By TIOL News Service

KOLKATA, JUNE 09, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether the compensation on account of power generation loss, is eligible for claiming deduction u/s. 80-IA of the Act. YES is the answer.

Facts of the case:

The assessee in the present case is a limited company and engaged in manufacturing and trading in iron and steel products, share trading and wind power generation. The assessee in the year under consideration claimed deduction u/s. 80-IA of the Act for Rs. 1,23,29,042/-. The AO during the course of assessment proceedings observed that the aforesaid deduction u/s. 80-IA of the Act was claimed by assessee after considering the receipt of Rs. 87 lacs on account of compensation awarded by M/s Suzlon Energy Ltd. (SEL for short) due to nongeneration of guaranteed electricity units. The aforesaid compensation was pertaining to the period beginning from June 2006 to May 2008. On question by the AO about the non-consideration of aforesaid compensation for the deduction u/s. 80-IA of the Act, the assessee relied on the judgment of Delhi High Court in the case of Magnum Power Generation Ltd. Vs. DCIT. However, the AO held that the case law cited by assessee is distinguishable from the instant case and impugned compensation was not eligible for deduction u/s. 80-IA of the Act. On Appeal the CIT(A) rejected the contentions of assessee.

On appeal, the ITAT held that,

++ the issue before this tribunal is whether the compensation received by the assessee is business income and therefore eligible for the deduction u/s 80IA of the Act. It is undisputed fact that the compensation was received by the assessee from SEL as the machines failed to generate the guaranteed electricity units. It is also admitted fact that the assessee is into the business of wind power generation business. Thus it can be inferred that the impugned compensation has direct nexus with the business operations of the assessee and accordingly eligible for deduction under section 80IA of the Act. We also find that in the identical facts & circumstances the Hon'ble ITAT decided the issue in favor of assessee by allowing the compensation on account of power generation loss is entitled for deduction u/s. 80-IA of the Act in the case of Lahoti Overseas Ltd. Vs Dy. Commissioner of Income Tax. The principles laid down by the ITAT are binding on us. Moreover, the DR has alleged that the impugned compensation is in the nature of incentive which in our considered view is not true. It is because of the fact that it was given due to non-generation of units as guaranteed by the SEL. Thus by no stretch of imagination the compensation can be equated with the incentive.

(See 2017-TIOL-815-ITAT-KOL)