N. R. Agarwal Industries Limited Vs NFAC (ITAT Mumbai)
Mumbai ITAT: Low-Pressure Steam Is Not a Nil-Cost By-Product – ₹32.20 Crore Section 80-IA Deduction Allowed to Captive Cogeneration Power Plant
The Mumbai ITAT allowed the assessee’s claim of ₹32.19 crore deduction under Section 80-IA(4) in respect of its 15 MW captive cogeneration power plant. The dispute centred on whether part of the common operating cost could be attributed to low-pressure (LP) steam supplied to the paper-manufacturing division, or whether LP steam should be regarded as a by-product generated at nil cost.
The assessee’s cogeneration unit simultaneously produced electricity and useful steam. Out of total operating cost of ₹71.90 crore, it attributed ₹37.98 crore to LP steam supplied to the paper division and the balance to electricity generation. On this basis, it claimed deduction of ₹32.19 crore under Section 80-IA. The AO, however, charged the entire ₹71.90 crore cost against electricity revenue of ₹69.41 crore, arrived at a loss of ₹2.49 crore and consequently denied the deduction.
The Tribunal explained that high-pressure and low-pressure steam are not two independently manufactured products but the same steam at different pressure and energy stages of one continuous cogeneration process. Importantly, LP steam extracted for use by the paper division retains commercially useful thermal energy; its extraction also sacrifices electricity that could otherwise have been generated.
