Steam / Cooling Power generation activities are eligible for deduction u/s 80 IA

Full Text of the ITAT Order is as follows:-

These cross appeals are arising out of the common order of Commissioner of Income Tax-38, Mumbai, [‘CIT(A)] in appeal No. C T(A)- 38/IT-84,85 & 86,119/2009-10 & 2010-11 vide order dated 31-12-2013. The assessments were farmed by Deputy Commissioner of Income Tax, CC-40, Mumbai, (‘DCIT) for the AYs 2005-06, 2006-07,2007-08 & 2008- 09 vide orders dated 20-03-2015 ,27-11-2008,29-10-2010 under section 143(3) of the Income Tax Act1961(hereinafter the Act’).

2. The first common issue in these appeals of assessee and revenue is that whether the CIT(A) erred in restricting the deduction u/s 80IA of the Act for generation of steam power and generation of cooling power and the revenue also raised the identical issue that the CIT(A) erred in deleting the dis allowance of deduction u/s 80IA of the Act without considering the facts, that generation of steam is not a form of power eligible for deduction, no separate undertaking was set up for production of Instant Dry Yeast, and it is manufactured in an undertaking which already existed prior to 1st October, 1994, which amounts to that the undertaking is established by splitting of the old existing business for the purposes of section 80IA of the Act. For this, the assessee raised the following grounds: –

“1. The CIT(A) erred in restricting the deduction u/s 80IA for generation of steam power.

2. The CIT(A) erred in restricting the deduction u/s 80IA for generation of cooling power.”

The revenue raised the following grounds: –

“1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the dis allowance made u/s 80IA, without appreciating the fact that generation of steam is not a form of power eligible for deduction u/s 80IA of the I. T. Act.

2. On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the dis allowance made u/s 80IB of the Act, without appreciating the fact that not separate undertaking was set up for production of Instant Dry Yeast, which is in violation of the provision of section 80IB of the Act.

3. On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the dis allowance made u/s 80IB of the Act, without appreciating the fact that, even if it is taken that Instant Dry Yeast is a totally new product from the beginning, it is manufactured in an undertaking which already existed prior to 1st October, 1994, which amounts to that the undertaking is established by splitting of the old existing business, within the meaning of provisions of section 80IB of the Act.”

3. Brief background and facts are that the assessee manufactures Baker’s Yeast at its factories situated at Sandila and Chiplun. The main raw material is sugar cane molasses and other raw materials are urea, phosphoric acid, caustic soda, soda ash, vitamins, anti foaming agent, emulsifier, magnesium sulphate, water etc. Bakers Yeast manufactured by the assessee is sold in three forms (a) Fresh Yeast, (b) Active Dry Yeast and (c) Instant Dry Yeast. Fresh yeast is highly perishable and needs to be stored under continuous refrigeration. Fresh yeast is transported in refrigerated trucks. Instant Dry yeast can be stored at room temperature and is mainly used by bakers in areas that are not easily accessible by road and where refrigerated storage facilities are not available. Temperature is very important for production and survival of the yeast. During the process of production the assessee requires both heat and cooling power. For this purpose, the assessee also generates Steam Power from Bio gas Boilers and Cooling Power from Cooling Towers set up at its power generation undertakings at Sandila and Chiplun. Assessee claimed commencement of production of Steam Power, Cooling Power from Cooling Tower and Cooling power from Ammonia Absorption Refrigeration plant at Sandila as on 31.01.2000, 22.03.1997 and 28.02.2002 respectively. Similarly, commencement of production was claimed of Steam Power and Cooling Power from Cooling Towers as on 01.03.2001 and 02.08.2002 respectively.

4. The assessee claimed the deduction u/s 80IA of the Act cooling power and steam power for Sandila for the first year in AY 2003-04. The AO disallowed the deduction vide assessment order u/s 143(3) r.w.s. 147 of the Act dated 30.01 .2006. The assessee filed appeal before CIT(A), who allowed deduction for both power generation undertakings at Sandila and Chiplun but he restricted the quantum as under: –

a) For generation of cooling power he restricted the claim of of rate of conversion of 1 Tonne of refrigeration equal to 3.52KW of electric power to 02 KW of electric power.

b) For generation of steam power he directed an ad-hoc reduction of 25% of the notion receipts from the sale of steam power.

Aggrieved, assessee as well as department filed appeal before Tribunal and Tribunal decided the issue on jurisdiction and quashed the reassessment. It means the merits were not tested.

5. Similarly for AY 2004-05, the AO framed the assessment u/s 143(3) of the Act vide order dated 27.12.2006, despite the fact that search and seizure action u/s 132 of the Act was conducted on the assessee on 30.11.2006. AO u/s 143(3) of the Act passed assessment order and inter alia disallowed deduction u/s 80IA of the Act. The assessee preferred appeal before CIT(A), who reduced the quantum of deduction. Aggrieved, assessee preferred appeal before Tribunal. The Tribunal vide order dated 03.10.2012 held that the assessment for AY 2004-05 had abated on the date of search by virtue of second proviso to section153 A of the Act and assessment completed u/s 143(3) of the Act during the pendency of assessment u/s 153A of the Act is nullity and without jurisdiction. Accordingly, even for AY 2004-05 was not tested on merits.

6. Now, the assessments for AYs 2005-06 and 2006-07 were framed u/s 143(3) r.w.s.153A of the Act and for AYs 2007-08 and 2008-09 were framed u/s 143(3) of the Act. The AO inter alia disallowed the claim of deduction u/s 80IA of the Act of power generation undertakings by following the assessment order of AY 2003-04. Aggrieved, assessee preferred appeal before CIT(A), who restricted the claim of deduction u/s 80IA of the Act as under: –