, therefore, the assessee's claim for deduction Under Section 80IA of the Act needs to be examined in the light of the strict provisions of the law giving the relief. He argued that the provisions of section giving the relief should be strictly construed and should be extended only if all the conditions laid down in the section are satisfied. He has relied upon several authorities including the Bombay High Court decision in CIT v. Anil Hardboards Ltd. 207 ITR 802 and the Supreme Court decision in the case of Textile Machinery Corporation Ltd. v. CIT 107 ITR 195. Next the learned Departmental Representative pointed out that the Unit Nos. II, III & IV are not owned by the assessee but they are taken on lease and, therefore, according to him, the assessee is not entitled for any relief Under Section 80IA of the Act. For this proposiion, he relied on the Bombay High Court decision in CIT v. Harit Synthetic Fabrics Pvt. Ltd. 162 ITR 640. The learned Departmental Representative further stressed that the assessee is not entitled to deduction on the leased units which are given on contract basis to Powerica Ltd. and Wartsilla Ltd. for the production of electricity without appreciating the fact that the assessee has not used its own workers in respect of these units. In other words, unit Nos. III & IV, apart from being taken on lease, have not been operated by the assessee but they are operated by outsiders. The learned Departmental Representative disputed the findings of the learned CIT(A). The learned Departmental Representative further pointed out that the CIT(A) erred in directing the allowance of deduction Under Section 80IA on the basis of average consumption of electricity from KSEB without appreciating the fact that the assessee itself has sold electricity to TNSEB at the rate of Rs. 2.62 per unit. According to him. without prejudice to the main contention, deduction Under Section 80IA of the Act is directed to be allowed at a higher Transfer Price The learned Counsel for the assessee pointed out that unit No. I was owned and operated by the assessee in A.Y. 1996-97 and in that year no claim Under Section 80I of the Act was made because of the loss. In A.Y. 1997-98, unit No II was installed. The said unit was taken on lease, but operated by the assessee. In A.Y 1997-98 the assessee acquired unit No. II by taking the same on lease and operated both unit Nos. I & II and the assessee's claim for A.Y. 1997-98 for deduction Under Section 80IA has already been accepted by the Tribunal in ITA No. 382/Mum/2001 vide its order dated 21s1 June 2005. A copy of the Tribunal order is placed at pages 192 to 195 of the paper-book. In the said order the Tribunal has held that the assessee is entitled for deduction Under Section 80IA on the income imputable from the generation of power, although the said power generated from the two DG units was for captive consumption. The Tribunal was of the view that there is no fetter against the assessee using the power for self consumption The Tribunal accepted the contention of the assessee by following the decision of the Supreme Court in Textile Machinery Corporation v. CIT (107 ITR 195) and also the decision of the Bombay High Court in CIT v. Sahni Steel & Press Works Ltd. (177 ITR 344). The Tribunal also addressed itself on the issue of the price aITRibutable to the power generated and received by the assessee. The Tribunal found the answer to such question in Section 80IA(8) of the I.T. Act, 1961. For this, the Tribunal took support from the principle laid down by the Supreme Court in the case of Thiru Arooran Sugar Ltd. v. CIT (227 ITR 437). Again, the same issue came up for consideration in A.Y. 1998-99 in ITA No. 3553/Mum/2002, wherein the Tribunal directed the Assessing Officer to grant deduction Under Section 80IA of the Act on the profits imputable to the two DG units. The learned Counsel pointed out that in the present appeals we are concerned with A.Y. 1999-2000 wherein the assessee has taken on lease two more units viz. unit Nos. III and IV and operated all the four units and claimed deduction Under Section 80IA of the Act in respect of all of them as eligible undertakings. In respect of eligibility of unit Nos I & II the learned Counsel pointed out that the issue is squarely covered in assessee's favour by the orders of the Tribunal for A. Ys. 1996-97, 1997-98 and 1998-99 and the only change in the year under consideration is that the assessee has taken on lease two more units and the operation of these units was outsourced. In other words, the assessee engaged the services of Powerica Ltd. and Wertsilla Ltd. for operation of the units on certain commercial consideration. As regards the eligibility on the leased units, the Tribunal orders in the earlier years have already extended the relief to such units so. the learned Counsel for the assessee pointed out, in a way the main grievance of the revenue in its appeal has already been decided in favour of the assessee by the earlier orders of the Tribunal cited supra. The learned Counsel for the assessee drew our attention to the several DG sets installed by the assessee to meet its increasing power demand for the paper unit, which shows that each of the unit is clearly identifiable As already found by the learned CIT(A) they are separately outsourced and there is no dispute as regards the identity of each of these separate units. They are different in the matter of capacity and in the matter of fuel consumption required for generation of power. There is no interlacing or interlinking of these units. Just because a common water pump or water storage is used to draw the water required for the units it does not loose the identity of the unit. Each of the unit stands on its own and produces the power required for captive consumption. There is no splitting up of the business already in existence. Atleast, this was not the line on which the Assessing Officer has examined the issue while he denied the deduction Under Section 80I of the Act to the assessee. The only ground was that captive consumption of power does not result in the realization of revenue. The learned Counsel further pointed out that the assessee is in the business of generation of power It has established the windmills in Tamil Nadu as a part of its business venture, so also the captive power units to meet its own requirement of power in its main manufacturing plant. In this connection, reliance was placed on the decision in CIT v. Neo Pharma Pvt Ltd. 137 ITR 879 Bom; Commissioner of Customs v. Indian Oil Corporation Ltd. and Anr. 267 ITR 272 and Collector of Central Excise v. Dhiren Chemical Industries 254 ITR 554. Drawing support from these decisions the learned Counsel for the assessee pleaded for upholding the order of the CIT(A) in so far as it relates to the ssessee's claim for deduction Under Section 80IA of the Act in respect of the unit Nos. I. II. III and IV, which is in conformity with the decision taken by the tribunal in the earlier years in respect of the same units under identical circumstances. The learned Counsel pointed out that the assessee has employed ten or more employees in the production process of generation of power Having regard to the complicated nature of each of the unit, it was pointed out, it cannot be operated by workers or employees lesser than the limit stipulated under the statute.

7. 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 80IA of the Act. The assessee adopted the rate at which KSEB supplied power to industrial user which the Assessing Officer considered to be purely a notional rate and has no semblance or 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 KSEB in any future year The CIT(A) asked the assessee to submit an alternative calculation based on the average actual per unit cost of power purchased from 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 was asked to furnish copies of electricity bills received for one month on a sample basis. On examination of the bills, the CIT(A) 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 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 CIT(A) found that in the profit and loss account of the industrial undertaking there is no mention abut 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 80IA should be not be on the average rate of actual consumption of the electricity from KSEB when the assessee itself has sold electricity to TNSEB at the rate of Rs. 2.62 per unit. The assessee s grievance is that the CIT(A) was not justified in 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 are different. Apart from that, the assessee has paid to KSEB for purchase of the power and the CIT(A) 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 KSEB minus certain extraneous charges such as electricity duty, etc., which is not connected with the business of the assessee. Therefore, the CIT(A) has correctly and reasonably directed the allocation of the indirect expenses for t e purpose of arriving at the income of the eligible unit and we decline to disturb such direction of the CIT(A). Accordingly, the grounds raised both by the assessee and the revenue should be taken to have been rejected.